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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (THE "EXCHANGE ACT")
for the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 of incorporation) (I.R.S. Employer Identification No.)
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (704) 374-6565
Securities registered pursuant to Section 12(b) of the Exchange Act:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $3.33 1/3 par value (including rights New York Stock Exchange, Inc. (the "NYSE")
attached thereto)
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Securities registered pursuant to Section 12(g) of the Exchange Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
--- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
subsequent to the distribution of securities under a plan confirmed by a court.
Yes___ No___
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of January 31, 1997, there were 286,196,482 shares of the registrant's
Common Stock outstanding, $3.33 1/3 par value per share, and based on the last
reported sale price of $83.625 per share on the NYSE on such date, the aggregate
market value of the registrant's Common Stock held by those persons deemed by
the registrant to be nonaffiliates was approximately $24 billion.
DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
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INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K
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1. Certain portions of the Corporation's Summary Annual Part I -- Item 1.
Report to Stockholders for the year ended December 31,
1996 ("Summary Report").
2. Certain portions of the Corporation's 1996 Annual Part I -- Items 1 and 2; Part II -- Items 5, 6, 7
Report ("Annual Report"). and 8.
3. Certain portions of the Corporation's Proxy Statement Part III -- Items 10, 11, 12 and 13.
for Annual Meeting of Stockholders to be held on April
15, 1997 ("Proxy Statement").
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PART I
FIRST UNION CORPORATION (THE "CORPORATION") MAY FROM TIME TO TIME MAKE
WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN
THE CORPORATION'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING
THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS REPORTS TO
STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE CORPORATION, WHICH ARE
MADE IN GOOD FAITH BY THE CORPORATION PURSUANT TO THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE CORPORATION'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE CORPORATION'S CONTROL). THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE THE CORPORATION'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY
FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN
SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN
GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE CORPORATION
CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL
POLICIES AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM; INFLATION, INTEREST RATE, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
SERVICES OF THE CORPORATION AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS
AND SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE CORPORATION'S PRODUCTS AND SERVICES;
THE SUCCESS OF THE CORPORATION IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS
AND SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS
AND REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE CORPORATION AT MANAGING THE RISKS
INVOLVED IN THE FOREGOING.
THE CORPORATION CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS
NOT EXCLUSIVE. THE CORPORATION DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING
STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
BEHALF OF THE CORPORATION.
ITEM 1. BUSINESS.
GENERAL
The Corporation was incorporated under the laws of North Carolina in 1967
and is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHCA"). Pursuant to a corporate reorganization in
1968, First Union National Bank of North Carolina ("FUNB-NC") and First Union
Mortgage Corporation, a mortgage banking firm acquired by FUNB-NC in 1964,
became subsidiaries of the Corporation.
The Corporation currently operates deposit-taking banking subsidiaries in
Connecticut, Delaware, Florida, Georgia, Maryland, New Jersey, New York, North
Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C.
In addition to providing a wide range of commercial and retail banking and trust
services through such banking subsidiaries, the Corporation also provides
various other financial services, including mortgage banking, investment
banking, home equity lending, leasing, insurance and securities brokerage
services, through other subsidiaries.
The Corporation's principal executive offices are located at One First
Union Center, Charlotte, North Carolina 28288-0013 (telephone number (704)
374-6565).
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, the Corporation has concentrated its efforts on building a large
banking organization in the eastern region of the United States. Since November
1985, the Corporation has completed 71 banking-related acquisitions, including
the more significant acquisitions (I.E., involving the acquisition of $3.0
billion or more of assets or deposits) set forth in the following table.
1
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CONSIDERATION/
ASSETS/ ACCOUNTING
NAME (1) HEADQUARTERS DEPOSITS (2)(3) TREATMENT COMPLETION DATE
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Atlantic Bancorporation.......................... Florida $3.8 billion common stock/ November 1985
pooling
Northwestern Financial Corporation............... North Carolina 3.0 billion common stock/ December 1985
pooling
First Railroad & Banking Company of Georgia...... Georgia 3.7 billion common stock/ November 1986
pooling
Florida National Banks of Florida, Inc........... Florida 7.9 billion cash/preferred January 1990
stock/purchase
Southeast Banking Corporation subsidiary banks
("Southeast").................................. Florida 9.9 billion cash/notes/ September 1991
preferred stock/
purchase
Resolution Trust Corporation ("RTC")
acquisitions................................... Florida, 5.3 billion cash/purchase 1991-1994
Georgia,
Virginia
Dominion Bankshares Corporation.................. Virginia 8.9 billion common stock/ March 1993
preferred stock/
pooling
Georgia Federal Bank, FSB........................ Georgia 4.0 billion cash/purchase June 1993
First American Metro Corp........................ Virginia 4.6 billion cash/purchase June 1993
American Savings of Florida, F.S.B............... Florida 3.6 billion common stock/ July 1995
purchase
First Fidelity Bancorporation ("FFB")............ New Jersey 35.3 billion common stock/ January 1996
preferred stock/
pooling
Center Financial Corporation..................... Connecticut $4.0 billion common stock/ November 1996
purchase
</TABLE>
(1) Additional information relating to certain of the foregoing and other
acquisitions is set forth in the Annual Report in Note 2 on page C-12 and
incorporated herein by reference.
(2) The dollar amounts indicated represent assets of the related organization as
of the last reporting period prior to acquisition, except (i) the dollar
amount relating to the RTC acquisitions, which represents deposits acquired
from the RTC, and (ii) the dollar amount relating to Southeast, which
represents the assets of the two banking subsidiaries of Southeast Banking
Corporation acquired from the Federal Deposit Insurance Corporation (the
"FDIC").
(3) In addition, the Corporation acquired (i) Lieber & Company, a mutual fund
advisory company with $3.4 billion in assets under management, in June 1994,
and (ii) Keystone Investments, Inc., a mutual fund advisory company with
$11.6 billion in assets under management, in December 1996. The
consideration paid by the Corporation was common stock. The Lieber & Company
acquisition was accounted for as a pooling of interests and the Keystone
Investments, Inc. acquisition was accounted for as a purchase.
The Corporation is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. Acquisitions typically involve the payment
of a premium over book and market values, and therefore some dilution of the
Corporation's book value and net income per common share may occur in connection
with future transactions.
Additional information relating to the business of the Corporation and its
subsidiaries is set forth on pages 11 through 18 in the Summary Report and
incorporated herein by reference. Information relating to the Corporation only
is set forth in Note 16 on pages C-31 through C-34 in the Annual Report and
incorporated herein by reference.
2
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COMPETITION
The Corporation's subsidiaries face substantial competition in their
operations from banking and nonbanking institutions, including savings and loan
associations, credit unions, money market funds and other investment vehicles,
mutual fund advisory companies, brokerage firms, insurance companies, leasing
companies, credit card issuers, mortgage banking companies, investment banking
companies, finance companies and other types of financial services providers.
SUPERVISION AND REGULATION
THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE
REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES
AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO THE CORPORATION. THE
REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION OF DEPOSITORS AND
THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR THE PROTECTION OF SECURITY
HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND
REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE STATUTES,
REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF
THE CORPORATION.
GENERAL
As a bank holding company, the Corporation is subject to regulation under
the BHCA and its examination and reporting requirements. Under the BHCA, bank
holding companies may not directly or indirectly acquire the ownership or
control of more than five percent of the voting shares or substantially all of
the assets of any company, including a bank, without the prior approval, or a
waiver of the requirement for such approval, by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). In addition, bank holding
companies are generally prohibited under the BHCA from engaging in nonbanking
activities, subject to certain exceptions.
The earnings of the Corporation's subsidiaries, and therefore the earnings
of the Corporation, are affected by general economic conditions, management
policies and the legislative and governmental actions of various regulatory
authorities, including the Federal Reserve Board, the Comptroller of the
Currency (the "Comptroller") and the FDIC. In addition, there are numerous
governmental requirements and regulations which affect the activities of the
Corporation and its subsidiaries.
PAYMENT OF DIVIDENDS
The Corporation is a legal entity separate and distinct from its banking
and other subsidiaries. A major portion of the revenues of the Corporation
result from amounts paid as dividends to the Corporation by its banking
subsidiaries. The Corporation's banking subsidiaries are subject to legal
limitations on the amount of dividends they can pay. The prior approval of the
Comptroller is required if the total of all dividends declared by a national
bank in any calendar year will exceed the sum of such bank's net profits for
that year and its retained net profits for the preceding two calendar years,
less any required transfers to surplus. Federal law also prohibits national
banks from paying dividends which would be greater than the bank's undivided
profits after deducting statutory bad debt in excess of the bank's allowance for
loan losses. Similar restrictions on dividends are in effect for the
Corporation's subsidiary banks that are not national banks.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of the Corporation's nonbanking subsidiaries, as of
December 31, 1996, the Corporation's subsidiaries, without obtaining affirmative
governmental approvals, could pay aggregate dividends of $533 million to the
Corporation during 1997. In 1996, the Corporation's subsidiaries paid $2.3
billion in cash dividends to the Corporation.
In addition, both the Corporation and its banking subsidiaries are subject
to various general regulatory policies and requirements relating to the payment
of dividends, including requirements to maintain adequate capital above
regulatory minimums. The appropriate federal regulatory authority is authorized
to determine under certain circumstances relating to the financial condition of
a bank or bank holding company that the payment of dividends would be an unsafe
or unsound practice and to prohibit payment thereof. The appropriate federal
regulatory authorities have indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsound and unsafe
banking practice and that banking organizations should generally pay dividends
only out of current operating earnings.
3
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BORROWINGS BY THE CORPORATION
There are also various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit
from its banking subsidiaries. In general, these restrictions require that any
such extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Corporation or such nonbank
subsidiaries, to ten percent of the lending bank's capital stock and surplus,
and as to the Corporation and all such nonbank subsidiaries in the aggregate, to
20 percent of such lending bank's capital stock and surplus.
CAPITAL
Under the risk-based capital requirements for bank holding companies, the
minimum requirement for the ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) is
eight percent. At least half of the total capital is to be composed of common
equity, retained earnings and qualifying perpetual preferred stock, less
goodwill ("tier 1 capital" and together with tier 2 capital "total capital").
The remainder may consist of subordinated debt, nonqualifying preferred stock
and a limited amount of the loan loss allowance ("tier 2 capital"). At December
31, 1996, the Corporation's tier 1 capital and total capital ratios were 7.33
percent and 12.33 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. The Corporation's leverage ratio at
December 31, 1996, was 6.13 percent. The requirements also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the requirements indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Corporation of any specific minimum tier 1
leverage ratio applicable to it.
Each of the Corporation's subsidiary banks is subject to similar capital
requirements adopted by the Comptroller or other applicable regulatory agency.
Neither the Comptroller nor such applicable regulatory agency has advised any of
the Corporation's subsidiary banks of any specific minimum leverage ratios
applicable to them. The capital ratios of the bank subsidiaries of the
Corporation are set forth on page T-18 in the Annual Report and incorporated
herein by reference.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital requirements.
SUPPORT OF SUBSIDIARY BANKS
The Federal Deposit Insurance Act, as amended ("FDIA"), among other things,
imposes liability on an institution the deposits of which are insured by the
FDIC, such as the Corporation's subsidiary banks, for certain potential
obligations to the FDIC incurred in connection with other FDIC-insured
institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the Comptroller is authorized to require3
payment of the deficiency by assessment upon the bank's stockholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
stockholder after three months notice, to sell the stock of such stockholder to
make good the deficiency. Under Federal Reserve Board policy, the Corporation is
expected to act as a source of financial strength to each of its subsidiary
banks and to commit resources to support each of such subsidiaries. This support
may be required at times when, absent such Federal Reserve Board policy, the
Corporation may not find itself able to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
4
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CORRECTIVE ACTION
FDIA requires the federal banking agencies to take "prompt corrective
action" in respect of depository institutions that do not meet minimum capital
requirements. FDIA establishes five capital tiers: "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized". A depository institution's capital tier will
depend upon where its capital levels compare to various relevant capital
measures and certain other factors, as established by regulation.
Federal regulatory authorities have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the total capital ratio, the tier 1 capital ratio and the leverage
ratio. Under the regulations, a bank will be: (i) "well capitalized" if it has a
total capital ratio of ten percent or greater, a tier 1 capital ratio of six
percent or greater and a leverage ratio of five percent or greater and is not
subject to any order or written directive by any such regulatory authority to
meet and maintain a specific capital level for any capital measure; (ii)
"adequately capitalized" if it has a total capital ratio of eight percent or
greater, a tier 1 capital ratio of four percent or greater and a leverage ratio
of four percent or greater (three percent in certain circumstances) and is not
"well capitalized"; (iii) "undercapitalized" if it has a total capital ratio of
less than eight percent, a tier 1 capital ratio of less than four percent or a
leverage ratio of less than four percent (three percent in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than six percent, a tier 1 capital ratio of less than three
percent or a leverage ratio of less than three percent; and (v) "critically
undercapitalized" if its tangible equity is equal to or less than two percent of
average quarterly tangible assets. As of December 31, 1996, all of the
Corporation's subsidiary banks had capital levels that qualify them as being
"well capitalized" under such regulations.
FDIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
"undercapitalized". "Undercapitalized" depository institutions are subject to
growth limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized", and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
DEPOSITOR PREFERENCE STATUTE
Under federal law, deposits and certain claims for administrative expenses
and employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of such an institution by any receiver.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
the IBBEA authorizes a bank to merge with a bank in another state as long as
neither of the states has opted out of interstate branching between the date of
enactment of the IBBEA and May 31, 1997. The IBBEA further provides that states
may enact laws permitting interstate bank merger transactions prior to June 1,
1997. A bank may establish and operate a DE NOVO branch in a state in which the
bank does not maintain a branch if that state expressly permits DE NOVO
branching. Once a bank has established branches in a state through an interstate
merger transaction, the bank may establish and acquire additional branches at
any location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable federal
or state law. A bank that has established a branch in a state through DE NOVO
branching may establish and acquire additional branches in such state in the
same manner and to the same extent as a bank having a branch in such state as a
result of an interstate merger. If a state opts out of interstate
5
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branching within the specified time period, no bank in any other state may
establish a branch in the opting out state, whether through an acquisition or DE
NOVO.
FDIC INSURANCE ASSESSMENTS
The FDIC reduced the insurance premiums it charges on bank deposits insured
by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00 for
"well capitalized" banks, effective January 1, 1996. Premiums related to
deposits assessed by the Savings Association Insurance Fund ("SAIF"), including
savings association deposits acquired by banks, continued to be assessed at the
rate of between 23 cents and 31 cents per $100.00 of deposits. On September 30,
1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed
into law. DIFA reduced the amount of semi-annual FDIC insurance premiums for
savings association deposits acquired by banks to the same levels assessed for
deposits insured by BIF. The Corporation currently estimates such reductions in
premiums may amount to approximately $35 million pre-tax per year.
DIFA also provides for a special one-time assessment imposed on deposits
insured by the SAIF, including such deposits held by banks, to recapitalize the
SAIF to bring the SAIF up to statutory required levels. The Corporation accrued
for the one-time assessment in the third quarter of 1996 in the amount of $86
million after tax in connection with the SAIF recapitalization.
DIFA further provides for assessments to be imposed on insured depository
institutions with respect to deposits insured by the BIF (in addition to
assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of Financing Corporation funding. The
Corporation currently estimates assessments may amount to up to $14 million
after-tax in 1997 with similar assessments per year through 1999 (or earlier if
no savings associations exist prior to December 31, 1999) in connection with
such funding.
ADDITIONAL INFORMATION
Additional information related to certain regulatory and accounting matters
is set forth on pages 14 and 15 in the Annual Report and incorporated herein by
reference.
ITEM 2. PROPERTIES.
As of December 31, 1996, the Corporation and its subsidiaries owned or
leased 2,397 locations in 38 states, Washington, D.C., and six foreign countries
from which their business is conducted, including a multi-story office complex
in Charlotte, North Carolina, which serves as the administrative headquarters of
the Corporation. Listed below are the number of banking and nonbanking locations
that are leased or owned, as of December 31, 1996.
<TABLE>
<CAPTION>
LEASED OWNED
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First Union National Bank of Florida............................................... 225 335
First Union National Bank of North Carolina........................................ 117 183
First Union National Bank of Georgia............................................... 188 91
First Union National Bank of South Carolina........................................ 10 56
First Union National Bank of Tennessee............................................. 15 46
First Union National Bank of Virginia.............................................. 86 109
First Union National Bank of Maryland.............................................. 57 9
First Union National Bank of Washington, D.C....................................... 28 1
First Union Home Equity Bank, N.A.................................................. 127 --
First Union National Bank.......................................................... 217 331
First Union Bank of Delaware....................................................... 2 --
First Union Bank of Connecticut.................................................... 66 42
Nonbanking locations............................................................... 54 2
Total............................................................................ 1,192 1,205
</TABLE>
Additional information relating to the Corporation's lease commitments is
set forth in Note 17 on page C-35 in the Annual Report and incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which varying amounts are claimed. Although the amount of any
ultimate liability with respect to such matters cannot be determined, in the
opinion of management, based upon the opinions of counsel, any such liability
will not have a material effect on the consolidated financial position of the
Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is listed on the NYSE. Table 6 on page T-5 in the Annual
Report sets forth information relating to the quarterly prices of, and quarterly
dividends paid on, the Common Stock for the two-year period ended December 31,
1996, and incorporated herein by reference. Prices shown represent the high, low
and quarter-end sale prices of the Common Stock as reported on the NYSE
Composite Transactions tape for the periods indicated. As of December 31, 1996,
there were 103,538 holders of record of the Common Stock.
Subject to the prior rights of the holders of the Class A Preferred Stock,
holders of the Common Stock are entitled to receive such dividends as may be
legally declared by the Board of Directors of the Corporation (the "FUNC Board")
and, in the event of dissolution and liquidation, to receive the net assets of
the Corporation remaining after payment of all liabilities, in proportion to
their respective holdings. Additional information concerning certain limitations
on the payment of dividends by the Corporation and its subsidiaries is set forth
above under "Business -- Supervision and Regulation; Payment of Dividends" and
in Note 16 on page C-31 in the Annual Report and incorporated herein by
reference.
Each outstanding share of Common Stock currently has attached to it one
right (a "Right") issued pursuant to an Amended and Restated Shareholder
Protection Rights Agreement (the "Rights Agreement"). Each Right entitles its
registered holder to purchase one one-hundredth of a share of a junior
participating series of the Corporation's Class A Preferred Stock designed to
have economic and voting terms similar to those of one share of Common Stock,
for $210.00, subject to adjustment (the "Rights Exercise Price"), but only after
the earlier to occur (the "Separation Time") of: (i) the tenth business day
(subject to extension) after any person (an "Acquiring Person") (x) commences a
tender or exchange offer, which, if consummated, would result in such person
becoming the beneficial owner of 15 percent or more of the outstanding shares of
Common Stock, or (y) is determined by the Federal Reserve Board to "control" the
Corporation within the meaning of the BHCA, subject to certain exceptions; and
(ii) the tenth business day after the first date (the "Flip-in Date") of a
public announcement by the Corporation that a person has become an Acquiring
Person. The Rights will not trade separately from the shares of Common Stock
unless and until the Separation Time occurs.
The Rights Agreement provides that a person will not become an Acquiring
Person under the BHCA control test described above if either (i) the Federal
Reserve Board's control determination would not have been made but for such
person's failure to make certain customary passivity commitments, or such
person's violation of such commitments made, to the Federal Reserve Board, so
long as the Federal Reserve Board determines that such person no longer controls
the Corporation within 30 days (or 60 days in certain circumstances), or (ii)
the Federal Reserve Board's control determination was not based on such a
failure or violation and such person (x) obtains a noncontrol determination
within three years, and (y) is using its best efforts to allow the Corporation
to make any acquisition or engage in any legally permissible activity
notwithstanding such person's being deemed to control the Corporation for
purposes of the BHCA.
The Rights will not be exercisable until the business day following the
Separation Time. The Rights will expire on the earliest of: (i) the Exchange
Time (as defined below); (ii) the close of business on December 28, 2000; and
(iii) the date on which the Rights are redeemed or terminated as described below
(in any such case, the "Expiration Time"). The Rights Exercise Price and the
number of Rights outstanding, or in certain circumstances the securities
purchasable upon exercise of the Rights, are subject to adjustment upon the
occurrence of certain events.
In the event that prior to the Expiration Time a Flip-in Date occurs, the
Corporation will take such action as shall be necessary to ensure and provide
that each Right (other than Rights beneficially owned by an Acquiring Person or
any affiliate, associate or transferee thereof, which Rights shall become void)
shall constitute the right to purchase, from the Corporation, shares of Common
Stock having an aggregate market price equal to twice the Rights Exercise Price
for an amount in cash equal to the then current Rights Exercise Price. In
addition, the FUNC Board may, at its option, at any time after a Flip-in Date,
elect to exchange all of the then outstanding Rights for shares of Common Stock,
at an exchange ratio of two shares of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the Separation Time (the "Rights Exchange Rate"). Immediately
upon such action by the FUNC Board (the "Exchange Time"), the right to exercise
the Rights will terminate, and each Right will thereafter represent only the
right to receive a number of shares of Common Stock equal to the Rights Exchange
Rate. If the Corporation becomes obligated to issue shares of Common Stock upon
exercise of or in exchange for Rights, the Corporation, at its option, may
substitute therefor shares of junior participating Class A Preferred Stock upon
exercise of each Right at a rate of two one-hundredths of a share of junior
participating Class A Preferred Stock upon the exchange of each Right.
7
<PAGE>
The Rights may be canceled and terminated without any payment to holders
thereof at any time prior to the date they become exercisable and are redeemable
by the Corporation at $0.01 per right, subject to adjustment upon the occurrence
of certain events, at any date between to the date on which they become
exercisable and the Flip-in Date. The Rights have no voting rights and are not
entitled to dividends.
The Rights will not prevent a takeover of the Corporation. The Rights,
however, may cause substantial dilution to a person or group that acquires 15
percent or more of Common Stock (or that acquires "control" of the Corporation
within the meaning of the BHCA) unless the Rights are first redeemed or
terminated by the FUNC Board. Nevertheless, the Rights should not interfere with
a transaction that is in the best interests of the Corporation and its
stockholders because the Rights can be redeemed or terminated, as hereinabove
described, before the consummation of such transaction.
The complete terms of the Rights are set forth in the Rights Agreement. The
foregoing description of the Rights and the Rights Agreement is qualified in its
entirety by reference to such document. A copy of the Rights Agreement can be
obtained upon written request to the Rights Agent, First Union National Bank of
North Carolina, Two First Union Center, Charlotte, North Carolina 28288-1154.
Additional information relating to the Common Stock is set forth in Note 13
on page C-25 in the Annual Report and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
In response to this Item, the information set forth in Table 1 on page T-1
in the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In response to this Item, the information set forth on pages 1 through T-26
in the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
In response to this Item, the information set forth on page T-5 and on
pages C-1 through C-39 in the Annual Report is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
8
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Corporation are elected to their offices for
one year terms at the meeting of the FUNC Board in April of each year. The terms
of any executive officers elected after such date expire at the same time as the
terms of the executive officers elected on such date. The names of each of the
current executive officers of the Corporation, their ages, their current
positions with the Corporation and certain subsidiaries and, if different, their
business experience during the past five years, are as follows:
Edward E. Crutchfield (55). Chairman and Chief Executive Officer, the
Corporation.
John R. Georgius (52). Vice Chairman, the Corporation, since January 1,
1996. President, the Corporation, from June 1990 to January 1, 1996.
Chairman and Chief Executive Officer, FUNB-NC, from October 1988 to February
1993.
Anthony P. Terracciano (58). President, the Corporation, since January 1,
1996. Mr. Terracciano, who was formerly Chairman of the Board, President and
Chief Executive Officer of FFB, was elected to his present office by the
FUNC Board pursuant to the FFB acquisition agreement.
B. J. Walker (66). Vice Chairman, the Corporation.
Robert T. Atwood (56). Executive Vice President and Chief Financial Officer,
the Corporation, since March 1991.
Marion A. Cowell, Jr. (62). Executive Vice President, Secretary and General
Counsel, the Corporation.
In addition to the foregoing, the information set forth in the Proxy
Statement under the heading "General Information and Nominees", and in the
paragraph under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" under "Other Matters Relating to Executive Officers, Directors and
Principal Stockholders" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
In response to this Item the information set forth in the Proxy Statement
under the heading "Executive Compensation", excluding the information under the
subheadings "HR Committee Report on Executive Compensation" and "Performance
Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In response to this Item the information set forth in the Proxy Statement
relating to the ownership of Common Stock by the directors, executive officers
and principal stockholders of the Corporation under the headings "Voting
Securities and Principal Holders" and "General Information and Nominees" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In response to this Item the information set forth in the Proxy Statement
under the headings "General", "Santander" and "Certain Other Relationships"
under "Other Matters Relating to Executive Officers, Directors and Principal
Stockholders" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The consolidated financial statements of the Corporation, including the
notes thereto and independent auditors' report thereon, are set forth on pages
C-1 through C-39 of the Annual Report. All financial statement schedules are
omitted since the required information is either not applicable, is immaterial
or is included in the consolidated financial statements of the Corporation and
notes thereto. A list of the exhibits to this Form 10-K is set forth on the
Exhibit Index immediately preceding such exhibits and is incorporated herein by
reference.
(b) During the quarter ended December 31, 1996, a Current Report on Form
8-K, dated October 16, 1996, was filed by the Corporation with the Securities
and Exchange Commission pursuant to Item 5, relating to an amendment and
restatement of the Corporation's Shareholder Protection Rights Agreement.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST UNION CORPORATION
Date: March 12, 1997 By: MARION A. COWELL, JR.
MARION A. COWELL, JR.
EXECUTIVE VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
EDWARD E. CRUTCHFIELD* Chairman and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal
JAMES H. HATCH Accounting Officer)
EDWARD E. BARR* Director
EDWARD E. BARR
G. ALEX BERNHARDT* Director
G. ALEX BERNHARDT
W. WALDO BRADLEY* Director
W. WALDO BRADLEY
ROBERT J. BROWN* Director
ROBERT J. BROWN
ROBERT D. DAVIS* Director
ROBERT D. DAVIS
Director
R. STUART DICKSON
B. F. DOLAN* Director
B. F. DOLAN
RODDEY DOWD, SR.* Director
RODDEY DOWD, SR.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
JOHN R. GEORGIUS* Director
JOHN R. GEORGIUS
ARTHUR M. GOLDBERG* Director
ARTHUR M. GOLDBERG
WILLIAM H. GOODWIN, JR.* Director
WILLIAM H. GOODWIN, JR.
BRENTON S. HALSEY* Director
BRENTON S. HALSEY
HOWARD H. HAWORTH* Director
HOWARD H. HAWORTH
FRANK M. HENRY* Director
FRANK M. HENRY
LEONARD G. HERRING* Director
LEONARD G. HERRING
JUAN RODRIGUEZ INCIARTE* Director
JUAN RODRIGUEZ INCIARTE
JACK A. LAUGHERY* Director
JACK A. LAUGHERY
MAX LENNON* Director
MAX LENNON
Director
RADFORD D. LOVETT
JOSEPH NEUBAUER* Director
JOSEPH NEUBAUER
HENRY D. PERRY, JR.* Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS* Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW* Director
RUTH G. SHAW
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<C> <S>
CHARLES M. SHELTON, SR.* Director
CHARLES M. SHELTON, SR
LANTY L. SMITH* Director
LANTY L. SMITH
Director
ANTHONY P. TERRACCIANO
Director
DEWEY L. TROGDON
JOHN D. UIBLE* Director
JOHN D. UIBLE
B. J. WALKER* Director
B. J. WALKER
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
<CAPTION>
MARION A. COWELL, JR.
</TABLE>
Date: March 12, 1997
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
(2) FFB acquisition agreement. Incorporated by reference to Exhibit (99) to
the Corporation's Current Report on Form 8-K
dated June 21, 1995.
(3)(a) Articles of Incorporation of the Corporation, as amended. Incorporated by reference to Exhibit (4) to
the Corporation's 1990 First Quarter Report
on Form 10-Q, to Exhibit (99)(a) to the
Corporation's 1993 First Quarter Report on
Form 10-Q and Exhibit (4) to the
Corporation's Current Report on Form 8-K
dated January 10, 1996.
(3)(b) Bylaws of the Corporation, as amended. Incorporated by reference to Exhibit (3)(b)
to the Corporation's 1995 Annual Report on
Form 10-K.
(4)(a) Instruments defining the rights of the holders of the *
Corporation's long-term debt.
(4)(b) The Corporation's Amended and Restated Shareholder Protection Incorporated by reference to Exhibit (4) to
Rights Agreement. the Corporation's Current Report on Form 8-K
dated October 16, 1996.
(10)(a) The Corporation's Amended and Restated Management Incentive Plan. Incorporated by reference to Exhibit (10)(a)
to the Corporation's 1995 Annual Report on
Form 10-K.
(10)(b) The Corporation's Deferred Compensation Plan for Officers. Incorporated by reference to Exhibit (10)(b)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(c) The Corporation's Deferred Compensation Plan for Non-Employee Incorporated by reference to Exhibit (10)(c)
Directors. to the Corporation's 1989 Annual Report on
Form 10-K.
(10)(d) The Corporation's Supplemental Executive Long-Term Disability Incorporated by reference to Exhibit (10)(d)
Plan. to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(e) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit (10)(f)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(f) The Corporation's Retirement Plan for Non-Employee Directors. Incorporated by reference to Exhibit (10)(g)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(g) The Corporation's 1984 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(10)(h) The Corporation's 1988 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(i) The Corporation's 1992 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(j) Employment Agreement between the Corporation and Edward E. Incorporated by reference to Exhibit (10)(k)
Crutchfield, as amended. to the Corporation's 1994 Annual Report on
Form 10-K.
(10)(k) The Corporation's Management Long-Term Cash Incentive Plan. Incorporated by reference to Exhibit (10)(m)
to the Corporation's 1992 Annual Report on
Form 10-K.
(10)(l) Employment Agreement between the Corporation and Anthony P. Incorporated by reference to Exhibit (99)(c)
Terracciano. to the Corporation's Registration Statement
No. 33-62307.
(10)(m) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10) to
John R. Georgius. Amendment No. 1 to the Corporation's
Registration Statement No. 33-60835.
(10)(n) The Corporation's Elective Deferral Plan. Incorporated by reference to Exhibit (4) to
the Corporation's Registration Statement No.
33-60913.
(10)(o) The Corporation's 1996 Master Stock Compensation Plan. Incorporated by reference to Exhibit (10) to
the Corporation's 1996 First Quarter Report
on Form 10-Q.
(12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges. Filed herewith.
(12)(b) Computations of Consolidated Ratios of Earnings to Fixed Charges Filed herewith.
and Preferred Stock Dividends.
(13)(a) The Corporation's 1996 Summary Annual Report to Stockholders.** Filed herewith.
(13)(b) The Corporation's 1996 Annual Report.** Filed herewith.
(21) List of the Corporation's subsidiaries. Filed herewith.
(23) Consent of KPMG Peat Marwick LLP. Filed herewith.
(24) Power of Attorney. Filed herewith.
(27) The Corporation's Financial Data Schedule.***
(99) First Union Corporation of Virginia and Subsidiaries Summarized Filed herewith.
Financial Information.
</TABLE>
* The Corporation agrees to furnish to the Securities and Exchange Commission
upon request, copies of the instruments, including indentures, defining the
rights of the holders of the long-term debt of the Corporation and its
subsidiaries.
** Except for those portions of the Summary Annual Report and the Annual Report
which are expressly incorporated by reference in this Form 10-K, the
Summary Annual Report and the Annual Report are furnished for the
information of the Securities and Exchange Commission only and are
not to be deemed "filed" as part of such Form 10-K.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
EXHIBIT (12)(A)
FIRST UNION CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
(DOLLARS IN MILLIONS) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations $ 2,310 2,219 2,088 1,795 977
Fixed charges, excluding capitalized
interest 1,739 1,266 816 608 570
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings (A) $ 4,049 3,485 2,904 2,403 1,547
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest, excluding interest on deposits $ 1,672 1,198 747 538 502
One-third of rents 67 68 69 70 68
Capitalized interest 4 3 1 - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges (B) $ 1,743 1,269 817 608 570
- - ---------------------------------------------------------------------------------------------------------------------------------
Consolidated ratios of earnings to fixed
charges, excluding interest on deposits (A)/(B) 2.32X 2.75 3.55 3.95 2.71
- - ---------------------------------------------------------------------------------------------------------------------------------
INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations $ 2,310 2,219 2,088 1,795 977
Fixed charges, excluding capitalized
interest 4,699 4,120 2,862 2,552 3,010
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings (C) $ 7,009 6,339 4,950 4,347 3,987
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest, including interest on deposits $ 4,632 4,052 2,793 2,482 2,942
One-third of rents 67 68 69 70 68
Capitalized interest 4 3 1 - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges (D) $ 4,703 4,123 2,863 2,552 3,010
- - ---------------------------------------------------------------------------------------------------------------------------------
Consolidated ratios of earnings to fixed
charges, including interest on deposits (C)/(D) 1.49X 1.54 1.73 1.70 1.32
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT (12)(B)
FIRST UNION CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
(DOLLARS IN MILLIONS) 1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations $ 2,310 2,219 2,088 1,795 977
Fixed charges, excluding preferred stock
dividends and capitalized interest 1,744 1,281 861 629 592
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings (A) $ 4,054 3,500 2,949 2,424 1,569
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest, excluding interest on deposits $ 1,672 1,198 747 538 502
One-third of rents 67 68 69 70 68
Preferred stock dividends (a) 14 41 133 67 75
Capitalized interest 4 3 1 - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges (B) $ 1,757 1,310 950 675 645
- - ---------------------------------------------------------------------------------------------------------------------------------
Consolidated ratios of earnings to fixed
charges, excluding interest on deposits (A)/(B) 2.31X 2.67 3.10 3.59 2.43
- - ---------------------------------------------------------------------------------------------------------------------------------
INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations $ 2,310 2,219 2,088 1,795 977
Fixed charges, excluding preferred stock
dividends and capitalized interest 4,704 4,134 2,908 2,573 3,032
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings (C) $ 7,014 6,353 4,996 4,368 4,009
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest, including interest on deposits $ 4,632 4,052 2,793 2,482 2,942
One-third of rents 67 68 69 70 68
Preferred stock dividends (a) 14 41 133 67 75
Capitalized interest 4 3 1 - -
- - ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges (D) $ 4,717 4,164 2,996 2,619 3,085
- - ---------------------------------------------------------------------------------------------------------------------------------
Consolidated ratios of earnings to fixed
charges, including interest on deposits (C)/(D) 1.49X 1.53 1.67 1.67 1.30
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Preferred stock dividends include a redemption premium of $41 million in
1994.
1 9 9 6
First Union
Corporation
Summary
Annual Report
FIRST
UNION
http://www.firstunion.com/
<PAGE>
innovation and flexibility
Our goal in presenting this 1996 Summary Annual Report is to provide information
regarding First Union in a manner that is meaningful and useful to the widest
range of readers. More detailed information, including the audited financial
statements, is included in the First Union Corporation 1996 Annual Report on
Form 10-K, which is available free of charge if you write to: Investor
Relations, Two First Union Center, Charlotte, North Carolina 28288-0206.
Table of Contents
1 Financial Highlights
3 Letter from the
Chairman
11 Products and Services
19 Index to
Special Topics
21 Performance Highlights
30 Financial Tables
34 Consolidated Balance
Sheets
35 Consolidated
Statements of Income
36 Glossary of Terms
37 Corporate and Bank
Boards of Directors
41 Principal Subsidiaries
42 Stockholder
Information
First Union Corporation, with headquarters in Charlotte, North Carolina, is the
nation's sixth largest banking company, with $140 billion in assets, $10 billion
in total stockholders' equity and $21 billion in market capitalization. We have
the largest domestic deposit share in our 12 state-and-Washington, D.C.,
marketplace. We hold the No. 1, 2 or 3 deposit share position in 14 of the
largest metropolitan areas from Connecticut to Florida. We serve 8.3 million
households, which translates into 12 million customers who may access their
account information and purchase financial products at any of nearly 2,000
retail offices; 2,429 automated teller machines (the nation's sixth largest ATM
network); through the Internet at www.firstunion.com or through our Direct Bank
at 1-800-413-7898.
DIVIDEND GROWTH
Current Dividend Annualized
(In dollars)
(Chart appears here. Plot points are below.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.29 .31 .33 .36 .40 .45 .49 .58 .65 .77 .86 1.00 1.08 1.12 1.28 1.50 1.72 1.96 2.20 2.32
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Current
</TABLE>
BOOK VALUE PER SHARE
Originally reported (adjusted for stock splits), not restated for pooling of
interests acquisitions.
(In dollars)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.63 7.39 8.30 8.19 9.20 10.66 12.51 12.96 14.55 16.25 17.98 19.37 20.72 22.54 26.08 28.90 30.66 31.89 34.83
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Percent
Years Ended December 31, Increase
(Dollars in millions, except per share data) 1996 1995 (Decrease)
<S> <C> <C> <C>
Financial Highlights
Net income $ 1,499 1,430 5%
Dividends on preferred stock 9 26 (65)
Net income applicable to common stockholders after merger-
related restructuring charges and SAIF special assessment 1,490 1,404 6
After-tax restructuring charges and SAIF special assessment 267 73 266
Net income applicable to common stockholders before merger-
related restructuring charges and SAIF special assessment $ 1,757 1,477 19%
Per Common Share Data
Net income after merger-related restructuring charges
and SAIF special assessment $ 5.35 5.04 6%
Net income before merger-related restructuring charges
and SAIF special assessment 6.31 5.30 19
Cash dividends 2.20 1.96 12
Book value 34.83 31.89 9
Year-end price $ 74.000 55.625 33
Dividend payout ratio (based on operating earnings) 34.87% 34.05 --%
Performance Highlights
Before merger-related restructuring charges and SAIF
special assessment
Return on average assets 1.31% 1.27
Return on average common equity 18.85 17.55
Overhead efficiency ratio 57 60
Net charge-offs to
Average loans, net 0.63 0.41
Average loans, net, excluding Bankcard 0.30 0.22
Allowance for loan losses to
Loans, net 1.42 1.66
Nonaccrual and restructured loans 204 233
Nonperforming assets 179 182
Nonperforming assets to loans, net and foreclosed properties 0.80 0.91
Net interest margin 4.21% 4.46
Cash Earnings (Excluding Other Intangible Amortization)
Before merger-related restructuring charges and SAIF
special assessment
Net income applicable to common stockholders $ 1,955 1,666 17%
Net income per common share $ 7.01 5.98 17
Return on average assets 1.46% 1.43 --
Return on average common equity 20.34 19.58 --
Overhead efficiency ratio 54% 57 --%
Year-End Balance Sheet Items
Securities available for sale $ 14,182 18,194 (22)%
Investment securities 2,501 3,140 (20)
Loans, net of unearned income 95,858 90,563 6
Earning assets 123,815 118,010 5
Total assets 140,127 131,880 6
Noninterest-bearing deposits 18,632 17,043 9
Interest-bearing deposits 76,183 75,512 1
Long-term debt 7,660 7,121 8
Guaranteed preferred beneficial interests 495 -- --
Common stockholders' equity 10,008 8,860 13
Total stockholders' equity $ 10,008 9,043 11%
</TABLE>
<PAGE>
strategic
direction
(Picture of a man looking through a telescope.)
First Union is creating a new kind of financial services company with customer-
driven products and services designed to combine the best aspects of a
traditional bank and an investment bank/asset management company. First Union
operates the nation's second largest branch delivery system in a marketplace
that covers more than a third of the population of the United States. The branch
network is complemented by fast-growing businesses that serve individual and
institutional investors, as well as a capital markets business that is focused
on the mid-sized commerical market we have served for so long.
<PAGE>
LETTER FROM THE CHAIRMAN 3
dear
shareholders
[charts appear here. Plot points are below.]
OPERATING EARNINGS
PER COMMON SHARE
(Dollars per share)
2.34 2.53 4.30 4.72 5.30* 6.31*
91 92 93 94 95 96
* Excluding SAIF assessment and restructuring charges.
ASSET GROWTH
(Dollars in billions)
89 95 105 114 132 140
91 92 93 94 95 96
In 1996 we achieved two milestones: first, a record level of earnings and
second, a refinement of our strategic direction.
During the year we reviewed the strategic vision that has guided
First Union over the past decade and refocused our strategy to help us reach
higher levels of performance as we approach the new century. We gained a
momentous boost in this quest by achieving record operating earnings of $1.8
billion in net income applicable to common stockholders, or $6.31 per share.
This excludes one-time merger restructuring charges and Savings Association
Insurance Fund (SAIF) assessments. After these charges, net income was $1.5
billion, or $5.35 per share.
Cash earnings, which exclude amortization of certain intangibles
and nonrecurring expenses, were also very strong. Earnings on a cash basis were
$2.0 billion, or $7.01 per share in 1996, compared with $1.7 billion, or $5.98
in 1995. This strong cash flow gave us flexibility to make discretionary
investments for the future--even after we incurred significant expenditures to
help recapitalize SAIF and to provide for merger expenses.
In previous shareholder letters, we have described First Union's efforts to
redefine itself as a complete provider of innovative financial products and
services. Last year, we said this required a sense of urgency to build a company
that would prosper and lead the industry's transition from traditional banking
into a 21st century financial services provider. Our vision is of a company that
uses advanced technology wisely to meet customers' needs for better service,
better products and better access to their accounts 24 hours a day, seven days a
week.
In this year's annual report, we will describe how we have marshaled a
significant amount of management energy to:
o Cultivate our knowledge of our customers and to become more pro-active in
anticipating their financial needs, in providing innovative products and in
developing new methods to do business with us;
<PAGE>
4 LETTER FROM THE CHAIRMAN
(Picture of (Picture of (Picture of
Anthony P. Terracciano Edward E. Crutchfield John R. Georgius
appears here) appears here) appears here)
Anthony P. Terracciano Edward E. Crutchfield John R. Georgius
President Chairman and Vice Chairman
Chief Executive Officer
o Leverage the management and specialized talent that we have added as we
have built new lines of business over the past few years; and
o Build a national brand name.
In early 1996, with the assimilation of the January 1, 1996, First Fidelity
merger proceeding very successfully, our president, Anthony Terracciano, vice
chairman, John Georgius, and I began creating a new financial performance plan
to maximize shareholder value in the years ahead. We presented this
collaborative effort to the corporation's board of directors during two day-long
meetings, and met with their resounding approval.
Why We're `Raising The Bar'
Our directors agreed the time was right to refocus our strategy and to "raise
the bar" on financial performance guidelines for two reasons:
o First, it had been clear for some time that we had achieved our long-term goal
of building a company with the size, capacity, resources, management talent
and geographic diversity to withstand a variety of economic scenarios and to
compete with anyone in the financial services industry for the long term.
o Second, since the early 1990s, we had been investing discretionary dollars in
the new business initiatives that we believed would provide the revenue growth
and the earnings momentum for success through the end of the decade.
We have great confidence that we will achieve our higher goals because of our
consistent record of performance. From
[Charts appear here. Plot points are below.]
TOTAL RETURN ON COMMON STOCK
Compound Annual Growth Rate
(Assumes Dividends Reinvested)
(In dollars)
3 year 26% 5 year 24% 10 year 17%
1,000 2,007 1,000 2,955 1,000 4,605
93 96 91 96 86 96
AVERAGE ROA AND ROE
10 LARGEST BANKING COMPANIES
(1986 vs. 1996)
(Percent)
.73 1.14 12.46 16.24
ROA ROA ROE ROE
86 96 86 96
<PAGE>
FIRST UNION CORPORATION 5
[Charts appear here.]
SHARE OF
BUSINESS CREDIT
(Percent)
81 84 87 90 93 96
Nonbanks 52.39 53.19 57.92 60.65 64.38 62.29
Commercial Banks 47.61 46.81 42.08 39.35 35.62 37.71
MARKET SHARE OF
HOUSEHOLD ASSETS
(Percent)
81 84 87 90 93 96
Bank Deposits 86.07 84.13 75.44 73.45 64.95 57.65
Mutual Funds 13.93 15.87 24.56 26.55 35.05 42.35
1986 through 1996, on an originally reported, compound annual basis, we have
achieved:
o Earnings per share growth of 9.6 percent, seventh best among the nation's 25
largest banking companies;
o A return on equity of 15.87 percent, sixth best among the Top 25;
o Dividend growth of 13 percent, fourth best among the Top 25; and
o Book value growth of 9 percent, eighth best among the Top 25.
Additionally, during the past decade, we have continued to focus on the
fundamentals of asset quality and efficiency. We have the second best record
among the Top 25 on annualized net charge-offs. We have reduced the operating
overhead efficiency ratio from 61 percent in 1993 to 57 percent at the end of
1996.
We also have built a leading position in the key markets we serve along the
Eastern Seaboard. Overall, First Union is the largest banking company in terms
of domestic deposit share in our 12 state-and-Washington, D.C., marketplace. We
have the No. 1, 2 or 3 deposit share in 14 of the 30 largest metropolitan areas
on the East Coast.
During this period we have also worked hard to diversify our sources of revenue.
In 1996 this effort resulted in the fifth best rate of fee income growth among
the Top 25.
Higher Performance Goals
Our new performance goals raise the bar on the financial targets that guide our
decisions related to capital resource allocations, whether we are considering
reinvesting our capital internally, buying back stock or pursuing an
acquisition. Not only have we raised the thresholds, but we now have five more
guidelines to hurdle in addition to three targets previously. Our goal is to
consistently achieve these performance standards beginning in 1997:
o Annual growth in earnings per share of 10 to 13 percent;
o A return on equity ranging between 18 and 20 percent;
o A return on assets ranging from 1.30 to 1.50 percent;
o An overhead efficiency ratio ranging from 57 to 53 percent;
o A tier 1 leverage ratio between 6 and 7 percent;
o Annualized net charge-offs in the range of 50 to 65 basis points;
o An annual dividend pay-out of 30 to 35 percent; and
o By the year 2000, fee income as a percentage of total revenue of 40 percent.
