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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-10000
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
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NORTH CAROLINA 56-0898180
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(Address of principal executive offices)
(Zip Code)
(704) 374-6565
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
280,030,611 shares of Common Stock, par value $3.33 1/3 per share, were
outstanding as of April 30, 1997.
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FIRST UNION CORPORATION (THE "CORPORATION" OR "FUNC") 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 QUARTERLY REPORT ON FORM 10-Q 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements of the
Corporation within Item 1 include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