The Challenges Ahead
By raising our performance guidelines, we are saying we believe we have the
building blocks in place for continued growth. Our challenge over the next few
years is to leverage those building blocks to optimize our value to shareholders
and to improve the service we provide our customers and communities.
But these are not the only challenges we face in the years ahead. We are in an
industry that is redefining itself in response to the new realities of the
marketplace. When the industry began consolidating a decade ago, our main
competitors were other banks. Banks controlled 45 percent of commercial lending
and 81 percent of household assets. Now our competitors range from Wall Street
to cyberspace, and bank control of commercial lending has dipped to 38 percent
and household assets to 58 percent.
<PAGE>
6 LETTER FROM THE CHAIRMAN
[Charts appear here.]
STOCK PRICE PERFORMANCE
(Since year-end 1995)
12/95 3/96 6/96 9/96 12/96
55 5/8 60 3/8 60 7/8 66 7/8 74
STOCK PRICE PERFORMANCE
(5-year trend)
91 92 93 94 95 96
30 43 5/8 41 1/4 41 3/8 55 5/8 74
Perhaps the most profound dynamic that is propelling change begins with our
customers. Increasingly they want more sophisticated solutions to their
financial needs. They are conducting their business with a variety of financial
service providers and not just with banks. Sometimes, customers are doing all of
their business remotely--through a home or office computer, through the
telephone or by mail. They desire to manage their own financial relationships,
in their own way. As customers assume more control, they demand speed,
convenience, better product choices and lower prices. At the same time,
customers want a one-stop view of their total financial picture.
The story is similar for our commercial customers. The companies that make up
our primarily middle-market niche are growing rapidly. As they move through the
corporate life cycle from start-up to mature business, their financing needs
move from traditional loans and cash management services to increasingly
sophisticated financing vehicles. So First Union has moved rapidly in recent
years to meet these needs.
In response to the competitive pressures created by these new realities, a new
financial services industry is emerging. In this new world, a select number of
companies, like First Union, will be able to compete head-to-head on all fronts
with any competitor--bank or nonbank.
These are the companies that today have amassed the necessary scale and scope
that enable them to continue to invest in innovative products and technology.
They have attracted the talent to run new businesses. They are focused on
creating lifetime value relationships.
First Union's goal is to offer the most complete, innovative selection of
financial products throughout the various stages of our customers' lives. This
goal clearly demands that we operate with efficiency, with flexibility and with
speed. From the customer's point of view, that's just good service. From our
point of view, speed, efficiency and flexibility are merely the "basics" for
staying ahead in a rapidly changing business climate.
A handful of banking organizations have the capital strength and the size
necessary to make discretionary investments in technology and in national brand
awareness campaigns that are necessary to enhance revenues. These few--and I
include First Union in this group--are poised to achieve higher performance
going forward.
In other words, we are going to start seeing an industry divided between the
"haves" and the "have nots." The "have nots" are going to start asking
themselves: How can I get access to new technology and distribution channels?
How can I offer the new products to generate the growth that I need?
<PAGE>
FIRST UNION CORPORATION 7
[Charts appear here.]
STOCK PERFORMANCE
(First Union compared
to S&P Major Regional
Bank Index and S&P 500)
91 92 93 94 95 96
FTU Return 100 150.34 146.85 153.28 214.51 295.1
Standard & Poor's
Regional Bank Index 100 107.61 118.39 119.99 164.92 202.69
Standard & Poor's
Index Return 100 127.22 134.74 127.44 200.43 273.63
FIRST UNION STOCK
PRICE VS. BOOK VALUE
(In dollars)
1996 1995 1994 1993 1992 1991
____ ____ ____ ____ ____ ____
Stock Price $ 74 55 5/8 41 3/8 41 1/4 43 5/8 30
Book Value 34.83 31.89 28.19 26.71 23.36 21.21
Fortunately, First Union is well prepared to meet these demands. We have created
a streamlined operational structure that allows us to introduce products faster,
serve our customers more efficiently and manage our businesses in a more
integrated way. This makes research and development for advanced technology and
for new distribution channels more cost-effective. We have invested in new
products and in new lines of business and in the "intellectual capital"--the
knowledgeable professionals--who run those businesses. We are reaping the
rewards of all of these investments now, as shown by the improved productivity
and profitability of 1996. Revenue per employee has increased much more rapidly
than expenses since 1993 (when we began our major investments in new products
and technology). In fact, in 1996 revenue per employee was nearly double
noninterest expense per employee.
Toward A New Business Mix
A key element of First Union's higher performance guidelines is the goal to
increase the fee income portion of our total revenue to 40 percent by the year
2000. Essentially, our vision is to create the "first union" of a traditional
banking company and investment company into one financial services company. We
are moving our business mix toward a company that operates about 60 percent as a
traditional banking company, with a thriving commercial and consumer lending
business providing strong credit income. The other 40 percent would operate more
like an asset management/investment bank, which would produce long-term,
renewable fee income. In other words, our vision is of a financial services
company that offers whatever our customers want today. It does not matter
whether that means a mutual fund or a certificate of deposit; an insurance
annuity or an investment account; a commercial loan or a syndicated loan; a
branch office or Internet banking access--we intend to provide it.
The impetus for this vision comes from the marketplace. The traditional business
of commercial banking--commercial and industrial loan growth--is at a virtual
standstill. Commercial and corporate financing has largely moved to Wall Street.
A key trend in the manufacturing industry is a shift toward leaner
inventories--which reduces the need for companies to borrow for working capital.
Those banking companies that continue to put all of their eggs in the one basket
of spread income have a precarious future. If they continue to rely solely on
interest income, there will come a time when they must stretch too far for loan
growth by lowering underwriting standards and by adjusting pricing in order to
be competitive. The banking industry may well be approaching such an era now.
First Union has built the capacity and flexibility to diversify earnings and to
decrease volatility because we have focused on reducing our reliance on spread
income. We believe our diversified product offerings and earnings sources will
produce a larger base for consistent revenue generation and sustainable growth.
Why We Have Chosen
This Path
The way that banks make money is changing fundamentally. Our strategy
for coping with the systemic changes in our industry is to focus on our
customers. Our mission is to create long-term relationships with our customers
by helping them meet their financial goals throughout the various stages of
their lives. We plan to offer whatever our customers need, however they want it.
Our goal is to create long-term, mutually valuable relationships and more
product relationships per household, rather than conducting one-time
<PAGE>
8 LETTER FROM THE CHAIRMAN
transactions. That requires us to focus not on selling a one-shot product, but
on offering our customers a selection of products, services and information to
help them choose whatever best fits their needs.
To create this partnership with our customers, we must:
o Proactively anticipate their needs throughout their lives;
o Provide convenient access, 24 hours a day, 7 days a week; and
o Market the right products for each individual customer--customization on a
mass scale, if you will.
Clearly, this requires a great deal of knowledge about who our customers are and
what they need. We need to pay a great deal of attention to customer behaviors
and demographic trends. Some of the facts we must consider, as we head into the
next century:
o Members of the baby boom generation --the 76 million Americans born after
World War II--began turning 50 in 1996. Some pundit has figured out that for
the next 20 years, someone will turn 50 every 7.5 seconds. What are the
implications for financial services companies?
o In the next decade, some $8 trillion in wealth will change hands through
inheritance--more wealth transference than in the last 230 years combined. How
can financial services companies help customers manage their estates, their
inheritances and their accumulated assets?
o Since the turn of the last century, the average life span has increased by 30
years. Suppose the average life span increases another 30 years--from 72 to
102? What would be the impact--and how could financial services companies help
customers make assets last longer?
Why We Believe We'll
Be Successful
These trends and scenarios prompted our decision in 1993 to emphasize the asset
accumulation businesses that form our Capital Management Group--including
Personal and Corporate Trust, Brokerage Services, Mutual Funds, IRAs and Pension
Services, Private Banking, Investment Services, Personal Financial Planning,
Insurance, and several other businesses and products. These trends and scenarios
also fueled our decision in 1993 to add Capital Markets products and
services--such things as syndicated loans and private placements, asset
securitizations, merger and acquisition advisory services, high-yield debt and
securities underwriting.
We expect this union of traditional banking and asset management/investment
banking to grow significantly over the next few years, as it has over the past
three years. This growth has been the result of the discretionary investments we
have made to modernize our traditional bank and grow the investment banking side
of our business. The section following this letter, "Products and Services,"
provides more details about these two businesses and about the redesign of our
commercial banking and consumer banking operations to better reflect today's
needs.
The Key To Our Success:
Our People
Another reason for our confidence in First Union's continuing success is our
most important asset--our people. Throughout our company, our people work
tirelessly to serve customers better every day. We know that each interaction
with a customer is a defining moment of truth for who we are as a company. Our
standards are high. We do not want merely to meet or even exceed our customers'
expectations--we intend to
<PAGE>
FIRST UNION CORPORATION 9
delight our customers by always keeping their best interests in mind.
Fortunately, our people delight us time and again with their extraordinary
creativity, commitment, diligence and intelligence.
A prime example is in our newest region encompassing the former First Fidelity.
It took just a little more than six months to completely integrate the two
companies, which allowed our employees to more quickly turn their attention to
serving their customers with new products and services. This rapid pace of
consolidation, incidentally, is virtually unheard of in the banking industry.
Who Is First Union?
Foremost among First Union's core values is genuine caring about people. That's
not lip service--that's who we are. We care about each other as individuals, as
customers and as colleagues. We care that we find challenge, stimulation and
personal growth in our work lives--and balance in our personal lives. We care
that we "give back" to our neighborhoods and to our communities, so much that
company policies encourage parents and individuals to spend time volunteering to
improve our schools or to mentor our children.
Our people bring the same level of caring to their relationships with customers
and their commitment to their communities as well. For example:
o The employees who volunteered their own time to provide special bank services
to disaster victims the weekend after Hurricane Fran's landfall on the coast
of North Carolina;
o The 4,868 employees who volunteered 158,516 hours in their community's schools
in 1996; and
o The Capital Markets Affordable Housing Unit, a seven-member team that donated
personal bonus money to fund a Habitat for Humanity house.
These are the values that we will work just as hard to maintain as we strive to
build the successful model of the financial services company of the future--the
market leader of the financial services world. My vision for First Union
continues to be that of a large, successful company that keeps its human scale
and its human touch. No matter how large our company is, my hope is that it
remains a company that listens and responds to each individual customer, and one
that listens and values each employee as an individual. That is the best way to
ensure our success in the future and to serve our shareholders, as well.
In closing, my sincere gratitude goes to those responsible for First Union's
success: To our employees for their caring and commitment; to our customers for
their trust; to our directors for their guidance; and to our shareholders for
their longtime dedication. My thanks go also to corporate directors who retired
in 1996 or will do so in 1997--Torrence E. Hemby Jr., Kenneth G. Younger, Robert
D. Davis, Brenton S. Halsey and Dr. Henry D. Perry Jr.--for their wise counsel.
In 1997, based on the current annualized dividend, we expect to reward our
longtime supporters with the 20th year of increased dividends. We will help our
customers manage and grow their assets through straightforward financial
solutions. We will work to improve the economic growth of the communities and
neighborhoods we serve. And we will make First Union a great place to work and
do business.
Sincerely,
/s/ Edward E. Crutchfield
Edward E. Crutchfield
Chairman and Chief Executive Officer
February 19, 1997
<PAGE>
a knowledgeable
financial partner
Customers choose First Union because they want a knowledgeable financial
partner. We provide products and services to help customers meet their financial
goals--whether that involves capital to grow a business, information to draw
up a financial plan or investments to fund a comfortable retirement. In addition
to full-service banking, First Union provides securities brokerage, leasing,
insurance, mortgage banking, home equity loans and access to capital markets.
[Picture of man at computer appears here.]
<PAGE>
PRODUCTS AND SERVICES 11
First Union continues its advance from a bank to a one-stop financial market.
We are positioning our company from a customer and market perspective because
today's consumers won't settle for limited choices or inconvenient banking
options. Our actions ensure that First Union will continue to satisfy customers
while we strive to achieve superior returns for our shareholders.
First Union is the nation's sixth largest bank holding company based on year-end
total assets. We serve 12 million customers in 12 states and Washington, D.C.
Our home territory is the Southeast, where consumer demand for loans and other
financial products reflects a growing economy. A leader in the emerging service
sector, the Southeast also is experiencing growth on the manufacturing front.
Forty percent of new or expanded manufacturing facilities opened in the United
States during the past five years are in the Southeast. The 450-mile Interstate
85 corridor between Atlanta and Raleigh alone spawned 42,000 new factory jobs
since 1991.
After decades of serving primarily North Carolina customers, First Union
exported its financial services to Florida once interstate banking was permitted
in 1985. We then expanded into other southeastern states in rapid
succession--South Carolina and Georgia in 1986, Tennessee in 1987, Virginia and
Washington, D.C., in 1992, and Maryland in 1993. Each market offered a customer
base eager to take advantage of the business and consumer expertise of the
growing First Union.
We capped a decade of geographic expansion with the January 1, 1996, merger with
the former First Fidelity Bancorporation. This added the banking states of New
Jersey, Pennsylvania, New York, Connecticut and Delaware to the First Union
family. These markets include the nation's greatest concentration of affluent
individuals and families and the largest number of middle-market companies.
The assets, deposits and net loans displayed state by state in the table on page
16 demonstrate First Union's market power.
We operate nearly 2,000 branch offices-- what we call financial centers--making
First Union the nation's second largest branch network. We also operate 2,429
ATMs, making us the sixth largest automated teller machine network.
First Union intends to leverage this market presence to benefit customers. Using
our financial centers as a product distribution network, we are helping
customers redefine what an expanded financial services company can help them
accomplish.
FUTURE BANK
Part of that involves pioneering convenient ways for customers to work with
us and then letting them choose the channels they prefer. That is the logic
behind our Future Bank--a place where customers can pursue their financial goals
and perform their banking tasks more quickly and efficiently than is possible in
traditional branches.
Financial Center
The Future Bank's financial center resembles a retail store, organized around
the services and products customers want and arranged to make it easy for them
to bank as they choose. Customers may elect, for example, to use enhanced ATMs
to check their account balances, make deposits, cash checks and print
mini-statements without ever approaching a teller. On the other hand, if they
choose the teller window, a "swipe" of a plastic card retrieves an array of
pertinent customer information on the teller's computer screen.
<PAGE>
12 PRODUCTS AND SERVICES
[Chart appears here]
CONTRIBUTIONS TO PROFITABILITY BY STATE
(Based on December 31, 1996, regulatory reports)
36% Florida
21% North Carolina and
South Carolina
17% New Jersey, New York
and Pennsylvania
14% Virginia, Maryland and
Washington, D.C.
12% Georgia, Connecticut,
Tennessee and Delaware
Customers may also...
o talk with a financial specialist one-on-one to build a financial plan for
retirement or children's college expenses,
o purchase mutual funds on-site,
o consult with off-site insurance specialists or mortgage lenders via a private
video-conferencing kiosk and
o visit our "virtual branch" on the Internet.
This customer-friendly environment is made possible by highly trained employees
freed from routine tasks like taking address changes and other account-servicing
functions. (These tasks now are handled 24 hours a day, seven days a week, in
First Union customer response centers.) Instead, financial center employees in
the Future Bank spend time getting to know people--identifying their financial
needs, discussing individual financial plans, helping familiarize customers with
convenient banking and investment options and pointing them toward appropriate
solutions.
In 1996 we piloted our concept of a technologically advanced, customer-wise
Future Bank in two North Carolina communities. ATM deposits nearly doubled in
both markets, and 90 percent of telephone queries to financial centers were
routed automatically to the call centers and successfully resolved there.
We will devote part of 1997 to polishing the concept of the financial center in
Atlanta, which is home to 3.5 million people and two of the fastest growing
counties in the United States. We selected Atlanta for large-scale refining of
the Future Bank not only because of its size but also because First Union's
presence in the Atlanta area--while strong--still has room to grow. As part of
our effort there, we installed 34 new ATMs, and we will deploy additional ones
at off-premises locations. Once activities in Atlanta are well under way, we
expect to announce a schedule for introducing the Future Bank throughout the
organization.
Banking By Telephone
At the same time we are pursuing a new culture in financial centers, First Union
is moving to enhance the quality of customer service through state-of-the-art
customer response centers. These centers use a human touch with telephones and
computer technology to reduce the time it takes to answer customer queries and
to solve account problems, leaving financial center employees more time to focus
on sales. In 1996 call center facilities successfully handled 80 million calls.
In addition, First Union also operates a "telephone bank" known as First Union
Direct. It was originally launched in 1991 as a service selling deposit accounts
to customers moving from one geographic location to another. First Union Direct
now has evolved into a full-service branch without walls--where customers
anywhere in the United States can conduct virtually any kind of banking business
over toll-free telephone lines. As a result First Union Direct booked $423
million in loans to consumers.
First Union Direct also employs 137 sales representatives whose job is to
attract new customers nationwide. In 1996 First Union Direct and the relocation
program opened nearly 150,000
<PAGE>
FIRST UNION CORPORATION 13
[Chart appears here.]
METROPOLITAN MARKET SHARE
(Map of Eastern Seaboard appears here)
new accounts. Deposits for First Union Direct customers amounted to $654 million
in 1996, and deposits from customers in the relocation program amounted to $3.1
billion.
Banking On-Line
First Union is among the first financial services companies to offer individual
customers banking capability through the Internet. Today First Union customers
have access to their checking, savings, credit card and asset-management CAP
accounts, and they may use their on-line connections to check account balances,
review statements, place stop-payment orders and order checks. Internet users
also can apply for credit cards, request home equity and consumer loans, check
IRA accounts, learn about First Union products and services and purchase
selected goods through our Internet home page. During 1997 we will offer
customers the opportunity to transfer funds between accounts, pay bills and open
accounts on-line.
Commercial clients may use on-line computer connections for cash management and
other tasks. Our WEBInVision information reporting system, for example, lets
businesses connect with First Union to process such transactions as stop
payments and wire transfers. The system also gives businesses access to a range
of commercial account information.
First Union's Internet home page averages 50,000 visits by individual and
business computer users every day. The Internet, however, is just one part of
our comprehensive electronic banking strategy that puts customers in control of
their banking needs. Because some people prefer to use off-the-shelf software to
manage their finances, for example, First Union accommodates both Intuit Quicken
and Microsoft Money programs for such purposes.
COMMERCIAL BANKING
First Union's Commercial Bank provides loans, cash management and other
financial services to business clients. We operate specialized relationship
teams located throughout our network of state banks with a focus on sales and
service.
Today we are reaping the rewards of redesigning the commercial bank, a process
that began more than two years ago. That effort yields better service to
customers: We reduced loan turnaround from weeks to three days or less. We
increased the time relationship managers have for selling, and we refocused
specific attention on markets such as small businesses. The redesign produced
increased revenue per commercial bank relationship manager: $866,200 in 1996
from $225,000 in 1993. In addition, our success in cultivating commercial
lending relationships provides a steady source of referrals for Capital Markets
<PAGE>
14 PRODUCTS AND SERVICES
and Capital Management Group products and services.
After successful implementation in the southern part of our company, the
redesigned commercial bank debuted in our northern markets in February 1996. In
only 10 months, the revenue production of relationship managers in the North
matched those in the South.
Another part of the commercial bank redesign involved forming a special unit
devoted to the growing needs of small businesses. The Small Business Banking
Division offers companies deposit products, investment and retirement planning
services as well as loans. The division streamlined its loan approval process by
providing toll-free access to experienced lenders who receive applications over
the telephone and provide responses to customers within 24 hours. This allows us
to accommodate more small business loan requests--23,616 in 1996 compared with
14,849 in 1995. Revenue per lender also increased, from $605,000 in 1995 to
$874,000 in 1996. At the same time, loan origination costs dropped 33 percent.
First Union's Cash Management Division offers corporate customers an array of
treasury management services. It is the nation's fourth largest provider of cash
management services. Revenue in 1996 was $191 million compared with $152 million
in 1995--an increase of 25 percent. The division's primary electronic delivery
channel for its services is PCInVision, which provides customers PC-based access
to such services as on-line transaction initiation and account analysis.
SPECIALTY BUSINESS LINES
In addition to commercial and consumer bank operations, First Union is pursuing
a fee-income earnings stream by adding nontraditional business lines that
historically enjoy high price-to-earnings ratios. This strategy enhances the
value of our company to shareholders because it is independent of volatility in
the credit cycle.
Our Capital Markets Group, Capital Management Group and Customer Direct Access
Division (which includes card products as well as call centers and electronic
banking options) are the primary drivers of our move to increase fee-based
income. We invest in each of these areas to answer customer demand.
Capital Markets
First Union's Capital Markets Group now has a three-year track record of
providing sophisticated financial solutions to corporate and institutional
clients. We offer growing businesses one-stop shopping for their financial
needs--including risk management services, syndicated loans and debt
underwriting.
Net income before tax in the Capital Markets Group rose from $126 million in
1993 to $422 million in 1996. Fee income growth also was strong, rising from $64
million in
[Charts appear here.]
NEW CORPORATE FACILITIES
AND EXPANSIONS
(1994-1996)
First Union is located primarily in the
South Atlantic and Middle Atlantic regions.
South Atlantic 5,123
Middle Atlantic 1,528
East North Central 5,626
West South Central 2,787
East South Central 2,165
Pacific 1,064
West North Central 920
Mountain 889
New England 290
Source: Site Selection Magazine.
GREATEST CONCENTRATION
OF COMPANIES
(With Annual Sales $20mm-$250mm+)
First Union's regions account for 34 percent of the
nation's middle-market companies.
Middle Atlantic 18%
South Atlantic 16
East North Central 18
Pacific 15
West South Central 10
West North Central 7
New England 7
East South Central 5
Mountain 4
First Union is primarily located in the South Atlantic region (DE, FL, GA, MD,
DC, NC, SC, VA) and Middle Atlantic region (NJ, NY, PA), as well as Connecticut
and Tennessee, which are in other regions as defined by the U.S. Statistical
Abstract.
Source: Dun & Bradstreet 1997.
<PAGE>
FIRST UNION CORPORATION 15
1993 to $464 million in 1996. This growth is attributable to the broad range of
products and expertise we offer, our stronger foothold in more profitable Wall
Street-type businesses and the skill we have developed in serving our mostly
mid-sized commercial niche.
We target mid-sized companies for our investment banking solutions. The reach of
First Union's Capital Markets Group includes our East Coast banking markets and
extends nationwide through industry-specific specialization--in such areas as
health care, media and communications, forest products, financial services,
energy and utilities. Our capital markets professionals are armed with the
skills they need to develop opportunities early in a company's life and to
continue to bring business to the table as the company grows.
Debt underwriting and investment banking are offered through First Union Capital
Markets Corp. (FUCMC). In 1996 FUCMC participated as manager, co-manager or
selling group in 44 public debt transactions with volume exceeding $9.9 billion.
The loan syndications unit served as agent or co-agent on 129 transactions
representing volume of $65.9 billion, compared with $37.1 billion and 95
transactions in 1995. The unit ranks 12th in the nation (agency-only, by number
of deals). FUCMC also is active in asset securitization, ranking among the 15
top lead underwriters at December 31, 1996.
The high-yield group completed eight transactions in 1996 and increased volume
from $100 million in 1995 to $1.0 billion in 1996. In November 1996 FUCMC served
as lead underwriter in a $100 million high-yield bond offering.
First Union has a significant and growing public finance capability. Notable
assignments include a senior manager role on a $343 million bond issue for the
Charlotte-Mecklenburg Hospital Authority in North Carolina and another $343
million bond issue for the Pennsylvania Intergovern-mental Cooperation
Authority.
First Union is well positioned in real estate finance and asset securitization,
an increasingly dynamic part of the capital markets business. For example,
FUCMC and Merrill Lynch structured, underwrote and distributed two offerings
amounting to $1.7 billion of securities backed by multi-family and
commercial mortgages--one of which, at $1.1 billion, was the industry's
largest commercial mortgage conduit securitization. In 1996 First Union
ranked fourth in commercial real estate conduit securitization volume. In
addition...
o First Union became the second largest general freight railcar operating lease
company with the purchase of Northbrook Rail and USL Capital's rail services
unit in 1996. We now have a fleet of more than 44,000 railcars and serve some
300 clients nationwide.
o In 1996 First Union's international division introduced an electronic export
collection service. We also opened a representative office in India. This new
office complements our Hong Kong, South Africa, London, Cayman Islands and
Nassau operations, which enhance
PER CAPITA INCOME BY
METROPOLITAN AREA
Four of the five metro areas with highest per capita income
are in First Union's marketplace.
Per Capita % of U.S.
Personal Income Average
West Palm Beach-
Boca Raton, FL MSA $ 33,518 154.5%
New York-Northern New Jersey-
Long Island, NY-NJ-CT-PA CMSA 29,021 133.8
San Francisco-Oakland-
San Jose, CA CMSA 28,322 130.5
Washington-Baltimore-MD-VA-
WVA CMSA 26,919 124.1
Hartford, CT NECMA 26,842 123.7%
U.S. Average $ 21,696
<PAGE>
16 PRODUCTS AND SERVICES
FULL-SERVICE
BANKING UNITS
Florida
Assets: $39.3 billion
Loans, Net: $28.1 billion
Deposits: $31.6 billion
North Carolina
Assets: $32.4 billion
Loans, Net: $21.3 billion
Deposits: $20.1 billion
New Jersey, New York and
Pennsylvania
Assets: $27.1 billion
Loans, Net: $19.5 billion
Deposits: $22.0 billion
Georgia
Assets: $12.9 billion
Loans, Net: $9.9 billion
Deposits: $7.8 billion
Virginia
Assets: $10.7 billion
Loans, Net: $7.0 billion
Deposits: $6.8 billion
Connecticut
Assets: $6.0 billion
Loans, Net: $4.8 billion
Deposits: $4.4 billion
Maryland
Assets: $4.1 billion
Loans, Net: $2.1 billion
Deposits: $3.1 billion
South Carolina
Assets: $3.2 billion
Loans, Net: $2.3 billion
Deposits: $2.5 billion
Tennessee
Assets: $3.2 billion
Loans, Net: $1.3 billion
Deposits: $1.7 billion
Washington, D.C.
Assets: $2.2 billion
Loans, Net: $561 million
Deposits: $1.6 billion
Delaware
Assets: $52 million
Loans, Net: $37 million
Deposits: $23 million
Asset and loan information for Specialty
Businesses is included in the Full-Service Banking
Units. Their operations are integrated in our
banking states. Assets, loans and deposits are
based on December 31, 1996, regulatory reports.
our international trade and correspondent banking business.
Capital Management
The Capital Management Group helps First Union meet growing customer demands by
adding an investment and asset management dimension to our
traditional savings products. The group provides financial planning, private
banking, personal and corporate trust services as well as estate planning,
Individual Retirement Accounts, mutual funds, insurance products, 401(k)
services and brokerage services. Professionals in the Capital Management Group
form the kind of ongoing, personal, advice-giving relationships
customers tell us they want.
Net income before tax in the Capital Management Group rose from $165 million in
1994 to $220 million in 1995 and $352 million in 1996. Fee income growth
increased to $566 million--or 32 percent--between 1995 and 1996.
Customers want investment products for future earnings potential. They want
asset management services for convenience and simplicity of keeping an eye on
their financial goals. As customers become more aware of such potential, we see
market acceptance of the product options we offer under our capital management
umbrella. In 1996 the Capital Management Group managed $61.4 billion in assets
for customers.
First Union's asset-management account, known as CAP, ties together traditional
bank offerings with new investment products. At December 31, 1996, CAPs numbered
222,581 with balances amounting to $18.8 billion, compared with $11.7 billion at
year-end 1995. We introduced CAPs in the North in mid-January 1996 and logged
21,885 new accounts and $2.3 billion in assets from our northern region in 1996.
First Union has a growing brokerage business with revenue topping $156 million
in 1996, up from $84 million in 1995 and $58 million in 1994. Our brokerage also
was ranked first among bank brokerages by the National Council of Independent
Investors.
Our proprietary Evergreen Keystone family of mutual funds now has nearly $27.3
billion in assets under management, up from $7.0 billion in 1994. This makes
First Union the third largest bank-advised mutual fund operation and the second
largest bank manager of equity mutual fund assets in the United States. Our
growth results from fund performance, from increases in sales and from the
successful integration of strategic acquisitions.
In 1996, for example, First Union purchased the adviser to the Keystone family
of mutual funds of Boston, which added $11.6 billion to our mutual fund-advised
asset total. Keystone also expanded our wide distribution network, which now
stands at 27,000 brokers nationwide.
Sales of insurance products hold great potential for First Union: 69 percent of
Americans do not have a personal insurance agent, and 40 percent have
no life insurance. Yet banks accounted for only one percent of the $9.3 billion
in new insurance premiums in 1996. Court decisions in 1995 and 1996 opened the
door for banks to assume greater roles in the sale of these products. First
Union sells insurance products through our financial centers as well as over the
Internet and through toll-free telephone lines.
Fixed and variable annuities already are strong, with First Union now selling
more of these financial instruments than any other bank. Annuity sales were $1.1
billion in 1996--up from $113 million in 1994 and $166 million in 1995. The
<PAGE>
FIRST UNION CORPORATION 17
SPECIALTY BUSINESSES
Capital Management Capital Markets Mortgage Banking
Group* Group* Loans Serviced: $50.8 billion
Assets Under Care: Assets: Origination Volume:
$159.1 billion $24.9 billion $4.4 billion
Assets Under Loans, Net: Locations: 64
Management: $10.3 billion
$61.4 billion Offices: 8 Home Equity Lending
Personal Trust Loans, Net: $8.0 billion
Locations: 72 Customer Direct Access Locations: 121, plus nearly
Full-Service Brokerage Managed Loan 2,000 full-service
Locations: Receivables:** banking locations
350 $7.0 billion States: 35
*Asset and loan information for these Specialty Businesses is included in the
Full-Service Banking Units listed on page 16 because their operations are
integrated in our franchise states. Assets and loans are based on December 31,
1996, regulatory reports.
**Managed portfolio includes $1.5 billion of securitized credit card
receivables.
rise is attributable both to the fall of regulatory barriers that prevented
annuity sales by banks in some of our markets and to the new proprietary
products introduced in 1996. First Union has some 2,900 branch employees
licensed to sell annuities.
In individual retirement services, First Union's assets under management rose 60
percent from year-end 1995 to year-end 1996, and sales of Individual Retirement
Accounts (IRAs) increased 73 percent in the same period. We are the largest bank
provider of IRAs in the United States. The number of participants in First
Union's institutional retirement daily valuation plan--or 401(k)--grew 34
percent between 1995 and 1996. Assets were $4.0 billion at year-end 1996,
compared with $2.2 billion in 1995.
Annual fees for new personal trust sales rose 85 percent between 1995 and 1996.
In corporate trust, total revenue climbed 23 percent. First Union is the
fourth-ranked municipal trustee in the United States based on principal amount
issued in 1996.
Our private banking operation offers customers a single point of contact for
access to First Union's many products and services. This "client manager"
oversees a customer's entire relationship with First Union. The Private Bank
offers investments, mortgages, personal loans, trusts, financial planning and
brokerage services.
Customer Direct Access
First Union's Customer Direct Access Division, which includes all card products
as well as call centers and remote and electronic banking operations, intends to
keep one step ahead of customer demand in a dynamic, evolving marketplace.
Credit cards remain a staple of the group's offerings, with outstandings
averaging $6.5 billion in 1996 from $4.8 billion in 1995. Net interest income on
our managed credit card portfolio amounted to $563 million in 1996, and fee
income for the same period was $135 million.
Monthly purchase transactions using First Union debit cards--which act
like a check by drawing funds directly from a customer's checking
account--increased from 3 million in 1995 to nearly 5 million in 1996. At the
same time, the number of First Union debit cards in circulation increased from 1
million in 1995 to nearly 2 million in 1996. We are now the nation's second
largest bank issuer of debit cards.
In 1996 First Union introduced several credit card products specifically
tailored to the needs of commercial customers. Small businesses may obtain a
multipurpose credit card for their daily business management needs. Specialty
products for larger businesses include Corporate Cards for travel use and
Purchasing Cards for streamlining small-dollar purchases. All products are
integrated with the efforts of our Commercial Bank to add value to our
relationship-based business.
Both credit cards and debit cards are important to First Union's future because
they are bridges to acquiring and developing customer relationships outside the
traditional branch network.
<PAGE>
18 PRODUCTS AND SERVICES
DEPOSIT SHARE
AND RANKINGS
Florida
Deposit Share: 17%
Rank: 2nd
New Jersey
Deposit Share: 10%
Rank: 2nd
North Carolina
Deposit Share: 16%
Rank: 2nd
Georgia
Deposit Share: 10%
Rank: 4th
Virginia
Deposit Share: 10%
Rank: 4th
South Carolina
Deposit Share: 8%
Rank: 4th
Washington, D.C.
Deposit Share: 16%
Rank: 3rd
Tennessee
Deposit Share: 3%
Rank: 7th
Maryland
Deposit Share: 6%
Rank: 6th
Pennsylvania
Deposit Share: 3%
Rank: 5th
Connecticut
Deposit Share: 9%
Rank: 3rd
Deposit share and rank are based on
all insured deposits in domestic offices
on June 30, 1996.
First Union is a pioneer in stored-value products--plastic cards embedded with
computer chip technology and used in place of cash. We issued 26,000 "Spot
Cards" for use at home games of the Jacksonville Jaguars NFL team. For the
second year in a row, 10 percent of all in-stadium purchases made at the
football games used the cards in this "closed system."
In the Atlanta metropolitan area, First Union joined other financial
institutions in rolling out stored-value cards in an "open" environment during
the summer Olympic Games. We issued 12 sets of disposable smart cards in
denominations of $10, $20, $50 and $100 for use during the Olympic test. We also
issued a feature-reloadable Smart CheckCard--the first from a United States
bank--combining ATM access with features of a stored-value card and a debit card
on one card. We negotiated contracts with more than 30 national and regional
merchants to accept our cards. More than 3,200 terminals, both at First Union
financial centers and 1,350 merchant locations around the city, accepted the
stored-value cards.
Home Equity Lending
First Union Home Equity Bank, N.A. (FUHEB) provides equity financing to more
than 113,000 homeowners in the United States through 121 locations in 35 states;
we also operate central processing units that make loans in 13 additional
states. Year-end outstandings grew 23 percent between 1995 and 1996, ending the
year at $3.7 billion. Customers also may obtain home equity loans through First
Union financial centers. Home equity loans generated in this manner amounted to
$4.3 billion in receivables in 1996.
FUHEB's wholesale unit serves as the conduit between home equity offices and
First Union Mortgage Finance. The unit originates "B" and "C" credit loans,
which are securitized and sold through our Capital Markets Group. The volume of
"B" and "C" loans amounted to $526 million in 1996, compared with $327 million
in 1995.
FUHEB's loan losses in 1996 averaged only 15 basis points.
Mortgage Banking
First Union Mortgage Corporation is the 11th largest residential mortgage
servicer in the United States based on volume and market share. We provide
servicing for originated and acquired mortgages with a servicing portfolio of
$50.8 billion and 667,417 mortgages at December 31, 1996. The current portfolio
mix is 73 percent fixed-rate mortgages and 27 percent adjustable-rate mortgages.
Loans serviced per employee increased 9 percent between 1995 and 1996 to more
than 1,200.
In addition, customers may acquire mortgages nationwide through a variety of
efficient channels--First Union financial centers, telephone marketing and our
national relocation program as well as our traditional mortgage originators who
call on real estate agents and builders. In 1996 we provided corporate
relocation services through continuing relationships with 70 national companies,
closing $350 million in new business. Overall, the mortgage banking unit
originated $4.4 billion in mortgages in 1996.
THE FUTURE
First Union is maintaining profitability in traditional banking areas while
building new fee-based businesses. We are realizing returns on our investments
in technology and intellectual power. And we are leveraging our broad product
array over the better delivery channels we are building. As a result we are
competitive in a variety of businesses against virtually anyone--bank or
nonbank.
<PAGE>
index to
special topics
GENERAL INFORMATION
Annual Meeting .......................... 42
Description of Business ................. Inside Front Cover, 10
Employees ............................... 32
Market Share ............................ Inside Front Cover, 13, 18
CAPITAL RESOURCES
Regulatory Capital....................... 28, 30
Stockholders' Equity .................... 1, 27, 31, 34
COMMON STOCK
Book Value .............................. Inside Front Cover, 1, 7, 31
Dividends ............................... Inside Front Cover, 9, 21, 31
Market Price ............................ 1, 6, 7, 31
Shares, Number Outstanding .............. 31, 35
Stockholders, Number of ................. 32
LIQUIDITY
Debt Ratings ............................ 42
LOANS
Average Balances ........................ 25, 32
Commercial Real Estate .................. 25
Consumer, or Retail, Loan Portfolio ..... 24
Industry Concentrations ................. 25
Loan Loss Allowance ..................... 1, 26, 30, 34
Loan Loss Provision ..................... 26, 31, 35
Mix at Year-End ......................... 24
Net Charge-Offs ......................... 1, 26, 30, 32
Nonperforming Assets ................... 1, 25, 30
Project Type............................. 25
PROFITABILITY
Earnings Performance .................... 1, 3, 21, 31, 32, 35
Income Per Share ........................ 1, 3, 21, 35
Net Interest Income ..................... 21, 22, 31, 35
Net Interest Margin .................... 1, 22, 30
Noninterest Expense...................... 7, 21, 23, 31, 35
Noninterest Income...................... 22, 31, 32, 35
Results of Operations ................... 1, 3, 11, 21, 30, 31, 35
Return on Average Assets ................ 1, 21, 30
Return on Average Stockholders' Equity .. 1, 21, 30
RISK MANAGEMENT
Asset Quality ........................... 25, 30
Derivative Transactions ................. 28
Interest Rate Risk Management ........... 28
SECURITIES
Available For Sale ...................... 1, 24, 31, 34
Investment .............................. 1, 24, 31, 34
Trading Activities....................... 23, 35
<PAGE>
growing
building
investing
First Union's 1996 performance included 7 percent growth in tax-equivalent
net interest income, 26 percent growth in fee income, improvement in
nonperforming assets and an operating overhead efficiency ratio of 57 percent.
We continue to build a diverse revenue mix that decreases reliance on interest
income and increases the contribution from revenue sources less affected by
economic volatility.
(Picture of a man watering money.)
<PAGE>
PERFORMANCE HIGHLIGHTS 21
NET INCOME
(Dollars in billions)
.57 .70 1.22 1.38 1.50* 1.77*
91 92 93 94 95 96
RETURN ON AVERAGE
COMMON EQUITY
(Percent)
11.38 11.28 17.26 16.91 17.55* 18.85*
91 92 93 94 95 96
RETURN ON
AVERAGE ASSETS
(Percent)
.68 .77 1.22 1.29 1.27* 1.31*
91 92 93 94 95 96
*Excluding SAIF assessment and
restructuring charges.
The following review is a summary discussion of the performance and financial
condition of First Union Corporation. The objective is to provide the reader
with an overview of our performance and financial condition in 1996. More
detailed information, including the audited financial statements and additional
tables, is contained in the First Union Corporation 1996 Report on Form 10-K,
which is available free of charge from Investor Relations, Two First Union
Center, Charlotte, North Carolina 28288-0206.
EARNINGS HIGHLIGHTS
First Union's operating earnings in 1996, before special charges, were a record
$1.8 billion, or $6.31 per common share. The special charges were after-tax
restructuring charges of $181 million related to the January 1, 1996,
acquisition of First Fidelity Bancorporation, and an after-tax Savings
Association Insurance Fund (SAIF) special assessment of $86 million. Operating
earnings in 1995 were $1.5 billion or $5.30 per share before restructuring
charges of $73 million after-tax, or 26 cents per share, taken in the fourth
quarter of 1995. After the special charges, 1996 earnings were $1.5 billion or
$5.35 per share and 1995 earnings were $1.4 billion or $5.04 per share. All
financial information, tables, charts and graphics for prior periods have been
restated to reflect this pooling of interests acquisition, unless otherwise
stated.
In the fourth quarter of 1996, operating earnings were $459 million, or $1.66
per share, an increase of 14 percent from $404 million, or $1.45 before
restructuring charges, in the fourth quarter of 1995.
Key factors in 1996 earnings growth compared with 1995 were:
o 7 percent growth in tax-equivalent net interest income;
o 26 percent growth in noninterest, or fee, income (excluding investment
securities transactions), which included a 32 percent increase in Capital
Management fee income and a 78 percent increase in Capital Markets fee income;
o Improvement in nonperforming assets, with the percentage of net loans and
foreclosed properties declining to 0.80 percent from 0.91 percent in 1995; and
o An operating overhead efficiency ratio of 57 percent compared with 60 percent
in 1995 (excluding the special charges).
Noninterest expense increased in 1996 to $4.7 billion from $4.1 billion in 1995.
The restructuring and SAIF charges accounted for more than half of the increase.
Gross revenue growth outpaced noninterest expense growth by over two-to-one in
1996 from 1995, excluding the special charges.
In 1996 we announced a dividend increase for the 19th consecutive year,
resulting in dividends of $2.20 per common share. The current annualized
dividend rate is $2.32 per common share.
Outlook
First Union continues to build a diverse revenue mix that decreases the
company's reliance on interest income and increases the contribution from
revenue sources that are less affected by volatility in economic conditions and
movements in interest rates. Our goal is to increase noninterest income in
proportion to total revenue to 40 percent by the year 2000. To this end we have
made significant discretionary investments in recent years, particularly in the
Capital Management, Capital Markets, and electronic and remote banking areas of
our company. These high-growth business lines diversify our revenue
<PAGE>
22 PERFORMANCE HIGHLIGHTS
NET INTEREST INCOME
(Tax-equivalent)
(Dollars in billions)
3.1 3.8 4.3 4.6 4.7 5.1
91 92 93 94 95 96
NONINTEREST INCOME
(Dollars in billions)
1.5 1.4 1.6 1.6 1.9 2.4
91 92 93 94 95 96
COMPONENTS OF
NONINTEREST INCOME
(In millions) 1996 1995
Trading account profits $ 102 69
Service charges on
deposit accounts 666 616
Mortgage banking income 155 150
Capital management
income 566 428
Securities available for
sale transactions 31 44
Investment security
transactions 4 5
Fees for other banking
services 157 160
Sundry income $ 676 425
streams and complement our traditional loan and deposit products.
The response in both our northern and southern markets to mutual funds, asset
management accounts, annuities and other investment planning products and
services continues to be strong. We believe this indicates customer satisfaction
with these new products and with the delivery channel options we are offering.
In addition we gained access to an expanded network of broker-dealers as well as
expanded investment management activities with the completion on December 11,
1996, of the purchase accounting acquisition of Keystone Investments, Inc., a
Boston-based investment manager and mutual fund advisory company with $11.6
billion in assets under management.
In 1996 we completed additional purchase accounting acquisitions of seven other
financial institutions; three railcar leasing operations; and a corporate trust
portfolio. The 1996 acquisitions added combined assets, net loans and deposits
of $7.8 billion, $4.8 billion and $5.1 billion, respectively, to our December
31, 1996, balance sheet.
We continue to be alert to opportunities to enhance stockholder value through
acquisitions that provide access to customers and markets that we believe
complement our long-term goals. Our primary management attention is focused on
leveraging our existing base as we invest in new technology and fee
income-generating lines of business. The significant investments we have made in
acquisitions, in technology and in expanded products and services position us to
serve our 12 million customers in a diverse geographic marketplace and to reduce
the impact of shifts in the credit cycle.
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 temporary dilution of First Union's book value and net income per
common share may occur in connection with some future acquisitions.
INCOME STATEMENT REVIEW
Net Interest Income
Tax-equivalent net interest income increased 7 percent to $5.1 billion in 1996
from $4.7 billion in 1995. The increase was primarily the result of assets
acquired in purchase accounting acquisitions, an increase in the securities
available for sale portfolio and the repricing of variable rate assets.
Net Interest Margin
The net interest margin, which is the difference between the tax-equivalent
yield on earning assets and the rate paid on funds to support those assets, was
4.21 percent in 1996, compared with 4.46 percent in 1995. The margin decline was
primarily related to the securitization of $1.5 billion in credit card
receivables on September 30, 1995; the addition of lower spread investment
securities in the early months of 1996; the addition of acquired banks and
thrifts with lower margins; the reduction in the prime rate from 1995; and the
purchase 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 to increase net interest income.
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
<PAGE>
FIRST UNION CORPORATION 23
NONINTEREST EXPENSE
(Dollars in billions)
2.8 3.4 3.5 3.7 4.1 4.7
91 92 93 94 95 96
OVERHEAD
EFFICIENCY RATIO
(Percent)
60 66 61 61 60 57
91 92 93 94 95* 96*
*Excluding SAIF assessment and
restructuring charges.
YEAR-END EARNING
ASSETS
(Dollars in billions)
Loans, net
Investment Securities
Securities Available for Sale
Other
79 84 93 101 118 124
91 92 93 94 95 96
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 and Capital Management divisions, to provide
additional sources of fee income that complement our long-standing banking
products and services. These investments were reflected in the 26 percent growth
in noninterest income, excluding investment securities transactions, to $2.3
billion in 1996, from $1.8 billion in 1995.
Virtually all categories of noninterest income increased in 1996. Key
contributions came from Capital Management fee income, including mutual funds,
all trust services, CAP accounts, IRAs, brokerage services and insurance, which
increased 32 percent in 1996 to $566 million from $428 million in 1995.
Assets under management, which include mutual funds and trust services,
increased in 1996 to $61.4 billion from $45.5 billion in 1995. The growth in
assets under management resulted from internal and external marketing and
distribution strategies, as well as from acquisitions. The First Union-advised
Evergreen Keystone family of mutual funds increased to $27.3 billion in assets
under management at December 31, 1996, from $13.3 billion at December 31, 1995,
primarily as a result of the Keystone acquisition.
Additionally Capital Markets activities contributed noninterest income of $464
million in 1996 compared with $261 million in 1995, substantially all of which
is included in sundry income. Capital Markets activities include railcar and
commercial leasing, specialized industries lending, loan syndications, asset
securitizations, commercial real estate securitizations and affordable housing.
Additionally sundry income also includes a gain of $43 million from the sale of
mortgage servicing rights in 1996. Trading activities, which contributed $102
million to noninterest income in 1996 compared with $69 million in 1995, also
are conducted by the Capital Markets Group.
Noninterest Expense
Noninterest expense increased in 1996 to $4.7 billion from $4.1 billion in 1995.
The 1996 results include a $133 million pre-tax SAIF special assessment and $281
million in pre-tax, merger-related restructuring charges. The 1995 results
include pre-tax, merger-related restructuring charges of $94 million. In
addition to the special charges, the increase in noninterest expense was
primarily related to purchase accounting acquisitions that resulted in higher
personnel costs, an increase in equipment expense and an increase in external
data processing expense. In addition the increase reflects our continued
investments in fee-income generating businesses such as those managed by the
Capital Management and the Capital Markets Groups, in which expenses move more
in tandem with revenues. Without the special charges our operating overhead
efficiency expense ratio was 57 percent in 1996 compared with 60 percent in
1995.
BALANCE SHEET REVIEW
Earning Assets
Earnings from our primary earning assets, securities and loans, are subject
to two principal kinds of risks, interest rate risk and credit risk. Interest
rate risk could result if rate indices related to sources and uses of funds were
mismatched. Our Funds Management Committee manages interest rate risk, as well
as credit risks associated with securities, under specific policy standards,
which are discussed in more detail in the Interest Rate Risk Management section.
<PAGE>
24 PERFORMANCE HIGHLIGHTS
YEAR-END SECURITIES AVAILABLE FOR SALE
66% U.S. Government
Agencies
14% Other
13% U.S. Treasury
Securities
7% Collateralized
Mortgage Obligations
YEAR-END INVESTMENT SECURITIES
44% U.S. Government
Agencies
32% Municipals
19% Collateralized
Mortgage Obligations
5% Other
YEAR-END LOANS
29% Real Estate-Mortgage
24% Commercial, Financial
and Agricultural
22% Installment Loans-
Other
10% Commercial Real
Estate-Mortgage
6% Installment Loans-
Bankcard
6% Other
3% Commercial Construction
YEAR-END CONSUMER LOANS
43% Mortgage Loans to
Individuals
17% Direct Lending
15% Second Mortgages
10% Sales Finance
10% Bankcard
5% Mortgage Warehouse
and Securitized Mortgages
The loan portfolio carries the potential credit risk of past due, nonperforming
or, ultimately, charged-off loans. We manage this risk primarily through credit
approval standards, which are discussed in the Loans section.
Average earning assets in 1996 were $120.8 billion, a 14 percent increase from
$106.3 billion in 1995.
Securities Available For Sale
At December 31, 1996, we had securities available for sale with a market value
of $14.2 billion, compared with $18.2 billion at year-end 1995. In 1996 we sold
$18.5 billion in securities as part of the corporate balance sheet management
process. This action, as well as purchases of $16.0 billion, will result in a
higher-yielding earning asset mix. The market value of securities available for
sale was $12 million below amortized cost at December 31, 1996.
The average rate earned on securities available for sale was 6.59 percent in
1996 and 6.41 percent in 1995. The average maturity of the portfolio was 4.91
years at December 31, 1996.
Investment Securities
Investment securities are those securities that we intend to hold to maturity.
These securities are carried at amortized cost. First Union's investment
securities amounted to $2.5 billion at December 31, 1996, compared with $3.1
billion at year-end 1995. This decline resulted from scheduled maturities,
prepayments and issuer calls.
The average rate earned on investment securities in 1996 was 8.68 percent,
compared with 7.54 percent in 1995. The increase in yield was primarily related
to the year-end 1995 transfer of lower-yielding securities to the available for
sale portfolio. The average maturity of the portfolio was 5.93 years at December
31, 1996.
<PAGE>
FIRST UNION CORPORATION 25
YEAR-END
COMMERCIAL LOANS
Industry Classification In millions
Manufacturing $ 4,383
Retail trade 1,975
Wholesale trade 1,550
Services 5,300
Financial services 2,503
Insurance 470
Real estate-related 1,585
Communication 1,230
Transportation 810
Public utilities 608
Agriculture 481
Construction 449
Mining 387
Individuals 1,136
Public administration 745
Other 5,964
Total $29,576
YEAR-END COMMERCIAL
REAL ESTATE LOANS
Number
Project Type In millions of loans
Apartments $ 1,864 1,679
Condominiums 161 182
Land-improved 666 1,089
Land-unimproved 385 683
Lodging 277 200
Office buildings 2,358 3,784
Industrial 1,480 2,826
Retail 1,967 1,885
Single family 560 2,956
Other 2,460 3,791
Total $12,178 19,075
NONPERFORMING
ASSETS
(Dollars in billions)
2.6 2.0 1.4 .89 .83 .76
91 92 93 94 95 96
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.
Net loans at December 31, 1996, were $95.9 billion, compared with $90.6 billion
at year-end 1995. Average net loans in 1996 increased 9 percent to $90.7 billion
from $83.3 billion in 1995. Demand for credit slowed in 1996, and branch sales
campaigns focused more heavily on investment products rather than on lending
products. Commercial loans increased slightly in 1996, primarily due to
additional lease financings. On the consumer side, credit cards and direct
lending continue to be the highest-yielding portfolios.
The average rate earned on loans in 1996 was 8.55 percent compared with 8.71
percent in 1995. Factors affecting loan rates in 1996 compared with 1995
included a general decrease in market rates used to price loans. For example the
prime rate decreased to an average of 8.27 percent in 1996 from 8.44 percent in
1995. Other factors included the 1995 credit card securitization, which removed
$1.5 billion in credit card receivables from our balance sheet, as well as a
larger portfolio of fixed and adjustable rate mortgages as a result of bank and
thrift acquisitions. These factors were offset somewhat by the upward repricing
of adjustable rate mortgages and credit card portfolio introductory rates.
ASSET QUALITY
Nonperforming Assets
The credit quality of interest-bearing loans and securities is crucial to the
profitability of the corporation. Non-performing assets are those assets that
are not paying principal and/or interest as contractually required, or where
full and timely future payments are in doubt. These assets reduce our income
through lower amounts of interest income and higher provisions for losses. Asset
quality is typically measured by the levels of nonperforming and past due
assets; the amount of charge-offs and provisions; and certain credit-related
ratios such as charge-offs to net loans, and nonperforming assets to net loans
and foreclosed properties.
At December 31, 1996, nonperforming assets were $763 million, or 0.80 percent of
net loans and foreclosed properties, compared with $826 million, or 0.91
percent, at December 31, 1995.
Loans or properties of less than $5 million each made up 81 percent, or $616
million, of nonperforming assets at
YEAR-END NONACCRUAL
COMMERCIAL LOANS
Industry Classification In millions
Manufacturing $ 74
Retail trade 14
Wholesale trade 11
Services 34
Financial services 19
Real estate-related 9
Transportation 2
Agriculture 13
Construction 9
Individuals 24
Other 9
Total $218
YEAR-END
NONPERFORMING ASSETS
Excluding commercial loans.
Project Type In millions
Apartments $ 10
Condominiums 1
Industrial 22
Land-improved 12
Land-unimproved 28
Lodging 1
Office buildings 41
Retail 16
Single family 256
Other 158
Total $545
<PAGE>
26 PERFORMANCE HIGHLIGHTS
COMPARISON OF
FUNDING SOURCES
(Percent)
Long-Term Debt
4% 6% 6%
Short-Term
Borrowings
10% 16% 18%
Deposits
86% 78% 76%
94 95 96 94 95 96
December 31, 1996. Fifty-four percent of nonperforming assets were
collateralized primarily by real estate at December 31, 1996, compared with 50
percent at year-end 1995.
Accruing loans 90 days past due were $290 million at both December 31, 1996, and
December 31, 1995.
Net Charge-Offs
Net charge-offs as a percentage of average net loans were 0.63 percent in 1996
compared with 0.41 percent in 1995. Net charge-offs, excluding credit cards,
were 0.30 percent in 1996, compared with 0.22 percent in 1995.
The increase in net charge-offs in 1996 was principally related to the maturing
credit card portfolio and to a single, large commercial credit in the first
quarter of 1996. With respect to the credit card portfolio, and consistent with
the rest of the industry, we are experiencing a higher than anticipated level of
personal bankruptcies and contractual past due accounts. Charge-off rates
related to the credit card portfolio are not likely to decline in 1997. We do
not believe the higher levels of net charge-offs in the credit card portfolio
are indicative of any significant deterioration in the credit quality of the
total loan portfolio. We are carefully monitoring trends in both the commercial
and consumer loan portfolios for signs of credit weakness. Additionally we have
evaluated our credit policies in light of changing economic trends, and we have
taken appropriate steps where necessary. All of these steps have been taken with
the goals of minimizing future credit losses and deterioration and of allowing
for maximum profitability.
Provision And Allowance
For Loan Losses
The loan loss provision was $375 million in 1996 compared with $220 million
in 1995. The increase in the loan loss provision was based primarily on current
economic conditions and on the maturity and level of nonperforming assets.
We establish reserves principally based on loan grades, historical loss rates,
borrowers' creditworthiness, underlying cash flows from the project and from the
borrowers, and analysis of various other factors. The allowance for loan losses
was $1.4 billion at December 31, 1996, compared with $1.5 billion at year-end
1995. The ratio of the allowance for loan losses to nonaccrual and restructured
loans was 204 percent at December 31, 1996, and 233 percent at December 31,
1995. The ratio of the allowance to net loans was 1.42 percent at December 31,
1996, compared with 1.66 percent at December 31, 1995.
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 Middle Atlantic region, creates considerable
funding diversity and stability.
In addition to an unused, $350 million back-up line of credit, we have several
additional on- and off-balance sheet funding sources.
<PAGE>
FIRST UNION CORPORATION 27
CORE DEPOSITS
(Dollars in billions)
68.2 73.3 78.4 81.0 86.4 90.1
91 92 93 94 95 96
Core Deposits
Core deposits are a fundamental and cost-effective funding source for any
banking institution. Core deposits were $90.1 billion at December 31, 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.
Average core deposit balances were $86.1 billion in 1996, an increase of $4.5
billion from 1995 primarily related to acquisitions. Average balances in
savings and NOW, other consumer time and noninterest-bearing deposits were
higher when compared with 1995, while money market deposits were lower. Deposits
can be affected by branch closings or consolidations, seasonal factors and the
rates being offered compared to other investment opportunities.
Purchased Funds
Purchased funds at December 31, 1996, were $27.8 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 1996 were $28.8 billion, an increase of 46 percent
from $19.7 billion in 1995. The increase was used primarily to fund loans and to
purchase available for sale portfolio securities earlier in the year.
Long-Term Debt
Long-term debt was 77 percent of total stockholders' equity at December 31,
1996, compared with 79 percent at December 31, 1995. In 1996 we added $860
million of subordinated notes and debentures with rates ranging from 6.824
percent to 7.574 percent and maturities of 10 years to 30 years. Proceeds from
these debt issues were used for general corporate purposes.
Guaranteed Preferred Beneficial Interests
In 1996 we created a trust that issued trust capital securities amounting to
$500 million. In January 1997, two other trusts issued a combined $500 million
of these securities. These securities are considered to be tier 1 capital for
regulatory purposes.
Stockholders' Equity
The management of capital in a regulated banking environment requires a balance
between maximizing leverage and return on equity to stockholders while
maintaining sufficient capital levels and related ratios to satisfy regulatory
requirements. We have historically generated attractive returns on equity to
stockholders while maintaining sufficient regulatory capital ratios.
At December 31, 1996, total stockholders' equity was $10.0 billion compared with
$9.0 billion at December 31, 1995, and 287 million common shares were
outstanding compared with 278 million shares at December 31, 1995. From time to
time we purchase our common stock in the open market. In conjunction with
stock-for-stock acquisitions of banks and thrifts in 1996, we purchased 12
million shares of common stock at a cost of $764 million. Additionally we
purchased 3 million shares of common stock in 1996 at a cost of $204 million to
offset issuances of common stock related to First
<PAGE>
28 PERFORMANCE HIGHLIGHTS
REGULATORY
CAPITAL TO ASSETS
(Percent)
1996 Regulatory Minimum-
Well Capitalized
First Union
Tier 1 Total Capital
6.00 7.33 10.00 12.33
Union's employee stock compensation plans, dividend reinvestment plan and the
conversion of shares of the corporation's convertible preferred stock. This
compares with purchases of 20 million shares at a cost of $965 million in 1995.
On January 13, 1997, we announced that from time to time we may repurchase up to
25 million shares of the corporation's outstanding common stock.
Regulatory Capital
Federal banking regulations require that bank holding companies and their
subsidiary banks maintain minimum levels of capital. At December 31, 1996, the
tier 1 and total capital ratios were 7.33 percent and 12.33 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. The leverage ratio at December
31, 1996, was 6.13 percent compared with 5.49 percent at December 31, 1995.
INTEREST RATE RISK
MANAGEMENT
Managing interest rate risk is fundamental to banking. 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 Funds Management Committee
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 the established policy guidelines, which
limit the maximum negative impact on earnings per share to 5 percent. Our
interest rate sensitivity remained well within that boundary based on our
January 1997 outlook.
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
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 into our interest rate risk management process in the same manner
as on-balance sheet instruments.
Our overall goal is to manage our rate sensitivity in ways that result in
earnings not being 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
<PAGE>
FIRST UNION CORPORATION 29
NET INTEREST INCOME GROWTH
VS. UNREALIZED GAINS/LOSSES
(Dollars in billions)
Net Interest Income Growth
(Tax-Equivalent) 4.3 4.6 4.7 5.1
(Customer to fill in plot points)
Unrealized Gains/Losses
(On- and Off-Balance Sheet) 903m 1.1b 771m 311m
93 94 95 96
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.
Despite significant year-to-year fluctuations in market value of both
on- and off-balance positions and related fluctuations in the net interest
income contribution from these positions, tax-equivalent net interest income
continued to increase. This is the outcome we strive to achieve in using
portfolio securities and off-balance sheet products to balance the income
effects of core loans and deposits from changing interest rate environments.
The fair value appreciation of off-
balance sheet derivative financial instruments used to manage our interest rate
sensitivity was $188 million at December 31, 1996, compared with fair value
appreciation of $390 million at December 31, 1995.
<PAGE>
30 FINANCIAL TABLES
Table 1
Selected Statistical Data
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Profitability
Net interest margin 4.21% 4.46 4.75 4.82 4.73 4.12
Net income per common share $ 5.35 5.04 4.58 4.30 2.53 2.34
Return on common stockholders' equity 16.41% 16.69 16.38 17.26 11.28 11.38
Return on assets (a) 1.12 1.21 1.29 1.22 0.77 0.68
Overhead efficiency ratio (b) 63 62 61 61 66 60
Dividend payout ratio on common shares
(based on operating earnings) 34.87 34.05 34.16 30.25 40.61 41.91
Capital Adequacy (c)
Tier 1 capital to risk-weighted assets 7.33 6.70 7.76 9.14 9.22 7.56
Asset Quality
Net charge-offs to
Loans, net (a) 0.63 0.41 0.40 0.78 1.03 1.53
Loans, net, excluding Bankcard (a)(d) 0.30 0.22 0.32 0.72 -- --
Allowance for loan losses to
Loans, net 1.42 1.66 2.03 2.38 2.57 2.49
Nonaccrual and restructured loans 204 233 248 151 105 77
Nonperforming assets 179 182 178 115 76 55
Nonperforming assets to loans, net and
foreclosed properties 0.80% 0.91 1.14 2.06 3.36 4.45
</TABLE>
(a) Based on average balances.
(b) The overhead efficiency ratio is equal to noninterest expense divided
by net operating revenue. Net operating revenue is equal to the sum of
tax-equivalent net interest income and noninterest income.
(c) Capital ratios for 1991-1994 are not restated for pooling of interests
acquisitions.
(d) Comparable data is not available prior to 1993.
<PAGE>
FIRST UNION CORPORATION 31
<TABLE>
<CAPTION>
Table 2
Consolidated Summaries of Income, Per Common Share And Balance Sheet Data
Years Ended December 31,
(In millions, except per share data) 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Consolidated Summaries Of Income
Interest income $ 9,628 8,687 7,231 6,602 6,609 7,031
Interest income (a) $ 9,712 8,792 7,352 6,736 6,753 7,199
Interest expense 4,632 4,052 2,793 2,482 2,942 4,071
Net interest income (a) 5,080 4,740 4,559 4,254 3,811 3,128
Provision for loan losses 375 220 179 370 643 946
Net interest income after provision for
loan losses (a) 4,705 4,520 4,380 3,884 3,168 2,182
Securities available for sale transactions 31 44 6 33 39 54
Investment security transactions 4 5 4 7 (3) 155
Noninterest income 2,322 1,848 1,566 1,542 1,360 1,255
Merger-related restructuring charges (b) 281 94 -- -- -- --
SAIF special assessment (c) 133 -- -- -- -- --
Noninterest expense 4,254 3,999 3,747 3,536 3,443 2,778
Income before income taxes (a) 2,394 2,324 2,209 1,930 1,121 868
Income taxes 811 789 712 579 278 130
Tax-equivalent adjustment 84 105 121 134 144 168
Net income 1,499 1,430 1,376 1,217 699 570
Dividends on preferred stock 9 26 46 46 53 52
Net income applicable to common
stockholders before redemption premium 1,490 1,404 1,330 1,171 646 518
Redemption premium on preferred stock -- -- 41 -- -- --
Net income applicable to common
stockholders $ 1,490 1,404 1,289 1,171 646 518
Per Common Share Data
Net income (d) $ 5.35 5.04 4.58 4.30 2.53 2.34
Cash dividends $ 2.20 1.96 1.72 1.50 1.28 1.12
Average common shares (In thousands) 278,812 278,677 281,663 272,438 255,384 221,469
Average common stockholders' equity (e) $ 9,079 8,412 7,870 6,782 5,724 4,554
Common stock price
High 77 58 7/8 47 5/8 51 1/2 44 7/8 30 7/8
Low 51 1/2 41 3/8 39 3/8 37 7/8 29 1/2 13 3/4
Period-end $ 74 55 5/8 41 3/8 41 1/4 43 5/8 30
To earnings ratio (f) 13.83X 11.04 8.76 9.60 17.25 12.82
To book value 212% 174 147 154 187 141
Book value $ 34.83 31.89 28.19 26.71 23.36 21.21
Balance Sheet Data
Assets 140,127 131,880 113,529 104,550 95,308 89,488
Loans, net 95,858 90,563 77,831 68,263 60,301 58,725
Earning assets 123,815 118,010 101,001 93,460 84,464 79,140
Noninterest-bearing deposits 18,632 17,043 15,917 16,208 14,583 12,464
Interest-bearing deposits 76,183 75,512 71,948 65,677 61,573 59,931
Long-term debt 7,660 7,121 4,242 3,675 3,733 3,550
Total stockholders' equity $10,008 9,043 8,274 7,946 6,717 5,806
Internal Capital Growth 9.56% 10.45 10.45 11.18 6.11 5.92
</TABLE>
(a) Tax-equivalent.
(b) Merger-related restructuring charges amounted to $181 million after tax in
1996 and $73 million after tax in 1995.
(c) The SAIF special assessment amounted to $86 million after tax in 1996.
(d) In 1994, net income per common share before the redemption premium was
$4.72.
(e) Average common stockholders' equity excludes average net unrealized gains
or losses on debt and equity securities.
(f) Based on net income applicable to common stockholders before redemption
premium.
<PAGE>
32 FINANCIAL TABLES
Table 3
Selected Lines of Business (a)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
First Union Other
Customer Direct Home Equity Consumer Capital Capital Mortgage
(In millions) Access Division Bank Banking Markets Management Banking
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income (b) $ 910 334 1,729 1,440 75 1,844
Interest expense 343 193 981 1,117 37 1,304
Noninterest income 135 38 25 464 566 155
Other Data
Net charge-offs 280 5 118 50 -- 14
Average loans, net 4,863 3,362 18,456 9,912 174 23,843
Nonperforming assets 25 12 82 69 -- 195
Average deposits -- -- -- 3,315 959 --
Assets under care -- -- -- -- 159,137 --
Assets under management -- -- -- -- 61,381 --
Residential loans serviced $ -- -- -- -- -- 50,762
</TABLE>
(a) Certain information is prepared from internal management reports.
Average loans, net for the Customer Direct Access Division (formerly
Card Products) excludes $1.5 billion of securitized credit cards
managed by the Division.
(b) Tax-equivalent.
Table 4
Selected Six-Year Data (a)
Years Ended December 31,
1996 1995 1994 1993 1992 1991
First Union Corporation
ATMs 2,429 2,123 1,242 1,189 847 943
Employees 44,333 44,536 31,858 32,861 23,459 24,203
Common stockholders 103,538 89,257 54,236 58,670 37,955 33,456
(a) 1991-1994 are not restated for pooling of interests acquisitions.
<PAGE>
FIRST UNION CORPORATION 33
Management's Statement Of Financial Responsibility
Management of First Union Corporation and its subsidiaries (the "Corporation")
is committed to the highest standards of quality customer service and the
enhancement of stockholder value. Management expects the Corporation's employees
to respect its customers and to assign the highest priority to customer needs.
The accompanying condensed consolidated financial statements were prepared in
conformity with generally accepted accounting principles and include, as
necessary, best estimates and judgments by management. Other financial
information contained in this summary annual report is presented on a basis
consistent with the complete consolidated financial statements unless otherwise
indicated.
To ensure the integrity, objectivity and fairness of the information in these
condensed consolidated financial statements, management of the Corporation has
established and maintains an internal control structure that is supplemented by
a program of internal audits. The internal control structure is designed to
provide reasonable assurance that assets are safeguarded and transactions are
executed, recorded and reported in accordance with management's intentions and
authorizations and to comply with applicable laws and regulations. To enhance
the reliability of the internal control structure, management recruits and
trains highly qualified personnel, and maintains sound risk management
practices.
The complete consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors, in accordance with generally accepted
auditing standards. KPMG Peat Marwick LLP reviews the results of its audit with
both management and the Audit Committee of the Board of Directors of the
Corporation. The Audit Committee, composed entirely of outside directors, meets
periodically with management, internal auditors and KPMG Peat Marwick LLP to
determine that each is fulfilling its responsibilities and to support actions to
identify, measure and control risks and augment internal controls.
/s/ Edward E. Crutchfield
Edward E. Crutchfield
Chairman and Chief Executive Officer
/s/ Robert T. Atwood
Robert T. Atwood
Executive Vice President and Chief Financial Officer
January 16, 1997
Independent Auditors' Report
Board of Directors and Stockholders
First Union Corporation
We have audited the consolidated balance sheets of First Union Corporation and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1996. Such consolidated
financial statements and our report thereon dated January 16, 1997, expressing
an unqualified opinion (which are not presented herein), are included in the
First Union Corporation 1996 Report on Form 10-K. The accompanying condensed
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on such condensed
consolidated financial statements in relation to the complete consolidated
financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheets as of December 31, 1996 and 1995, and the related
condensed consolidated statements of income for each of the years in the
three-year period ended December 31, 1996, is fairly stated in all material
respects in relation to the basic consolidated financial statements from which
it has been derived.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 16, 1997
<PAGE>
34 FINANCIAL TABLES
First Union Corporation And Subsidiaries Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
(In millions, except per share data) 1996 1995
<S> <C> <C>
Assets
Cash and due from banks $ 6,509 6,312
Interest-bearing bank balances 316 79
Federal funds sold and securities purchased under resale agreements 7,024 4,153
Total cash and cash equivalents 13,849 10,544
Trading account assets 3,934 1,881
Securities available for sale (amortized cost $14,194 in 1996; $17,993 in 1995) 14,182 18,194
Investment securities (market value $2,636 in 1996; $3,320 in 1995) 2,501 3,140
Loans, net of unearned income ($2,206 in 1996; $1,546 in 1995) 95,858 90,563
Allowance for loan losses (1,365) (1,508)
Loans, net 94,493 89,055
Premises and equipment 4,073 2,553
Due from customers on acceptances 763 616
Other intangible assets 2,849 2,432
Other assets 3,483 3,465
Total $ 140,127 131,880
Liabilities And Stockholders' Equity
Deposits
Noninterest-bearing deposits 18,632 17,043
Interest-bearing deposits 76,183 75,512
Total deposits 94,815 92,555
Short-term borrowings 23,024 19,500
Bank acceptances outstanding 764 616
Other liabilities 3,361 3,045
Long-term debt 7,660 7,121
Total liabilities 129,624 122,837
Guaranteed preferred beneficial interests in Corporation's junior
subordinated deferrable interest debentures 495 --
Stockholders' Equity
Preferred stock -- 183
Common stock, $3.331/3 par value; authorized 750,000,000 shares,
outstanding 287,348,312 shares in 1996; 277,845,768 shares in 1995 958 926
Paid-in capital 2,336 1,975
Retained earnings 6,727 5,848
Unrealized gain (loss) on debt and equity securities, net (13) 111
Total stockholders' equity 10,008 9,043
Total $ 140,127 131,880
</TABLE>
<PAGE>
FIRST UNION CORPORATION 35
First Union Corporation And Subsidiaries Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31,
(In millions, except per share data) 1996 1995 1994
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $7,724 7,223 5,824
Interest and dividends on securities available for sale 1,104 706 734
Interest and dividends on investment securities
Taxable income 130 401 353
Nontaxable income 70 109 134
Trading account interest 270 91 64
Other interest income 330 157 122
Total interest income 9,628 8,687 7,231
Interest Expense
Interest on deposits 2,960 2,853 2,046
Interest on short-term borrowings 1,197 817 496
Interest on long-term debt 475 382 251
Total interest expense 4,632 4,052 2,793
Net interest income 4,996 4,635 4,438
Provision for loan losses 375 220 179
Net interest income after provision for loan losses 4,621 4,415 4,259
Noninterest Income
Trading account profits 102 69 52
Service charges on deposit accounts 666 616 580
Mortgage banking income 155 150 88
Capital management income 566 428 330
Securities available for sale transactions 31 44 6
Investment security transactions 4 5 4
Fees for other banking services 157 160 131
Sundry income 676 425 385
Total noninterest income 2,357 1,897 1,576
Noninterest Expense
Salaries 1,781 1,615 1,436
Other benefits 415 347 337
Personnel expense 2,196 1,962 1,773
Occupancy 351 353 353
Equipment 417 320 270
Advertising 41 72 65
Telecommunications 102 87 76
Travel 92 78 61
Postage, printing and supplies 162 139 123
FDIC assessment 41 120 184
Professional fees 88 176 169
External data processing 114 71 72
Other intangible amortization 243 229 163
Merger-related restructuring charges 281 94 --
SAIF special assessment 133 -- --
Sundry expense 407 392 438
Total noninterest expense 4,668 4,093 3,747
Income before income taxes 2,310 2,219 2,088
Income taxes 811 789 712
Net income 1,499 1,430 1,376
Dividends on preferred stock 9 26 46
Net income applicable to common stockholders before redemption premium 1,490 1,404 1,330
Redemption premium on preferred stock -- -- 41
Net income applicable to common stockholders after redemption premium $ 1,490 1,404 1,289
Per Common Share Data
Net income before redemption premium $ 5.35 5.04 4.72
Net income after redemption premium 5.35 5.04 4.58
Cash dividends $ 2.20 1.96 1.72
Average common shares (In thousands) 278,812 278,677 281,663
</TABLE>
<PAGE>
36 GLOSSARY OF TERMS
Asset Sensitivity
When a company's asset, liability and off-balance sheet financial instrument mix
results in diminished net interest income in a declining interest rate
environment.
Collateralized
Mortgage Obligation (CMO)
A mortgage-backed bond that is divided into separate maturity classes called
tranches. The cash flows for each tranche are paid out in a specific order to
investors based on the prepayment characteristics of the underlying mortgages.
Debit Cards
A method of payment that is tied to a customer's checking account. When used to
make a purchase, the bank-issued debit card (which looks like a credit card)
acts as a "plastic check," and money is deducted directly from the customer's
checking account.
Derivatives
A term used to include a broad base of financial instruments that are, for
the most part, "derived" from underlying securities traded in the cash markets.
Examples include interest rate swaps, index amortizing interest rate swaps,
swaptions, options and futures contracts.
Earnings Per
Common Share
Net income, adjusted for preferred stock dividends, divided by the average
number of common shares outstanding.
Futures Contract
An agreement to buy or sell a specific amount of a commodity or financial
instrument at a particular price on a stipulated future date.
Index Amortizing
Interest Rate Swap
An interest rate swap in which the final maturity date may contract, and
the "notional amount" may decrease, based on changes in certain interest
rate indices.
Interest Rate Swap
A contractual transaction between two parties in which each agrees to exchange
interest rate payments for a specified period of time. These payments are
calculated on a "notional amount," and no exchange of principal occurs.
Such a transaction is commonly used to manage the asset or liability
sensitivity of a balance sheet by converting fixed rate assets or
liabilities to floating rates, or vice versa.
Internet
A global network of computers providing access to the Information Superhighway.
Liability Sensitivity
When a company's asset, liability and off-balance sheet financial instrument mix
results in diminished net interest income in a rising interest rate environment.
Managed Card Portfolio
Owned and securitized credit card receivables.
Mark-To-Market
A method of accounting for
a corporation's assets or liabilities by recording them at their current market
values, rather than at their historical costs.
Mortgage Banking Income
Noninterest income related to mortgage banking activity.
Mortgage Servicing Portfolio
Mortgage loans owned by investors for which a company manages payment
processing, remittance and escrow accounts.
Net Charge-Offs
The amount of loans written off as uncollectible, net of the recovery of loans
previously written off as uncollectible.
Net Interest Margin
The difference between the tax-equivalent yield on earning assets and the rate
paid on funds to support those assets, divided by average earning assets.
Net Operating Revenue
The sum of tax-equivalent
net interest income and noninterest income.
Noninterest Expense
All expenses other than interest.
Noninterest Income
All income other than interest and dividend income.
Nonperforming Assets
Assets on which income is not being accrued for financial reporting purposes;
restructured loans on which interest rates or terms of repayment have been
materially revised; and other real estate that has been acquired through loan
foreclosures, in-substance foreclosures or deeds received in lieu of loan
payments.
Notional Amount
The principal amount of a financial instrument on which a derivative transaction
is based. In an interest rate swap, for example, the "notional amount" is used
to calculate the interest rate cash flows to be exchanged. No exchange of
principal occurs.
Option
A contractual agreement that allows, but does not require, a holder to buy (or
sell) a financial instrument at a predetermined price for a specified time.
Overhead
Efficiency Ratio
Noninterest expense divided by net operating revenue.
Pooling Of Interests
An accounting method that may restate historical financial information of the
surviving company in a merger as if the two entities were always one, depending
on the material significance of the acquired company to the surviving company.
Purchase Accounting
An accounting method that adds the fair market value of assets and liabilities
of the company acquired to those of the acquiror at the time of acquisition.
Historical financial information of the acquiror is not restated.
Return On Assets (ROA)
Net income as a percentage of average assets.
Return On Common
Equity (ROE)
Net income applicable to common stockholders as a percentage of average
common stockholders' equity, excluding unrealized gains and losses on
certain securities.
Security Gains Or Losses
A gain or loss resulting from the sale of a security at a price above
or below the security's carrying value.
Smart Cards
A plastic card containing microchips that store data. Although many kinds of
information can be embedded on a smart card (which looks like a credit card),
most issuers are primarily interested in storing cash value.
Stockholders' Equity
A balance sheet amount that represents the total investment in the corporation
by holders of preferred and common stock.
Stored Value Cards
Plastic cards embedded with computer chip technology and used in place of cash
or checks.
Swaptions
Options on interest rate swaps.
<PAGE>
FIRST UNION CORPORATION 37
First Union Corporation Board of Directors
Edward E. Barr
Chairman, President
and Chief Executive Officer,
Sun Chemical Corporation
Fort Lee, New Jersey
G. Alex Bernhardt
Chairman and Chief
Executive Officer,
Bernhardt Furniture Company
Lenoir, North Carolina
W. Waldo Bradley
Chairman,
Bradley Plywood
Corporation
Savannah, Georgia
Robert J. Brown
Chairman, President
and Chief Executive Officer,
B&C Associates, Inc.
High Point, North Carolina
Edward E. Crutchfield
Chairman and Chief
Executive Officer,
First Union Corporation
Charlotte, North Carolina
Robert D. Davis*
Chairman, D.D.I., Inc.
Jacksonville, Florida
R. Stuart Dickson
Chairman of
Executive Committee,
Ruddick Corporation
Charlotte, North Carolina
B.F. Dolan
Investor
Charlotte, North Carolina
Roddey Dowd Sr.
Chairman,
Charlotte Pipe
and Foundry Company
Charlotte, North Carolina
John R. Georgius
Vice Chairman,
First Union Corporation
Charlotte, North Carolina
Arthur M. Goldberg
Executive Vice President and
President of Gaming Operations,
Hilton Hotels Corporation
Beverly Hills, California
William H. Goodwin Jr.
Chairman,
CCA Industries Inc.
Richmond, Virginia
Brenton S. Halsey*
Chairman Emeritus,
James River Corporation
Richmond, Virginia
Howard H. Haworth
President, The Haworth Group
Charlotte, North Carolina
Frank M. Henry
Chairman, Frank Martz
Coach Company
Wilkes-Barre, Pennsylvania
Leonard G. Herring
Investor
North Wilkesboro, North Carolina
Juan Rodriguez Inciarte
Director and Executive
Vice President,
Banco Santander, S.A.
Madrid, Spain
Jack A. Laughery
Chairman,
Laughery Investments
Rocky Mount, North Carolina
Max Lennon
President,
Mars Hill College
Mars Hill, North Carolina
Radford D. Lovett
Chairman, Commodores
Point Terminal Corporation
Jacksonville, Florida
Joseph Neubauer
Chairman, President
and Chief Executive Officer,
ARAMARK Corporation
Philadelphia, Pennsylvania
Henry D. Perry Jr.*
Physician
Plantation, Florida
Randolph N. Reynolds
Vice Chairman,
Reynolds Metals Company
Richmond, Virginia
Ruth G. Shaw
Senior Vice President,
Corporate Resources,
and Chief Administrative
Officer, Duke Power Company
Charlotte, North Carolina
Charles M. Shelton Sr.
General Partner,
The Shelton Companies
Charlotte, North Carolina
Lanty L. Smith
Chairman and Chief
Executive Officer,
Precision Fabrics Group, Inc.
Greensboro, North Carolina
Anthony P. Terracciano
President,
First Union Corporation
Summit, New Jersey
Dewey L. Trogdon
Chairman,
Cone Mills Corporation
Greensboro, North Carolina
John D. Uible
Investor
Jacksonville, Florida
B.J. Walker
Vice Chairman,
First Union Corporation
Jacksonville, Florida
Committees Of The Corporate Board Of Directors
Executive Committee
B.F. Dolan, Chairman
Edward E. Crutchfield
Robert D. Davis
R. Stuart Dickson
Arthur M. Goldberg
William H. Goodwin Jr.
Leonard G. Herring
Radford D. Lovett
Joseph Neubauer
Lanty L. Smith
Anthony P. Terracciano
B.J. Walker
Audit Committee
G. Alex Bernhardt, Chairman
Howard H. Haworth, Vice Chairman
Robert J. Brown
Frank M. Henry
Henry D. Perry Jr.
Randolph N. Reynolds
James H. Hatch (staff)
Peter J. Schild (staff)
Credit/Market Risk
Committee
Lanty L. Smith, Chairman
Ruth G. Shaw, Vice Chairman
Robert D. Davis
Roddey Dowd Sr.
John R. Georgius
Arthur M. Goldberg
Juan Rodriguez Inciarte
Anthony P. Terracciano
Malcolm T. Murray Jr. (staff)
Louis A. Schmitt Jr. (staff)
Financial Services Committee
William H. Goodwin Jr., Chairman
Brenton S. Halsey, Vice Chairman
John R. Georgius
Jack H. Laughery
Max A. Lennon
Joseph Neubauer
John D. Uible
Anthony P. Terracciano
Robert T. Atwood (staff)
G. Kennedy Thompson (staff)
Human Resources
Committee
R. Stuart Dickson, Chairman
Leonard G. Herring, Vice Chairman
Edward E. Barr
W. Waldo Bradley
B.F. Dolan
Radford D. Lovett
Charles M. Shelton Sr.
Dewey L. Trogdon
Don R. Johnson (staff)
Nominating Committee
B.F. Dolan, Chairman
R. Stuart Dickson, Vice Chairman
Edward E. Crutchfield
William H. Goodwin Jr.
Leonard G. Herring
Radford D. Lovett
Anthony P. Terracciano
Executive
Officers
Edward E. Crutchfield
Chairman and
Chief Executive Officer,
First Union Corporation
Anthony P. Terracciano
President,
First Union Corporation
John R. Georgius
Vice Chairman,
First Union Corporation
B.J. Walker
Vice Chairman,
First Union Corporation
Robert T. Atwood
Executive Vice President
and Chief Financial Officer,
First Union Corporation
Marion A. Cowell Jr.
Executive Vice President,
Secretary and General Counsel,
First Union Corporation
* Retiring in 1997
<PAGE>
38 BANK BOARDS OF DIRECTORS
First Union National Bank Of Florida
Bob D. Allen
President and Chief
Executive Officer, Consolidated-Tomoka Land Company
Daytona Beach, Florida
William B. Bond
Investor
Jacksonville, Florida
E. Bruce Bower
President, The Florida Stock
and Land Company
Jacksonville, Florida
A. Dano Davis
Chairman and Principal
Executive Officer,
Winn-Dixie Stores, Inc.
Jacksonville, Florida
Alexander W. Dreyfoos Jr.
Chairman and Owner,
Photo Electronics Corporation
West Palm Beach, Florida
J. Nelson Fairbanks
President and Chief
Executive Officer, United
States Sugar Corporation
Clewiston, Florida
Byron E. Hodnett
President and Chief Executive Officer, First Union
National Bank of Florida
Jacksonville, Florida
Edward W. Lane III
Partner, Hughes & Lane Professional Association
Jacksonville, Florida
John F. Lowndes
Attorney, Lowndes,
Drosdick, Doster,
Kantor & Reed, P.A.
Orlando, Florida
Jorge Mascanosa
Chairman,
MasTec, Inc.
Miami Springs, Florida
W.A. McGriff III
Investor
Jacksonville, Florida
John A. Mitchell III
Chairman,
First Union National
Bank of Florida
Jacksonville, Florida
Orrin D. Mitchell
Orthodontist
Jacksonville, Florida
Ray C. Osborne
Attorney, Osborne,
Osborne & deClaire, P.A.
Boca Raton, Florida
Herbert H. Peyton
President,
Gate Petroleum Company
Jacksonville, Florida
William J. Schoen
Chairman, President and
Chief Executive Officer,
Health Management
Associates, Inc.
Naples, Florida
Mel Sembler
Chairman,
The Sembler Company
St. Petersburg, Florida
B.J. Walker
Vice Chairman,
First Union Corporation
Jacksonville, Florida
J. Wayne Weaver
Chairman and Chief
Executive Officer,
Jacksonville Jaguars, Ltd.
Jacksonville, Florida
Carol Graham Wyllie
Executive Vice President,
The Graham Companies
Miami Lakes, Florida
First Union National Bank Of Georgia
W. Frank Blount
Chief Executive Officer,
Telstra Communications Inc.
Sydney, Australia
Otis A. Brumby Jr.
Publisher and Chief
Executive Officer,
The Marietta Daily Journal
and Neighbor Newspapers Inc.
Marietta, Georgia
David M. Carroll
Chairman, President and
Chief Executive Officer,
First Union National
Bank of Georgia
Atlanta, Georgia
John E. Cay III
President and Chief
Executive Officer,
Palmer & Cay Inc.
Savannah, Georgia
Thomas W. Cole Jr.
President,
Clark Atlanta University
Atlanta, Georgia
Edwin M. Crawford
Chairman, President and
Chief Executive Officer,
Magellan Health Services Inc.
Atlanta, Georgia
Jere A. Drummond
President and Chief
Executive Officer,
BellSouth
Telecommunications Inc.
Atlanta, Georgia
Harald R. Hansen
Retired Chairman,
First Union National
Bank of Georgia
Atlanta, Georgia
J. Madden Hatcher Jr.
Partner,
Bradley & Hatcher
Columbus, Georgia
James W. Key
Investor
Columbus, Georgia
Wyck A. Knox
Partner,
Kilpatrick Stockton
Augusta, Georgia
David L. Kolb
Chairman and Chief
Executive Officer,
Mohawk Industries, Inc.
Atlanta, Georgia
J. Robert Logan, M.D.
Partner,
Georgia Ear Institute
Savannah, Georgia
Robert C. McMahan
President and Chief
Executive Officer,
Golden Point Group, Inc.
Braselton, Georgia
C.V. Nalley III
President and Chief
Executive Officer,
The Nalley Companies
Atlanta, Georgia
Walton K. Nussbaum
Investor
Savannah, Georgia
Thomas H. Pacer
Executive Vice President
and Head of General
Banking Group,
First Union National
Bank of Georgia
Atlanta, Georgia
Carl E. Sanders
Chairman,
Troutman, Sanders
Atlanta, Georgia
Henry C. Schwob
President,
Schwob Realty Company
Atlanta, Georgia
Arnold M. Tenenbaum
President,
Chatham Steel Corporation
Savannah, Georgia
Dan M. Vaden Jr.
President,
Dan Vaden
Chevrolet-Geo, Inc.
Savannah, Georgia
<PAGE>
FIRST UNION CORPORATION 39
First Union National Bank Of North Carolina
George E. Battle Jr.
Bishop and Presiding Prelate,
AME Zion Church-
Eastern Episcopal District
Charlotte, North Carolina
John R. Belk
Senior Vice President,
Belk Store Services Inc.
Charlotte, North Carolina
Daniel T. Blue Jr.
Attorney,
Thigpen, Blue,
Stephens and Fellers
Raleigh, North Carolina
B. Mayo Boddie Sr.
Chairman and Chief
Executive Officer,
Boddie-Noell Enterprises, Inc.
Rocky Mount, North Carolina
Raymond A. Bryan Jr.
Chairman,
T.A. Loving Company
Goldsboro, North Carolina
John F.A.V. Cecil
President,
Biltmore Farms, Inc.
Biltmore, North Carolina
John W. Copeland
President,
Ruddick Corporation
Charlotte, North Carolina
John Crosland Jr.
Chairman and President,
The Crosland Group, Inc.
Charlotte, North Carolina
J. William Disher
Retired Chairman,
Lance, Inc.
Charlotte, North Carolina
Malcolm E. Everett III
Chairman, President and
Chief Executive Officer,
First Union National
Bank of North Carolina
Charlotte, North Carolina
James F. Goodmon
President and Chief
Executive Officer,
Capitol Broadcasting Company, Inc.
Raleigh, North Carolina
Shelton Gorelick
President,
SGIC, Inc.
Charlotte, North Carolina
Charles L. Grace
President,
Cummins Atlantic, Inc.
Charlotte, North Carolina
James E.S. Hynes
Chairman,
Hynes Sales Company
Charlotte, North Carolina
Mackey J. McDonald
President and Chief
Executive Officer,
VF Corporation
Wyomissing, Pennsylvania
Earl N. Phillips Jr.
President and Chief
Executive Officer,
First Factors Corporation
High Point, North Carolina
J.G. Poole Jr.
Chairman and Chief
Executive Officer,
Gregory Poole
Equipment Company
Raleigh, North Carolina
John P. Rostan III
General Partner,
Heritage Investments, LLP
Valdese, North Carolina
Nelson Schwab III
Managing Director,
Carousel Capital Company
Charlotte, North Carolina
George Shinn
Owner/President,
Shinn Enterprises Inc.
Charlotte, North Carolina
Harley F. Shuford Jr.
Chairman,
CV Industries
Hickory, North Carolina
Stanley E. Wright
Retired President and
Chief Executive Officer,
Raleigh Federal Savings Bank
Raleigh, North Carolina
First Union North New Jersey, New York, Pennsylvania, Connecticut and Delaware
Louis E. Azzato
Director and Retired
Chairman, President and
Chief Executive Officer,
Foster Wheeler Corporation
Clinton, New Jersey
Anthony R. Burriesci
Executive Vice President
and Chief Financial Officer,
First Union National Bank
Summit, New Jersey
Lee A. Butz
President, Alvin H. Butz, Inc.
Allentown, Pennsylvania
Luther R. Campbell Jr.
Partner, Campbell,
Rappold & Yurasits, LLP
Allentown, Pennsylvania
John Gilray Christy
Chairman,
Chestnut Capital Corporation
Flourtown, Pennsylvania
James G. Cullen
Vice Chairman,
Bell Atlantic Corporation
Arlington, Virginia
Gonzalo de Las Heras
Executive Vice President,
Banco Santander, S.A.
Madrid, Spain
E. James Ferland
Chairman, President and
Chief Executive Officer,
Public Service Enterprise
Group Incorporated
Newark, New Jersey
Arthur M. Goldberg
Executive Vice President and
President of Gaming Operations,
Hilton Hotels Corporation
Beverly Hills, California
Frank M. Henry
Chairman, Frank Martz
Coach Company
Wilkes-Barre, Pennsylvania
William F. Hyland
Of Counsel, Riker, Danzig,
Scherer, Hyland and Perretti
Morristown, New Jersey
Juan Rodriguez Inciarte
Director and Executive
Vice President,
Banco Santander, S.A.
Madrid, Spain
Rocco J. Marano
Director and Retired
Chairman, Blue Cross
and Blue Shield
of New Jersey Inc.
Chatham, New Jersey
Joseph A. McBride
Chairman and Chief
Executive Officer,
The Frank A. McBride Company
Hawthorne, New Jersey
Martin Meyerson
President Emeritus,
University of Pennsylvania
Philadelphia, Pennsylvania
James D. Morrissey Jr.
President and Chief
Operating Officer,
James D. Morrissey, Inc.
Philadelphia, Pennsylvania
Peter C. Palmieri**
Vice Chairman,
First Union National Bank
Summit, New Jersey
Donald C. Parcells
President,
First Union National Bank
Summit, New Jersey
Robert Montgomery Scott
President and Chief Executive Officer,
Philadelphia Museum of Art
Philadelphia, Pennsylvania
Harold W. Sonn
Former Chairman and Chief Executive Officer,
Public Service Enterprise Group Incorporated
Newark, New Jersey
Rebecca Stafford
President, Monmouth University
West Long Branch, New Jersey
Sefton Stallard
General Partner, North American Venture Capital Fund L.P.
New Vernon, New Jersey
Norman Tanzman
Senior Partner, Jacobson, Goldfarb
and Tanzman Associates
Woodbridge, New Jersey
Anthony P. Terracciano
President, First Union Corporation
Summit, New Jersey
Bernard C. Watson
Chairman,
The HMA Foundation, Inc.
Philadelphia, Pennsylvania
** Retired in 1996
<PAGE>
40 BANK BOARDS OF DIRECTORS
First Union National Bank Of South Carolina
Peter C. Browning
President and Chief
Operating Officer,
Sonoco Products Company
Hartsville, South Carolina
Kester S. Freeman
President and Chief
Executive Officer,
Richland Memorial Hospital
Columbia, South Carolina
William M. Hull Jr.
President, Rock Hill Eye Clinic
Rock Hill, South Carolina
I.S. Leevy Johnson
Senior Partner, Johnson,
Toal & Battiste, P.A.
Columbia, South Carolina
James E. McDonald
Attorney,
Burns, McDonald, Bradford,
Patrick and Tinsley
Greenwood, South Carolina
Patrick W. McKinney
President,
Kiawah Island
Real Estate Inc.
Charleston, South Carolina
F. Creighton McMaster
Chief Executive Officer,
Winnsboro Petroleum
Company Inc.
Winnsboro, South Carolina
Ralph L. Ogden
Chief Operating Officer,
Right Source Inc.
Greenville, South Carolina
John D. Orr
President,
Orr Company Inc.
Florence, South Carolina
William L. Otis Jr.
Chairman and Chief Executive Officer, Columbia Lumber and
Manufacturing Co.
Columbia, South Carolina
Joseph P. Riley Jr.
Mayor,
City of Charleston
Charleston, South Carolina
Alfred B. Robinson
President,
Robinson Company, Inc.
Easley, South Carolina
Sue A. Sommer Kresse
Vice President for
Enrollment Management,
College of Charleston
Charleston, South Carolina
Sidney B. Tate
Chairman, President
and Chief Executive Officer,
First Union National Bank
of South Carolina
Greenville, South Carolina
First Union National Bank Of Virginia Virginia, Maryland and Washington, D.C.
George R. Aldhizer Jr.
Partner, Wharton, Aldhizer &
Weaver, P.L.C.
Harrisonburg, Virginia
J. Richard Carling
Vice Chairman, First Union National Bank of Virginia
Roanoke, Virginia
James B. Crawford
Chairman and Chief Executive Officer, James River Coal Co., Inc.
Richmond, Virginia
Warner N. Dalhouse
Retired Chairman, First Union National Bank of Virginia
Roanoke, Virginia
Alice W. Handy
Treasurer, University of Virginia
Charlottesville, Virginia
Robert W. Helms
Vice Chairman,
First Union National
Bank of Virginia
Roanoke, Virginia
Janet Hill
Vice President, Alexander & Associates Inc.
Washington, D.C.
James T. Holland
President and Chief
Executive Officer,
O'Sullivan Corporation
Winchester, Virginia
Glenn A. Hunsucker
President and Chief
Operating Officer,
Bassett Furniture Industries Inc.
Bassett, Virginia
Benjamin P. Jenkins III
Chairman, Chief Executive
Officer and President,
First Union National
Bank of Virginia
Roanoke, Virginia
William E. Lavery
President Emeritus,
Virginia Tech
Blacksburg, Virginia
John L. Ray
Partner, Manett,
Phelps & Phillips
Washington, D.C.
Thomas L. Robertson
President and Chief
Executive Officer,
Carilion Health System
Roanoke, Virginia
William G. Shenkir
Professor, McIntire
School of Commerce,
University of Virginia
Charlottesville, Virginia
Donald G. Smith
Chairman, President,
Chief Executive Officer and Treasurer, Roanoke
Electric Steel Corporation
Roanoke, Virginia
Glenn O. Thornhill Jr.
Chairman and Chief
Executive Officer,
Maid Bess Corporation
Salem, Virginia
Paul E. Torgersen
President, Virginia Tech
Blacksburg, Virginia
First Union National Bank Of Tennessee
T.B. Boyd III
President and Chief Executive Officer, National Baptist
Publishing Board
Nashville, Tennessee
Frank M. Bumstead
Chairman and
Chief Executive Officer,
FBMS Financial Inc.
Nashville, Tennessee
Davis H. Carr
Attorney, Boult, Cummings,
Conners & Berry, PLC
Nashville, Tennessee
Colleen Conway-Welch
Dean, School of Nursing,
Vanderbilt University
Nashville, Tennessee
John P. Cooper
General Partner,
Maryland Commons, LLC
Nashville, Tennessee
J. William Denny
President,
Nashville Gas Division
of Piedmont
Natural Gas Inc.
Nashville, Tennessee
Lloyd C. Elam
Partner, Mental Health
Associates of Nashville
Nashville, Tennessee
William M. Johnson
Investor
Sparta, Tennessee
Donald M. Macleod
Executive Vice President,
First Union National Bank of Tennessee
Nashville, Tennessee
Beth Ayers McCague
Chairman, President and Chief
Executive Officer, First Union
National Bank of Tennessee
Nashville, Tennessee
Gail O'Sullivan Neuman
Vice President and General Counsel,
Nissan Motor Manufacturing Corporation, U.S.A.
Smyrna, Tennessee
Richard W. Oliver
Professor, Owen Graduate School of
Management, Vanderbilt University
Nashville, Tennessee
James E. Robinson
Chairman, Hodge-Hardy Agency, Inc.
Newport, Tennessee
Thomas J. Sherrard
Attorney, Sherrard & Roe
Nashville, Tennessee
Reese L. Smith III
President,
Haury & Smith Contractors Inc.
Nashville, Tennessee
Jack B. Turner
President, Jack B. Turner &
Associates Inc.
Clarksville, Tennessee
George L. Yowell
President, Tennessee Tomorrow, Inc.
Nashville, Tennessee
<PAGE>
FIRST UNION CORPORATION 41
Map of the Unitied States appears here with the following words:
FIRST UNION
ACROSS THE NATION
Bank Branches
First Union Capital
Markets Group
First Union Home Equity
Bank, N.A.
First Union Mortgage
Corporation
Principal Subsidiaries
First Union National Bank
Of Florida
A full-service commercial bank.
225 Water Street
Jacksonville, Florida 32202
904-361-2265
First Union National Bank
Of North Carolina
A full-service commercial bank.
One First Union Center
Charlotte, North Carolina 28288
704-374-6161
First Union National Bank
Of Georgia
A full-service commercial bank.
999 Peachtree Street,
Suite 1200
Atlanta, Georgia 30309
404-827-7100
First Union National Bank
Of Virginia
A full-service commercial bank.
213 South Jefferson Street
Roanoke, Virginia 24040
540-563-7000
First Union National Bank
Of South Carolina
A full-service commercial bank.
Insignia Financial Plaza,
One Insignia Place
Greenville, South Carolina 29601
864-255-8000
First Union National Bank
Of Tennessee
A full-service commercial bank.
150 Fourth Avenue North
Nashville, Tennessee 37219
615-251-9200
First Union National Bank
Of Washington, D.C.
A full-service commercial bank.
740 15th Street NW
Washington, D.C. 20005
703-821-7777
First Union National Bank
Of Maryland
A full-service commercial bank.
Congressional Plaza Branch
110 Congressional Lane
Rockville, Maryland 20852
301-650-1046
First Union National Bank New Jersey, New York
and Pennsylvania
A full-service commercial bank.
102 Pennsylvania Avenue
Avondale, Pennsylvania 19311
610-268-2201
First Union Bank
Of Connecticut
A full-service commercial bank.
300 Main Street
Stamford, Connecticut 06904
203-348-6211
First Union Bank
Of Delaware
A full-service commercial bank.
One Rodney Square
Tenth and King Streets
Wilmington, Delaware 19801
302-888-7500
First Union Brokerage Services Inc.
Securities brokerage firm.
One First Union Center
Charlotte, North Carolina 28288
704-374-6927
First Union Capital
Markets Corp.
Provides a wide range of securities
services in accordance with
Federal Reserve Board powers
granted to subsidiaries of bank
holding companies.
One First Union Center
Charlotte, North Carolina 28288
704-383-8757
First Union Commercial Corporation
Provides equipment lease financing.
One First Union Center
Charlotte, North Carolina 28288
704-374-4900
First Union Home Equity Bank, N.A.
Offers home equity loans.
1000 Louis Rose Place
Charlotte, North Carolina 28262
704-593-9300
First Union Mortgage Corporation
Offers a variety of mortgage
banking and insurance services.
Two First Union Center
Charlotte, North Carolina 28288
704-374-6161
Foreign Offices
Nassau Branch
First Union National Bank
of North Carolina
Nassau, Bahamas
First Union Bank And Trust (Cayman) Ltd.
Cayman Islands
First Union National Bank
London, England
First Union National Bank
Mumbai, India
(formerly Bombay, India)
First Union HKCB Asia Ltd.
Hong Kong, Hong Kong
First Union National Bank
Johannesburg, South Africa
<PAGE>
42 STOCKHOLDER INFORMATION
Securities And Debt Ratings
First Union Corporation's senior long-term debt is rated A by Standard & Poor's;
A1 by Moody's; and A+ by Thomson BankWatch. Subordinated debt is rated A- by
S&P; A2 by Moody's; and A by Thomson BankWatch. Commercial paper is rated A-1 by
S&P; P-1 by Moody's; and TBW-1 by Thomson BankWatch.
First Union Corporation's subsidiary banks' ratings for short-term letters of
credit and certificates of deposit are P-1, A-1 and TBW-1 by Moody's, S&P and
Thomson BankWatch, respectively. Long-term senior debt and certificates of
deposit are rated Aa3 and A+ by Moody's and S&P, respectively.
HOW TO REACH US:
Financial Information
Analysts, stockholders and other investors seeking financial information about
First Union Corporation should contact Alice Lehman, managing director of
Corporate Communications and Investor Relations at 704-374-4139.
Fax-On-Demand
Call 1-800-283-6214 for the latest
news announcements through
FAX-On-Demand.
Investor Relations
General information may be obtained
by calling Investor Relations at
704-374-6782. Investor Relations also can provide information about our dividend
reinvestment program and direct deposit of dividends. Copies of our 1996 Annual
Report on Form 10-K may be obtained from Investor Relations, Two First Union
Center, Charlotte, North Carolina 28288-0206.
Stockholder Accounts
If you have questions concerning your stockholder account, please call our
transfer agent, First Union National Bank of North Carolina, at 1-800-347-1246.
Media Contact
News media seeking general information should contact R. Jeep Bryant, senior
vice president for Media Relations, at 704-374-2957.
Annual Meeting
The annual meeting of stockholders will be at 9:30 a.m. on
Tuesday, April 15, 1997, in the 12th floor auditorium of Two First
Union Center, Charlotte, North Carolina.
Annual Report On CD-ROM
If you would like a CD-ROM of First Union's 1996 Summary Annual Report and
downloadable financial tables, please contact First Union Investor Relations.
Duplicate Copies
Our goal is to reduce the expense associated with mailing financial reports to
stockholders by receiving your authorization to mail only one per address. This
authorization is strictly voluntary.
Stock Listing
First Union Corporation common stock is traded on the New York Stock Exchange
under the symbol FTU.
Equal Opportunity Employer
First Union Corporation is an equal opportunity employer. All matters regarding
recruiting, hiring, training, compensation, benefits, promotions, transfers and
all other personnel policies will continue to be free from discriminatory
practices.
NAIC
First Union Corporation is a corporate sponsor of NAIC (National Association of
Investment Clubs) and participates in the Low-Cost Investment Plan.
Internet Address
Our Internet global computer address is: http://www.firstunion.com/ or via
electronic mail: [email protected].
First Union Toll-Free Number
Customers nationwide who wish to open a First Union checking or savings account,
transfer funds, apply for mortgage, home equity or car loans, request credit
cards and conduct other banking transactions may call: 1-800-413-7898.
<PAGE>
experience and solutions
Buy financial products at
your convenience with First
Union through the Internet
or toll-free phone lines--
24 hours a day, seven days
a week. Internet address:
http://www.firstunion.com/
Nationwide toll-free phone
number: 1-800-413-7898.
convenience and service
<PAGE>
FIRST UNION CORPORATION
1996 Summary Annual Report
Two First Union Center
Charlotte, NC 28288-0570
<PAGE>
1 9 9 6
FIRST UNION CORPORATION
AND SUBSIDIARIES
ANNUAL REPORT
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
1996 ANNUAL REPORT
TABLE OF CONTENTS
- - -----------------------------------------------------------------------------
Management's Analysis of Operations 1
Financial Tables T-1
Five-Year Net Interest Income Summaries T-25
Management's Statement of Financial Responsibility C-1
Independent Auditors' Report C-2
Consolidated Balance Sheets C-3
Consolidated Statements of Income C-4
Consolidated Statements of Changes in Stockholders' Equity C-5
Consolidated Statements of Changes in Cash Flows C-7
Notes to Consolidated Financial Statements C-8
<PAGE>
PERFORMANCE REVIEW
- - --------------------------------------------------------------------------------
EARNINGS HIGHLIGHTS
First Union's operating earnings in 1996, before special charges, were a record
$1.8 billion, or $6.31 per common share. The special charges were after-tax
merger-related restructuring charges of $181 million and an after-tax Savings
Association Insurance Fund (SAIF) special assessment of $86 million. Operating
earnings in 1995 were $1.5 billion, or $5.30 per share before restructuring
charges of $73 million after-tax, or 26 cents per share, taken in the fourth
quarter of 1995. After the special charges, net income applicable to common
stockholders was $1.5 billion, or $5.35 per share, in 1996 compared with $1.4
billion, or $5.04 per share, in 1995.
The restructuring charges were taken in connection with the January 1, 1996,
First Fidelity Bancorporation pooling of interests acquisition. All financial
information and tables for prior periods have been restated to reflect the
acquisition unless indicated otherwise. The SAIF special assessment resulted
from 1996 legislation to recapitalize the SAIF. The assessment applied to $25.0
billion in deposits (out of our $94.8 billion deposit base) that were originally
acquired from thrift institutions.
In the fourth quarter of 1996, operating earnings were a record $459 million, or
$1.66 per share, an increase of 14 percent from $404 million, or $1.45 before
restructuring charges, in the fourth quarter of 1995.
Key factors in 1996 earnings growth compared with 1995 were:
(bullet) 7 percent growth in tax-equivalent net interest income;
(bullet) 26 percent growth in noninterest, or fee, income (excluding investment
securities transactions);
(bullet) Improvement in nonperforming assets, with the percentage of net loans
and foreclosed properties declining to 0.80 percent from 0.91 percent
in 1995; and
(bullet) An operating overhead efficiency ratio of 57 percent compared with 60
percent in 1995 (excluding the special charges).
Tax-equivalent net interest income increased to $5.1 billion in 1996 from $4.7
billion in 1995. Revenue growth also included a 32 percent increase in Capital
Management fee income and a 78 percent increase in Capital Markets fee income.
Noninterest expense increased in 1996 to $4.7 billion from $4.1 billion in 1995.
The restructuring and SAIF charges accounted for more than half of the increase.
Average net loans increased 9 percent to $90.7 billion in 1996 from $83.3
billion in 1995. Nonperforming assets were $763 million, or 0.80 percent of net
loans and foreclosed properties, at December 31, 1996, compared with $826
million, or 0.91 percent, at December 31, 1995. Net charge-offs were 0.63
percent in 1996 compared with 0.41 percent in 1995. Excluding net charge-offs
related to the credit card portfolio, 1996 net charge-offs were 0.30 percent
compared with 0.22 percent in 1995. At December 31, 1996, the credit card
portfolio represented 6 percent of the total loan portfolio.
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
capital markets activity and mortgage banking operations are our principal
sources of revenues. Foreign banking operations are immaterial.
1
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OUTLOOK
First Union continues to build a diverse revenue mix that decreases the
company's reliance on interest income and increases the contribution from
revenue sources that are less affected by volatility in economic conditions and
movements in interest rates. Our goal is to increase noninterest income in
proportion to total revenue to 40 percent by the year 2000. To this end we have
made significant discretionary investments in recent years, particularly in the
Capital Management, Capital Markets and electronic and remote banking areas of
our company. These high growth business lines diversify our revenue streams and
complement our traditional loan and deposit products.
The response in both our northern and southern markets to mutual funds, asset
management accounts, annuities and other investment planning products and
services continues to be strong. In addition we gained access to an expanded
network of broker-dealers as well as expanded investment management activities
with the completion on December 11, 1996, of the purchase accounting acquisition
of Keystone Investments, Inc., a Boston-based investment manager and mutual fund
advisory company with $11.6 billion in assets under management.
We completed additional purchase accounting acquisitions of five banks and
thrifts in North Carolina, Florida, Tennessee and Connecticut, and three railcar
leasing operations in 1996. The railcar leasing acquisitions operate under the
name First Union Rail Corporation. The railcar purchases make First Union Rail
the second largest general freight car leasing operation in North America.
We also consummated the purchase of the trustee and agency servicing rights to
the corporate trust portfolio of Meridian Trust Company based in Pennsylvania,
which added approximately 1,100 bond trustee and agency accounts and increased
First Union's corporate trust servicing portfolio to approximately $125 billion
in principal outstanding. In addition we consummated the purchase of two
insurance agencies in Virginia and Pennsylvania.
The 1996 acquisitions added combined assets, net loans and deposits of $7.8
billion, $4.8 billion and $5.1 billion, respectively, to our December 31, 1996,
balance sheet. These acquisitions will help First Union improve market share in
its banking operations and will further diversify sources of noninterest income.
Also in 1996 we acquired a 32.5 percent equity ownership interest in NOVA
Corporation of Atlanta, Georgia, in exchange for our merchant bankcard
processing business.
We continue to be alert to opportunities to enhance stockholder value through
acquisitions. Our primary management attention is focused on leveraging our
existing base as we invest in new technology and fee income-generating lines of
business. The significant investments we have made in acquisitions, in
technology and in expanded products and services position us to serve our 12
million customers in a diverse geographic marketplace and to reduce the impact
of shifts in the credit cycle.
We also continue to evaluate acquisition opportunities that will provide access
to customers and markets that we believe complement our long-term goals.
Acquisition discussions and in some cases negotiations also take place, and
future acquisitions involving cash, debt or equity securities may be expected.
Acquisitions typically involve the payment of a premium over book and market
values. Some temporary 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.
2
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INCOME STATEMENT REVIEW
- - -------------------------------------------------------------------------------
NET INTEREST INCOME
Tax-equivalent net interest income increased 7 percent to $5.1 billion in 1996
from $4.7 billion in 1995. The increase was primarily the result of assets
acquired in purchase accounting acquisitions, an increase in the securities
available for sale portfolio and the repricing of variable rate assets.
Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In 1996, $54 million in gross interest
income would have been recorded if all nonaccrual and restructured loans had
been current in accordance with their original terms and had been outstanding
throughout the period, or since origination if held for part of the period. The
amount of interest income related to these assets and included in income in 1996
was $12 million.
NET INTEREST MARGIN
The net interest margin, which is the difference between the tax-equivalent
yield on earning assets and the rate paid on funds to support those assets, was
4.21 percent in 1996 compared with 4.46 percent in 1995. The margin decline was
primarily related to the securitization of $1.5 billion in credit card
receivables on September 30, 1995; the addition of lower spread investment
securities in the early months of 1996; the addition of acquired banks and
thrifts with lower margins; the reduction in the prime rate from 1995; and the
purchase 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 to increase net interest income. The average rate earned on
earning assets was 8.04 percent in 1996 and 8.27 percent in 1995. The average
rate paid on interest-bearing liabilities was 4.38 percent in 1996 and 4.43
percent in 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 and Capital Management divisions, to provide
additional sources of fee income that complement our long-standing banking
products and services. These investments were reflected in 26 percent growth in
noninterest income, excluding investment securities transactions, to $2.3
billion in 1996 from $1.8 billion in 1995.
Virtually all categories of noninterest income increased in 1996. Capital
Management fee income, which includes mutual funds, all trust services, CAP
accounts, IRAs, brokerage services and insurance, increased 32 percent in 1996
to $566 million from $428 million in 1995. Assets under management, which
include mutual funds and trust services, increased in 1996 to $61.4 billion from
$45.5 billion in 1995. The growth in assets under management resulted from
internal and external marketing and distribution strategies, as well as from
acquisitions. The First Union-advised Evergreen Keystone mutual fund family
increased to $27.3 billion in assets under management at December 31, 1996, from
$13.3 billion at December 31, 1995, primarily as a result of the Keystone
acquisition.
Capital Markets activities contributed noninterest income of $464 million in
1996 compared with $261 million in 1995, substantially all of which is included
in sundry income. Capital markets activities include railcar and commercial
leasing, specialized industries lending, loan syndications, asset
securitizations, commercial real estate securitizations and affordable housing.
Sundry income also includes a gain of $43 million from the sale of mortgage
servicing rights in 1996.
3
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TRADING ACTIVITIES
Our Capital Markets Group also made a key contribution to noninterest income
through trading profits. Trading profits were $102 million in 1996 compared with
$69 million in 1995. Trading account assets were $3.9 billion at year-end 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 board of directors' Credit/Market Risk
Committee, and all trading positions are recorded at estimated fair value daily.
Trading activities include fixed income securities such as U.S. Treasury,
municipal, mortgage-backed, asset-backed and corporate debt securities. Also
included in trading activities are money market instruments, foreign exchange,
options, futures, forward rate agreements and swaps.
NONINTEREST EXPENSE
Noninterest expense increased in 1996 to $4.7 billion from $4.1 billion in 1995.
The 1996 results include a $133 million pre-tax SAIF special assessment and $281
million in pre-tax, merger-related restructuring charges. The 1995 results
include pre-tax, merger-related restructuring charges of $94 million. In
addition to the special charges, the increase in noninterest expense was
primarily related to purchase accounting acquisitions that resulted in higher
personnel costs, an increase in equipment expense and an increase in external
data processing expense. In addition the increase reflects our continued
investments in fee-income generating businesses such as those managed by the
Capital Management and the Capital Markets Groups, in which expenses move more
in tandem with revenues. Without the special charges, our operating overhead
efficiency expense ratio was 57 percent in 1996 compared with 60 percent in
1995.
The $281 million 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. In the fourth quarter of 1995,
$94 million of such charges were recorded. At December 31, 1996, $299 million of
such charges had been paid and $47 million was related to noncash charges.
Substantially all of the remaining accrual of $29 million at December 31, 1996,
will be paid in 1997.
The $133 million special assessment was related to federal legislation to
recapitalize SAIF, and it was based on $25.0 billion in deposits (out of our
$94.8 billion deposit base) acquired from thrift institutions. Beginning in 1997
we expect to realize a net annual pre-tax benefit of $35 million from reduced
SAIF premiums, which will be largely offset by discretionary investments in
various areas of operations. Additionally the SAIF legislation further provided
for assessments to be imposed on insured depository institutions to pay for the
cost of Financing Corporation funding. We currently estimate assessments may
amount up to $14 million after-tax in 1997 with similar assessments per year
through 1999 (or earlier if no savings association exists prior to December 31,
1999) in connection with such funding.
In addition the FDIC significantly reduced the insurance premiums it charges on
federally insured bank deposits to the statutory minimum of $2,000.00 for well
capitalized banks, effective January 1, 1996. The FDIC premium expense decreased
from $120 million in 1995 to $41 million in 1996. The expense savings in 1996
were largely offset by discretionary investments in areas such as the company's
retail delivery channels, and Capital Markets and Capital Management operations.
Amortization of other intangible assets predominantly represents the
amortization of goodwill and deposit base premium related to purchase accounting
acquisitions. These intangibles are amortized over periods ranging from six to
25 years. Amortization is a noncash charge to income; therefore, liquidity and
funds management activities are not affected. At December 31, 1996, we had $2.8
billion in other intangible assets compared with $2.4 billion at December 31,
1995. Costs related to environmental matters were not material.
4
<PAGE>
INCOME TAXES
Income taxes were $811 million in 1996 compared with $789 million in 1995. The
increase resulted primarily from increased income before income taxes.
BALANCE SHEET REVIEW
- - --------------------------------------------------------------------------------
EARNING ASSETS
Earnings from our primary earning assets, securities and loans, are subject to
two principal kinds of risks: interest rate risk and credit risk. Interest rate
risk could result if rate indices related to sources and uses of funds were
mismatched. Our Funds Management Committee manages interest rate risk, as well
as credit risks associated with securities, under specific policy standards,
which are discussed in more detail in the INTEREST RATE RISK MANAGEMENT section.
In addition to certain securities, off-balance sheet transactions such as
interest rate swaps have been used to maintain interest rate risk at acceptable
levels in accordance with our policy standards. The loan portfolio carries the
potential credit risk of past due, nonperforming or, ultimately, charged-off
loans. We manage this risk primarily through credit approval standards, which
are discussed in the LOANS section. Average earning assets in 1996 were $120.8
billion, a 14 percent increase from $106.3 billion in 1995.
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 gains of $31 million in 1996 and $44
million in 1995.
At December 31, 1996, we had securities available for sale with a market value
of $14.2 billion compared with $18.2 billion at year-end 1995. In 1996 we sold
$18.5 billion in securities as part of the corporate balance sheet management
process. This action, as well as purchases of $16.0 billion, will result in a
higher-yielding earning asset mix. The market value of securities available for
sale was $12 million below amortized cost at December 31, 1996.
The average rate earned on securities available for sale in 1996 was 6.59
percent compared with 6.41 percent in 1995. The average maturity of the
portfolio was 4.91 years at December 31, 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. Our
investment securities amounted to $2.5 billion at December 31, 1996, compared
with $3.1 billion at year-end 1995. This decline resulted from scheduled
maturities, prepayments and issuer calls.
The average rate earned on investment securities was 8.68 percent in 1996 and
7.54 percent in 1995. The increase in yield was primarily related to the
year-end 1995 transfer of lower-yielding securities to the available for sale
portfolio. The average maturity of the portfolio was 5.93 years at December 31,
1996.
5
<PAGE>
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 December 31, 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. Commercial loans are typically either working capital loans, which are
used to finance the inventory, receivables and other working capital needs of
commercial borrowers, or term loans, which are used to finance fixed assets or
acquisitions. Commercial real estate loans typically are used to finance the
construction or purchase of commercial real estate. Consumer loans include
mortgage, credit card, direct lending and installment loans. Consumer mortgage
lending includes both first and second mortgage loans. Credit cards and direct
lending continue to be the highest yielding portfolios.
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 December 31, 1996, were $95.9 billion compared with $90.6 billion
at year-end 1995. Average net loans in 1996 increased 9 percent to $90.7 billion
from $83.3 billion in 1995. Demand for credit slowed in 1996, and branch sales
campaigns focused more heavily on investment products rather than on lending
products. Commercial loans increased slightly in 1996, primarily due to
additional lease financings.
At December 31, 1996, unused loan commitments related to commercial and consumer
loans were $26.3 billion and $21.4 billion, respectively. Commercial and standby
letters of credit were $4.9 billion. At December 31, 1996, loan participations
sold to other lenders amounted to $773 million. They were recorded as a
reduction of gross loans.
The average rate earned on loans was 8.55 percent in 1996 and 8.71 percent in
1995. Factors affecting loan rates in 1996 compared with 1995 included a general
decrease in market rates used to price loans. For example the prime rate
decreased to an average of 8.27 percent in 1996 from 8.44 percent in 1995. Other
factors included the 1995 credit card securitization, which removed $1.5 billion
in credit card receivables from our balance sheet, as well as a larger portfolio
of fixed and adjustable rate mortgages as a result of bank and thrift
acquisitions. These factors were offset somewhat by the upward repricing of
adjustable rate mortgages and credit card portfolio introductory rates.
The ASSET QUALITY section provides information about geographic exposure in the
loan portfolio.
COMMERCIAL REAL ESTATE LOANS
Commercial real estate loans amounted to 12 percent of the total portfolio at
December 31, 1996, compared with 14 percent at December 31, 1995. This portfolio
included commercial real estate mortgage loans of $9.5 billion at December 31,
1996, compared with $10.0 billion at December 31, 1995.
6
<PAGE>
ASSET QUALITY
- - --------------------------------------------------------------------------------
NONPERFORMING ASSETS
Most of our assets are interest-bearing loans and securities. The credit quality
of these assets is crucial to the profitability of the corporation.
Nonperforming assets are those assets that are not paying principal and/or
interest as contractually required, or where full and timely future payments are
in doubt. These assets reduce our income through lower amounts of interest
income and higher provisions for losses. Asset quality is typically measured by
the levels of nonperforming and past due assets; the amount of charge-offs and
provisions; and certain credit-related ratios such as charge-offs to net loans,
and nonperforming assets to net loans and foreclosed properties.
At December 31, 1996, nonperforming assets were $763 million, or 0.80 percent of
net loans and foreclosed properties, compared with $826 million, or 0.91
percent, at December 31, 1995.
Loans or properties of less than $5 million each made up 81 percent, or $616
million, of nonperforming assets at December 31, 1996. Of the rest:
(bullet) 7 loans or properties between $5 million and $10 million each accounted
for $50 million; and
(bullet) 5 loans or properties over $10 million each accounted for $97 million.
Fifty-four percent of nonperforming assets were collateralized primarily by real
estate at December 31, 1996 compared with 50 percent at year-end 1995.
PAST DUE LOANS
Accruing loans 90 days past due were $290 million at both December 31, 1996, and
December 31, 1995. Of these past dues, $20 million were related to commercial
and commercial real estate loans and $270 million were related to retail loans
at December 31, 1996, compared with $15 million and $275 million, respectively,
at December 31, 1995. At December 31, 1996, we were closely monitoring certain
loans for which borrowers were experiencing increased levels of financial
stress. None of these loans were included in nonperforming assets or in accruing
loans past due 90 days, and the aggregate amount of these loans is not
significant.
NET CHARGE-OFFS
Net charge-offs as a percentage of average net loans were 0.63 percent in 1996
compared with 0.41 percent in 1995. Net charge-offs, excluding credit cards,
were 0.30 percent in 1996 compared with 0.22 percent in 1995.
The increase in net charge-offs in 1996 was principally related to the maturing
credit card portfolio and to a single, large commercial credit in the first
quarter of 1996. With respect to the credit card portfolio, and consistent with
the rest of the industry, we are experiencing a higher than anticipated level of
personal bankruptcies and contractually past due accounts. Charge-off rates
related to the credit card portfolio are not likely to decline in 1997. We do
not believe that the higher levels of net charge-offs in the credit card
portfolio are indicative of any significant deterioration in the credit quality
of the total loan portfolio. We are carefully monitoring trends in both the
commercial and consumer loan portfolios for signs of credit weakness.
Additionally we have evaluated our credit policies in light of changing economic
trends, and we have taken appropriate steps where necessary. All of these steps
have been taken with the goals of minimizing future credit losses and
deterioration and of allowing for maximum profitability.
7
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $375 million in 1996 compared with $220 million in
1995. The increase in the loan loss provision was based primarily on current
economic conditions and on the maturity and level of nonperforming assets.
We establish reserves based on various factors, including the results of
quantitative analyses of the quality of commercial loans and commercial real
estate loans. Reserves for commercial and commercial real estate loans are based
principally on loan grades, historical loss rates, borrowers' creditworthiness,
underlying cash flows from the project and from the borrowers, and analysis of
other less quantifiable factors that might influence the portfolio. We analyze
all loans in excess of $1 million that are being monitored as potential credit
problems to determine whether supplemental, specific reserves are necessary.
Reserves for all consumer loans are based principally on delinquencies and
historical and projected loss rates.
The allowance for loan losses was $1.4 billion at December 31, 1996, compared
with $1.5 billion at year-end 1995. In 1996 we reallocated the acquired First
Fidelity allowance for loan losses based on First Union's policies and
procedures. The ratio of the allowance for loan losses to nonaccrual and
restructured loans was 204 percent at December 31, 1996, and 233 percent at
December 31, 1995. The ratio of the allowance to net loans was 1.42 percent at
December 31, 1996, compared with 1.66 percent at December 31, 1995.
At December 31, 1996, impaired loans, which are included in nonaccrual loans,
amounted to $347 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 $32 million related to $214 million of impaired
loans. The remaining impaired loans are recorded at or below fair value. In 1996
the average recorded investment in impaired loans was $452 million, and $19
million of interest income was recognized on loans while they were impaired. All
of this income was recognized using a cash-basis method of accounting.
GEOGRAPHIC EXPOSURE
The loan portfolio in the East Coast region of the United States is spread
primarily across 82 metropolitan statistical areas with diverse economies.
Atlanta, Georgia; Charlotte, North Carolina; Miami and Jacksonville, Florida;
Newark, New Jersey; Philadelphia, Pennsylvania; and Washington, D.C., are our
largest markets. Substantially all of the $12.2 billion commercial real estate
portfolio at December 31, 1996, was located in our East Coast 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 Middle Atlantic region, creates considerable
funding diversity and stability.
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
$150 million at December 31, 1996.
8
<PAGE>
CORE DEPOSITS
Core deposits are a fundamental and cost-effective funding source for any
banking institution. Core deposits were $90.1 billion at December 31, 1996,
compared with $86.4 billion at December 31, 1995. Core deposits include savings,
negotiable order of withdrawal (NOW), money market, noninterest-bearing and
other consumer time deposits.
The portion of core deposits in higher-rate, other consumer time deposits was 35
percent at December 31, 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.
Average core deposit balances were $86.1 billion in 1996, an increase of $4.5
billion from 1995 primarily related to acquisitions. In 1996 and 1995, average
noninterest-bearing deposits were 19 percent of average core deposits. Average
balances in savings and NOW, other consumer time and noninterest-bearing
deposits were higher when compared with 1995, while money market deposits were
lower. Deposits can be affected by branch closings or consolidations, seasonal
factors and the rates being offered compared to other investment opportunities.
The NET INTEREST INCOME SUMMARIES provide additional information about average
core deposits.
PURCHASED FUNDS
Purchased funds at December 31, 1996, were $27.8 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 1996 were $28.8 billion, an increase of 46 percent
from $19.7 billion in 1995. The increase was used primarily to fund loans and to
purchase available for sale portfolio securities earlier in the year.
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 1996 to increase earning assets or to
reduce borrowings.
LONG-TERM DEBT
Long-term debt was 77 percent of total stockholders' equity at December 31,
1996, compared with 79 percent at December 31, 1995. In 1996 we added $860
million of subordinated notes and debentures with rates ranging from 6.824
percent to 7.574 percent and maturities of 10 years to 30 years. Proceeds from
these debt issues were used for general corporate purposes.
Under a shelf registration statement filed with the Securities and Exchange
Commission, we currently have available for issuance $640 million of senior or
subordinated debt securities. The sale of any additional debt securities will
depend on future market conditions, funding needs and other factors.
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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 1997
$1.2 billion of long-term debt will mature, including bank notes of $597
million. Funds for the payment of long-term debt will come from operations or,
if necessary, additional borrowings.
GUARANTEED PREFERRED BENEFICIAL INTERESTS
In 1996 we created a trust that issued trust capital securities amounting to
$500 million. In January 1997, two other trusts issued a combined $500 million
of these securities. The parent company received the proceeds of these trust
capital securities, and it issued junior subordinated debentures to the trusts.
These securities are considered tier 1 capital for regulatory purposes.
STOCKHOLDERS' EQUITY
The management of capital in a regulated banking environment requires a balance
between maximizing leverage and return on equity to stockholders while
maintaining sufficient capital levels and related ratios to satisfy regulatory
requirements. We have historically generated attractive returns on equity to
stockholders while maintaining sufficient regulatory capital ratios.
At December 31, 1996, total stockholders' equity was $10.0 billion, compared
with $9.0 billion at December 31, 1995, and 287 million common shares were
outstanding compared with 278 million shares at December 31, 1995. From time to
time we purchase our common stock in the open market. In conjunction with
stock-for-stock acquisitions of banks and thrifts in 1996, we purchased 12
million shares of common stock at a cost of $764 million. Additionally we
purchased 3 million shares of common stock in 1996 at a cost of $204 million to
offset issuances of common stock related to First Union's employee stock
compensation plans, dividend reinvestment plan and the conversion of shares of
the corporation's convertible preferred stock. This compares with purchases of
20 million shares at a cost of $965 million in 1995.
In the third quarter of 1996 First Union redeemed the outstanding shares of its
Series D and Series F preferred stock at a cost of $109 million. In the fourth
quarter of 1996 First Union redeemed its Series B convertible preferred stock,
substantially all of which converted into 3 million shares of common stock.
On January 13, 1997, we announced that from time to time we may repurchase up to
25 million shares of the corporation's outstanding common stock.
We paid $620 million in dividends to preferred and common stockholders in 1996.
Preferred dividends were $9 million in 1996 compared with $26 million in 1995.
At December 31, 1996, stockholders' equity was reduced by a $13 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.
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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, which include an internal requirement to maintain all
deposit-taking banks at the well capitalized level, our subsidiaries had $533
million available for dividends at December 31, 1996, without prior regulatory
approval. Our subsidiaries paid $2.3 billion in dividends to us in 1996.
REGULATORY CAPITAL
Federal banking regulations require that bank holding companies and their
subsidiary banks maintain minimum levels of capital. These banking regulations
measure capital using three formulas relating to tier 1 capital, total capital
and leverage capital. The minimum level for the ratio of total capital to
risk-weighted assets (including certain off-balance sheet financial instruments,
such as standby letters of credit and interest rate swaps) is currently 8
percent. At least half of total capital is to be composed of common equity,
retained earnings and a limited amount of qualifying preferred stock, less
certain intangible assets (tier 1 capital). The rest may consist of a limited
amount of subordinated debt, nonqualifying preferred stock and a limited amount
of the loan loss allowance (together with tier 1 capital, total capital). At
December 31, 1996, the tier 1 and total capital ratios were 7.33 percent and
12.33 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 December 31, 1996, was 6.13 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 18 had a leverage ratio in excess of 5.37 percent at
December 31, 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 December 31, 1996, the deposit-taking subsidiary
banks listed in Table 18 met the capital and leverage ratio requirements for
well capitalized banks. We expect to maintain these ratios at the required
levels by the retention of earnings and, if necessary, the issuance of
additional capital. Failure to meet certain capital ratio or leverage ratio
requirements could subject a bank to a variety of enforcement remedies,
including termination of deposit insurance by the FDIC. First Union Home Equity
Bank, N.A. is not a deposit-taking bank.
The ACCOUNTING AND REGULATORY MATTERS section provides more information about
proposed changes in risk-based capital standards.
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INTEREST RATE RISK MANAGEMENT
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Managing interest rate risk is fundamental to banking. Banking institutions
manage the inherently different maturity and repricing characteristics of the
lending and deposit-taking lines of business to achieve a desired interest rate
sensitivity position and to limit exposure to interest rate risk. The inherent
maturity and repricing characteristics of our 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 Funds Management Committee,
which includes the three members of the Office of the Chairman and senior
executives from our Capital Markets Group, credit and finance areas, oversees
the interest rate risk management process and approves policy guidelines.
Balance sheet management and finance personnel monitor the day-to-day exposure
to changes in interest rates in response to loan and deposit flows. They make
adjustments within established policy guidelines.
We measure interest rate sensitivity by estimating the amount of earnings per
share at risk based on the modeling of future changes in interest rates. Our
model captures all assets and liabilities and off-balance sheet financial
instruments, and combines various assumptions affecting rate sensitivity and
changes in balance sheet mix into an earnings outlook that incorporates our view
of the most likely interest rate environment over the next 36 months. Balance
sheet management and finance personnel continuously review and update 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).
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Our January 1997 estimate of future short-term interest rates includes a steady
federal funds rate of 5.25 percent for the entire forecast period. Based on the
January 1997 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 3.3 percent. Our model indicates that earnings would
benefit by 2.8 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 negative effects
of changes in interest rates.
OFF-BALANCE SHEET DERIVATIVES FOR INTEREST RATE RISK MANAGEMENT
As part of our overall interest rate risk management strategy, for many years we
have used off-balance sheet derivatives as a cost- and capital-efficient way to
modify the repricing or maturity characteristics of on-balance sheet assets and
liabilities. Our off-balance sheet derivative transactions used for 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
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 such 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 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 to a smaller
unrealized gain of $311 million at December 31, 1996. Despite these large
year-to-year fluctuations in market value and related fluctuations in the net
interest income contribution from these positions, tax-equivalent net interest
income continued to increase. This is the outcome we strive to achieve in using
portfolio securities and off-balance sheet products to balance the income
effects of core loans and deposits from changing interest rate environments.
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The fair value appreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $188 million at
December 31, 1996, compared with fair value appreciation of $390 million at
December 31, 1995.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses related to terminated
positions. The amount of deferred gains and losses was $1 million and $33
million, respectively, at December 31, 1996. These net losses will reduce net
interest income primarily in 1997.
Although off-balance sheet derivative financial instruments do not expose the
corporation to credit risk equal to the notional amount, we are exposed to
credit risk equal to the extent of the fair value gain in an off-balance sheet
derivative financial 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 December 31, 1996, the total
credit risk in excess of thresholds was $126 million. The fair value of
collateral held was 183 percent of the total credit risk in excess of
thresholds. For nondealer transactions the need for collateral is evaluated on
an individual transaction basis, and it is primarily dependent on the financial
strength of the counterparty.
ACCOUNTING AND REGULATORY MATTERS
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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.
Statement of Financial Accounting Standard No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," as
amended, (i) sets forth the criteria for (a) determining when to recognize
financial and servicing assets and liabilities; and (b) accounting for transfers
of financial assets as sales or borrowings; and (ii) requires (a) liabilities
and derivatives related to a transfer of financial assets to be recorded at fair
value; (b) servicing assets and retained interests in transferred assets
carrying amounts be determined by allocating carrying amounts based on fair
value; (c) amortization of servicing assets and liabilities be in proportion to
net servicing income; (d) impairment measurement be based on fair value; and (e)
pledged financial assets be classified as collateral. This Standard provides
implementation guidance for assessing isolation of transferred assets and for
accounting for transfers of partial interests, servicing of financial assets,
securitizations, transfers of sales-type and direct financing lease receivables,
securities lending transactions, repurchase agreements including dollar rolls,
wash sales, loan syndications and participations, risk participations in
banker's acceptances, factoring arrangements, transfers of receivables with
recourse and extinguishments of liabilities.
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This Standard is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, except that
the Standard will be effective for transfers of financial assets and
transactions related to repurchase agreement, dollar rolls, securities lending
and the like, occurring after December 31, 1997, and it is to be applied
prospectively. The effect on the corporation is not expected to be material.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), among other provisions, imposes liability on a bank insured by the
FDIC for certain obligations to the FDIC incurred in connection with other
insured banks under common control with such bank.
The Federal Deposit Insurance Corporation Improvement Act, among other things,
requires a revision of risk-based capital standards. The new standards are
required to incorporate interest rate risk, concentration of credit risk and the
risks of nontraditional activities and to reflect the actual performance and
expected risk of loss of multifamily mortgages. The RISK-BASED CAPITAL section
provides information on risk assessment classifications.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the liquidation or other resolution of such an institution by any receiver.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA)
authorized interstate acquisitions of banks and bank holding companies without
geographic limitation beginning September 27, 1995. Beginning June 1, 1997, a
bank may merge with a bank in another state as long as neither of the states opt
out of interstate branching between the date of enactment of IBBEA and May 31,
1997. IBBEA further provides that a state may enact laws permitting interstate
merger transactions before June 1, 1997. Certain states in which First Union
conducts banking operations have enacted such legislation.
Additionally legislation has been enacted to recapitalize the SAIF. The INCOME
STATEMENT REVIEW--NONINTEREST EXPENSE section provides information on the SAIF
recapitalization.
Various other legislative proposals concerning the banking industry are pending
in Congress. Given the uncertainty of the legislative process, we cannot assess
the impact of any such legislation on our financial condition or results of
operations.
EARNINGS AND BALANCE SHEET ANALYSIS (1995 COMPARED WITH 1994)
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First Union's earnings in 1995, before merger-related restructuring charges,
increased to $1.5 billion, or $5.30 per common share. Including the
restructuring charges, earnings were $1.4 billion, or $5.04 per common share.
The merger-related restructuring charges in 1995 amounted to $73 million after
tax, or 26 cents per common share. These results compare with 1994 results of
$1.3 billion, or $4.72 per share, in net income applicable to common
stockholders before a preferred stock redemption premium.
Tax-equivalent net interest income increased 4 percent from 1994, to $4.7
billion in 1995. The increase primarily reflected loan growth, the repricing of
variable rate assets, and purchase acquisitions. The increase was tempered
somewhat by reduced net yields.
Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In 1995, $69 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 1995
was $17 million.
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The net interest margin was 4.46 percent in 1995 compared with 4.75 percent in
1994. The margin decline in 1995 was primarily related to the addition of
acquired banks and thrifts with lower margins; the addition of short-term
securities; the securitization of credit cards; and the competitiveness of loan
pricing.
Average interest-earning assets increased by $10.5 billion in 1995, resulting in
an increase in tax-equivalent interest income of $1.4 billion. The average rate
earned on earning assets was 8.27 percent in 1995 and 7.67 percent in 1994. The
average rate paid on interest-bearing liabilities was 4.43 percent in 1995 and
3.46 percent in 1994.
Noninterest income, excluding securities transactions, increased to $1.8 billion
in 1995 from $1.6 billion in 1994. Virtually all categories of noninterest
income increased in 1995. Key contributions came from Capital Markets activities
and Capital Management fee income. Mortgage banking operations added $150
million to noninterest income in 1995 compared with $88 million in 1994. The
increase was primarily driven by an increase in the servicing portfolio as a
result of purchase accounting acquisitions. The mortgage loan servicing
portfolio increased to $51.5 billion in 1995 compared with $34.2 billion in
1994.
Securities gains were $49 million in 1995 compared with $10 million in 1994.
Other significant sources of noninterest income include service charges on
deposit accounts, which increased 6 percent in 1995. Insurance commissions and
fees for other banking services also increased in 1995 compared with 1994.
Trading profits increased in 1995 to $69 million from $52 million in 1994. The
increase was the result of general market conditions and expanded trading
volume. At December 31, 1995, trading account assets were $1.9 billion compared
with $1.3 billion at year-end 1994.
Noninterest expense increased in 1995 to $4.1 billion from $3.7 billion in 1994.
Merger-related expenses of $94 million were recorded in the fourth quarter of
1995.
The FDIC significantly reduced the insurance premiums it charges on federally
insured bank deposits in 1995. The FDIC premium expense decreased from $184
million in 1994 to $120 million in 1995. The expense savings in 1995 was largely
offset by discretionary investments in areas such as the company's retail
delivery channels, Capital Markets and Capital Management.
Average earning assets in 1995 were $106.3 billion, an 11 percent increase from
$95.8 billion in 1994.
At December 31, 1995, we had securities available for sale with a market value
of $18.2 billion compared with $11.5 billion at year-end 1994. The market value
of securities available for sale was $201 million above amortized cost at the
end of 1995. An $111 million after-tax unrealized gain was included in
stockholders' equity at December 31, 1995. The average rate earned on securities
available for sale was 6.41 percent in 1995 and 5.54 percent in 1994.
The average maturity of the portfolio was 3.03 years at December 31, 1995.
First Union's investment securities amounted to $3.1 billion at December 31,
1995, compared with $7.9 billion at year-end 1994. As part of the strategy to
reduce exposure to falling interest rates, we added $3.6 billion to the
investment securities portfolio. Additionally $5.9 billion of investment
securities was transferred to the available for sale portfolio. The average rate
earned on investment securities was 7.54 percent in 1995 and 7.23 percent in
1994. The average maturity of the portfolio was 5.15 years at December 31, 1995.
Net loans at December 31, 1995, were $90.6 billion compared with $77.8 billion
at year-end 1994. Of this increase $7.5 billion was related to purchase
acquisitions, with the rest coming from growth in all of our banking states and
in virtually all loan categories. Consumer loan growth was particularly strong
in 1995, primarily in direct lending and home equity lending.
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The loan portfolio at December 31, 1995, was composed of 44 percent in
commercial loans and 56 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1994. At December 31, 1995, unused loan
commitments related to commercial and consumer loans were $22.4 billion and
$16.1 billion, respectively. Commercial and standby letters of credit were $3.6
billion. At December 31, 1995, loan participations sold to other lenders
amounted to $1.5 billion. They were recorded as a reduction of gross loans.
The average rate earned on loans was 8.71 percent in 1995 and 8.28 percent in
1994. The average prime rate was 8.44 percent in 1995 and 6.81 percent in 1994.
Factors affecting loan rates between 1994 and 1995 included several increases in
the prime rate throughout 1994; an increased portion of the loan portfolio tied
to rate indices other than the prime rate; a larger portfolio of fixed and
adjustable rate mortgages; and the repricing of credit card portfolio
introductory rates.
Commercial real estate loans amounted to 14 percent of the total portfolio at
December 31, 1995, compared with 15 percent at December 31, 1994. This portfolio
included commercial real estate mortgage loans of $10.0 billion at December 31,
1995, and $9.5 billion at December 31, 1994.
At December 31, 1995, nonperforming assets were $826 million, or 0.91 percent of
net loans and foreclosed properties, compared with $887 million, or 1.14
percent, at December 31, 1994. The reduction in nonperforming assets was
primarily due to continued collection efforts and prudent management of the
nonperforming assets portfolio. Loans or properties of less than $5 million each
made up 73 percent, or $601 million, of nonperforming assets at December 31,
1995. Fifty percent of nonperforming assets were collateralized by real estate
at year-end 1995 compared with 66 percent at year-end 1994.
In addition to these nonperforming assets, at December 31, 1995, accruing loans
90 days past due were $290 million compared with $272 million at December 31,
1994. Net charge-offs as a percentage of average net loans were 0.41 percent in
1995 compared with 0.40 percent in 1994. The loan loss provision was $220
million in 1995 compared with $179 million in 1994. The allowance for loan
losses was $1.5 billion at December 31, 1995, compared with $1.6 billion at
December 31, 1994.
Core deposits were $86.4 billion at December 31, 1995, compared with $81.0
billion at December 31, 1994. The portion of core deposits in higher-rate, other
consumer time deposits was 37 percent at December 31, 1995, and 34 percent at
year-end 1994.
Average core deposits were $81.6 billion in 1995, an increase of $4.8 billion
from 1994. Average balances in savings and NOW, other consumer time deposits and
noninterest-bearing deposits were higher when compared with the previous year,
while money market deposits were lower. Deposits were primarily affected by the
purchase acquisitions.
Purchased funds at December 31, 1995, were $25.7 billion compared with $17.2
billion at year-end 1994. Average purchased funds in 1995 were $19.7 billion, an
increase of 30 percent from $15.1 billion in 1994. The increase was used
primarily to fund loan growth.
Long-term debt was 79 percent of total stockholders' equity at December 31,
1995, compared with 51 percent at December 31, 1994. The increase in long-term
debt compared with year-end 1994 was primarily related to $1.2 billion of bank
notes with varying rates and terms that mature by 1997. Additionally in 1995 we
issued $300 million of three-year floating rate senior notes and $1.0 billion of
subordinated debentures and notes with rates ranging from 6.55 percent to 7.50
percent and maturities of either 10 years or 40 years.
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At December 31, 1995, total stockholders' equity was $9.0 billion compared with
$8.3 billion at December 31, 1994, and 278 million common shares were
outstanding compared with 285 million shares at December 31, 1994. In 1995 we
paid $965 million for the repurchase of 20 million shares of First Union common
stock. Of these repurchases, 14.0 million shares were related to completed or
pending stock-for-stock purchase accounting acquisitions; 4.8 million shares
were related to the First Fidelity acquisition; and 1.2 million shares were
related to stock options. First Fidelity paid $234 million for the purchase of
5.4 million shares of its common stock in 1995, which were primarily related to
stock options. At December 31, 1995, stockholders' equity reflected an $111
million unrealized after-tax gain related to debt and equity securities.
At December 31, 1995, tier 1 and total capital ratios were 6.70 percent and
11.45 percent, respectively, compared with 7.76 percent and 12.94 percent at
December 31, 1994. The reduction in tier 1 and total capital ratios in 1995 was
due primarily to the common stock repurchase program, the preferred stock
redemption and the increase in total assets and in intangible assets. The
leverage ratio at December 31, 1995, was 5.49 percent, compared with 6.12
percent at December 31, 1994. Each subsidiary bank had a leverage ratio in
excess of 5.17 percent at December 31, 1995.
The fair value appreciation of the off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $390 million at
December 31, 1995, compared with fair value depreciation of $623 million at
December 31, 1994. The carrying amount of financial instruments used for
interest rate risk management includes amounts for deferred gains and losses
related to terminated positions. The amount of deferred gains and losses was $9
million and $11 million, respectively, as of December 31, 1995. Net deferred
losses reduced net interest income by $18 million in 1995.
18
<PAGE>
TABLE 1
CONSOLIDATED SUMMARIES OF INCOME, PER COMMON SHARE AND BALANCE SHEET DATA
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income $ 9,628 8,687 7,231 6,602 6,609 7,031
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest income (a) $ 9,712 8,792 7,352 6,736 6,753 7,199
Interest expense 4,632 4,052 2,793 2,482 2,942 4,071
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 5,080 4,740 4,559 4,254 3,811 3,128
Provision for loan losses 375 220 179 370 643 946
- - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses (a) 4,705 4,520 4,380 3,884 3,168 2,182
Securities available for sale transactions 31 44 6 33 39 54
Investment security transactions 4 5 4 7 (3) 155
Noninterest income 2,322 1,848 1,566 1,542 1,360 1,255
Merger-related restructuring charges (b) 281 94 - - - -
SAIF special assessment (c) 133 - - - - -
Noninterest expense 4,254 3,999 3,747 3,536 3,443 2,778
- - ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (a) 2,394 2,324 2,209 1,930 1,121 868
Income taxes 811 789 712 579 278 130
Tax-equivalent adjustment 84 105 121 134 144 168
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,499 1,430 1,376 1,217 699 570
Dividends on preferred stock 9 26 46 46 53 52
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders
before redemption premium 1,490 1,404 1,330 1,171 646 518
Redemption premium on preferred stock - - 41 - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 1,490 1,404 1,289 1,171 646 518
- - ------------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income (d) $ 5.35 5.04 4.58 4.30 2.53 2.34
Cash dividends $ 2.20 1.96 1.72 1.50 1.28 1.12
Average common shares (IN THOUSANDS) 278,812 278,677 281,663 272,438 255,384 221,469
Average common stockholders' equity (e) 9,079 8,412 7,870 6,782 5,724 4,554
Common stock price
High 77 58 7/8 47 5/8 51 1/2 44 7/8 30 7/8
Low 51 1/2 41 3/8 39 3/8 37 7/8 29 1/2 13 3/4
Period-end $ 74 55 5/8 41 3/8 41 1/4 43 5/8 30
To earnings ratio (f) 13.83X 11.04 8.76 9.60 17.25 12.82
To book value 212 % 174 147 154 187 141
Book value $ 34.83 31.89 28.19 26.71 23.36 21.21
BALANCE SHEET DATA
Assets 140,127 131,880 113,529 104,550 95,308 89,488
Long-term debt $ 7,660 7,121 4,242 3,675 3,733 3,550
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Tax-equivalent.
(b) Merger-related restructuring charges amounted to $181 million after tax
in 1996 and $73 million after tax in 1995.
(c) The SAIF special assessment amounted to $86 million after tax in 1996.
(d) In 1994, net income per common share before the redemption premium was
$4.72.
(e) Average common stockholders' equity excludes average net unrealized gains
or losses on debt and equity securities.
(f) Based on net income applicable to common stockholders before redemption
premium.
T-1
<PAGE>
TABLE 2
NONINTEREST INCOME
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trading account profits $ 102 69 52 60 40 32
Service charges on deposit accounts 666 616 580 573 525 407
Mortgage banking income 155 150 88 151 165 144
Capital management income 566 428 330 306 264 217
Securities available for sale transactions 31 44 6 33 39 54
Investment security transactions 4 5 4 7 (3) 155
Fees for other banking services (a) 157 160 131 100 80 -
Sundry income 676 425 385 352 286 455
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 2,357 1,897 1,576 1,582 1,396 1,464
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Information not available prior to 1992.
TABLE 3
NONINTEREST EXPENSE
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 1,781 1,615 1,436 1,321 1,219 1,054
Other benefits 415 347 337 303 255 210
- - ---------------------------------------------------------------------------------------------------------------------------------
Personnel expense 2,196 1,962 1,773 1,624 1,474 1,264
Occupancy 351 353 353 342 346 317
Equipment 417 320 270 234 208 175
Advertising 41 72 65 44 38 32
Telecommunications 102 87 76 71 70 64
Travel 92 78 61 50 40 30
Postage, printing and supplies 162 139 123 124 104 86
FDIC assessment 41 120 184 182 164 126
Professional fees 88 176 169 95 98 79
External data processing 114 71 72 90 79 67
Other intangible amortization 243 229 163 131 106 85
Merger-related restructuring charges 281 94 - - - -
SAIF special assessment 133 - - - - -
Sundry expense 407 392 438 549 716 453
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $ 4,668 4,093 3,747 3,536 3,443 2,778
- - ---------------------------------------------------------------------------------------------------------------------------------
Overhead efficiency ratio (a) 63% 62 61 61 66 60
Overhead efficiency ratio, adjusted (b) 57% 60 61 61 66 60
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The overhead efficiency ratio is equal to noninterest expense divided by
net operating revenue. Net operating revenue is equal to the sum of
tax-equivalent net interest income and noninterest income.
(b) These ratios are the result of reducing noninterest expense by the 1996
and 1995 merger-related restructuring charges and the 1996 SAIF special
assessment.
T-2
<PAGE>
TABLE 4
SELECTED LINES OF BUSINESS (A)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------
FIRST
CUSTOMER UNION
DIRECT HOME OTHER
ACCESS EQUITY CONSUMER CAPITAL CAPITAL MORTGAGE
(IN MILLIONS) DIVISION BANK BANKING MARKETS MGT. BANKING
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income (b) $ 910 334 1,729 1,440 75 1,844
Interest expense 343 193 981 1,117 37 1,304
Noninterest income 135 38 25 464 566 155
- - -----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Net charge-offs 280 5 118 50 - 14
Average loans, net 4,863 3,362 18,456 9,912 174 23,843
Nonperforming assets 25 12 82 69 - 195
Average deposits - - - 3,315 959 -
Assets under care - - - - 159,137 -
Assets under management - - - - 61,381 -
Residential loans serviced $ - - - - - 50,762
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Certain information is prepared from internal management reports. Average
loans, net for the Customer Direct Access Division (formerly Card
Products) excludes $1.5 billion of securitized credit cards managed by
the Division.
(b) Tax-equivalent.
T-3
<PAGE>
TABLE 5
INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992 1991
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTERNAL CAPITAL GROWTH (A)
Assets to stockholders' equity 14.67X 13.83 12.86 13.64 14.43 16.49
X
Return on assets 1.12% 1.21 1.29 1.22 0.77 0.68
- - -------------------------------------------------------------------------------------------------------------------
Return on total stockholders' equity (b) 16.32% 16.59 16.44 16.66 11.13 11.21
X
Earnings retained 58.59% 63.00 63.57 67.14 54.88 52.81
- - -------------------------------------------------------------------------------------------------------------------
Internal capital growth (b) 9.56% 10.45 10.45 11.18 6.11 5.92
- - -------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIOS ON
Operating earnings
Common shares 34.87% 34.05 34.16 30.25 40.61 41.91
Preferred and common shares 35.15% 35.21 36.43 32.86 45.12 47.19
Net income
Common shares 41.12% 35.82 34.16 30.25 40.61 41.91
Preferred and common shares 41.41% 37.00 36.43 32.86 45.12 47.19
- - -------------------------------------------------------------------------------------------------------------------
Return on common stockholders'
equity before redemption premium (b) (c) 16.41% 16.69 16.91 17.26 11.28 11.38
Return on common stockholders'
equity after redemption premium (b) (c) 16.41% 16.69 16.38 17.26 11.28 11.38
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Based on average balances and net income.
(b) The determination of these ratios exclude average net unrealized gains or
losses on debt and equity securities.
(c) Based on average balances and net income applicable to common stockholders.
T-4
<PAGE>
TABLE 6
SELECTED QUARTERLY DATA
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------------------------------- -----------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED NET INCOME
Interest income $ 2,435 2,423 2,431 2,339 2,279 2,252 2,133 2,023
Interest expense 1,180 1,158 1,167 1,127 1,112 1,067 977 896
- - ----------------------------------------------------------------------------------------------------------------
Net interest income 1,255 1,265 1,264 1,212 1,167 1,185 1,156 1,127
Provision for loan losses 120 105 80 70 64 60 54 42
- - ----------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,135 1,160 1,184 1,142 1,103 1,125 1,102 1,085
Securities available for sale
transactions 11 2 3 15 15 10 8 11
Investment security transactions 1 - 2 1 1 3 1 -
Noninterest income 673 598 541 510 546 466 432 404
Merger-related restructuring
charges (a) - - - 281 94 - - -
SAIF special assessment (b) - 133 - - - - - -
Noninterest expense 1,113 1,078 1,052 1,011 1,044 1,018 980 957
- - ----------------------------------------------------------------------------------------------------------------
Income before income taxes 707 549 678 376 527 586 563 543
Income taxes 247 192 239 133 192 205 199 193
- - ----------------------------------------------------------------------------------------------------------------
Net income 460 357 439 243 335 381 364 350
Dividends on preferred stock 1 1 3 4 4 5 5 12
- - ----------------------------------------------------------------------------------------------------------------
Net income applicable to
common stockholders $ 459 356 436 239 331 376 359 338
- - ----------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $ 1.66 1.29 1.55 0.85 1.19 1.36 1.30 1.19
Cash dividends 0.58 0.58 0.52 0.52 0.52 0.52 0.46 0.46
Common stock price
High 77 67 7/8 64 5/8 62 7/8 58 7/8 51 3/8 49 3/4 45 1/8
Low 67 61 1/8 57 1/2 51 1/2 49 5/8 45 1/4 42 7/8 41 3/8
Period-end $ 74 66 3/4 60 7/8 60 3/8 55 5/8 51 45 1/4 43 3/8
- - ----------------------------------------------------------------------------------------------------------------
SELECTED RATIOS (C)
Return on assets (d) 1.35% 1.06 1.30 0.75 1.06 1.25 1.28 1.27
Return on common stockholders'
equity (e) 19.63 15.91 19.11 10.76 15.13 17.84 17.32 16.52
Stockholders' equity to assets 6.85% 6.63 6.76 7.04 7.11 7.07 7.39 7.40
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Merger-related restructuring charges amounted to $181 million after tax in
1996 and $73 million after tax in 1995.
(b) The SAIF special assessment amounted to $86 million after tax in 1996.
(c) Based on average balances.
(d) Based on net income.
(e) Based on net income applicable to common stockholders, excluding average
net unrealized gains or losses on debt and equity securities.
T-5
<PAGE>
TABLE 7
SELECTED SIX-YEAR DATA (A)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST UNION MORTGAGE CORPORATION
PERMANENT LOAN ORIGINATIONS
Residential
Direct (b) $ 3,980 2,879 3,570 6,277 4,549 2,207
Wholesale 399 428 933 2,431 2,642 2,657
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 4,379 3,307 4,503 8,708 7,191 4,864
- - ------------------------------------------------------------------------------------------------------------------------------------
VOLUME OF RESIDENTIAL
LOANS SERVICED $ 50,762 50,047 32,677 32,786 22,528 22,161
- - ------------------------------------------------------------------------------------------------------------------------------------
FIRST UNION CORPORATION
OTHER DATA
ATMs 2,429 2,123 1,242 1,189 847 943
Employees 44,333 44,536 31,858 32,861 23,459 24,203
Common stockholders 103,538 89,257 54,236 58,670 37,955 33,456
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1991-1994 are not restated for pooling of interests acquisitions.
(b) Includes originations of affiliated banks.
T-6
<PAGE>
TABLE 8
SECURITIES AVAILABLE FOR SALE
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ------------------------- AMORTIZED MATURITY
(IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $ 7 1,792 - 2 1,801 (5) 14 1,810 2.31
U.S. Government agencies 9 2,287 7,063 26 9,385 (24) 52 9,413 5.55
CMOs 6 928 - - 934 (5) 5 934 3.63
State, county and municipal 1 - 9 26 36 - - 36 15.55
Other 84 986 89 867 2,026 (38) 13 2,001 4.52
- - ----------------------------------------------------------------------------------------------------------------------
Total $ 107 5,993 7,161 921 14,182 (72) 84 14,194 4.91
- - ---------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 107 5,993 7,161 102 13,363 (57) 83 13,389
Sundry securities - - - 819 819 (15) 1 805
- - ----------------------------------------------------------------------------------------------------------------------
Total $ 107 5,993 7,161 921 14,182 (72) 84 14,194
- - ----------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 107 5,970 7,199 113 13,389
Sundry securities - - - 805 805
- - ----------------------------------------------------------------------------------
Total $ 107 5,970 7,199 918 14,194
- - ----------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Treasury 5.90% 5.88 - 7.93 5.88
U.S. Government agencies 6.07 6.72 6.85 8.04 6.82
CMOs 10.41 7.34 - - 7.36
State, county and municipal 7.60 - 7.09 7.30 7.25
Other 7.93 6.08 8.08 5.51 6.00
Consolidated 7.78% 6.46 6.86 5.64 6.62
- - ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ------------------------- AMORTIZED MATURITY
(IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $ 1,507 1,444 4 4 2,959 (6) 7 2,960 1.58
U.S. Government agencies 796 5,979 1,724 5 8,504 (110) 8 8,402 3.75
CMOs 848 3,727 179 1 4,755 (35) 18 4,738 2.49
State, county and municipal - 2 2 9 13 - - 13 14.50
Other 242 952 96 673 1,963 (97) 14 1,880 3.50
- - ----------------------------------------------------------------------------------------------------------------------
Total $ 3,393 12,104 2,005 692 18,194 (248) 47 17,993 3.03
- - ----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 3,393 12,104 2,005 104 17,606 (175) 47 17,478
Sundry securities - - - 588 588 (73) - 515
- - ----------------------------------------------------------------------------------------------------------------------
Total $ 3,393 12,104 2,005 692 18,194 (248) 47 17,993
- - ----------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 3,374 12,014 1,985 105 17,478
Sundry securities - - - 515 515
- - ----------------------------------------------------------------------------------
Total $ 3,374 12,014 1,985 620 17,993
- - ----------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Treasury 6.66% 5.39 7.67 8.02 6.06
U.S. Government agencies 6.69 6.67 6.57 6.82 6.67
CMOs 7.19 6.97 7.27 6.18 6.59
State, county and municipal - 8.80 10.24 10.28 10.03
Other 7.85 5.26 10.92 4.15 5.39
Consolidated 6.80% 6.40 6.81 6.09 6.42
- - ----------------------------------------------------------------------------------
</TABLE>
T-7
<PAGE>
Included in "U.S. Government agencies" and "Other" at December 31, 1996, are
$1.1 billion of securities that are denominated in currencies other than the
U.S. dollar. The currency exchange rates were hedged utilizing both on- and
off-balance sheet instruments to minimize the exposure to currency revaluation
risks. At December 31, 1996, these securities had a weighted average maturity of
3.55 years and a weighted average yield of 5.54 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 7.40
percent based on a weighted average funding cost differential of (1.86) percent.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The aging of mortgage-backed securities is based on their
weighted average maturities at December 31, 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 in 1996; 6.5 percent in
New Jersey in 1996; and 10.75 percent in Connecticut in 1996.
There were commitments to purchase securities at a cost of $127 million that
had a market value of $127 million at December 31, 1996. There were
commitments to sell securities at a cost of $98 million that had a market
value of $98 million at December 31, 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 1996 were $138 million and $109
million, respectively, and gross gains on sundry securities $2 million. Gross
gains and losses realized on the sale of debt securities in 1995 were $69
million and $42 million, respectively, and gross gains on sundry securities $17
million. Gross gains and losses on the sale of debt securities in 1994 were $38
million and $45 million, respectively, and on sundry securities $15 million and
$2 million, respectively.
T-8
<PAGE>
TABLE 9
INVESTMENT SECURITIES
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 -------------------------- MARKET MATURITY
(IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE IN YEARS
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government agencies $ - 776 318 - 1,094 22 (3) 1,113 4.68
CMOs 67 414 - - 481 8 - 489 2.72
State, county and municipal 61 219 145 380 805 105 (1) 909 8.73
Other 1 11 9 100 121 4 - 125 15.84
- - ----------------------------------------------------------------------------------------------------------------------
Total $ 129 1,420 472 480 2,501 139 (4) 2,636 5.93
- - ----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
Debt securities $ 129 1,420 472 426 2,447 139 (4) 2,582
Sundry securities - - - 54 54 - - 54
- - ----------------------------------------------------------------------------------------------------------------------
Total $ 129 1,420 472 480 2,501 139 (4) 2,636
- - ----------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 130 1,456 494 502 2,582
Sundry securities - - - 54 54
- - ----------------------------------------------------------------------------------
Total $ 130 1,456 494 556 2,636
- - ----------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Government agencies - % 7.95 7.18 - 7.72
CMOs 7.47 7.67 - - 7.64
State, county and municipal 10.29 10.74 11.11 11.68 11.22
Other 7.59 7.72 7.81 7.43 7.49
Consolidated 8.80% 8.29 8.40 10.80 8.82
- - ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 -------------------------- MARKET MATURITY
(IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE IN YEARS
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government agencies $ 81 950 236 - 1,267 32 (1) 1,298 3.59
CMOs 60 546 - - 606 12 - 618 2.95
State, county and municipal 286 274 171 446 1,177 132 (3) 1,306 7.54
Other 3 3 17 67 90 8 - 98 11.54
- - -----------------------------------------------------------------------------------------------------------------------
Total $ 430 1,773 424 513 3,140 184 (4) 3,320 5.15
- - -----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
Debt securities $ 430 1,773 424 497 3,124 184 (4) 3,304
Sundry securities - - - 16 16 - - 16
- - -----------------------------------------------------------------------------------------------------------------------
Total $ 430 1,773 424 513 3,140 184 (4) 3,320
- - -----------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 438 1,829 453 584 3,304
Sundry securities - - - 16 16
- - -----------------------------------------------------------------------------------
Total $ 438 1,829 453 600 3,320
- - -----------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Government agencies 7.29% 7.71 7.87 - 7.71
CMOs 7.37 7.20 - - 7.22
State, county and municipal 9.55 10.84 11.25 11.80 10.95
Other 6.81 7.80 7.50 9.21 8.75
Consolidated 8.81% 8.03 9.22 11.46 8.86
- - -----------------------------------------------------------------------------------
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties. The aging of mortgage-backed securities is based on their
weighted average maturities at December 31, 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 in 1996; 6.5 percent in
New Jersey in 1996; and 10.75 percent in Connecticut in 1996.
There were no commitments to purchase or sell investment securities at
December 31, 1996. Gross gains and losses realized on repurchase agreement
underdeliveries and calls of investment securities in 1996 were $5 million and
$1 million, respectively. In 1995, such gross gains and losses were $6 million
and $1 million, respectively.
T-9
<PAGE>
TABLE 10
LOANS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL
Commercial, financial and agricultural $ 23,639 24,648 22,053 19,691 16,751 18,210
Real estate - construction and other 2,674 2,506 2,052 2,138 2,489 3,729
Real estate - mortgage 9,504 9,992 9,473 9,282 8,699 7,758
Lease financing 4,852 3,170 1,921 1,287 1,442 1,666
Foreign 1,085 649 527 417 392 368
- - ------------------------------------------------------------------------------------------------------------------------------------
Total commercial 41,754 40,965 36,026 32,815 29,773 31,731
- - ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 28,683 27,274 21,062 18,206 14,323 11,874
Installment loans - Bankcard (a) 5,551 3,658 4,345 2,155 - -
Installment loans - other 18,596 17,548 15,492 14,497 15,965 15,280
Vehicle leasing 3,480 2,664 1,889 1,161 855 585
- - ------------------------------------------------------------------------------------------------------------------------------------
Total retail 56,310 51,144 42,788 36,019 31,143 27,739
- - ------------------------------------------------------------------------------------------------------------------------------------
Total loans 98,064 92,109 78,814 68,834 60,916 59,470
- - ------------------------------------------------------------------------------------------------------------------------------------
UNEARNED INCOME
Loans 488 477 420 335 384 468
Lease financing 1,718 1,069 563 236 231 277
- - ------------------------------------------------------------------------------------------------------------------------------------
Total unearned income 2,206 1,546 983 571 615 745
- - ------------------------------------------------------------------------------------------------------------------------------------
Loans, net $ 95,858 90,563 77,831 68,263 60,301 58,725
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Installment loans - Bankcard include credit card, ICR, signature and First
Choice amounts. Data is not available prior to 1993.
T-10
<PAGE>
TABLE 11
CERTAIN COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------
REAL
COMMERCIAL, ESTATE-
FINANCIAL CONSTRUCTION REAL
AND AND ESTATE-
(IN MILLIONS) AGRICULTURAL OTHER MORTGAGE FOREIGN TOTAL
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED RATE
1 year or less $ 1,399 20 540 443 2,402
1-5 years 2,538 119 2,285 1 4,943
After 5 years 1,144 117 1,441 - 2,702
- - -----------------------------------------------------------------------------------------------------------------
Total 5,081 256 4,266 444 10,047
- - -----------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE
1 year or less 7,565 893 894 605 9,957
1-5 years 8,553 1,185 2,657 36 12,431
After 5 years 2,440 340 1,687 - 4,467
- - -----------------------------------------------------------------------------------------------------------------
Total 18,558 2,418 5,238 641 26,855
- - -----------------------------------------------------------------------------------------------------------------
Total $ 23,639 2,674 9,504 1,085 36,902
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
T-11
<PAGE>
TABLE 12
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of year $ 1,508 1,578 1,622 1,551 1,461 1,259
Provision for loan losses 375 220 179 370 643 946
Reversal of tax effect of acquired bank-
related net charge-offs included in the
provision for loan losses - - - - - (16)
Allowance of loans acquired or sold, net 50 49 59 191 71 122
Transfer to allowance for segregated assets - - - - (20) (13)
Loan losses, net (568) (339) (282) (490) (604) (837)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 1,365 1,508 1,578 1,622 1,551 1,461
- - ----------------------------------------------------------------------------------------------------------------------------------
(as % of loans, net) 1.42 % 1.66 2.03 2.38 2.57 2.49
- - ----------------------------------------------------------------------------------------------------------------------------------
(as % of nonaccrual and restructured loans) 204 % 233 248 151 105 77
- - ----------------------------------------------------------------------------------------------------------------------------------
(as % of nonperforming assets) 179 % 182 178 115 76 55
- - ----------------------------------------------------------------------------------------------------------------------------------
LOAN LOSSES
Commercial, financial and agricultural $ 144 108 151 232 277 365
Real estate - construction and other 6 4 16 76 108 210
Real estate - mortgage 73 71 80 134 109 130
Installment loans - Bankcard (a) 313 180 73 64 - -
Installment loans - Bankcard special adjustment (b) 34 - - - - -
Installment loans - other and Vehicle leasing 152 100 95 107 208 212
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 722 463 415 613 702 917
- - ----------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 75 63 68 47 41 33
Real estate - construction and other 3 6 3 9 2 4
Real estate - mortgage 13 12 16 19 6 5
Installment loans - Bankcard (a) 33 14 12 10 - -
Installment loans - other and Vehicle leasing 30 29 34 38 49 38
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 154 124 133 123 98 80
- - ----------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 568 339 282 490 604 837
- - ----------------------------------------------------------------------------------------------------------------------------------
(as % of average loans, net) 0.63 % 0.41 0.40 0.78 1.03 1.53
- - ----------------------------------------------------------------------------------------------------------------------------------
(as % of average loans, net, excluding
Bankcard) (a) 0.30 % 0.22 0.32 0.72 - -
- - ----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 218 331 280 423 642 826
Commercial real estate loans 118 - - - - -
Consumer real estate loans 199 - - - - -
Installment loans 120 81 - - - -
Real estate loans - 232 337 610 735 899
- - ----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 655 644 617 1,033 1,377 1,725
Restructured loans 14 4 19 40 105 177
Foreclosed properties 94 178 251 338 565 743
- - ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 763 826 887 1,411 2,047 2,645
- - ----------------------------------------------------------------------------------------------------------------------------------
(as % of loans, net and foreclosed properties) 0.80 % 0.91 1.14 2.06 3.36 4.45
- - ----------------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 290 290 272 213 240 289
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Data is not available prior to 1993.
(b) Installment loans - Bankcard special adjustment represents a one-time
charge-off related to an anticipated regulatory change which would reduce
the period delinquent loans could be held before charge-off.
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-12
<PAGE>
TABLE 13
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (A)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- --------------- -------------- ------------------ ---------------
LOANS LOANS LOANS LOANS LOANS
% TO % TO % TO % TO % TO
TOTAL TOTAL TOTAL TOTAL TOTAL
(IN MILLIONS) AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 246 24 % $ 412 27 % $ 504 28 % $ 413 28 % $ 573 27 %
Real estate -
Construction and other 55 3 57 3 93 3 171 3 256 4
Mortgage 202 39 298 40 292 39 370 40 264 38
Installment loans -
Bankcard 352 6 243 4 188 5 101 3 - -
Other and Vehicle
leasing 151 22 224 22 194 22 220 23 299 28
Lease financing 23 5 9 3 7 2 7 2 7 2
Foreign 4 1 35 1 24 1 8 1 11 1
Unallocated 332 - 230 - 276 - 332 - 141 -
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 1,365 100 % $ 1,508 100 % $ 1,578 100 % $ 1,622 100 % $ 1,551 100 %
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning in 1993, the allocation of the allowance for loan losses is
based on the Corporation's loss migration process. The unallocated
portion of the allowance for loan losses at December 31, 1992, would have
been increased by $37 million had the migration model been available in
1992. The allocation of the allowance for loan losses to the respective
classifications is not necessarily indicative of future losses or future
allocations. Information related to Bankcards is not available prior to
1993. First Fidelity allocated all allowance amounts to specific loan
classifications in 1992 through 1995, and as a result, conforming
reclassifications of allocated amounts to the unallocated portion of the
allowance occurred in 1996. See the "LOANS" and "PROVISION AND ALLOWANCE
FOR LOAN LOSSES" discussion in Management's Analysis of Operations and
the "ALLOWANCE FOR LOAN LOSSES" discussion in NOTE 1 to the consolidated
financial statements.
T-13
<PAGE>
TABLE 14
INTANGIBLE ASSETS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE SERVICING RIGHTS $ 199 149 134 91 187 197
- - ------------------------------------------------------------------------------------------------------------------------------------
CREDIT CARD PREMIUM $ 35 44 58 76 71 74
- - ------------------------------------------------------------------------------------------------------------------------------------
OTHER INTANGIBLE ASSETS
Goodwill $ 2,359 1,884 1,382 1,038 840 888
Deposit base premium 479 535 535 367 285 217
Other 11 13 20 27 35 25
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 2,849 2,432 1,937 1,432 1,160 1,130
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-14
<PAGE>
TABLE 15
FORECLOSED PROPERTIES
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foreclosed properties $ 111 203 293 401 674 781
- - ------------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, beginning of year 25 42 63 109 38 11
Provision for foreclosed properties (1) (3) 14 46 132 46
Transfer from allowance for segregated assets 1 - 2 5 - -
Dispositions, net (8) (14) (37) (97) (61) (19)
- - ------------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, end of year 17 25 42 63 109 38
- - ------------------------------------------------------------------------------------------------------------------------------------
Foreclosed properties, net $ 94 178 251 338 565 743
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-15
<PAGE>
TABLE 16
DEPOSITS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 18,632 17,043 15,917 16,208 14,583 12,464
Savings and NOW accounts 26,693 24,297 23,263 21,661 17,653 14,021
Money market accounts 13,468 13,113 14,376 15,025 13,836 12,834
Other consumer time 31,284 31,945 27,403 25,534 27,212 28,925
- - ----------------------------------------------------------------------------------------------------------------
Total core deposits 90,077 86,398 80,959 78,428 73,284 68,244
Foreign 1,854 3,527 4,803 1,457 513 363
Other time 2,884 2,630 2,103 2,000 2,359 3,788
- - ----------------------------------------------------------------------------------------------------------------
Total deposits $ 94,815 92,555 87,865 81,885 76,156 72,395
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
T-16
<PAGE>
TABLE 17
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- - ------------------------------------------------------------------------------
DECEMBER 31, 1996
---------------------------
TIME OTHER
(IN MILLIONS) CERTIFICATES TIME
- - ------------------------------------------------------------------------------
MATURITY OF
3 months or less $ 3,105 77
Over 3 months through 6 months 1,358 -
Over 6 months through 12 months 1,381 -
Over 12 months 1,233 -
- - ------------------------------------------------------------------------------
Total $ 7,077 77
- - ------------------------------------------------------------------------------
T-17
<PAGE>
TABLE 18
CAPITAL RATIOS
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS (A)
Qualifying capital
Tier 1 capital $ 7,633 6,551 4,467 4,343 3,189 2,442
Total capital 12,842 11,198 7,451 6,961 4,948 3,799
Adjusted risk-based assets 104,126 97,830 57,594 47,529 34,574 32,314
Adjusted leverage ratio assets $ 124,419 119,421 73,011 70,786 48,672 45,955
Ratios
Tier 1 capital 7.33% 6.70 7.76 9.14 9.22 7.56
Total capital 12.33 11.45 12.94 14.64 14.31 11.76
Leverage 6.13 5.49 6.12 6.13 6.55 5.31
Stockholders' equity to assets
Year-end 7.14 6.86 6.98 7.36 6.99 6.51
Average 6.82% 7.23 7.52 7.11 6.89 6.29
- - --------------------------------------------------------------------------------------------------------------------------------
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank of
Florida 7.28% 7.57 7.95 9.13 9.38 8.79
Georgia 6.71 6.69 8.26 9.58 8.14 6.06
Maryland 10.53 11.36 20.53 15.78 - -
North Carolina 6.43 6.46 7.32 8.24 7.22 6.45
South Carolina 8.47 8.42 7.88 7.55 7.88 6.85
Tennessee 10.78 11.12 12.76 12.43 24.03 6.57
Virginia 8.74 7.41 9.21 10.77 - -
Washington, D.C. 17.05 13.77 16.75 14.23 - -
First Union National Bank 8.98 9.16 - - - -
First Union Bank of Connecticut 7.99 12.60 - - - -
First Union Bank of Delaware 13.61 25.45 - - - -
First Union Home Equity Bank 8.40 7.50 7.60 - - -
Total capital
First Union National Bank of
Florida 10.95 10.97 10.76 10.83 11.10 10.61
Georgia 10.45 10.62 11.18 12.62 11.05 7.62
Maryland 11.77 12.62 21.81 17.07 - -
North Carolina 10.20 10.15 10.69 11.35 10.60 7.99
South Carolina 11.80 11.79 12.15 11.82 10.89 8.25
Tennessee 11.77 12.38 14.02 13.69 25.29 7.84
Virginia 12.08 10.57 13.11 13.08 - -
Washington, D.C. 18.25 15.03 18.03 15.52 - -
First Union National Bank 12.22 10.95 - - - -
First Union Bank of Connecticut 11.85 13.88 - - - -
First Union Bank of Delaware 14.87 26.74 - - - -
First Union Home Equity Bank 10.77 10.09 12.10 - - -
Leverage
First Union National Bank of
Florida 5.49 5.18 5.91 5.79 5.62 4.91
Georgia 5.38 5.54 5.69 5.67 6.58 4.91
Maryland 6.16 9.32 12.82 9.04 - -
North Carolina 5.95 5.72 6.10 5.52 5.46 4.91
South Carolina 6.43 6.24 5.77 5.56 5.93 5.39
Tennessee 5.68 7.64 8.47 8.05 25.10 7.34
Virginia 6.30 6.17 7.10 6.89 - -
Washington, D.C. 5.91 6.32 8.33 6.06 - -
First Union National Bank 7.06 7.43 - - - -
First Union Bank of Connecticut 7.45 8.30 - - - -
First Union Bank of Delaware 10.60 17.20 - - - -
First Union Home Equity Bank 7.84% 6.48 7.22 - - -
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4.00 percent and a minimum ratio of
total capital to risk-weighted assets of 8.00 percent. The minimum
leverage ratio of tier 1 capital to adjusted average quarterly assets is
from 3.00 to 5.00 percent. The 1991-1994 capital ratios presented herein
have not been restated to reflect pooling of interests acquisitions.
T-18
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
December 31, 1996 Notional Maturity In Fair
(In millions) Amount Receive Pay Years (b) Value Comments
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Interest rate swaps $19,739 6.28 % 5.52 % 1.89 Converts floating rate loans to fixed
Carrying amount $ 4 rate. Adds to liability sensitivity.
Unrealized gross gain 129 Similar characteristics to a fixed
Unrealized gross loss (15) income security funded with
variable rate liabilities. Includes
$4.8 billion of indexed amortizing
swaps, with $1.3 billion maturing
within 1 year and $3.5 billion within
4 years.
Total 118
Forward bullet interest rate swaps 57 7.83 - 1.21 Converts floating rate loans to fixed
Carrying amount - rates in future periods. Effective
Unrealized gross gain 1 March 1997.
Unrealized gross loss -
Total 1
Total asset rate conversions $19,796 6.28% 5.52% 1.89 $ 119
LIABILITY RATE CONVERSIONS
Interest rate swaps $ 6,280 6.82% 5.71% 6.36 Converts $4.2 billion of fixed rate
Carrying amount $ 13 long-term debt to floating rate by
Unrealized gross gain 103 matching the terms of the swap
Unrealized gross loss (51) to the debt issue. Rate sensitivity
remains unchanged due to the
direct linkage of the swap to the
debt issue. Also converts $933
million of fixed rate CDs to variable
rate and $1.1 billion of fixed rate
bank notes to floating rate.
Total 65
Other financial instruments 150 4.00 - 6.56 $150 million floor offsets a
Carrying amount 1 corresponding rate floor in long-
Unrealized gross gain - term debt.
Unrealized gross loss (1)
Total -
Total liability rate conversions $ 6,430 6.76% 5.71% 6.37 $ 65
ASSET HEDGES
Forward sale of Treasury notes $ 662 -% 5.74% 0.03 Sold U.S. Treasury notes forward to
Carrying amount $ - hedge the market value of similar
Unrealized gross gain 5 U.S. Treasury notes in the available
Unrealized gross loss - for sale portfolio.
Total 5
Total asset hedges $ 662 -% 5.74% 0.03 $ 5
</TABLE>
(Continued)
T-19
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
December 31, 1996 Notional Maturity In Fair
(In millions) Amount Receive Pay Years (b) Value Comments
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVITY HEDGES
Put options on eurodollar futures $ 12,678 - % 6.37% 0.31 Paid a premium for the right to lock
Carrying amount $ 6 in the 3 month LIBOR reset rates on
Unrealized gross gain - pay variable rate swaps. $7.6 billion
Unrealized gross loss (5) effective March 1997; $5.1 billion
effective June 1997.
Total 1
Interest rate caps 168 5.54 7.03 2.70 Paid a premium for the right to lock
Carrying amount 1 in 3 month LIBOR reset rates on
Unrealized gross gain - pay variable rate swaps.
Unrealized gross loss -
Total 1
Short futures 15,062 - 5.84 0.22 Locks in 3 month LIBOR reset rates
Carrying amount - on pay variable rate swaps. $15.0
Unrealized gross gain - billion effective March 1997;
Unrealized gross loss (11) $89 million effective June 1997.
Total (11)
CMT floor 100 6.42 6.37 4.34 First Union Mortgage Corporation
Carrying amount 1 paid a premium for a CMT floor in
Unrealized gross gain 1 order to offset the decline in value of
Unrealized gross loss - mortgage servicing in a falling rate
environment.
Total 2
Long eurodollar futures 14,550 6.29 - 1.28 Converts floating rate LIBOR-based
Carrying amount - loans to fixed rate. Adds to liability
Unrealized gross gain 8 sensitivity. Similar characteristics to
Unrealized gross loss (2) fixed income security funded with
variable rate liabilities. $4.6 billion
effective September 1997; $2.0
billion effective December 1997,
March 1998, June 1998 and
September 1998; $500 million
effective December 1998, March
1999, June 1999 and
September 1999.
Total 6
Total rate sensitivity hedges $ 42,558 6.28% 6.09% 0.63 $ (1)
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related
to interest rate risk management activities.
(b) Estimated maturity approximates duration except for forward bullets,
average duration of 1.0 years; and long eurodollar futures, average
duration of .25 years. London Interbank Offered Rates (LIBOR) - The
average of interbank offered rates on dollar deposits in the London
market, based on quotations at five major banks. Weighted average pay
rates are generally based on one to six month LIBOR. Pay rates related to
forward interest rate swaps are set on the future effective date. Pay
rates reset at predetermined reset dates over the life of the contract.
Rates shown are the rates in effect as of December 31, 1996. Weighted
average receive rates were set at the time the contract was transacted.
Carrying amount includes accrued interest receivable/payable, unamortized
premiums paid/received and any related margin accounts.
(Continued)
T-20
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
December 31, 1995 Notional Maturity In Fair
(In millions) Amount Receive Pay Years (b) Value Comments
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Interest rate swaps $ 11,282 6.35% 5.83% 1.27 Converts floating rate loans to fixed
Carrying amount $ 20 rate. Adds to liability sensitivity.
Unrealized gross gain 113 Similar characteristics to a fixed
Unrealized gross loss (22) income security funded with
variable rate liabilities. Includes
$6.3 billion of indexed amortizing
swaps, with $2.8 billion maturing
within 3 years and $3.5 billion within
4.75 years.
Total 111
Forward bullet interest rate swaps 6,120 5.97 - 1.96 Converts floating rate loans to fixed
Carrying amount - rates in future periods. $63 million
Unrealized gross gain 38 effective March 1996; $6.0 billion
Unrealized gross loss - effective December 1996; $57
million effective March 1997.
Total 38
Total asset rate conversions $ 17,402 6.22% 5.83% 1.51 $ 149
LIABILITY RATE CONVERSIONS
Interest rate swaps $ 5,127 6.89% 5.76% 5.83 Converts $5.1 billion of fixed rate
Carrying amount $ 10 long-term debt to floating rate by
Unrealized gross gain 225 matching the maturity of the swap
Unrealized gross loss (8) to the debt issue. Rate sensitivity
remains unchanged due to the
direct linkage of the swap to the
debt issue. Also converts $42
million of fixed rate CDs to variable
rate.
Total 227
Other financial instruments 180 - - 6.33 Miscellaneous purchased option-
Carrying amount (2) based products for liability
Unrealized gross gain - management purposes include $5
Unrealized gross loss - million of options on swaps, $25
million of eurodollar caps and $150
million of eurodollar floors.
Total (2)
Total liability rate conversions $ 5,307 6.89% 5.76% 5.84 $ 225
ASSET HEDGES
Short eurodollar futures $ 1,016 - % 5.81% 0.29 Hedges market values of U.S.
Carrying amount $ - Treasury notes in the available for
Unrealized gross gain - sale portfolio. $788 million effective
Unrealized gross loss (1) March 1996; $164 million effective
June 1996; $64 million effective
September 1996.
Total (1)
Total asset hedges $ 1,016 - % 5.81% 0.29 $ (1)
</TABLE>
(Continued)
T-21
<PAGE>
Table 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
<TABLE>
<CAPTION>
Weighted
Average Rate Estimated
December 31, 1995 Notional Maturity In Fair
(In millions) Amount Receive Pay Years (b) Value Comments
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVITY HEDGES
Put options on eurodollar futures $ 4,252 - % 7.87% 0.33 Paid a premium for the right to lock
Carrying amount $ 1 in the 3 month LIBOR reset rates on
Unrealized gross gain - pay variable rate swaps and short-
Unrealized gross loss (1) term liabilities. $2.4 billion effective
March 1996; $1.9 billion effective
June 1996.
Total -
Interest rate caps 67 - - 0.43 Purchased LIBOR caps; $50 million
Carrying amount - converts floating rate liabilities to
Unrealized gross gain - fixed if short-term rates rise above
Unrealized gross loss - 8 percent; $17 million uncaps a
LIBOR- based, asset-backed "
security at 11.72 percent.
Total -
Short eurodollar futures 2,000 - 5.60 0.22 Locks in 3 month LIBOR reset rates
Carrying amount - on pay variable rate swaps.
Unrealized gross gain - Effective March 1996.
Unrealized gross loss (1)
Total (1)
Long eurodollar futures 23,355 5.56 - 1.40 Converts floating rate LIBOR-based
Carrying amount - loans to fixed rate. Adds to liability
Unrealized gross gain 19 sensitivity. Similar characteristics to
Unrealized gross loss - fixed income security funded with
variable rate liabilities. $4.9 billion
effective December 1996; $5.0
billion effective March 1997; $4.9
effective June 1997 and $8.6 billion
September 1997.
Total 19
Total rate sensitivity hedges $ 29,674 5.56% 7.14% 1.16 $ 18
OFFSETTING POSITIONS
Interest rate floors $ 800 6.16% 6.16% 0.45 Consists of $800 million of interest
Carrying amount $ - rate floors, of which $400 million
Unrealized gross gain 2 were purchased and offset by $400
Unrealized gross loss (2) million sold, locking in gains to be
amortized over the remaining life of
the contracts.
Total -
Prime/federal funds cap 4,000 5.90 5.90 0.27 In December 1994, the corporation
Carrying amount - offset an existing federal funds cap
Unrealized gross gain 2 (purchased) and a prime rate cap
Unrealized gross loss (2) (written) position by simultaneously
purchasing a prime rate cap and
writing a federal funds cap at strikes
of 6.0 percent and 3.25 percent,
respectively. The notional amount of
each cap is $1.0 billion. Lock in
losses to be amortized over the
remaining life of the contracts.
Total -
Total offsetting positions $ 4,800 5.95% 5.95% 0.30 $ -
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related
to interest rate risk management activities.
(b) Estimated maturity approximates duration except for forward bullets,
average duration of 1.0 years; and long eurodollar futures, average
duration of .25 years. Prime Rate - The base rate on corporate loans posted
by at least 75 percent of the nation's 30 largest banks as defined in The
Wall Street Journal. London Interbank Offered Rates (LIBOR) - The average
of interbank offered rates on dollar deposits in the London market, based
on quotations at five major banks. Weighted average pay rates are generally
based on one to six month LIBOR. Pay rates related to forward interest
rate swaps are set on the future effective date. Pay rates reset at
predetermined reset dates over the life of the contract. Rates shown are
the rates in effect as of December 31, 1995. Weighted average receive
rates were set at the time the contract was transacted. Carrying amount
includes accrued interest receivable/ payable, unamortized premiums
paid/received and any related margin accounts.
T-22
<PAGE>
<TABLE>
<CAPTION>
TABLE 20
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (A)
- - --------------------------------------------------------------------------------
DECEMBER 31, 1996 1 YEAR 1 -2 2 -5 5 -10 AFTER 10
(IN MILLIONS) OR LESS YEARS YEARS YEARS YEARS TOTAL
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Notional amount $ 11,033 1,032 7,731 - - 19,796
Weighted average receive rate 6.12% 5.42 6.62 - - 6.28 %
Estimated fair value $ 34 (13) 98 - - 119
- - -----------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount $ 870 758 467 3,775 560 6,430
Weighted average receive rate 6.32% 6.01 7.50 6.92 6.74 6.76 %
Estimated fair value $ 4 3 21 51 (14) 65
- - -----------------------------------------------------------------------------------------------------------------------------------
ASSET HEDGES
Notional amount $ 662 - - - - 662
Weighted average receive rate -% - - - - - %
Estimated fair value $ 5 - - - - 5
- - -----------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount $ 34,300 6,555 1,703 - - 42,558
Weighted average receive rate 5.90% 6.58 6.55 - - 6.28 %
Estimated fair value $ (10) 6 3 - - (1)
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
DECEMBER 31, 1995 1 YEAR 1 -2 2 -5 5 -10 After 10
(IN MILLIONS) OR LESS YEARS YEARS YEARS YEARS TOTAL
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS
Notional amount $ 6,249 10,026 1,127 - - 17,402
Weighted average receive rate 6.26% 6.27 5.49 - - 6.22 %
Estimated fair value $ 43 110 (4) - - 149
- - -----------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount $ 854 408 1,070 2,475 500 5,307
Weighted average receive rate 6.59% 6.82 6.44 7.27 6.68 6.89 %
Estimated fair value $ 18 9 20 163 15 225
- - -----------------------------------------------------------------------------------------------------------------------------------
ASSET HEDGES
Notional amount $ 1,016 - - - - 1,016
Weighted average receive rate -% - - - - - %
Estimated fair value $ (1) - - - - (1)
- - -----------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount $ 11,169 18,505 - - - 29,674
Weighted average receive rate 5.31% 5.62 - - - 5.56 %
Estimated fair value $ 1 17 - - - 18
- - -----------------------------------------------------------------------------------------------------------------------------------
OFFSETTING POSITIONS
Notional amount $ 4,800 - - - - 4,800
Weighted average receive rate 5.95% - - - - 5.95 %
Estimated fair value $ - - - - - -
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related
to interest rate risk management activities. Pay rates are generally based
on one to six month LIBOR and reset at predetermined reset dates. Current
pay rates are not necessarily indicative of future pay rates, and
therefore, they have been excluded from the above table. Weighted average
pay rates are indicated in TABLE 19.
T-23
<PAGE>
TABLE 21
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (A)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET LIABILITY RATE
RATE RATE ASSET SENSITIVITY OFFSETTING
(IN MILLIONS) CONVERSIONS CONVERSIONS HEDGES HEDGES POSITIONS TOTAL
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 11,522 4,419 2,000 28,256 4,800 50,997
Additions 9,760 2,298 4,245 55,467 - 71,770
Maturities/Amortizations (3,456) (1,410) (4,229) (48,626) - (57,721)
Terminations (424) - (1,000) (5,423) - (6,847)
- - ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,402 5,307 1,016 29,674 4,800 58,199
Additions 7,740 1,977 662 80,229 - 90,608
Maturities/Amortizations (5,241) (854) (697) (41,023) (4,800) (52,615)
Terminations (105) - (319) (26,322) - (26,746)
- - ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 19,796 6,430 662 42,558 - 69,446
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
TABLE 22
INTEREST DIFFERENTIAL
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
--------------------------------------------------------------------------
INTEREST VARIANCE INTEREST VARIANCE
INCOME/ ATTRIBUTABLE TO (B) INCOME/ ATTRIBUTABLE TO (B)
EXPENSE -------------------------- EXPENSE ----------------------
(IN MILLIONS) VARIANCE RATE VOLUME VARIANCE RATE VOLUME
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing bank balances $ (19) 1 (20) (39) 3 (42)
Federal funds sold and securities
purchased under resale agreements 192 (21) 213 74 31 43
Trading account assets (a) 183 11 172 29 6 23
Securities available for sale (a) 399 26 373 (32) 107 (139)
Investment securities (a)
U.S. Government and other (271) 32 (303) 48 41 7
State, county and municipal (59) (2) (57) (39) (4) (35)
- - -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities (330) 30 (360) 9 37 (28)
- - -----------------------------------------------------------------------------------------------------------------------------------
Loans (a) 495 (142) 637 1,399 334 1,065
- - -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets $ 920 (95) 1,015 1,440 518 922
- - -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Deposits 107 (8) 115 807 587 220
Short-term borrowings 380 (140) 520 321 175 146
Long-term debt 93 (27) 120 131 21 110
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 580 (175) 755 1,259 783 476
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 340 80 260 181 (265) 446
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Income related to securities and loans exempt from both federal and state
income taxes, federal income taxes only or state income taxes only are
stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of
35 percent; and state 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.
(b) Changes attributable to rate/volume are allocated to both rate and
volume on an equal basis.
T-24
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED 1996 YEAR ENDED 1995
---------------------------------------------------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
(IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE PAID
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 125 7 5.69% $ 475 26 5.45%
Federal funds sold and securities
purchased under resale agreements 6,135 323 5.27 2,266 131 5.77
Trading account assets (a) (d) 4,186 280 6.67 1,538 97 6.29
Securities available for sale (a) (d) 16,946 1,117 6.59 11,212 718 6.41
Investment securities (a) (d)
U.S. Government and other 1,754 132 7.51 6,027 403 6.70
State, county and municipal 960 104 10.81 1,488 163 10.94
- - -------------------------------------------------- ----------------------- ----------------------
Total investment securities 2,714 236 8.68 7,515 566 7.54
- - ------------------------------------------------------------------------- ----------------------
Loans (a) (b) (d)
Commercial
Commercial, financial and agricultural 23,065 1,781 7.72 22,634 1,792 7.92
Real estate - construction and other 2,724 231 8.47 2,266 210 9.29
Real estate - mortgage 9,612 814 8.47 9,827 873 8.88
Lease financing 1,965 190 9.70 1,416 131 9.23
Foreign 753 47 6.24 614 43 7.04
- - ------------------------------------------------------------------------- ----------------------
Total commercial 38,119 3,063 8.04 36,757 3,049 8.30
- - ------------------------------------------------------------------------- ----------------------
Retail
Real estate - mortgage 27,293 2,115 7.75 23,389 1,786 7.63
Installment loans - Bankcard (c) 4,863 657 13.52 4,370 632 14.45
Installment loans - other and Vehicle leasing 20,385 1,914 9.39 18,749 1,787 9.53
- - ------------------------------------------------------------------------- ----------------------
Total retail 52,541 4,686 8.92 46,508 4,205 9.04
- - ------------------------------------------------------------------------- ----------------------
Total loans 90,660 7,749 8.55 83,265 7,254 8.71
- - ------------------------------------------------------------------------- ----------------------
Total earning assets 120,766 9,712 8.04 106,271 8,792 8.27
---------------------- ------------------------
Cash and due from banks 5,278 5,004
Other assets 8,083 6,867
- - ------------------------------------------------------------- ----------
Total assets $ 134,127 $ 118,142
- - ------------------------------------------------------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 25,214 669 2.65 23,047 588 2.55
Money market accounts 13,228 375 2.83 13,270 388 2.92
Other consumer time 30,992 1,629 5.26 29,779 1,538 5.17
Foreign 2,122 111 5.24 3,089 178 5.77
Other time 3,090 176 5.69 2,571 161 6.26
- - ------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits 74,646 2,960 3.97 71,756 2,853 3.98
Federal funds purchased and securities
sold under repurchase agreements 18,808 936 4.98 10,325 596 5.77
Commercial paper 903 46 5.08 1,053 60 5.71
Other short-term borrowings 3,853 215 5.58 2,649 161 6.06
Long-term debt 7,565 475 6.28 5,707 382 6.69
- - ------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities 105,775 4,632 4.38 91,490 4,052 4.43
---------------------- ------------------------
Noninterest-bearing deposits 16,674 15,518
Other liabilities 2,486 2,589
Guaranteed preferred beneficial interests 47 -
Stockholders' equity 9,145 8,545
- - ------------------------------------------------------------- ----------
Total liabilities and stockholders' equity $ 134,127 $ 118,142
- - ------------------------------------------------------------- ----------
Interest income and rate earned $ 9,712 8.04% $ 8,792 8.27%
Interest expense and equivalent rate paid 4,632 3.83 4,052 3.81
- - ------------------------------------------------------------------------------------ ------------------------
Net interest income and margin $ 5,080 4.21% $ 4,740 4.46%
- - ------------------------------------------------------------------------------------- ------------------------
</TABLE>
(a) Yields related to securities and loans exempt from both federal and state
income taxes, federal income taxes only or state income taxes only are
stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of
35 percent in 1993 through 1996, and 34 percent in 1992; and state tax
rates of 7.75 percent in 1995 and 1996, 7.8275 percent in 1994, 7.905
percent in 1993, and 7.9825 percent in 1992 in North Carolina; 5.5
percent in Florida; 4.5 percent in South Carolina; 6 percent in Georgia
and Tennessee in 1992 through 1996; 7 percent in 1993 through 1996 in
Maryland; 9.975 percent in 1995 and 1996, and 10.25 percent in 1993 and
1994 in Washington, D.C.; 4.87 percent in 1996 in Delaware; 6.5 percent
in 1996 in New Jersey; and 10.75 percent in 1996 in Connecticut. Lease
financing amounts include related deferred income taxes.
T-25
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
YEAR ENDED 1994 YEAR ENDED 1993 YEAR ENDED 1992
-------------------------------------------------------------------------------------------------------------
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>
$ 1,273 65 5.11% $ 2,008 88 4.36% $ 3,070 146 4.77%
1,391 57 4.09 1,045 33 3.15 2,106 77 3.66
1,154 68 5.87 1,075 48 4.43 613 33 5.39
13,542 750 5.54 8,327 418 5.02 3,043 197 6.46
5,912 355 6.01 11,147 701 6.29 11,119 813 7.31
1,806 202 11.21 1,720 198 11.51 2,068 238 11.49
----------------------- ---------------------- -----------------------
7,718 557 7.23 12,867 899 6.99 13,187 1,051 7.97
----------------------- ---------------------- -----------------------
19,797 1,549 7.82 17,631 1,364 7.73 17,302 1,397 8.08
1,980 154 7.77 2,543 152 5.98 2,945 174 5.89
9,441 766 8.12 8,475 661 7.80 8,067 667 8.27
861 77 8.90 793 77 9.69 1,093 87 7.93
548 30 5.40 385 18 4.85 329 19 5.80
----------------------- ---------------------- -----------------------
32,627 2,576 7.89 29,827 2,272 7.62 29,736 2,344 7.88
----------------------- ---------------------- -----------------------
19,172 1,407 7.34 14,864 1,168 7.86 12,318 1,105 8.97
2,949 416 14.09 2,129 325 15.24 - - -
15,978 1,456 9.12 16,176 1,485 9.18 16,646 1,800 10.82
----------------------- ---------------------- -----------------------
38,099 3,279 8.61 33,169 2,978 8.98 28,964 2,905 10.03
----------------------- ---------------------- -----------------------
70,726 5,855 8.28 62,996 5,250 8.33 58,700 5,249 8.94
----------------------- ---------------------- -----------------------
95,804 7,352 7.67 88,318 6,736 7.63 80,719 6,753 8.37
---------------------- ------------------- --------------------
4,862 5,093 4,253
5,747 6,199 5,649
---------- ---------- -----------
$ 106,413 $ 99,610 $ 90,621
---------- ---------- -----------
21,786 464 2.13 18,858 408 2.16 15,390 458 2.98
14,620 352 2.41 14,264 328 2.30 13,554 401 2.96
25,216 1,042 4.13 26,444 1,091 4.13 26,809 1,374 5.12
1,969 91 4.61 798 28 3.48 362 22 6.18
1,963 97 4.95 2,078 89 4.30 3,591 185 5.14
----------------------- ---------------------- -----------------------
65,554 2,046 3.12 62,442 1,944 3.11 59,706 2,440 4.09
8,869 382 4.31 8,207 295 3.59 5,537 213 3.84
849 35 4.15 484 13 2.64 483 15 3.15
1,463 79 5.36 810 32 3.93 750 33 4.42
4,009 251 6.26 3,598 198 5.51 3,528 241 6.82
----------------------- ---------------------- -----------------------
80,744 2,793 3.46 75,541 2,482 3.29 70,004 2,942 4.20
---------------------- ------------------- --------------------
15,206 14,388 12,241
2,190 2,379 2,096
- - -
8,273 7,302 6,280
---------- ---------- -----------
$ 106,413 $ 99,610 $ 90,621
---------- ---------- -----------
$ 7,352 7.67% $ 6,736 7.63% $ 6,753 8.37%
2,793 2.92 2,482 2.81 2,942 3.64
---------------------- ------------------- --------------------
$ 4,559 4.75% $ 4,254 4.82% $ 3,811 4.73%
---------------------- ------------------- --------------------
</TABLE>
(b) The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(c) Installment loans - Bankcard include credit card, ICR, signature and First
Choice amounts for all years except 1992.
(d) Tax-equivalent adjustments included in trading account assets, securities
available for sale, investment securities, commercial, financial and
agricultural loans, and lease financing are (IN MILLIONS) $10, $13, $36,
$23 and $2 in 1996, respectively; and $6, $13, $56, $27 and $3 in
1995, respectively.
T-26
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
- - --------------------------------------------------------------------------------
Management of First Union Corporation and its subsidiaries (the
"Corporation") is committed to the highest standards of quality customer service
and the enhancement of stockholder value. Management expects the Corporation's
employees to respect its customers and to assign the highest priority to
customer needs.
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles and include, as
necessary, best estimates and judgments by management. Other financial
information contained in this annual report is presented on a basis consistent
with the consolidated financial statements unless otherwise indicated.
To ensure the integrity, objectivity and fairness of the information in
these consolidated financial statements, management of the Corporation has
established and maintains an internal control structure that is supplemented by
a program of internal audits. The internal control structure is designed to
provide reasonable assurance that assets are safeguarded and transactions are
executed, recorded and reported in accordance with management's intentions and
authorizations and to comply with applicable laws and regulations. To enhance
the reliability of the internal control structure, management recruits and
trains highly qualified personnel, and maintains sound risk management
practices.
The consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors, in accordance with generally accepted
auditing standards. KPMG Peat Marwick LLP reviews the results of its audit with
both management and the Audit Committee of the Board of Directors of the
Corporation. The Audit Committee, composed entirely of outside directors, meets
periodically with management, internal auditors and KPMG Peat Marwick LLP to
determine that each is fulfilling its responsibilities and to support actions to
identify, measure and control risks and augment internal controls.
Edward E. Crutchfield Robert T. Atwood
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
January 16, 1997
C-1
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
- - --------------------------------------------------------------------------------
Board of Directors and Stockholders
First Union Corporation
We have audited the consolidated balance sheets of First Union
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We have conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Union
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 16, 1997
C-2
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
December 31,
---------------------------------
(In millions, except per share data) 1996 1995
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,509 6,312
Interest-bearing bank balances 316 79
Federal funds sold and securities purchased under resale agreements 7,024 4,153
- - --------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 13,849 10,544
- - --------------------------------------------------------------------------------------------------------------------
Trading account assets 3,934 1,881
Securities available for sale (amortized cost $14,194 in 1996; $17,993 in 1995) 14,182 18,194
Investment securities (market value $2,636 in 1996; $3,320 in 1995) 2,501 3,140
Loans, net of unearned income ($2,206 in 1996; $1,546 in 1995) 95,858 90,563
Allowance for loan losses (1,365) (1,508)
- - --------------------------------------------------------------------------------------------------------------------
Loans, net 94,493 89,055
- - --------------------------------------------------------------------------------------------------------------------
Premises and equipment 4,073 2,553
Due from customers on acceptances 763 616
Other intangible assets 2,849 2,432
Other assets 3,483 3,465
- - --------------------------------------------------------------------------------------------------------------------
Total $ 140,127 131,880
- - --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 18,632 17,043
Interest-bearing deposits 76,183 75,512
- - --------------------------------------------------------------------------------------------------------------------
Total deposits 94,815 92,555
Short-term borrowings 23,024 19,500
Bank acceptances outstanding 764 616
Other liabilities 3,361 3,045
Long-term debt 7,660 7,121
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities 129,624 122,837
- - --------------------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in Corporation's junior subordinated
deferrable interest debentures 495 -
- - --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock - 183
Common stock, $3.33-1/3 par value; authorized 750,000,000 shares, outstanding
287,348,312 shares in 1996; 277,845,768 shares in 1995 958 926
Paid-in capital 2,336 1,975
Retained earnings 6,727 5,848
Unrealized gain (loss) on debt and equity securities, net (13) 111
- - --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 10,008 9,043
- - --------------------------------------------------------------------------------------------------------------------
Total $ 140,127 131,880
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-3
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
----------------------------------
(In millions, except per share data) 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,724 7,223 5,824
Interest and dividends on securities available for sale 1,104 706 734
Interest and dividends on investment securities
Taxable income 130 401 353
Nontaxable income 70 109 134
Trading account interest 270 91 64
Other interest income 330 157 122
- - ------------------------------------------------------------------------------------------------------------------------
Total interest income 9,628 8,687 7,231
- - ------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 2,960 2,853 2,046
Interest on short-term borrowings 1,197 817 496
Interest on long-term debt 475 382 251
- - ------------------------------------------------------------------------------------------------------------------------
Total interest expense 4,632 4,052 2,793
- - ------------------------------------------------------------------------------------------------------------------------
Net interest income 4,996 4,635 4,438
Provision for loan losses 375 220 179
- - ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 4,621 4,415 4,259
- - ------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trading account profits 102 69 52
Service charges on deposit accounts 666 616 580
Mortgage banking income 155 150 88
Capital management income 566 428 330
Securities available for sale transactions 31 44 6
Investment security transactions 4 5 4
Fees for other banking services 157 160 131
Sundry income 676 425 385
- - ------------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,357 1,897 1,576
- - ------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries 1,781 1,615 1,436
Other benefits 415 347 337
- - ------------------------------------------------------------------------------------------------------------------------
Personnel expense 2,196 1,962 1,773
Occupancy 351 353 353
Equipment 417 320 270
Advertising 41 72 65
Telecommunications 102 87 76
Travel 92 78 61
Postage, printing and supplies 162 139 123
FDIC assessment 41 120 184
Professional fees 88 176 169
External data processing 114 71 72
Other intangible amortization 243 229 163
Merger-related restructuring charges 281 94 -
SAIF special assessment 133 - -
Sundry expense 407 392 438
- - ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 4,668 4,093 3,747
- - ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,310 2,219 2,088
Income taxes 811 789 712
- - ------------------------------------------------------------------------------------------------------------------------
Net income 1,499 1,430 1,376
Dividends on preferred stock 9 26 46
- - ------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders
before redemption premium 1,490 1,404 1,330
Redemption premium - - 41
- - ------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders
after redemption premium $ 1,490 1,404 1,289
- - ------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income before redemption premium $ 5.35 5.04 4.72
Net income after redemption premium 5.35 5.04 4.58
Cash dividends $ 2.20 1.96 1.72
AVERAGE COMMON SHARES (In thousands) 278,812 278,677 281,663
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-4
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- - ----------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain
(Loss) on
Debt and
(Dollars in millions, Preferred Stock Common Stock Paid-in Retained Equity
----------------------------------------------
shares in thousands) Shares Amount Shares Amount Capital Earnings Securities Total
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 11,560 $ 262 278,204 $ 927 2,513 4,217 27 7,946
Stockholders' equity of pooled
banks not restated prior
to 1994 - - 4,169 14 36 14 - 64
Net income - - - - - 1,376 - 1,376
Redemption of preferred stock (6,318) (32) - - (252) (41) - (325)
Purchase of common stock
primarily for purchase
accounting acquisitions - - (11,067) (37) (381) - - (418)
Common stock issued for
stock options exercised - - 2,318 8 79 (5) - 82
Common stock issued through
dividend reinvestment plan - - 1,246 4 44 - - 48
Common stock issued for
purchase accounting
acquisition - - 3,607 12 151 - - 163
Converted debentures and
preferred stock (29) - 467 2 18 - - 20
Pre-merger transactions of
pooled bank - - 6,417 21 153 (53) - 121
Cash dividends paid by
First Union Corporation at
8.03% per Series 1990
preferred share - - - - - (25) - (25)
$1.72 per common share - - - - - (298) - (298)
Acquired bank on
Preferred shares - - - - - (21) - (21)
Common share - - - - - (142) - (142)
Unrealized loss on debt and
equity securities - - - - - - (317) (317)
- - -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 5,213 230 285,361 951 2,361 5,022 (290) 8,274
Net income - - - - - 1,430 - 1,430
Purchase of common stock
primarily for acquisitions - - (25,435) (85) (1,114) - - (1,199)
Common stock issued for
stock options exercised - - 6,619 22 233 (51) - 204
Common stock issued through
dividend reinvestment plan - - 1,004 3 41 1 - 45
Common stock issued for
purchase accounting
acquisitions - - 12,545 42 569 - - 611
Converted preferred stock (1,574) (40) 1,658 6 59 (25) - -
Pre-merger transactions of
pooled bank (251) (7) (3,906) (13) (174) - - (194)
Cash dividends paid by
First Union Corporation at
8.90% per Series 1990
preferred share - - - - - (7) - (7)
$1.96 per common share - - - - - (336) - (336)
Acquired bank on
Preferred shares - - - - - (19) - (19)
Common share - - - - - (167) - (167)
Unrealized gain on debt and
equity securities - - - - - - 401 401
- - -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,388 183 277,846 926 1,975 5,848 111 9,043
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain
(Loss) on
Debt and
(Dollars in millions, Preferred Stock Common Stock Paid-in Retained Equity
Shares in thousands) Shares Amount Shares Amount Capital Earnings Securities Total
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 3,388 183 277,846 926 1,975 5,848 111 9,043
Net income - - - - - 1,499 - 1,499
Redemption of preferred stock (433) (109) - - - - - (109)
Purchase of common stock
primarily for purchase
accounting acquisitions - - (15,284) (50) (918) - - (968)
Common stock issued for
stock options exercised - - 5,162 17 230 - - 247
Common stock issued through
dividend reinvestment plan - - 515 2 30 - - 32
Common stock issued for
purchase accounting
acquisitions - - 15,997 53 955 - - 1,008
Converted preferred stock (2,955) (74) 3,112 10 64 - - -
Cash dividends paid
Preferred shares - - - - - (9) - (9)
$2.20 per common share - - - - - (611) - (611)
Unrealized loss on debt and
equity securities - - - - - - (124) (124)
- - ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - $- 287,348 $958 2,336 6,727 (13) 10,008
============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-6
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
-------------------------------------
(In millions) 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,499 1,430 1,376
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 39 (32) (11)
Provision for loan losses 375 220 179
Provision for foreclosed properties (1) (3) 14
Gain on sale of mortgage servicing rights (43) - -
Securities available for sale transactions (31) (44) (6)
Investment security transactions (4) (5) (4)
Depreciation and amortization 624 545 419
Deferred income taxes 523 372 315
Trading account assets, net (2,053) (564) (515)
Mortgage loans held for resale (367) (102) 880
(Gain) loss on sales of premises and equipment (3) 11 5
Gain on sale of segregated assets (12) (18) (84)
Other assets, net 352 102 475
Other liabilities, net (448) 51 263
- - ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 450 1,963 3,306
- - ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 18,513 7,910 14,275
Maturities of securities available for sale 3,008 1,672 3,725
Purchases of securities available for sale (15,977) (7,328) (15,637)
Sales and underdeliveries of investment securities 10 33 39
Maturities of investment securities 803 2,459 2,965
Purchases of investment securities (172) (3,642) (1,602)
Origination of loans, net (689) (7,468) (7,869)
Sales of loans - 2,000 251
Sales of premises and equipment 60 47 77
Purchases of premises and equipment (1,027) (597) (487)
Other intangible assets, net 6 (40) 37
Purchases of banking organizations, net of acquired cash equivalents (484) 525 2,010
- - ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 4,051 (4,429) (2,216)
- - ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (2,887) (3,624) (567)
Securities sold under repurchase agreements and other short-term borrowings, net 2,365 7,325 878
Issuance of guaranteed preferred beneficial interests 495 - -
Issuances of long-term debt 1,667 3,346 772
Payments of long-term debt (1,418) (776) (212)
Sales of common stock 279 249 251
Purchases of preferred stock - (7) -
Redemption of preferred stock (109) - (325)
Purchases of common stock (968) (1,199) (418)
Cash dividends paid (620) (529) (486)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (1,196) 4,785 (107)
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 3,305 2,319 983
Cash and cash equivalents, beginning of year 10,544 8,225 7,242
- - ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 13,849 10,544 8,225
- - ----------------------------------------------------------------------------------------------------------------------------------
CASH PAID FOR
Interest $ 4,688 3,953 2,686
Income taxes 217 450 328
NONCASH ITEMS
Increase (decrease) in securities available for sale - 5,891 (414)
Increase (decrease) in investment securities - (5,905) 414
Increase in other assets - 15 -
Increase in foreclosed properties and a decrease in loans 32 61 76
Conversion of preferred stock to common stock 74 40 1
Increase in other intangible assets and stockholders' equity for converted debentures - - 20
Issuance of common stock for purchase accounting acquisitions 1,008 611 163
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity securities
included in
Securities available for sale (213) 597 (396)
Other assets (deferred income taxes) $ (89) 196 (79)
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-7
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
First Union Corporation (the "Parent Company") is a bank holding company
whose principal wholly owned subsidiaries are national banking associations
using the name First Union National Bank and First Union Bank; First Union
Capital Markets Corp., an investment banking firm; First Union Mortgage
Corporation, a mortgage banking firm; and certain business trusts as more fully
described in Note 11.
The accounting and reporting policies of First Union Corporation and
subsidiaries (the "Corporation") are in accordance with generally accepted
accounting principles and conform to general practices within the banking and
mortgage banking industries. The consolidated financial statements include
accounts of the Parent Company and all its subsidiaries. In consolidation, all
significant intercompany accounts and transactions are eliminated.
The Corporation's principal sources of revenue emanate from its domestic
banking, including trust operations, capital markets activity and mortgage
banking operations, located primarily in Connecticut, Delaware, Florida,
Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Virginia and Washington, D.C. Its foreign banking
operations are immaterial.
Management of the Corporation has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks,
interest-bearing balances in other banks and federal funds sold and securities
purchased under resale agreements. Generally, both cash and cash equivalents are
considered to have maturities of three months or less, and accordingly, the
carrying amount of such instruments is deemed to be a reasonable estimate of
fair value.
SECURITIES
The classification of securities is determined at the date of purchase.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
Trading account assets, primarily debt securities, and trading
derivatives, which include interest rate futures, options, caps and floors and
forward contracts, are recorded at market value. Included in noninterest income
are realized and unrealized gains and losses resulting from such market value
adjustments and from recording the results of sales of trading account
securities.
Securities available for sale, primarily debt securities, are recorded
at market value with a corresponding adjustment net of tax recorded as a
component of stockholders' equity. Securities available for sale are used as a
part of the Corporation's interest rate risk management strategy and may be sold
in response to changes in interest rates, changes in prepayment risk and other
factors.
Investment securities, primarily debt securities, are stated at cost,
net of the amortization of premium and the accretion of discount. The
Corporation intends and has the ability to hold such securities until maturity.
The market value of securities, including securities sold not owned, is
generally based on quoted market prices or dealer quotes. If a quoted market
price is not available, market value is estimated using quoted market prices for
similar securities.
INTEREST RATE SWAPS, FLOORS AND CAPS
The Corporation uses interest rate swaps, floors and caps for interest
rate risk management, in connection with providing risk management services to
customers and for trading for its own account.
Interest rate swaps, floors and caps used to achieve interest rate risk
management objectives are designated as hedges of specific assets and
liabilities. The net interest payable or receivable on swaps, floors and caps is
accrued and recognized as an adjustment to interest income or interest expense
of the related asset or liability. Premiums paid for purchased floors and caps
are amortized over the term of the floors and caps as a yield adjustment of the
related asset or liability. Floors and caps are written only to adjust the
amount or term of purchased floors and caps to more effectively reduce interest
rate risk, and a net written position is not created. Premiums received on
floors and caps offset the premium paid on the floors and caps they adjust. On
the early termination of swaps, floors and caps, the net proceeds received or
paid, including premiums, are deferred and included in other assets or
liabilities, and they are amortized over the shorter of the remaining contract
life or the maturity of the related asset or liability. On disposition or
settlement of the asset or liability being hedged, deferral accounting is
discontinued and any related premium or market value is recognized in earnings.
Interest rate swaps, floors and caps entered into for trading purposes
and sold to customers are accounted for on a mark-to-market basis with both
realized and unrealized gains and losses recognized as trading profits. The fair
value of these financial instruments represent the estimated amount the
Corporation would receive or pay to terminate the contracts or agreements, and
it is determined using a valuation model that considers current market yields
and other relevant variables.
C-8
<PAGE>
- - --------------------------------------------------------------------------------
INTEREST RATE FUTURES, FORWARD AND OPTION CONTRACTS
The Corporation uses interest rate futures, forward and option
contracts, other than floors and caps, for interest rate risk management and in
connection with hedging interest rate products sold to customers.
Interest rate futures and option contracts are used to hedge interest
rate risk arising from specific financial instruments. Gains and losses on
interest rate futures are (i) deferred and included in the carrying value of the
related assets or liabilities, and (ii) amortized over the estimated lives of
those assets and liabilities as a yield adjustment. Premiums paid for option
contracts are included in other assets, and they are amortized over the option
term as a yield adjustment of the related asset or liability. On the early
termination of futures contracts, the deferred amounts are amortized over the
remaining maturity of the related asset or liability. On disposition or
settlement of the asset or liability being hedged, deferral accounting is
discontinued and any related premium or market value is recognized in earnings.
Interest rate futures, forward and option contracts used to hedge risk
management products sold to customers are marked to market, and both the
realized and unrealized gains and losses are recognized as trading profits. The
market value of these financial instruments is based on dealer or exchange
quotes.
LOANS
Commercial, financial and agricultural loans include industrial revenue
bonds, highly leveraged transaction loans and certain other loans that are made
primarily on the strength of the borrower's general credit standing and ability
to generate repayment cash flows from income sources even though such bonds and
loans may be secured by real estate or other assets.
Commercial real estate construction and mortgage loans represent interim
and permanent financing of commercial properties that are secured by real
estate.
Retail real estate mortgage loans represent 1-4 family first mortgage
loans.
Bankcard installment loans include credit card, instant cash reserve,
signature and First Choice unsecured revolving lines of credit.
Retail installment loans represent all other consumer loans, including
home equity and second mortgage loans.
Mortgage notes held for sale are valued at the lower of cost or market
as determined by outstanding commitments from investors or current investor
yield requirements calculated on the aggregate loan basis. Gains or losses
resulting from sales of mortgage loans are recognized when the proceeds are
received from investors.
In many lending transactions, collateral is taken to provide an
additional measure of security. Generally, the cash flow or earning power of the
borrower represents the primary source of repayment, and collateral liquidation
is a secondary source of repayment. The Corporation determines the need for
collateral on a case-by-case or product-by-product basis. Factors considered
include the current and prospective creditworthiness of the customer, terms of
the instrument and economic conditions.
Unearned income is generally accreted to interest income using the
constant yield method. Interest income is recorded on an accrual basis.
The Corporation adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosure," on January 1, 1995 (the
"Standards"). The adoption of the Standards required no increase to the
allowance for loan losses, and it had no impact on net income in 1995 or
1996.The impact to historical and current amounts related to in-substance
foreclosures was not material, and accordingly, historical amounts have not been
restated.
A loan is considered to be impaired when based on current information,
it is probable the Corporation will not receive all amounts due in accordance
with the contractual terms of a loan agreement. The discounted expected cash
flow method is used in determining the value of impaired loans.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are are applied to principal. Once
the recorded principal balance has been reduced to zero, future cash receipts
are applied to interest income, to the extent any interest has been foregone,
and then they are recorded as recoveries of any amounts previously charged off.
When this doubt does not exist, cash receipts are applied under the contractual
terms of the loan agreement.
A loan is also considered to be impaired if its terms are modified in a
troubled debt restructuring after January 1, 1995. For these accruing impaired
loans, cash receipts are typically applied to principal and interest receivable
in accordance with the terms of the restructured loan agreement. Interest income
is recognized on these loans using the accrual method of accounting. As of
December 31, 1996 and 1995, there were no accruing impaired loans.
The accrual of interest is generally discontinued on all loans, except
consumer loans, that become 90 days past due as to principal or interest unless
collection of both principal and interest is assured by way of
collateralization, guarantees or other security. Generally, loans past due 180
days or more are placed on nonaccrual status regardless of security. Consumer
loans and bankcard products that become approximately 120 days and 180 days past
due, respectively, are generally charged to the allowance for loan losses. When
C-9
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
borrowers demonstrate over an extended period the ability to repay a loan in
accordance with the contractual terms of a loan the Corporation has classified
as nonaccrual, such loan is returned to accrual status.
Fair values are estimated for loans with similar financial
characteristics. These loans are segregated by type of loan, considering credit
risk and prepayment characteristics. Each loan category is further segmented
into fixed and adjustable rate categories.
The fair values of performing loans for all portfolios are calculated by
discounting estimated cash flows through expected maturity dates. These cash
flows are discounted using estimated market yields that reflect the credit and
interest rate risks inherent in each category of loans. Such market yields also
reflect a component for the estimated cost of servicing the portfolio. A
prepayment assumption is used as an estimate of the number of loans that will be
repaid prior to their scheduled maturity.
For performing residential mortgage loans, fair values are estimated
using a discounted cash flow analysis utilizing yields of comparable
mortgage-backed securities. The loan portfolio is segmented into homogeneous
pools based on loan types, coupon rates, maturities, prepayment characteristics
and credit risk. These pools are compared with similar mortgage-backed
securities to arrive at an appropriate discount rate; whole loan liquidity and
risk characteristics are considered within the comparison.
Fair value of nonperforming loans is calculated by estimating the timing
and amount of cash flows. These cash flows are discounted using estimated market
yields commensurate with the risk associated with estimating such cash flows.
Estimates of cash flows are made using knowledge of the borrower and available
market data.
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Generally, for fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of commitments and letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is the amount considered adequate to
provide for potential losses in the portfolio. Management's evaluation of the
adequacy of the allowance is based on a review of individual loans, recent loss
experience, current economic conditions, the risk characteristics of the various
classifications of loans, the fair value of underlying collateral and other
factors.
Management believes the allowances for losses on loans and real estate
owned are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances may be
necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's bank subsidiaries'
allowances for losses on loans and real estate owned. Such agencies may require
such subsidiaries to recognize changes to the allowances based on their
judgments about information available to them at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed on a straight-line
basis for financial purposes and on straight-line and accelerated bases for tax
purposes, using estimated lives generally as follows: buildings, 10 to 50 years;
furniture and equipment, 3 to 10 years; and leasehold improvements and
capitalized leases, over the lives of the respective leases.
INTANGIBLE ASSETS
Generally, goodwill is being amortized on a straight-line basis over
periods ranging from 15 to 25 years. The Corporation's unamortized goodwill is
periodically reviewed to ensure conditions are not present that indicate the
recorded amount of goodwill is not recoverable from future undiscounted cash
flows. The review process includes an evaluation of the earnings history of each
subsidiary, its contribution to the Corporation, capital levels and other
factors. If events or changes in circumstances indicate further evaluation is
warranted, the undiscounted net cash flows of the operations to which goodwill
relates are estimated. If the estimated undiscounted net cash flows are less
than the carrying amount of goodwill, a loss is recognized to reduce goodwill's
carrying value to fair value, and when appropriate, the amortization period is
also reduced. Unamortized goodwill associated with disposed assets is charged to
current earnings. Credit card premiums are being amortized principally over the
period of benefit not to exceed 10 years using the sum-of-the-years' digits
method. Deposit base premiums are amortized principally over a 10-year period
using accelerated methods. Annually, the fair value of the unamortized balance
of such premiums is determined on a discounted cash flow basis, and if such
value is less than such balance, the difference is charged to noninterest
expense.
C-10
<PAGE>
- - --------------------------------------------------------------------------------
FORECLOSED PROPERTIES
Foreclosed properties are included in other assets, and they represent
other real estate that has been acquired through loan or in-substance
foreclosures or deeds received in lieu of loan payments. Generally, such
properties are appraised annually, and they are recorded at the lower of cost or
fair value less estimated selling costs. When appropriate, adjustments to cost
are charged or credited to the allowance for foreclosed properties.
MORTGAGE LOAN ADMINISTRATION
The Corporation adopted the provisions of SFAS No. 122, "Accounting for
Mortgage Servicing Rights," on July 1, 1995.
When the Corporation acquires mortgage servicing rights through either
the purchase or origination of mortgage loans and sells or securitizes those
loans with servicing rights retained, the total cost of the mortgage loans is
allocated to the mortgage servicing rights and the loans (without the servicing
rights) based on their relative fair values.
Mortgage servicing fees are recorded on an accrual basis. Mortgage
servicing rights are amortized over the life of the related mortgages in
proportion to estimated net servicing income. Quarterly, an appropriate carrying
value of the unamortized balance of such mortgage servicing rights is determined
by the Corporation, and it is based principally on a disaggregated, discounted
cash flow method. The loans and associated servicing rights are segmented by
predominant risk characteristics to include loan type, investor and interest
rate. Additionally, an appropriate carrying value of the unamortized deferred
excess servicing fee balance is determined by the Corporation quarterly, based
principally on an aggregated discounted method. If such values are less than
such balances, the differences are included as a reduction of mortgage banking
income.
Placement fees for services rendered in arranging permanent financing
for income property loans are earned when the permanent commitment issued by the
lender is approved and accepted by the borrower.
Loan origination, commitment and certain other fees and certain direct
loan origination costs are being deferred, and the net amount is being amortized
as an adjustment of the related loan's yield, generally over the contractual
life of the related loan, or if the related loan is held for resale, until the
loan is sold.
PENSION AND SAVINGS PLANS
Substantially all employees with one year of service are eligible for
participation in a non-contributory, defined benefit pension plan and a matching
savings plan. Pension cost is determined annually by an actuarial valuation,
which includes service costs for the current year and amortization of amounts
related to prior years. The Corporation's funding policy is to contribute to the
pension plan the amount required to fund the benefits expected to be earned for
the current year and to amortize amounts related to prior years using the
projected unit credit valuation method. The difference between the pension cost
included in current income and the funded amount is included in other assets or
other liabilities, as appropriate. Actuarial assumptions are evaluated annually.
The matching savings plan permits eligible employees to make basic
contributions to the plan of up to six percent of base compensation and
supplemental contributions of up to nine percent of base compensation. Annually,
on approval of the Board of Directors, employee basic contributions may be
matched up to six percent of the employee's base compensation.
INCOME TAXES
The operating results of the Parent Company and its eligible
subsidiaries are included in a consolidated federal income tax return. Each
subsidiary pays its allocation of federal income taxes to the Parent Company or
receives payment from the Parent Company to the extent tax benefits are
realized. Where state income tax laws do not permit consolidated income tax
returns, applicable state income tax returns are filed. As more fully described
in Note 15 to the consolidated financial statements, the Corporation accounts
for income taxes as set forth in SFAS No. 109.
INCOME PER COMMON SHARE
Income per common share is determined by dividing net income applicable
to common stockholders by the weighted average number of shares of common stock
outstanding. Common stock equivalents have not been material.
C-11
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
NOTE 2: ACQUISITIONS
On January 1, 1996, the Corporation acquired First Fidelity
Bancorporation ("First Fidelity"), a multi-bank holding company based in New
Jersey. The merger was accounted for as a pooling of interests, and accordingly,
all historical financial information for the Corporation has been restated to
include First Fidelity historical information for all periods presented herein.
At December 31, 1995, First Fidelity had assets of $35.3 billion, net loans of
$24.9 billion, deposits of $27.6 billion and net income applicable to common
stockholders of $398 million.
As a result of the merger, each of the 79 million net outstanding shares
of First Fidelity common stock was converted into 1.35 shares of the
Corporation's common stock and common stock equivalents, except that cash was
paid for fractional share interests. In addition, the 3 million net outstanding
shares of First Fidelity Series B Convertible Preferred Stock were converted
into a like number of shares of the Corporation's Series B Convertible Class A
Preferred Stock (the "Series B Stock") having substantially identical terms as
the First Fidelity Series B, the 350,000 outstanding shares of First Fidelity
Series D Adjustable Rate Cumulative Preferred Stock were converted into a like
number of shares of the Corporation's Series D Adjustable Rate Cumulative Class
A Preferred Stock (the "Series D Stock") having substantially identical terms as
the First Fidelity Series D, and the 3 million net outstanding First Fidelity
Depositary Receipts (each representing a 1/40th interest in a share of First
Fidelity Series F 10.64% Preferred Stock (74,130 net outstanding shares)) were
converted into a like number of the Corporation's Depositary Receipts (each
representing a 1/40th interest in the Corporation's Series F 10.64% Class A
Preferred Stock (the "Series F Stock")) having substantially identical terms as
the First Fidelity Series F. See Note 12 for information related to the
redemption of the Series B Stock, the Series D Stock and the Series F Stock.
Additionally, restructuring charges primarily related to direct costs
and existing severance contracts associated with the First Fidelity merger of
$281 million ($181 million after tax) and $94 million ($73 million after tax)
are included as a component of noninterest expense in 1996 and 1995,
respectively. The remaining unpaid balance of the initial accrual of $375
million is $29 million at December 31, 1996.
In 1996, various banking subsidiaries of the Parent Company also
acquired twelve financial institutions and certain other assets which in the
aggregate amounted to the addition of $7.8 billion in assets, $4.8 billion in
net loans and $5.1 billion in deposits. The purchase method of accounting, which
requires (i) no restatement of the Corporation's historical financial
statements, and (ii) the inclusion of the acquired company's financial
information on a fair value basis only from the date of consummation, was used
in these transactions. With respect to these transactions, the Parent Company
issued 16 million shares of its common stock in exchange for the common stock of
certain of the acquired financial institutions, and it paid cash for the other
financial institutions and asset, which in the aggregate amounted to $1.1
billion. These transactions resulted in an increase to stockholders' equity of
$1.0 billion, and the increase was reduced by the Parent Company's purchase in
the open market of 12 million shares of its common stock for $764 million in
1996. These transactions also resulted in an increase in goodwill of $595
million, which will be amortized on a straight-line basis over 25 years, and in
deposit base premium of $70 million, which will be amortized on an accelerated
basis over 10 years.
In 1995, various banking subsidiaries of the Parent Company acquired
eight financial institutions and certain other assets, which in the aggregate
amounted to the addition of $10.3 billion in assets, $7.5 billion in net loans,
and $7.3 billion in deposits. The purchase method of accounting was used in
these transactions. With respect to these transactions, the Parent Company
issued 13 million shares of its common stock in exchange for the common stock of
certain of the acquired financial institutions, and it paid cash for the other
financial institutions and assets, which in the aggregate amounted to $623
million. These transactions resulted in an increase to stockholders' equity of
$611 million, and the increase was reduced by the Parent Company's purchase in
the open market of 12 million shares of its common stock for $527 million in
1995, and the purchase of 1 million shares for $37 million in 1994. These
transactions also resulted in an increase in goodwill of $476 million, which
will be amortized on a straight-line basis over 25 years, and in deposit base
premium of $114 million, which will be amortized on an accelerated basis over 10
years.
Total acquired assets related to the Corporation's 1996 and 1995
purchase accounting acquisitions were 6 percent and 9 percent, respectively, of
the Corporation's total assets at December 31, 1995 and 1994, respectively, and
pro forma income per common share amounts were slightly dilutive. Accordingly,
additional pro forma financial information with respect to these acquisitions is
not considered material.
C-12
<PAGE>
NOTE 3: SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------------
1 Year 1-5 5-10 After 10 Gross Unrealized Amortized
-----------------------
(In millions) or Less Years Years Years Total Gains Losses Cost
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $ 7 1,792 - 2 1,801 (5) 14 1,810
U.S. Government agencies 9 2,287 7,063 26 9,385 (24) 52 9,413
Collateralized mortgage obligations 6 928 - - 934 (5) 5 934
State, county and municipal 1 - 9 26 36 - - 36
Other 84 986 89 867 2,026 (38) 13 2,001
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 107 5,993 7,161 921 14,182 (72) 84 14,194
- - ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 107 5,993 7,161 102 13,363 (57) 83 13,389
Sundry securities - - - 819 819 (15) 1 805
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 107 5,993 7,161 921 14,182 (72) 84 14,194
- - ------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 107 5,970 7,199 113 13,389
Sundry securities - - - 805 805
- - ---------------------------------------------------------------------------------------------------
Total $ 107 5,970 7,199 918 14,194
- - ---------------------------------------------------------------------------------------------------
December 31, 1995
-------------------------------------------------------------------------------------
1 Year 1-5 5-10 After 10 Gross Unrealized Amortized
-----------------------
(In millions) or Less Years Years Years Total Gains Losses Cost
- - ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
U.S. Treasury $ 1,507 1,444 4 4 2,959 (6) 7 2,960
U.S. Government agencies 796 5,979 1,724 5 8,504 (110) 8 8,402
Collateralized mortgage obligations 848 3,727 179 1 4,755 (35) 18 4,738
State, county and municipal - 2 2 9 13 - - 13
Other 242 952 96 673 1,963 (97) 14 1,880
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 3,393 12,104 2,005 692 18,194 (248) 47 17,993
- - ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 3,393 12,104 2,005 104 17,606 (175) 47 17,478
Sundry securities - - - 588 588 (73) - 515
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 3,393 12,104 2,005 692 18,194 (248) 47 17,993
- - ------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 3,374 12,014 1,985 105 17,478
Sundry securities - - - 515 515
- - ---------------------------------------------------------------------------------------------------
Total $ 3,374 12,014 1,985 620 17,993
- - ---------------------------------------------------------------------------------------------------
</TABLE>
C-13
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
Securities available for sale with an aggregate amortized cost of $9.4
billion at December 31, 1996, are pledged to secure U.S. Government and other
public deposits and for other purposes as required by various statutes or
agreements.
Included in "U.S. Government agencies" and "Other" at December 31, 1996,
are $1.1 billion of securities that are denominated in currencies other than the
U.S. dollar. The currency exchange rates were hedged utilizing both on- and
off-balance sheet instruments to minimize the exposure to currency revaluation
risks. At December 31, 1996, these securities had a weighted average maturity of
3.55 years and a weighted average yield of 5.54 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 7.40
percent based on a weighted average funding cost differential of (1.86) percent.
Expected maturities differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Generally, the aging of mortgage-backed securities
included in U. S. Government agencies and collateralized mortgage obligations is
based on their weighted average maturities at December 31, 1996 and 1995.
At December 31, 1996 and 1995, collateralized mortgage obligations had a
weighted average yield based on amortized cost of 7.36 percent and 6.59 percent,
respectively.
Securities available for sale at December 31, 1996 and 1995, do not
include commitments to purchase $127 million and $359 million, respectively, of
additional securities that at December 31, 1996 and 1995, had a market value of
$127 million and $360 million, respectively.
Securities available for sale at December 31, 1996 and 1995, include the
carrying value of $98 million and $321 million, respectively, of securities that
were sold for future settlement. Related gains and losses are accounted for on a
trade date basis.
Gross gains and losses realized on the sale of debt securities in 1996
were $138 million and $109 million, respectively, and on sundry securities such
gains were $2 million.
Gross gains and losses realized on the sale of debt securities in 1995
were $69 million and $42 million, respectively, and on sundry securities such
gains were $17 million.
Gross gains and losses realized on the sale of debt securities in 1994
were $38 million and $45 million, respectively, and on sundry securities $15
million and $2 million, respectively.
At December 31, 1996, stockholders' equity includes an after-tax
reduction of $13 million, $7 million of which is based on depreciation in the
securities available for sale portfolio of $12 million, and $6 million of which
is an unamortized after-tax loss related to the transfer of securities available
for sale to the investment securities portfolio in 1994.
At December 31, 1995, stockholders' equity includes an after-tax amount
of $111 million based on appreciation in the securities available for sale
portfolio of $201 million, and on an unamortized after-tax gain of $90 million.
A transfer of $5.9 billion of investment securities to the securities available
for sale portfolio as permitted by the Financial Accounting Standards Board only
for the year ended December 31, 1995, was completed in the fourth quarter of
1995.
C-14
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
NOTE 4: INVESTMENT SECURITIES
December 31, 1996
----------------------------------------------------------------------------------------
1 Year 1-5 5-10 After 10 Gross Unrealized Market
------------------------
(In millions) or Less Years Years Years Total Gains Losses Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CARRYING VALUE
U.S. Government agencies $ - 776 318 - 1,094 22 (3) 1,113
Collateralized mortgage obligations 67 414 - - 481 8 - 489
State, county and municipal 61 219 145 380 805 105 (1) 909
Other 1 11 9 100 121 4 - 125
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 129 1,420 472 480 2,501 139 (4) 2,636
- - -----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
Debt securities $ 129 1,420 472 426 2,447 139 (4) 2,582
Sundry securities - - - 54 54 - - 54
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 129 1,420 472 480 2,501 139 (4) 2,636
- - -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 130 1,456 494 502 2,582
Sundry securities - - - 54 54
- - ------------------------------------------------------------------------------------------------
Total $ 130 1,456 494 556 2,636
- - ------------------------------------------------------------------------------------------------
December 31, 1995
-----------------------------------------------------------------------------------------
1 Year 1-5 5-10 After 10 Gross Unrealized Market
------------------------
(In millions) or Less Years Years Years Total Gains Losses Value
- - -----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
U.S. Government agencies $ 81 950 236 - 1,267 32 (1) 1,298
Collateralized mortgage obligations 60 546 - - 606 12 - 618
State, county and municipal 286 274 171 446 1,177 132 (3) 1,306
Other 3 3 17 67 90 8 - 98
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 430 1,773 424 513 3,140 184 (4) 3,320
- - -----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
Debt securities $ 430 1,773 424 497 3,124 184 (4) 3,304
Sundry securities - - - 16 16 - - 16
- - -----------------------------------------------------------------------------------------------------------------------------------
Total $ 430 1,773 424 513 3,140 184 (4) 3,320
- - -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 438 1,829 453 584 3,304
Sundry securities - - - 16 16
- - ------------------------------------------------------------------------------------------------
Total $ 438 1,829 453 600 3,320
- - ------------------------------------------------------------------------------------------------
</TABLE>
C-15
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
Investment securities with an aggregate carrying value of $1.9 billion
at December 31, 1996, are pledged to secure U.S. Government and other public
deposits and for other purposes as required by various statutes or agreements.
Expected maturities differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties. Generally, the aging of mortgage-backed securities
included in U. S. Government agencies and collateralized mortgage obligations is
based on their weighted average maturities at December 31, 1996 and 1995.
At December 31, 1996 and 1995, collateralized mortgage obligations had a
weighted average yield of 7.64 percent and 7.22 percent, respectively.
There were no commitments to purchase or sell investment securities at
December 31, 1996 and 1995.
Gross gains and losses realized on repurchase agreement underdeliveries
and calls of investment securities in 1996 were $5 million and $1 million,
respectively.
Gross gains and losses realized on repurchase agreement underdeliveries
and calls of investment securities in 1995 were $6 million and $1 million,
respectively.
Gross gains realized on repurchase agreement underdeliveries and calls
of investment securities in 1994 were $4 million.
See Note 3 for information related to a transfer of investment
securities to the available for sale portfolio in 1995.
C-16
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
NOTE 5: LOANS
Years Ended
December 31,
---------------------------------
(In millions) 1996 1995
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL
Commercial, financial and agricultural $ 23,639 24,648
Real estate - construction and other 2,674 2,506
Real estate - mortgage 9,504 9,992
Lease financing 4,852 3,170
Foreign 1,085 649
- - -----------------------------------------------------------------------------------------------------------
Total commercial 41,754 40,965
- - -----------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 28,683 27,274
Installment loans - Bankcard 5,551 3,658
Installment loans - other 18,596 17,548
Vehicle leasing 3,480 2,664
- - -----------------------------------------------------------------------------------------------------------
Total retail 56,310 51,144
- - -----------------------------------------------------------------------------------------------------------
Total loans $ 98,064 92,109
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
Directors and executive officers of the Parent Company and their related
interests were indebted to the Corporation in the aggregate amounts of $1.3
billion and $950 million at December 31, 1996 and 1995, respectively. From
January 1, 1996, through December 31, 1996, directors and executive officers of
the Parent Company and their related interests borrowed $860 million and repaid
$520 million. In the opinion of management, these loans do not involve more than
the normal risk of collectibility, nor do they present other unfavorable
features.
At December 31, 1996 and 1995, nonaccrual and restructured loans
amounted to $669 million and $648 million, respectively. Interest related to
nonaccrual and restructured loans for the years ended December 31,1996, 1995 and
1994, amounted to $54 million, $69 million and $70 million, respectively.
Interest collected on such loans and included in the results of operations for
each of the years in the three-year period then ended amounted to $12 million,
$17 million and $10 million, respectively.
At December 31, 1996 and 1995, impaired loans, which are included in
nonaccrual loans, amounted to $347 million and $471 million, respectively.
Included in the allowance for loan losses is $32 million related to $214 million
of impaired loans at December 31, 1996, and $83 million related to $359 million
of impaired loans at December 31, 1995. The rest of the impaired loans are
recorded at or below fair value. At December 31, 1996 and 1995, the average
recorded investment in impaired loans was $452 million and $492 million,
respectively; and $19 million and $15 million, respectively, of interest income
was recognized on loans while they were impaired. All this income was recognized
on loans using a cash-basis method of accounting.
Loan fair values are disclosed in Note 18.
C-17
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
NOTE 6: ALLOWANCE FOR LOAN LOSSES
Years Ended December 31,
----------------------------------
(In millions) 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 1,508 1,578 1,622
Provision for loan losses 375 220 179
Allowance of loans acquired or sold, net 50 49 59
- - ------------------------------------------------------------------------------------------------------------------------
1,933 1,847 1,860
- - ------------------------------------------------------------------------------------------------------------------------
Loan losses 722 463 415
Loan recoveries 154 124 133
- - ------------------------------------------------------------------------------------------------------------------------
Loan losses, net 568 339 282
- - ------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 1,365 1,508 1,578
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
NOTE 7: PREMISES AND EQUIPMENT
Years Ended December 31,
----------------------------------
(In millions) 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------
Land $ 463 457 419
Buildings 1,993 1,761 1,589
Equipment 3,343 1,865 1,546
Capitalized leases 41 40 13
- - ------------------------------------------------------------------------------------------------------------------------
5,840 4,123 3,567
Accumulated depreciation and amortization (1,767) (1,570) (1,373)
- - ------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net $ 4,073 2,553 2,194
- - ------------------------------------------------------------------------------------------------------------------------
Net premises and equipment pledged as security for mortgage notes $ 62 59 70
- - ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 335 268 221
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-18
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------
NOTE 8: FORECLOSED PROPERTIES
Years Ended December 31,
----------------------------------
(In millions) 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------------
Foreclosed properties $ 111 203 293
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for foreclosed properties, beginning of year 25 42 63
Provision for foreclosed properties (1) (3) 14
Transfer from allowance for segregated assets 1 - 2
Dispositions, net (8) (14) (37)
- - --------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, end of year 17 25 42
- - --------------------------------------------------------------------------------------------------------------------------
Foreclosed properties, net $ 94 178 251
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-19
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
NOTE 9: SHORT-TERM BORROWINGS
Short-term borrowings of the Corporation at December 31, 1996, 1995 and
1994, which includes securities sold under repurchase agreements and accrued
interest thereon, and the related maximum amount outstanding at the end of any
month during such periods are presented below.
<TABLE>
<CAPTION>
Years Ended December 31, Maximum Outstanding
--------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities sold under repurchase agreements $ 16,414 11,018 6,887 19,550 11,018 8,368
Federal funds purchased 2,184 3,385 1,336 2,843 3,385 3,094
Fixed and variable rate bank notes 843 2,586 - 2,462 2,586 -
Interest-bearing demand deposits issued to
the U. S. Treasury 391 365 378 605 764 723
Commercial paper 1,021 1,162 621 1,122 1,293 1,543
Other 2,171 984 1,027 3,573 2,021 1,879
- - -----------------------------------------------------------------------------------------------
Total $ 23,024 19,500 10,249
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, 1995 and 1994, the combined weighted average
interest rates related to federal funds purchased and securities sold under
repurchase agreements were 6.12 percent, 5.52 percent and 6.04 percent,
respectively. Maturities related to such instruments in each of the years in the
three-year period then ended were not greater than 204 days.
At December 31, 1996 and 1995, the weighted average interest rates for
fixed and variable rate bank notes were 5.53 percent and 5.70 percent,
respectively. Weighted average maturities related to such notes in each of the
years in the two-year period then ended were 109 days and 90 days, respectively.
At December 31, 1996, 1995 and 1994, the weighted average interest rates
for commercial paper were 5.49 percent, 5.49 percent and 5.24 percent,
respectively. Weighted average maturities related to such commercial paper in
each of the years in the three-year period then ended were 21 days, 21 days and
4 days, respectively.
Included in "Other" are Federal Home Loan Bank borrowings and securities
sold short of $211 million and $1.9 billion, respectively, at December 31, 1996;
$230 million and $439 million, respectively, at December 31, 1995; and $497
million and $445 million, respectively, at December 31, 1994.
Substantially all short-term borrowings are due within 90 days, and
accordingly, the carrying amount of such borrowings is deemed to be a reasonable
estimate of fair value.
C-20
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
NOTE 10: LONG-TERM DEBT
1996 1995
------------------------ -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEBENTURES AND NOTES ISSUED BY THE PARENT COMPANY
7-1/2% debentures, due in annual installments of not less than $1 $ 16 16 16 16
through December 1, 2002, net of debentures held of $11 in 1996 (a)
Notes
Floating rate extendible, due June 15, 2005 (b) 10 10 10 10
11% - - 18 19
Floating rate - - 150 150
6-3/4%, due January 15, 1998 (par value $250) (c) 250 251 249 255
Floating rate, due February 24, 1998 (par value $300) (c) 300 300 300 300
Subordinated notes
Fixed rate medium-term, varying rates and terms to 2001 (a) 54 62 54 64
Floating rate, due July 22, 2003 (par value $150) (c) 149 149 149 149
11% and variable rate - - 18 19
8-1/8% - - 100 102
9.45%, due June 15, 1999 (par value $250) (c) 249 266 250 278
9.45%, due August 15, 2001 (par value $150) (c) 148 164 148 172
8-1/8%, due June 24, 2002 (par value $250) (c) 249 264 249 277
8%, due November 15, 2002 (par value $225) (c) 224 236 223 248
7-1/4%, due February 15, 2003 (par value $150) (c) 149 152 149 159
6-5/8%, due July 15, 2005 (par value $250) (c) 248 240 248 255
6%, due October 30, 2008 (par value $200) (c) 197 178 197 204
6-3/8%, due January 15, 2009 (par value $150) (c) 148 138 148 149
8%, due August 15, 2009 (par value $150) 149 155 149 165
8.77%, due November 15, 2004 (par value $150) 149 157 149 165
7.05%, due August 1, 2005 (par value $250) (c) 248 249 248 263
6-7/8%, due September 15, 2005 (par value $250) (c) 249 246 248 260
7%, due March 15, 2006 (par value $200) (c) 198 198 - -
7.18%, due April 15, 2011 (par value $60) 59 60 - -
7-1/2%, due July 15, 2006 (par value $300) (c) 297 306 - -
Subordinated debentures
7-1/2%, due April 15, 2035 (par value $250) 246 261 246 277
6.55%, due October 15, 2035 (par value $250) 249 243 248 260
6.824%/7.574%, due August 1, 2026 (par value $300) 298 304 - -
- - --------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes issued by the Parent Company 4,533 4,605 3,964 4,216
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-21
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
1996 1995
------------------------ -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEBENTURES AND NOTES OF SUBSIDIARIES
Debentures and notes
Floating rate senior - - 200 200
Varying rates and terms to 2015 65 69 37 40
9-3/4% senior, due September 1, 2003 (par value $145) 158 159 - -
Subordinated notes
Bank, varying rates and terms to 2036 1,247 1,252 1,165 1,165
6.80%, due June 15, 2003 (par value $150) (c) 149 154 150 155
9-5/8%, due August 15, 1999 (par value $150) (c) 149 161 150 168
Floating rate, due March 15, 1997 (par value $25) (c) 25 25 25 25
Subordinated capital notes
8-1/2%, due April 1, 1998 (par value $150) (c) 149 153 149 158
9-7/8%, due May 15, 1999 (par value $75) 75 82 75 85
9-5/8%, due June 15, 1999 (par value $75) 74 80 75 84
10-1/2% collateralized mortgage obligations, due 2014 37 41 49 54
- - -------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes of subsidiaries 2,128 2,176 2,075 2,134
- - -------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Notes payable to the Federal Deposit Insurance Corporation - - 76 76
Advances from the Federal Home Loan Bank 930 930 958 958
Mortgage notes and other debt of subsidiaries, varying rates and terms 44 45 40 45
Capitalized leases, rates generally ranging from 7-1/2% to 15.20% 25 25 8 9
- - -------------------------------------------------------------------------------------------------------------------------------
Total other debt 999 1,000 1,082 1,088
- - -------------------------------------------------------------------------------------------------------------------------------
Total $ 7,660 7,781 7,121 7,438
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Redeemable at the option of the Parent Company.
(b) Redeemable in whole or in part at the option of the Parent Company.
(c) Not redeemable prior to maturity.
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Corporation for debt of the same remaining maturities.
The interest rate on the floating rate extendible notes is 5.7125
percent to March 15, 1997.
The interest rate on the floating rate notes due February 24, 1998, is
5.6875 percent to February 24, 1997.
Fixed rate medium-term senior and subordinated notes can be issued
periodically. Interest rates, maturities, redemption and other terms are
determined at the date of issuance. At December 31, 1996, the Parent Company
had issued medium-term subordinated notes with fixed rates of interest ranging
from 9.49 percent to 9.93 percent.
The interest rate on the floating rate subordinated notes is 5.65234
percent to January 22, 1997.
The 8 percent subordinated notes due August 15, 2009, are redeemable
in whole and not in part at the option of the Parent Company on August 15, 2004.
The 8.77 percent subordinated notes are redeemable in whole or in part
at the option of the Parent Company on November 15, 1999.
The 7.18 percent subordinated notes are redeemable in whole and not in
part at the option of the Parent Company on April 15, 2000, and on each October
15 and April 15 thereafter.
Holders of the 7-1/2 percent subordinated debentures and the 6.55
percent subordinated debentures may elect to redeem a part or all of such
debentures on April 15, 2005, and October 15, 2005, respectively. Otherwise such
debentures are not redeemable prior to maturity.
Holders of the 6.824 percent/7.754 percent subordinated debentures may
elect to redeem a part or all of such debentures on August 1, 2006, or August 1,
2016. Otherwise such debentures are not redeemable prior to maturity.
The 9-3/4 percent senior notes were issued by an acquired subsidiary
prior to the acquisition, and in accordance with a covenant defeasance related
thereto, the subsidiary has announced that it will redeem all such notes on
September 2, 1998, the earliest date the notes can be redeemed, at a redemption
price equal to 103.375 percent of the principal amount then outstanding plus any
accrued and unpaid interest to such date. The subsidiary has deposited with the
trustee for the notes sufficient cash and securities to effect the redemption on
such date.
C-22
<PAGE>
- - --------------------------------------------------------------------------------
At December 31, 1996, bank notes of $500 million had floating rates of
interests ranging from 4.89 percent to 5.55 percent, and $747 million of the
notes had fixed rates of interest ranging from 5.67 percent to 7-1/8 percent.
The interest rate on the floating rate subordinated note is 5.75 percent
to February 3, 1997.
The 9-7/8 percent (which were assumed by the Parent Company) and the
9-5/8 percent subordinated capital notes may not be redeemed prior to maturity,
except upon the occurrence of certain events.
The 10-1/2 percent collateralized mortgage obligations were issued by a
wholly owned subsidiary of an acquired savings bank. Such obligations consist of
Class A-4 bonds collateralized by mortgage participation certificates ("FHLMC
Certificates") issued by the Federal Home Loan Mortgage Corporation. Maturity of
the obligations depends on the rate of payments made on the FHLMC Certificates.
Such obligations are not redeemable, except upon the occurrence of certain
events.
In February 1997, $640 million of senior or subordinated debt securities
remained available for issuance under a shelf registration statement filed with
the Securities and Exchange Commission.
The weighted average rate paid for long-term debt in 1996, 1995 and 1994
was 6.28 percent, 6.69 percent and 6.26 percent, respectively. Interest rate
swap agreements entered into at the time of issuance of certain long-term debt
reduced related interest expense.
Long-term debt maturing in each of the five years subsequent to December
31, 1996, is as follows (in millions): 1997, $1,194; 1998, $989; 1999, $569;
2000, $144; and 2001, $207.
- - --------------------------------------------------------------------------------
NOTE 11: GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
First Union Institutional Capital I, a statutory business trust (the
"Trust") created by the Parent Company had outstanding at December 31, 1996,
$495 million (par value $500 million) of 8.04% Capital Securities which will
mature on December 1, 2026 (the "Capital Securities"). The principal assets of
the Trust are $515 million of the Parent Company's 8.04% Junior Subordinated
Deferrable Interest Debentures which will mature on December 1, 2026 (the
"Subordinated Debentures"). Additionally, the Trust has issued $15 million of
common securities (the "Common Securities") to the Parent Company. The estimated
fair value of each of the Capital Securities and the Subordinated Debentures at
December 31, 1996, was $500 million.
The Capital Securities, the Subordinated Debentures and the Common
Securities are redeemable in whole or in part on or after December 1, 2006, or
at any time in whole but not in part from the date of issuance on the occurrence
of certain events.
On January 6, 1997, and January 16, 1997, First Union Institutional
Capital II and First Union Capital I, respectively, both statutory business
trusts (the "Trusts") created by the Parent Company, issued $250 million of
7.85% Capital Securities and $250 million of 7.935% Capital Securities, Series
A, respectively, (together the "Securities") which will mature on January 1,
2027, and January 15, 2027, respectively. The principal combined assets of the
Trusts are $515 million of the Parent Company's subordinated debentures with
like maturities and like interest rates to the Securities. Additionally, the
Trusts have issued $15 million in the aggregate of common securities to the
Parent Company.
The Securities, the assets of the Trusts and the common securities
issued by the Trusts are redeemable in whole or in part on or after January 1,
2007, and January 15, 2007, respectively, or at any time in whole but not in
part from the date of issuance on the occurrence of certain events.
The Capital Securities and the Securities may be included in tier 1
capital for regulatory capital adequacy determination purposes. Distributions to
the holders of the Capital Securities and the Securities will be included in
sundry expense.
The obligations of the Parent Company with respect to the issuance of
the Capital Securities and the Securities constitute a full and unconditional
guarantee by the Parent Company of the Trust's obligations with respect to the
Capital Securities and the Securities.
Subject to certain exceptions and limitations, the Parent Company may
elect from time to time to defer subordinated debenture interest payments, which
would result in a deferral of distribution payments on the related Capital
Securities or Securities.
C-23
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
NOTE 12: PREFERRED STOCK
1996 1995 1994
---------------------- ---------------------- -----------------------
(Shares in thousands, dollars in millions) Shares Amount Shares Amount Shares Amount
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series 1990
Balance, beginning of year - $ - - $ - 6,318 $ 32
Redemption of preferred stock - - - - (6,318) (32)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year - - - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Series B Stock
Balance, beginning of year 2,964 74 4,788 120 4,817 120
Purchases of preferred stock - - (250) (6) - -
Conversions of preferred stock into common stock (2,955) (74) (1,574) (40) (29) -
Redemption of preferred stock (9) - - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year - - 2,964 74 4,788 120
- - ------------------------------------------------------------------------------------------------------------------------------------
Series D Stock
Balance, beginning of year 350 35 350 35 350 35
Redemption of preferred stock (350) (35) - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year - - 350 35 350 35
- - ------------------------------------------------------------------------------------------------------------------------------------
Series F Stock
Balance, beginning of year 74 74 75 75 75 75
Purchases of preferred stock - - (1) (1) - -
Redemption of preferred stock (74) (74) - - - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year - - 74 74 75 75
- - ------------------------------------------------------------------------------------------------------------------------------------
Total - $ - 3,388 $ 183 5,213 $ 230
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation is authorized to issue up to 40 million shares of class
A preferred stock, no-par value, and 10 million shares of preferred stock,
no-par value, each in one or more series. In connection with the First Fidelity
merger, the Corporation issued three new series of preferred stock, which are
described in Note 2 and all of which were redeemed or converted into the
Corporation's common stock as more fully described herein.
On November 15, 1996, the Corporation redeemed all of the outstanding
shares of the Series B Stock at a redemption price of $25.00 per share (plus
accrued and unpaid dividends), substantially all of which were converted into 3
million shares of common stock.
On July 1, 1996, the Corporation redeemed all of the outstanding shares
of the Series D Stock and the Series F Stock at an aggregate redemption price of
$109 million (plus accrued and unpaid dividends).
The Series 1990 Preferred Stock was issued in connection with the
acquisition of Florida National Banks of Florida, Inc. by the Corporation in
January 1990. On December 20, 1994, the Corporation elected to redeem all of the
outstanding shares of its Series 1990 Preferred Stock. The redemption occurred
on March 31, 1995, at a redemption price of $51.50 per share. A redemption
premium of $41 million, which represents the difference between a $44.96 book
value and the $51.50 redemption price was deducted from net income applicable to
common stockholders in 1994. At December 31, 1994, $325 million was placed in
trust with an affiliated bank. The final dividend was paid on March 31, 1995.
C-24
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
NOTE 13: COMMON STOCK AND CAPITAL RATIOS
Option Weighted
Prices or Balance, Grants Exercises Forfeitures Balance, Average
Market Beginning or New or and Other End of Exercise
(Shares in thousands) Values of 1996 Shares Purchases Reductions 1996 Prices Exercisable
- - ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1984 Master Stock Plan
Options granted $20.25-$27.25 197 - (121) (9) 67 $ 26.26 67
Available 508 - - 9 517 -
1988 Master Stock Plan
Options granted $14.75-$35.88 1,014 - (243) - 771 $ 28.62 771
Restricted stock granted - 93 - (92) (1) - -
Available 1,114 - - - 1,114 -
1992 Master Stock Plan
Options granted $44.75-$58.50 2,152 303 (298) (13) 2,144 $ 46.78 1,841
Restricted stock granted $44.75-$58.50 1,176 101 (316) (15) 946 -
Available 1,290 (404) - 13 899 -
1996 Master Stock Plan
Options granted $58.50 - 1,375 (1) (12) 1,362 $ 58.50 -
Restricted stock granted $58.50 - 920 (9) (7) 904 -
Available - 11,705 - 12 11,717 -
1994 Employee Plan - 1,383 - (1,238) (145) - -
1996 Employee Plan $54.51 - 4,794 (1,235) (98) 3,461 $ 54.51 3,461
Dividend Reinvestment Plan - 4,022 - (515) - 3,507 -
Option plans of acquired
companies
Options granted $9.12-$50.60 2,629 - (665) (29) 1,935 $ 31.64 1,846
Options granted $6.81-$63.14 512 921 (497) (10) 926 $ 37.54 926
Options granted $5.98-$8.39 13 - (4) - 9 $ 8.01 9
Options granted $103.52-$590.27 69 - - (1) 68 $278.07 68
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the terms of the 1984,1988, 1992 and 1996 Master Stock Plans (the
"Plans"), stock options may be periodically granted to key personnel at a price
not less than the fair market value of the shares at the date of grant. The
exercise periods for options granted under the Plans are (i) determined at the
date of grant, (ii) not exercisable for one year following the date of grant,
and (iii) for periods no longer than ten years.
Restricted stock may also be granted under the Plans. The stock is
subject to certain restrictions over a specified period (generally, five years),
during which time the holder is entitled to full voting rights and dividend
privileges.
Employees, based on their eligibility and compensation, were granted
options to purchase shares of common stock under the 1994 and 1996 Employee
Stock Purchase Plans (together, the "Plan") at a price equal to 85 percent of
the fair market value of the shares as of the Plan date. From the Plan date, and
generally for approximately a two-year period thereafter, employees have the
option to purchase all or a portion of the optioned shares. The Plan provides
that at the end of such two-year period (the "Final Purchase Date"), the option
price will be the lesser of 85 percent of the fair market value as of the Plan
date or 85 percent of the fair market value as of the Final Purchase Date.
Under the terms of the Dividend Reinvestment Plan, a participating
stockholder's cash dividends and optional cash payments are used to purchase
Parent Company common stock.
Under the terms of the Parent Company's merger agreements with certain
acquired companies, all options with respect to their common stock were
converted into options to purchase Parent Company common stock.
In accordance with a Shareholder Protection Rights Agreement dated
December 18, 1990, as amended, the Parent Company issued a dividend of one right
for each share of Parent Company common stock outstanding as of such date. These
continue to attach to all common stock issued after December 18, 1990.
The rights will become exercisable if any person or group commences a
tender or exchange offer that would result in (i) their becoming the beneficial
owner of 15 percent or more of the Parent Company's common stock, or (ii) any
person being determined by the Federal Reserve Board to control the Corporation
within the meaning of the Bank Holding Company Act of 1956, as amended.
The rights will also become exercisable if a person or group acquires
beneficial ownership of 15 percent or more of the Parent Company's common stock.
Each right (other than rights owned by such person or group) will entitle its
holder to purchase, for an exercise price of $210.00, a number of shares of the
Parent Company's common stock (or at the option of the Board of Directors,
shares of junior participating class A preferred stock) having a market value of
twice the exercise price. If any person or group acquires beneficial ownership
of between 15 percent and 50 percent of the Parent Company's common stock, the
Board of Directors may, at its option,
C-25
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
exchange for each outstanding right (other than rights owned by such person or
group) either two shares of common stock or two one-hundredths of a share of
junior participating class A preferred stock having economic and voting terms
similar to two shares of common stock.
The rights are subject to adjustment if certain events occur, and they
will expire on December 28, 2000, if not redeemed or terminated sooner.
On January, 1, 1996, the Corporation adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," which requires either the (i) 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 (ii) 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. The pro forma effect in 1996 to net income per common share was
approximately 3 percent, and accordingly, additional information is not
considered material.
Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4 percent and a minimum ratio of total
capital to risk-weighted assets of 8 percent. The minimum leverage ratio of tier
1 capital to adjusted average quarterly assets is from 3 percent to 5 percent.
At December 31, 1996, the Corporation's tier 1 capital ratio, total
capital ratio and leverage ratio were 7.33 percent, 12.33 percent and 6.13
percent, respectively. At December 31, 1995, such ratios were 6.70 percent,
11.45 percent and 5.49 percent, respectively. The Corporation does not
anticipate or foresee any conditions that would reduce such ratios to levels at
or below minimum or that would cause its deposit-taking banking affiliates to be
less than well capitalized.
Additional information related to the consolidated capital ratios of the
Corporation for each of the years in the two-year period ended December 31,
1996, can be found in "Management's Analysis of Operations" - "Stockholders'
Equity; Regulatory Capital" on page 11 and in Table 18 on page T-18, which are
incorporated herein by reference.
C-26
<PAGE>
- - --------------------------------------------------------------------------------
NOTE 14: PERSONNEL EXPENSE
Personnel expense for each of the years in the three-year period ended
December 31, 1996, is presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
(In millions) 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $ 1,781 1,615 1,436
Pension cost 53 25 27
Savings plan 58 53 48
Other benefits 304 269 262
- - ------------------------------------------------------------------------------------------------------------------------
Total $ 2,196 1,962 1,773
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pension expense for nonqualified plans was $11 million, $10 million and
$5 million for the years ended December 31, 1996,1995 and 1994, respectively.
The accumulated benefit obligation for nonqualified plans was $87
million, $52 million and $28 million for the years ended December 31, 1996, 1995
and 1994, respectively, including vested benefits of $86 million, $51 million
and $27 million, respectively. Such plans have no assets. The assumed rates used
in actuarial computations were the same as those used in the qualified pension
plan computations.
The Corporation has tax-qualified defined benefit pension plans
(together, the "Plan") covering substantially all of its employees with one year
of service. The benefits are based on years of service and the employee's
highest five-year average compensation. Contributions are made each year to a
trust in an amount that is determined by an actuary to meet the minimum
requirements of ERISA and to fall at or below the maximum amount that can be
deducted on the Corporation's tax return.
At December 31, 1996, Plan assets primarily include U.S. Government and
Government agency securities and equity securities. Also included are one
million shares of the Parent Company's common stock. All Plan assets are held by
First Union National Bank of North Carolina (the "Bank") in a Bank-administered
trust fund.
In 1994, pension cost includes settlement losses of $1 million related
to the purchase of annuities for certain retirees.
The Plan's funded status for each of the years in the three-year period
ended December 31, 1996, is presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
(In millions) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS
Accumulated benefit obligation including vested benefits of $658, 1996; $591, 1995;
and $462, 1994 $ 710 643 494
- - -----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date (909) (838) (657)
Plan assets at fair value 1,114 971 837
- - -----------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 205 133 180
Prior service cost 36 40 8
Unrecognized net loss from past experience different from that assumed and effects
of changes in assumptions 91 132 82
Unrecognized net transition asset (17) (20) (24)
- - -----------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 315 285 246
- - -----------------------------------------------------------------------------------------------------------------------------
ASSUMED RATES USED IN ACTUARIAL COMPUTATIONS
Discount rate at beginning of year 7.50% 8.25-8.75 7.00-7.50
Discount rate at end of year 7.75 7.50 8.25-8.75
Weighted average rate of increase in future compensation levels 4.50 4.50 4.00-5.00
Long-term average rate of return 8.50% 8.50-9.75 8.50-9.75
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-27
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
Certain components of net pension cost for each of the years in the
three-year period ended December 31, 1996, are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
(In millions) 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET PENSION COST
Service cost-benefits earned during the period $ 58 38 44
Interest cost on projected benefit obligation 60 52 50
Actual (return) loss on Plan assets (99) (135) 12
Net amortization and deferral 23 60 (84)
Settlement loss - - 1
- - --------------------------------------------------------------------------------------------------------------------------
Net pension cost $ 42 15 23
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation and its subsidiaries provide certain health care and
life insurance benefits for retired employees. Substantially all the
Corporation's employees may become eligible for these benefits if they reach
retirement age while working for the Corporation. Life insurance benefits are
provided through an insurance company. Medical and other benefits are provided
through a tax-exempt trust formed by the Corporation. The Corporation recognizes
the cost of providing these benefits by expensing annual insurance premiums,
trust funding allocations and administrative expenses.
The amount expensed for group insurance for active employees in 1996,
1995 and 1994 was $109 million, $95 million and $84 million, respectively.
The status of postretirement benefits other than pensions and certain
amounts recognized in the Corporation's consolidated financial statements for
each of the years in the three-year period ended December 31, 1996, are
presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
(In millions) 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF POSTRETIREMENT BENEFITS OBLIGATION
Retirees $ 159 191 158
Fully eligible active employees 4 4 9
Other active participants 49 44 33
- - -------------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation $ 212 239 200
- - -------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets $ 212 239 200
Unrecognized prior service cost - 10 -
Unrecognized net gain (loss) from past experience different from that assumed and
effects of changes in assumptions 22 (31) 9
Unrecognized net transition obligation (46) (60) (64)
- - --------------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 188 158 145
- - --------------------------------------------------------------------------------------------------------------------------------
ASSUMED RATES USED IN ACTUARIAL COMPUTATIONS
Weighted average discount rate 7.75% 7.50 8.25-8.75
Rate of increase in future compensation levels, depending on age 4.50 4.00-9.00 4.00-5.00
Health care cost trend rate
Prior to age 65 (at December 31, 1996, changed to 6 percent) 11.67 11.67- 12.25-
grading 12.25 12.50
to 7.00
After age 65 (at December 31, 1996, changed to 5 percent) 10.67 10.67- 10.00-
grading
to 6.00 % 11.25 11.25
- - --------------------------------------------------------------------------------------------------------------------------------
EFFECT OF ONE PERCENT INCREASE IN HEALTH CARE COST TREND RATE
Service costs $ - - -
Interest costs 1 1 1
Accumulated postretirement benefit obligation $ 10 14 14
- - --------------------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT COSTS
Service cost-benefits earned during the period $ 4 3 3
Interest cost on projected benefit obligation 17 16 15
Amortization of transition obligation 5 2 4
- - --------------------------------------------------------------------------------------------------------------------------------
Net cost $ 26 21 22
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-28
<PAGE>
- - --------------------------------------------------------------------------------
NOTE 15: INCOME TAXES
The Corporation accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." Accordingly, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The provision for income taxes for each of the years in the three-year
period ended December 31, 1996, is presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(In millions) 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE (BENEFITS)
Federal $ 239 384 314
State 49 33 83
- - --------------------------------------------------------------------------------------------------------------------------------
Total 288 417 397
- - --------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAX EXPENSE (BENEFITS)
Federal 521 326 325
State 2 46 (10)
- - --------------------------------------------------------------------------------------------------------------------------------
Total 523 372 315
- - --------------------------------------------------------------------------------------------------------------------------------
Total $ 811 789 712
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation of federal income tax rates and amounts to the
effective income tax rates and amounts for each of the years in the three-year
period ended December 31, 1996, are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ---------------------
Percent of Percent of Percent of
Pre-tax Pre-tax Pre-tax
(In millions) Amount Income Amount Income Amount Income
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 2,310 $ 2,219 $ 2,088
---------- ---------- ----------
Tax at federal income tax rate $ 808 35.0% $ 777 35.0% $ 731 35.0%
Reasons for difference in federal income
tax rate and effective tax rate
Tax-exempt interest, net of cost to carry (40) (1.7) (53) (2.4) (60) (2.9)
State income taxes, net of federal tax
benefit 33 1.4 51 2.3 47 2.2
Goodwill amortization 35 1.5 31 1.4 22 1.1
Change in the beginning-of-the-year
deferred tax assets valuation allowance (6) (0.3) 3 0.1 2 0.1
Other items, net (19) (0.8) (20) (0.9) (30) (1.4)
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 811 35.1% $ 789 35.5% $ 712 34.1%
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-29
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
The sources and tax effects of temporary differences that give rise to
significant portions of deferred income tax liabilities (assets) for each of the
years in the three-year period ended December 31, 1996, are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(In millions) 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED INCOME TAX LIABILITIES
Depreciation $ 91 67 53
Unrealized gain on debt and equity securities - 60 -
Intangible assets 97 77 66
Leasing activities 1,253 762 467
Prepaid insurance premiums 2 4 29
Prepaid pension assets 102 83 78
Loan loss reserve recapture 49 72 27
Other 77 58 41
- - -------------------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 1,671 1,183 761
- - -------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAX ASSETS
Provision for loan losses, net (492) (536) (575)
Accrued expenses, deductible when paid (269) (266) (215)
Unrealized loss on debt and equity securities (7) - (156)
Foreclosed properties (6) (12) (31)
Sale and leaseback transactions (10) (17) (19)
Deferred income (15) (16) (18)
Purchase accounting adjustments (primarily loans and securities) (144) (63) (34)
Net operating loss carryforwards (55) (38) (58)
First American segregated assets (4) (20) (10)
Other (70) (36) (48)
- - -------------------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets (1,072) (1,004) (1,164)
- - -------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets valuation allowance 35 43 37
- - -------------------------------------------------------------------------------------------------------------------------------
Net deferred income tax liabilities (assets) $ 634 222 (366)
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Changes to the deferred tax assets valuation allowance for each of the
years in the three-year period ended December 31, 1996, are presented below.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
(In millions) 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets valuation allowance, beginning of year $ 43 37 22
Current year deferred provision, change in deferred tax assets valuation allowance (6) 3 2
Purchase acquisitions (2) 3 13
- - -------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets valuation allowance, end of year $ 35 43 37
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A portion of the current year change in the net deferred tax liability
(asset) relates to unrealized gains and losses on debt and equity securities
available for sale. The related 1996, 1995 and 1994 deferred tax expense
(benefit) of $(67) million, $216 million and $(170) million, respectively, have
been recorded directly to stockholders' equity. Purchase acquisitions also
increased (decreased) the net deferred tax liability by $(44) million and $1
million in 1996 and 1995, respectively, and increased the net deferred tax asset
by $86 million in 1994.
The realization of deferred tax assets may be based on the utilization
of carrybacks to prior taxable periods, the anticipation of future taxable
income in certain periods and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the deferred tax
assets can be supported by carrybacks to federal taxable income in excess of
$3.0 billion in the three-year federal carryback period and by expected future
taxable income that will far exceed amounts necessary to fully realize remaining
deferred tax assets resulting from net operating loss carryforwards and from the
scheduling of temporary differences. The valuation allowance primarily relates
to certain state temporary differences and to federal and state net operating
loss carryforwards. To the extent that the valuation allowance attributable to
purchase acquisitions of $23 million is subsequently recognized, such income tax
benefit will reduce goodwill.
C-30
<PAGE>
- - --------------------------------------------------------------------------------
At December 31, 1996, the Corporation has net operating loss
carryforwards of $39 million that are available to offset future federal taxable
income through 2007, subject to annual limitations. The Corporation also has net
operating loss carryforwards of $694 million that are available to offset future
state taxable income through 2011.
Income tax expense related to securities available for sale transactions
was $12 million, $14 million and $2 million in 1996, 1995 and 1994,
respectively. Income tax expense related to investment security transactions was
$1 million, $2 million and $1 million in 1996, 1995 and 1994, respectively.
The Internal Revenue Service (the "IRS") is examining the Corporation's
federal income tax returns for the years 1991 through 1993, and the IRS is
examining federal income tax returns for certain acquired subsidiaries for
periods prior to acquisition. In 1995 and 1994, the IRS examination of the
Corporation's federal income tax returns for years through 1990 was settled with
no material impact on the Corporation's financial position or results of
operations. In 1996, 1995 and 1994, tax liabilities for certain acquired
subsidiaries for periods prior to their acquisition by the Corporation were
settled with the IRS with no significant impact on the Corporation's financial
position or results of operations.
- - --------------------------------------------------------------------------------
NOTE 16: FIRST UNION CORPORATION ("PARENT COMPANY")
The Parent Company's principal assets are its investments in its
subsidiaries, interest-bearing balances with bank subsidiaries, securities
purchased under resale agreements, securities available for sale and loans to
subsidiaries. The significant sources of income of the Parent Company are
dividends from its subsidiary bank holding companies, interest and fees charged
on loans made to its subsidiaries, interest on eurodollars purchased from bank
subsidiaries, interest on securities available for sale and fees charged to its
subsidiaries for providing various services.
In addition, the Parent Company serves as the primary source of funding
for the mortgage banking and other activities of its nonbank subsidiaries,
including First Union Capital Markets Corp. Lines of credit in the aggregate
amount of $350 million are available to the Parent Company at an annual facility
fee of 8.00 basis points to 18.75 basis points and a utilization fee of 6.25
basis points. The facility fee is based on the daily average commitment amount,
and the utilization fee is based on the daily average principal amount
outstanding. Generally, interest rates will be determined when credit line usage
occurs, and they will vary based on the type of loan extended to the Parent
Company. The lines of credit expire in December 1998.
Certain regulatory and other requirements restrict the (i) lending of
funds by the bank subsidiaries to the Parent Company and to the Parent Company's
nonbank subsidiaries, and (ii) amount of dividends that can be paid to the
Parent Company by the bank subsidiaries and certain of the Parent Company's
other subsidiaries. On December 31, 1996, the Parent Company was indebted to
subsidiary banks in the amount of $344 million that, under the terms of
revolving credit agreements, was secured by certain interest-bearing balances,
securities available for sale, loans, premises and equipment and was payable on
demand. On such date, a subsidiary bank had loans outstanding to Parent Company
nonbank subsidiaries in the amount of $139 million that, under the terms of a
revolving credit agreement, were secured by securities available for sale and
certain loans and were payable on demand. Additionally, the Parent Company is
guarantor of certain publicly issued debt of an acquired subsidiary in the
amount of $75 million.
Industry regulators limit dividends that can be paid by the
Corporation's subsidiaries. National banks are limited in their ability to pay
dividends in two principal ways. First, dividends cannot exceed the bank's
undivided profits, less statutory bad debt in excess of the bank's allowance for
loan losses; and second, in any year, dividends may not exceed a bank's net
profits for that year, plus its retained earnings from the preceding two years,
less any required transfers to surplus. The Parent Company's subsidiaries,
including its bank subsidiaries, had available retained earnings of $533 million
at December 31, 1996, for the payment of dividends to the Parent Company without
such regulatory or other restrictions.
Subsidiary net assets of $9.9 billion were restricted from being
transferred to the Parent Company at December 31, 1996, under such regulatory or
other restrictions.
At December 31, 1996 and 1995, the estimated fair value of the Parent
Company's loans was $2.7 billion and $2.4 billion, respectively.
See Note 11 for information related to the Parent Company's junior
subordinated deferrable interest debentures.
The Parent Company's condensed balance sheets as of December 31, 1996
and 1995, and the related condensed statements of income and cash flows for
the three-year period ended December 31, 1996 are presented below.
C-31
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
December 31,
------------------------
(In millions) 1996 1995
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Interest-bearing balances with bank subsidiary $ 2,160 1,305
Securities purchased under resale agreements 306 200
- - ---------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 2,466 1,505
- - ---------------------------------------------------------------------------------------------------------------------------
Securities available for sale (amortized cost $256 in 1996; $190 in 1995) 265 259
Loans, net of unearned income ($1 in 1996 and 1995) 108 77
Allowance for loan losses (1) (1)
- - ---------------------------------------------------------------------------------------------------------------------------
Loans, net 107 76
- - ---------------------------------------------------------------------------------------------------------------------------
Loans due from subsidiaries
Banks 1,785 1,704
Bank holding companies 311 129
Other subsidiaries 512 447
Investments in wholly owned subsidiaries
Arising from investments in equity in undistributed net income of subsidiaries
Banks 5,349 4,520
Bank holding companies 5,239 5,030
Other subsidiaries 457 468
- - ---------------------------------------------------------------------------------------------------------------------------
11,045 10,018
Arising from purchase acquisitions 93 98
- - ---------------------------------------------------------------------------------------------------------------------------
Total investments in wholly owned subsidiaries 11,138 10,116
- - ---------------------------------------------------------------------------------------------------------------------------
Other assets 416 531
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 17,000 14,767
- - ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper 1,021 942
Other short-term borrowings with affiliates 651 461
Other liabilities 203 282
Long-term debt 4,607 4,039
Junior subordinated deferrable interest debentures 510 -
- - ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,992 5,724
Stockholders' equity 10,008 9,043
- - ---------------------------------------------------------------------------------------------------------------------------
Total $ 17,000 14,767
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-32
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
(In millions) 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 158 134 72
Interest and dividends on securities available for sale 8 4 4
Other interest income from subsidiaries 73 84 78
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 239 222 154
- - ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on short-term borrowings 68 71 44
Interest on long-term debt 278 234 163
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 346 305 207
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (107) (83) (53)
Provision for loan losses - - 1
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses (107) (83) (54)
- - ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Dividends from subsidiaries
Banks 610 508 156
Bank holding companies 1,693 275 526
Other subsidiaries 15 10 -
Securities available for sale transactions - 10 6
Sundry income 362 320 194
- - ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,680 1,123 882
- - ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE 316 279 186
- - ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax benefits and equity in undistributed net income of subsidiaries 2,257 761 642
Income tax benefits (18) (14) (15)
- - ---------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiaries 2,275 775 657
Equity in undistributed net income of subsidiaries (776) 655 719
- - ---------------------------------------------------------------------------------------------------------------------------------
Net income 1,499 1,430 1,376
Dividends on preferred stock 9 26 46
- - ---------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders before redemption premium 1,490 1,404 1,330
Redemption premium - - 41
- - ---------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders after redemption premium $ 1,490 1,404 1,289
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-33
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------
(In millions) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,499 1,430 1,376
Adjustments to reconcile net income to net cash provided (used) by operating activities
Equity in undistributed net income of subsidiaries 776 (655) (719)
Accretion and revaluation losses on securities available for sale 1 (4) (4)
Provision for loan losses - - 1
Securities available for sale transactions - (10) (5)
Depreciation and amortization 10 6 3
Deferred income taxes (benefits) 5 1 (19)
Trading account assets, net - - 10
Other assets, net 130 (294) (41)
Other liabilities, net (82) 1 100
- - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,339 475 702
- - -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 104 99 14
Purchases of securities available for sale (171) (125) (89)
Advances to subsidiaries, net (328) (595) (540)
Investments in subsidiaries (851) 363 77
Longer-term loans originated or acquired (244) (101) (69)
Principal repaid on longer-term loans 212 97 63
Purchases of premises and equipment, net (26) (7) (6)
- - -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,304) (269) (550)
- - -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Commercial paper 79 546 125
Other short-term borrowings, net 190 161 100
Issuance of junior subordinated deferrable interest debentures 510 - -
Issuances of long-term debt 852 1,292 444
Payments of long-term debt (287) (272) (38)
Sales of common stock 279 249 251
Purchases of preferred stock - (7) -
Redemption of preferred stock (109) - (325)
Purchases of common stock (968) (1,199) (418)
Cash dividends paid (620) (529) (486)
- - -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (74) 241 (347)
- - -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 961 447 (195)
Cash and cash equivalents, beginning of year 1,505 1,058 1,253
- - -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,466 1,505 1,058
- - -----------------------------------------------------------------------------------------------------------------------------------
CASH PAID FOR
Interest $ 321 288 191
Income taxes 225 338 243
NONCASH ITEMS
Increase in investments in subsidiaries as a result of acquisitions of institutions for
common stock 1,008 611 163
Assumption of long-term debt of liquidated affiliate - 74 -
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity securities
included in
Parent Company
Securities available for sale (60) 27 42
Other liabilities 3 24 15
Parent Company subsidiaries
Securities available for sale (153) 458 (344)
Other assets $ (92) 136 (102)
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-34
<PAGE>
NOTE 17: OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers, to reduce its own exposure to fluctuations in interest rates and to
conduct lending activities. These financial instruments include commitments to
extend credit; standby and commercial letters of credit; forward and futures
contracts; interest rate swaps; options, interest rate caps, floors, collars and
swaptions; foreign currency and exchange rate swap commitments; commodity swaps;
and commitments to purchase and sell securities. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of amounts
recognized in the consolidated financial statements.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby and commercial letters of credit is represented by the
contract amount of those instruments. The Corporation uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. For forward and futures contracts, interest rate
swaps, options, interest rate caps, floors, collars and swaptions, the contract
or notional amounts do not represent the exposure to credit loss. The
Corporation controls the credit risk of its forward and futures contracts,
interest rate swap agreements, foreign currency and exchange rate swaps, and
securities transactions through collateral arrangements, credit approvals,
limits and monitoring procedures.
Our policy requires all swaps and options to be governed by an
International Swaps and Derivatives Association Master Agreement. Bilateral
collateral agreements are in place for substantially all dealer counterparties.
Collateral for dealer transactions is delivered by either party when the credit
risk associated with a particular transaction, or group of transactions to the
extent netting exists, exceeds defined thresholds of credit risk. Thresholds are
determined based on the strength of the individual counterparty, and they are
bilateral. As of December 31, 1996, the total credit risk in excess of
thresholds was $126 million. The fair value of collateral held was 183 percent
of the total credit risk in excess of the thresholds.
For non-dealer transactions, the need for collateral is evaluated on an
individual transaction basis, and it is primarily dependent on the financial
strength of the counterparty.
The carrying amount of financial instruments used for interest rate
risk management includes amounts for deferred gains and losses. The amount of
deferred gains and losses was $1 million and $33 million, respectively, at
December 31, 1996. These net losses will reduce net interest income primarily in
1997.
Additional information related to derivative financial instruments and
financial instruments held or issued for the purposes of trading or other than
trading can be found below and in Table 19 through Table 21 on pages T-19
through T-24, which are incorporated herein by reference.
Off-balance sheet derivative and other financial instruments and their
related fair values as of December 31, 1996 and 1995, are presented below.
C-35
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
December 31, 1996 December 31, 1995
--------------------------------------------------------------------
Estimated Contract Estimated Contract
Carrying Fair or Notional Carrying Fair or Notional
(In millions) Amount Value Amount Amount Value Amount
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS WHOSE
CONTRACT AMOUNTS REPRESENT
CREDIT RISK
Commitments to extend credit $ -- 141 47,681 -- 145 38,463
Standby and commercial letters of credit -- 49 4,872 -- 36 3,651
FINANCIAL INSTRUMENTS WHOSE
CONTRACT OR NOTIONAL
AMOUNTS EXCEED THE AMOUNT
OF CREDIT RISK
Forward and futures contracts
Trading and dealer activities 55 55 21,396 38 38 15,540
Interest rate risk management
Asset rate conversions -- 1 57 -- 38 6,120
Asset hedge -- 5 662 -- (1) 1,016
Rate sensitivity hedges -- (5) 29,612 -- 18 25,355
Interest rate swap agreements
Trading and dealer activities (50) (50) 23,683 (117) (118) 10,774
Interest rate risk management
Asset rate conversions 4 118 19,739 20 111 11,282
Liability rate conversions 13 65 6,280 10 227 5,127
Purchased options, interest rate
caps, floors, collars and swaptions
Trading and dealer activities 66 66 9,376 48 51 5,401
Interest rate risk management
Liability rate conversions 1 -- 150 (2) (2) 180
Rate sensitivity hedges 8 4 12,946 1 -- 4,319
Offsetting positions -- -- -- 1 2 2,400
Written options, interest rate caps,
floors, collars and swaptions
Trading and dealer activities (55) (55) 9,471 (37) (37) 7,778
Interest rate risk management
Offsetting positions -- -- -- (1) (2) 2,400
Foreign currency and exchange
rate swap commitments
Trading and dealer activities -- -- 3,591 -- -- 1,571
Commodity swaps
Trading and dealer activities 3 3 67 1 1 30
Commitments to purchase securities -- -- 416 2 2 567
Commitments to sell securities $ 1 1 422 (1) (1) 659
- - --------------------------------------------------------------------------------------------------------
</TABLE>
C-36
<PAGE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses,
and they may require payment of a fee. Since many of the commitments are
expected to expire without being drawn on, the total commitment amounts do not
necessarily represent future cash requirements.
Standby and commercial letters of credit are conditional commitments
issued by the Corporation to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing and similar
transactions. Except for short-term guarantees of $2.4 billion, guarantees
extend for more than one year, and they expire in varying amounts primarily
through 2019. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Corporation holds various assets as collateral supporting those commitments
for which collateral is deemed necessary.
Forward and futures contracts are contracts for delayed deliveries of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation enters into a variety of interest rate contracts,
including options, interest rate caps, floors, collars and swaptions written,
and interest rate swap agreements, in its trading activities and in managing its
interest rate exposure. Interest rate caps, floors, collars and swaptions
written by the Corporation enable customers to transfer, modify or reduce their
interest rate risk. Interest rate options are contracts that allow the holder of
the option to purchase or sell a financial instrument at a specified price and
within a specified period of time from the seller or writer of the option. As a
writer of options, the Corporation receives a premium at the outset and bears
the risk of an unfavorable change in the price of the financial instrument
underlying the option.
Interest rate swap transactions generally involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contracts but also the interest rate risk associated with
unmatched positions. Notional principal amounts often are used to express the
volume of these transactions, but the amounts potentially subject to credit risk
are much smaller. The Corporation also acts as an intermediary in arranging
interest rate swap transactions for customers.
Generally, futures contracts are exchange traded, and all other
off-balance sheet instruments are transacted in the over- the-counter markets.
In the normal course of business, the Corporation has entered into
certain transactions that have recourse options. These recourse options, if
acted on, would not have a material impact on the Corporation's financial
position.
Substantially all time drafts accepted by December 31, 1996, met the
requirements for discount with Federal Reserve Banks. Average daily Federal
Reserve Bank balance requirements for the year ended December 31, 1996, amounted
to $391 million. Minimum operating lease payments due in each of the five years
subsequent to December 31, 1996, are as follows (in millions): 1997, $136; 1998,
$129; 1999, $114; 2000, $102; 2001, $92; and subsequent years, $697. Rental
expense for all operating leases for the three years ended December 31, 1996,
was $202 million, 1996; $179 million, 1995; and $184 million, 1994.
The Parent Company and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which damages in various amounts are claimed. Although the amount
of any ultimate liability with respect to such matters cannot be determined, in
the opinion of management, based on the opinions of counsel, any such liability
will not have a material impact on the Corporation's consolidated financial
position.
C-37
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
- - --------------------------------------------------------------------------------
NOTE 18: CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Information about the fair value of on-balance sheet financial
instruments at December 31, 1996 and 1995, which should be read in conjunction
with Note 17 and certain other notes to the consolidated financial statements
presented elsewhere herein, is set forth below.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 13,849 13,849 10,544 10,544
Trading account assets 3,934 3,934 1,881 1,881
Securities available for sale 14,182 14,182 18,194 18,194
Investment securities 2,501 2,636 3,140 3,320
Loans
Commercial, financial and agricultural 23,603 23,930 24,600 24,875
Real estate - construction and other 2,670 2,727 2,495 2,562
Real estate - commercial mortgage 9,491 9,711 9,980 10,169
Lease financing 3,134 3,134 4,178 4,178
Foreign 1,077 1,074 649 651
Real estate - mortgage 28,673 29,033 27,251 27,827
Installment loans - Bankcard 5,551 5,600 3,658 3,704
Installment loans - other and vehicle leasing 21,659 21,703 17,752 18,063
- - ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 95,858 96,912 90,563 92,029
Allowance for loan losses (1,365) - (1,508) -
- - ------------------------------------------------------------------------------------------------------------------------------------
Loans, net 94,493 96,912 89,055 92,029
- - ------------------------------------------------------------------------------------------------------------------------------------
Other assets $ 2,844 2,852 3,159 3,163
- - ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 18,632 18,632 17,043 17,043
Interest-bearing deposits
Savings and NOW accounts 26,693 26,693 24,297 24,297
Money market accounts 13,468 13,468 13,113 13,113
Other consumer time 31,284 31,703 31,945 32,317
Foreign 1,854 1,854 3,527 3,527
Other time 2,884 2,900 2,630 2,647
- - ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 94,815 95,250 92,555 92,944
Short-term borrowings 23,024 23,024 19,500 19,500
Other liabilities 2,747 2,747 3,115 3,115
Long-term debt 7,660 7,781 7,121 7,438
Guaranteed preferred beneficial interests in Corporation's junior
subordinated deferrable interest debentures $ 495 500 - -
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-38
<PAGE>
- - --------------------------------------------------------------------------------
Estimated fair values for the commercial loan portfolio were based on
weighted average discount rates ranging from 7.34 percent to 7.68 percent and
7.07 percent to 8.50 percent at December 31, 1996 and 1995, respectively, and
for the retail portfolio from 8.35 percent to 14.14 percent and 6.92 percent to
13.00 percent, respectively.
Nonperforming loans of less than $1 million each, which amounted to $197
million at December 31, 1995, are included in estimated fair value at their net
costs. In 1996, estimates of fair value for all nonperforming loans have been
determined.
The fair value of noninterest-bearing deposits, savings and NOW
accounts, and money market accounts is the amount payable on demand at December
31, 1996 and 1995. The fair value of fixed-maturity certificates of deposit is
estimated based on the discounted value of contractual cash flows using the
rates currently offered for deposits of similar remaining maturities. The fair
value estimates above do not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. For
example, the Corporation has a substantial trust department, which includes
mutual fund activities, that contributes net fee income annually. The trust
department is not considered a financial instrument, and its value has not been
incorporated into fair value estimates. Other significant assets and liabilities
that are not considered financial assets or liabilities include the mortgage
banking operation, brokerage network, deferred tax assets, premises and
equipment, and goodwill. In addition, tax ramifications related to the
realization of unrealized gains and losses can have a significant effect on fair
value estimates, and they have not been considered in any of the estimates. The
fair value of off-balance sheet derivative financial instruments has not been
considered in determining on-balance sheet fair value estimates.
C-39
<PAGE>
EXHIBIT (21)
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES*
ABCA, Inc.
1005 Corp.
Citrus County Land Corp.
Citrus County Service Corp.
Melbourne Atlantic Venture Partners (20%)
Naples Financial Services, Inc.
Austin Ventures IV-A, L. P. (6.42%)
Capitol Finance Group, Inc.
Canaan Ventures II (19.60%)
Carousel Capital Partners, L.P. (13.62%)
Center Street Capital Partners, L. P. (5.40%)
Chartwell Capital Investors, L. P. (16.03%)
DB & P, Inc.
DeMuth, Folger & Wetherill, L. P. (7.5%)
Education Financing Services, LLC (19.318%)
First Card Corporation
First Union Bank of Delaware
Delaware Financial Services Corporation
First Fidelity Insurance Services of Delaware, Inc.
Taylor & Clark Insurance Services, Incorporated
First Union Capital I
First Union Capital II
First Union Capital III
First Union Capital Markets Corp.
First Union Community Development Corporation
Housing Equity Fund of Virginia I, L.P. (6.945%)
Montgomery Homes L.P. IX (99%)
Parkchester Limited Partnership (99%)
Pendleton Pines Associates, LLC (99%)
Roanoke Community Development Corporation (27.778%)
Sycamore Row, LLC (99%)
First Union Corporation of Georgia
First Union National Bank of Georgia**
Ashton of Richmond Hill, L. P. (99%)
Athens Rental Housing, L.P. (99%)
DF Southeastern Mortgage, Inc.
First Union NOVA Holdings of GA, Inc.
NOVA Corporation (1.91%)****
First Union Real Estate Asset Company of Georgia
First Union Real Estate Investment Company of Georgia
GABK Holdings, Inc.
GF Mortgage Corporation
HHS Property Corporation
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
Peppermill Partners, L.P. (99%)
Rome Rental Housing, L.P. (99%)
Sandlewood Terrace of Ludowici L.P. (99%)
Statesboro Rental Housing, L.P. (99%)
Sugar Mill Apartments, L.P. (99%)
The Atlanta Business Community Development Corporation (21.7%)
GF Title Corporation
First Union Corporation of New Jersey
First Fidelity Incorporated
Brynwood Partners I, L.P. (7.14%)
FCC-PR, Inc.
Fidelcor Business Credit Corporation
Comwest Capital Corporation
First Fidelity Community Development Corporation
First Union National Bank
ABERDEEN/FIDOREO LS, INC.
AIRPORT ROAD/FIDOREO, INC.
Alpha JBD Holding, Inc.
Arch Street Real Estate, Inc.
Beaumont Avenue Apartments, L.P. (99%)
BEST PARKING/FIDOREO, INC.
BGMCO PA, Inc.
BRICK INDUSTRIAL/FIDOREO, INC.
BRICK TOWNSHIP/FIDOREO LS, INC.
Bucks/DHS Real Estate, Inc.
CALAIS/FIDOREO LS, INC.
CHI ES Holding, Inc.
COMBO/FIDOREO LS, INC.
COMMERCE/FIDOREO LS, INC.
CORNWALL WOODS/FIDOREO, INC.
Cranford Avenue Apartments, L.P. (99%)
CRAWFORDS CORNER/FIDOREO, INC.
CRL Real Estate, Inc.
Crompond/FNY, Inc.
Develcor NJ, Inc.
Develcor PA, Inc.
DFD Real Estate, Inc.
East Hempfield Dana, Inc.
Equitable Realty Associates, L.P. (99%)
ESCONDIDO-HOVBILT/FIDOREO, INC.
ESTATES/FIDOREO, INC.
Fairview Holdings, Inc.
FB General Real Estate, Inc.
FF South, Inc.
FFBIC, Inc.
FFBIC New York, Inc.
FFBIC New York II, Inc.
FFL Services Corporation
Fidelity Overseas Investment, Inc.
First Avenue King of Prussia, Inc.
First Fidelity Building Corporation
First Fidelity Insurance Services, Inc.
First Fidelity International Bank
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
First Union I, Inc.
First Union Leasing Group, Inc.
First Union Real Estate Asset Company of New Jersey
First Union Real Estate Investment Company of New Jersey
First Fidelity Private Capital, Inc.
AgriTech, Inc. (31%)
Communications Systems Technologies, Inc. (12.5%)
Fresh Creek Technologies, Inc.
Integra Services Technologies, Inc.
MaxFlight Technologies, Inc. (14%)
National Resource Directories, Inc.
First Fidelity Urban Investment Corporation
Allentown Development Company, Inc. (24%)
First Union NOVA Holdings of NJ, Inc.
NOVA Corporation (8.93%)****
FOIL, Inc.
FREEHOLD/FIDOREO, INC.
GJA R/E Corp.
GOLD/FIDOREO LS, INC.
HELEN STREET/FIDOREO, INC.
HOHOKUS/FIDOREO LS, INC.
HOVBILT VILLAS/FIDOREO, INC.
HSB Leasing, Inc.
HUGUENOT/FIDOREO LS, INC.
Industrial Valley Real Estate Co.
Interchange Land, Inc.
Internet, Inc. (5.194%)*****
JERSEY CENTER/FIDOREO, INC.
KNICKER/FIDOREO LS, INC.
KOGEL ISLAND/FIDOREO, INC.
KRAMER/FIDOREO LS, INC.
LCI/MBNA, Inc.
LIVINGSTON AVENUE/FIDOREO, INC.
MACCULLOCH/FIDOREO, INC.
MACK/FIDOREO, INC.
MANCHESTER PLACE/FIDOREO, INC.
MARKET TOWERS/ FIDOREO, INC.
Maryland Housing Equity Fund III Limited Partnership (7.7647%)
MBNA OREO/SAUCON I, Inc.
MBNO Real Estate, Inc.
MIDDLE ISLAND/FIDOREO, INC.
MSB Properties, Inc.
MSB Properties Six, Inc.
MT. EPHRAM/FIDOREO LS, INC.
MULTI/FIDOREO, INC.
Multi I/FNY, Inc.
MULTI II/FIDOREO, INC.
Northco Acquisition, Inc.
Old York Road Real Estate, Inc.
Old York Agency, Inc.
P. Newburgh Ridge, Inc.
P. The Hill, Inc.
PARK AVENUE/FIDOREO, INC.
Park Avenue Investors, Inc.
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
PAROG, Inc.
PAYROLL/FIDOREO, INC.
PERRY STREET/FIDOREO, INC.
Port Park/FNY, Inc.
PWSB, Inc.
WCSB, Inc.
PWSB Bridle Land Corp.
PWSB Edwards, Inc.
Raven Properties, Inc.
Rosewood/MBNA Real Estate, Inc.
SBRC Service Corporation
S.B.R.C. Land Corp.
Sellit, Inc.
Settlers Notch/Noreo, Inc.
SHARK/FIDOREO, INC.
Skyhawk Agency, Inc.
Sound Shore Investors, Inc.
Southampton OSB, Inc.
Springhouse Real Estate, Inc.
St. Joseph's Affordable Housing Limited Partnership (74.25%)
SURREY DOWNS/FIDOREO, INC.
TAYLORR LAKES/FIDOREO, INC.
The Howard Mortgage Group, Inc.
Three Ninety Nine Corp.
UNITED/FIDOREO, INC.
UVC LAND/FIDOREO, INC.
VERO/FIDOREO LS, INC.
W. & J. McCur, Inc.
Washington Apartments Associates, Limited Partnership (99%)
WALDWICK/FIDOREO LS, INC.
WATERVIEW/FIDOREO, INC.
WAYNE/FIDOREO LS, INC.
Northeast Bancorp Inc. (1% Class A Preferred)
Radnor Venture Partners, L.P. (7.39%)
TDH II Limited (5.72%)
Waller House Corporation
Northeast Bancorp, Inc.
Fairfield Properties, Inc.
First Union Bank of Connecticut
365 Mainstreet Associates, Inc.
Bud Park, Inc.
Center Funding Company
Centerbank Mortgage Company
Center Credit Corporation
The Mortgage Corner, Inc.
CTB Cheshire Properties II, Inc.
CTB Danbury Properties, Inc.
CTB Haig Street, Inc.
CTB Hamden Properties, Inc.
CTB Hartford Properties, Inc.
CTB Meriden Properties, Inc.
CTB New Haven Properties, Inc.
CTB Realty Ventures XIII, Inc.
CTB Realty Ventures XIV, Inc.
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
CTB Realty Ventures XV, Inc.
CTB Realty Ventures XVI, Inc.
CTB Realty Ventures XXI, Inc.
CTB Realty Ventures XXII, Inc.
CTB Realty Ventures XXXVIII, Inc.
CTB Ventures 47, Inc.
CTB Ventures 53, Inc.
CTB Ventures 62, Inc.
CTB Waterbury Properties, Inc.
CTB West, Inc.
EIGHTEEN/UNIONOREO, INC.
Essex Estates, Ltd.
FIFTEEN/UNIONOREO, INC.
FIFTY/UNIONOREO, INC.
FIFTY-EIGHT/UNIONOREO, INC.
FIFTY-FIVE/UNIONOREO, INC.
FIFTY-FOUR/UNIONOREO, INC.
FIFTY-SEVEN/UNIONOREO, INC.
FIFTY-SIX/UNIONOREO, INC.
First Union NOVA Holdings of Connecticut, Inc.
NOVA Corporation (1.10%)****
First Union Real Estate Asset Company of Connecticut
First Union Real Estate Investment Company of Connecticut
FORTY-EIGHT/UNIONOREO, INC.
FORTY-FIVE/UNIONOREO, INC.
L'Hermitage Developers, Inc.
MULTI I/UNIONOREO, INC.
Nor Con, Inc.
Nor Con II, Inc.
Nor Con III, Inc.
Nor Con IV, Inc.
TWENTY-THREE/UNIONOREO, INC.
Union Financial Services Corporation
East Hartford Clearing Company
Fairfield Clearing Company
Union Trust Brokerage Services, Inc.
Washington Clearing Company
White Eagle Limited
First Union Corporation of South Carolina
First Union National Bank of South Carolina**
Arbor Village, L.P. (99%)
Business Development Corporation of South Carolina (8.7%)
First Union NOVA Holdings of SC, Inc.
NOVA Corporation (1.12%)****
SCBK Holdings, Inc.
First Union Corporation of Virginia
Ameribanc Development Corporation
Atlantic Venture Partners II, L.P. (5.44%)
First American Service Corporation
Long, Travers & FASC (40%)
New Rivers Towers Limited Partnership
Woodlawn Joint Venture (40% owned by First American Service Corporation;
30% owned by
First Union National Bank of Virginia)
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
First Union National Bank of Maryland**
BOB Title Holdings, Inc.
BOB Title X, Inc.
BOB Title XIX, Inc.
BOB TITLE XXX, Inc.
Southgate Utility Co., Inc.
BOB TITLE XXXV, Inc.
Annapolis Overlook Utility, Inc.
Fairbrooke Apartments Limited Partnership (99%)
Fountain Place Associates Limited Partnership (99%)
First Union NOVA Holdings of MD, Inc.
NOVA Corporation (0.18%)****
Towson Service Corporation
Ashland Joint Venture (50%)
Silver Spring Station Joint Venture (50%)
First Union National Bank of Tennessee**
ACB Services, Inc.
First Union NOVA Holdings of TN, Inc.
NOVA Corporation (0.89%)****
Professional Asset Management in Tennessee, Inc.
The Exchange Building Limited Partnership (99%)
First Union National Bank of Virginia**
1560 Wilson Boulevard Limited Partnership (28%)
Arbor Glenn L.P. (99%)
Bowler Housing L.P. (99%)
BR Limited Partnership (99%)
Cannon/Hearthwood Limited Partnership (99%)
CFF Financial Corporation
Fairfax County Redevelopment and Housing Authority/HCDC One L.P. (99%)
Fairfax County Redevelopment and Housing Authority/HCDC Two L.P. (99%)
First Union NOVA Holdings of VA, Inc.
NOVA Corporation (2.13%)****
First Union Capital Partners, Inc.
Arcon HealthCare, Inc. (6.60%)
Atlantic Spinners, Inc. (12.5%)
Chattem, Inc. (22.9%)
Cybergenics Holding, Inc. (30.9%)
Electronic Manufacturing Systems, Inc. (15.7%)
Envoy Corporation (6.2%)
FrontierVision Partners, L. P. (14.16%)
FVP GP, L.P., (20.88%)
Heartland Port Enterprises (22.9%)
Meigher Communications, L. P. (13.2%)
Renal Disease Management by Physicians, Inc. (24.3%)
Right Source, Inc. (36.19%)
Homes for Fredericksburg Limited Partnership (99%)
Housing Equity Fund of Virginia II, L.P. (38.5%)
International Progress, Inc. (50%)
Mountain Falls Park, Inc.
Lafayette Family L.P. (99%)
Martin's Landing Limited Partnership (99%)
Martin's Landing II Limited Partnership (99%)
Savings Associations Financial Enterprises, Inc. (20%+)******
Salem Run Associates, L. P. (99%)
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
Shenandoah Valley Properties L.P. (99%)
Craigmont II, L.P. (99%)
Elkmont Partners, L.P. (99%)
Grottoes Partners L.P. (99%)
Willow Lake Partners, L.P. (99%)
Tobacco Row Phase II Associates, L.P. (99%)
WNB Corporation
William Byrd Hotel Associates, L. P. (99%)
First Union National Bank of Washington, D.C.**
First Union NOVA Holdings of DC, Inc.
NOVA Corporation (0.24%)****
Savings Associations Financial Enterprises, Inc. (10%+)******
TRSTE, Inc.
TRSTE II, Inc.
Virginia Baseball Club, L.P. (9.25%)
Walden Golf Club, Inc.
Walden Golf Club Management Company
First Union Development Corporation
The First Service Corporation of South Carolina
Arrowwood Associates (50%)
First Union Export Trading Company
First Union Futures Corporation
First Union FPS, Inc.
First Union Home Equity Bank, N. A.
First Union Institutional Capital I
First Union Institutional Capital II
First Union Investors, Inc.
Chisholm Partners III, L.P. (14.60%)
Commonwealth Investors II, L.P. (9.09%)
High Ridge Capital Partners Limited Partnership (24.84%)
HRC General Partners Limited Partnership (15%)
First Union Life Insurance Company
First Union Mortgage Corporation
Argo Partnership, L. P. (8%)
Farmington, Incorporated
Ghent-Farmington Associates (50%)
First Union Title Corporation
R.B.C. Corporation
Slate Stone Hills, Incorporated
The Fairfax Corporation
Interchange Partners (50%)
North Ridge, Inc. (50%)
Real Estate Consultants of the South, Inc.
Water Street Insurance Agency, Inc.
First Union National Bank of Florida**
Alden Pond, Inc.
Bart, Inc.
Cantebury of Hilliard, Ltd. (99%)
CIMC, Inc.
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
Creative Choice Homes IX, Ltd. (99%)
Ellenton Housing Associates, Ltd. (99%)
First Union Bank and Trust Company (Cayman) Ltd.
First Union NOVA Holdings of FL, Inc.
NOVA Corporation (11.84%)****
Floral Oaks Apartments, Ltd. (99%)
FNB Properties, Inc.
Ft. Lauderdale Hotel Holding Company
General Homes Corp. (9.205%)***
Greenleaf Village of Groveland, Ltd. (89%)
Horizon Appraisal Services, Inc.
Indian Run Limited Partnership (86%)
Jacksonville Affordable Housing, Ltd. (98%)
Kaufman, Alsberg & Co.
Lantana Associates, Ltd. (99%)
O.R.E.O., Inc.
Ravenwood of Kissimmee, Ltd. (99%)
RBG Apartments, Inc.
Rosemont Manor Ltd. (99%)
River Reach of Orange County, Ltd. (99%)
Spinnaker Reach Apartments of Duval, Ltd. (99%)
Spring Gate Manor Limited (99%)
Steeplechase Apartments, Ltd. (99%)
Taroc, Inc.
TWC Eighty-Eight, Ltd. (99%)
TWC Ninety-Six, Ltd. (99%)
VCP-Alderman Park Partners, Ltd. (99%)
Venice Service Corp.
Port Charlotte Service Corp.
Vestcor-WR Associates, Ltd. (99%)
Villa Biscayne of South Dade, Ltd. (99%)
Waterford Manor, L.P. (99%)
West Brickell Apartments, Ltd. (99%)
Westville, Ltd. (99%)
WSI, Inc.
First Union National Bank of North Carolina**
100 Block Associates Limited Partnership (93.75%)
Barrett Place Limited Partnership (99%)
Builders Acceptance Corporation
CT I Limited Partnership (99%)
Evergreen Asset Management Corp.
First Stratford Partnership (40%)
First Union Brokerage Services, Inc.
First Union Commercial Corporation
First Union Overseas Investment Corporation
Union Hamilton Assurance, Ltd.
First Union Rail Corporation
Ironbrand Capital LLC (1%)
National Auto Finance Company, L.P. (10%)
RAILEASE, Inc.
Transportation Equipment Advisors, Inc.
First Wells Fargo Leasing Partnership (90%)
Multiplex Leasing Partners (90%)
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
First Union Commercial Leasing Group, L.L.C. (99% owned by First Union
National Bank of North Carolina;
1% owned by First Union Commercial Corporation)
First Union International Banking Corporation
Besso Holdings Limited (6.55%)
First Union HKCB Asia, Ltd. (50%)
Keystone Financial Consulting GmbH
Keystone Management, S.A.
First Union Investment Corporation
100 Block Associates Limited Partnership (6.25%)
ERB, Inc.
Concessions, Inc.*******
Raleigh Club, Inc.*******
Southwind Parking Corp.
First Union Commercial Mortgage Securities, Inc.
First Union Keystone, Inc.
Keystone Asset Corporation
Keystone Investment Management Company
Evergreen Keystone Investment Services, Inc.
Evergreen Keystone Service Company
Keystone Trust Company
First Union NOVA Holdings of NC, Inc.
NOVA Corporation (3.57%) ****
First Union Real Estate Asset Company of North Carolina
First Union Real Estate Investment Company of North Carolina
First Union Residential Securitization Transactions, Inc.
Flagship Partners, L.P. (99%)
Fox Haven Limited Partnership (99%)
Gainsborough Corporation
GGL, Inc.***
C4 Media Cable South, Limited Partnership (99%)***
Novaten Communications, Inc.***
C4 Media Cable South, Limited Partnership (1%)***
Glen Royall Mill Limited Partnership (99%)
Golfview Associates Limited Partnership (99%)
Green Ridge Associates, LLC (99%)
Lieber I Corp.
Lieber & Company (99% owned by Lieber I Corp.; 1% owned by Lieber II
Corp.)
Lieber II Corp.
Oak Crest Apartments of Kannapolis, Ltd. (99%)
MHD, Inc.***
NNI Bell Street Limited Partnership (99%)
Southwoods Limited Partnership (99%)
Yorktown Arms Development Limited Partnership (99%)
First Union Services, Inc.
Franklin Ventures III, L.P. (6.60%)
Internet, Inc. (4.5167%)*****
Morgan Stanley Bridge Fund, LLC (24.99%)
Pacific Venture Group, L.P. (5.24%)
Phillips-Smith Specialty Retail Group III, L. P. (7.14%)
Southeast Switch, Inc. (15%)
<PAGE>
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES* -- CONTINUED
Tryon Management, Inc.
* Wholly-owned unless otherwise indicated. Includes entities in which
First Union Corporation or a subsidiary has an investment in excess of
5%.
** Wholly-owned except for directors' qualifying shares.
*** Interest acquired or subsidiary formed in connection with debts
previously contracted other than those involving other real estated
owned (OREO).
**** Combined ownership percentage by all First Union Corporation entities is
31.90%.
***** Combined ownership percentage by all First Union Corporation entities is
19.1357%.
****** Combined ownership percentage by all First Union Corporation entities is
48.15%.
******* 100% of preferred stock owned by 100 Block Associates Limited
Partnership.
EXHIBIT (23)
CONSENT OF KPMG PEAT MARWICK LLP
- - ------------------------------------------------------------------------------
Board of Directors
First Union Corporation
We consent to the incorporation by reference in the Registration
Statements of (i) First Union Corporation on:
REGISTRATION REGISTRATION
STATEMENT STATEMENT
FORM NUMBER FORM NUMBER
------- -------------- ------- --------------
S-3 33-50103 S-8 33-65501
S-8 33-51964 S-8 333-2551
S-8 33-54148 S-8 333-2561
S-8 33-54274 S-8 333-10179
S-8 33-54739 S-8 333-10211
S-3 33-56927 S-8 333-11613
S-8 33-60835 S-8 333-14469
S-8 33-60913 S-3 333-15743
S-3 33-61941 S-3 333-17599
S-8 33-62307 S-4 333-19039-01
S-8 33-62399 S-4 333-20611
S-8 33-63387
(ii) First Union Capital I on Form S-3 (No. 333-15743-01); (iii) First Union
Capital II on Form S-3 (No. 333-15743-02); (iv) First Union Capital III on Form
S-3 (No. 333-15743-03); (v) First Union Institutional Capital I on Form S-4 (No.
333-19039); and (vi) First Union Institutional Capital II on Form S-4 (No.
333-20611-01) of First Union Corporation of our report dated January 16, 1997,
relating to the consolidated balance sheets of First Union Corporation and
subsidiaries as of December 31,1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1996, which report appears
in the 1996 Annual Report to Stockholders which is incorporated by reference in
First Union Corporation's 1996 Form 10-K.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 12, 1997
<PAGE>
EXHIBIT (24)
FIRST UNION CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers
of FIRST UNION CORPORATION (the "Corporation") hereby constitute and appoint
Marion A. Cowell, Jr. and Kent S. Hathaway, and each of them severally, the true
and lawful agents and attorneys-in-fact of the undersigned with full power and
authority in said agents and the attorneys-in-fact, and in any one of them, to
sign for the undersigned and in their respective names as directors and officers
of the Corporation, the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1996, to be filed with the Securities and Exchange
Commission, and to sign any and all amendments to such Annual Report.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<C> <S> <C>
EDWARD E. CRUTCHFIELD Chairman and Chief Executive Officer and March 4, 1997
EDWARD E. CRUTCHFIELD Director
ROBERT T. ATWOOD Executive Vice President and Chief Financial March 3, 1997
ROBERT T. ATWOOD Officer
JAMES H. HATCH Senior Vice President and Controller March 5, 1997
JAMES H. HATCH (Principal Accounting Officer)
EDWARD E. BARR Director March 5, 1997
EDWARD E. BARR
G. ALEX BERNHARDT Director February 28, 1997
G. ALEX BERNHARDT
W. WALDO BRADLEY Director March 3, 1997
W. WALDO BRADLEY
ROBERT J. BROWN Director March 3, 1997
ROBERT J. BROWN
ROBERT D. DAVIS Director March 4, 1997
ROBERT D. DAVIS
Director
R. STUART DICKSON
B. F. DOLAN Director March 5, 1997
B. F. DOLAN
RODDEY DOWD, SR. Director February 27, 1997
RODDEY DOWD, SR.
JOHN R. GEORGIUS Director March 3, 1997
JOHN R. GEORGIUS
ARTHUR M. GOLDBERG Director March 4, 1997
ARTHUR M. GOLDBERG
<PAGE>
SIGNATURE CAPACITY DATE
WILLIAM H. GOODWIN, JR. Director February 27, 1997
WILLIAM H. GOODWIN, JR.
BRENTON S. HALSEY Director March 3, 1997
BRENTON S. HALSEY
HOWARD H. HAWORTH Director March 1, 1997
HOWARD H. HAWORTH
FRANK M. HENRY Director March 4, 1997
FRANK M. HENRY
LEONARD G. HERRING Director March 3, 1997
LEONARD G. HERRING
JUAN RODRIGUEZ INCIARTE Director February 28, 1997
JUAN RODRIGUEZ INCIARTE
JACK A. LAUGHERY Director March 7, 1997
JACK A. LAUGHERY
MAX LENNON Director March 3, 1997
MAX LENNON
Director
RADFORD D. LOVETT
JOSEPH NEUBAUER Director March 7, 1997
JOSEPH NEUBAUER
HENRY D. PERRY, JR. Director March 3, 1997
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS Director March 4, 1997
RANDOLPH N. REYNOLDS
RUTH G. SHAW Director March 3, 1997
RUTH G. SHAW
CHARLES M. SHELTON, SR. Director February 28, 1997
CHARLES M. SHELTON, SR.
LANTY L. SMITH Director February 28, 1997
LANTY L. SMITH
Director
ANTHONY P. TERRACCIANO
Director
DEWEY L. TROGDON
<PAGE>
SIGNATURE CAPACITY DATE
JOHN D. UIBLE Director March 4, 1997
JOHN D. UIBLE
B. J. WALKER Director March 5, 1997
B. J. WALKER
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,509
<INT-BEARING-DEPOSITS> 316
<FED-FUNDS-SOLD> 7,024
<TRADING-ASSETS> 3,934
<INVESTMENTS-HELD-FOR-SALE> 14,182
<INVESTMENTS-CARRYING> 2,501
<INVESTMENTS-MARKET> 2,636
<LOANS> 98,064
<ALLOWANCE> (1,365)
<TOTAL-ASSETS> 140,127
<DEPOSITS> 94,815
<SHORT-TERM> 23,024
<LIABILITIES-OTHER> 3,361
<LONG-TERM> 7,660
0
0
<COMMON> 958
<OTHER-SE> 9,050
<TOTAL-LIABILITIES-AND-EQUITY> 140,127
<INTEREST-LOAN> 7,724
<INTEREST-INVEST> 1,304
<INTEREST-OTHER> 330
<INTEREST-TOTAL> 9,628
<INTEREST-DEPOSIT> 2,960
<INTEREST-EXPENSE> 4,632
<INTEREST-INCOME-NET> 4,996
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 35
<EXPENSE-OTHER> 4,668
<INCOME-PRETAX> 2,310
<INCOME-PRE-EXTRAORDINARY> 2,310
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,499
<EPS-PRIMARY> 5.35
<EPS-DILUTED> 5.35
<YIELD-ACTUAL> 4.21
<LOANS-NON> 655
<LOANS-PAST> 290
<LOANS-TROUBLED> 14
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,508
<CHARGE-OFFS> 722
<RECOVERIES> 154
<ALLOWANCE-CLOSE> 1,365
<ALLOWANCE-DOMESTIC> 1,029
<ALLOWANCE-FOREIGN> 4
<ALLOWANCE-UNALLOCATED> 332
</TABLE>
EXHIBIT (99)
FIRST UNION CORPORATION OF VIRGINIA AND SUBSIDIARIES
SUMMARIZED FINANCIAL DATA
DECEMBER 31, 1996 AND 1995
- - -------------------------------------------------------------------------------
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 31, 1993, FUNC-VA
assumed, and subsequently the Corporation guaranteed, FUNC-VA's publicly held
9-5/8 % Subordinated Capital Notes due in 1999. Set forth below is summarized
consolidated financial information for FUNC-VA and subsidiaries for the periods
indicated.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
YEARS ENDED
DECEMBER 31,
---------------------------------
(IN MILLIONS) 1996 1995
- - --------------------------------------------------------------------
Net interest income $ 648 537
Income before income taxes 439 280
Net income $ 281 183
- - --------------------------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31,
---------------------------------
(IN MILLIONS) 1996 1995
- - --------------------------------------------------------------------------
Assets $ 20,131 17,077
Securities available for sale 4,340 3,424
Investment securities 403 528
Loans, net of unearned income 10,956 10,149
Stockholder's equity $ 1,811 1,378
- - --------------------------------------------------------------------------
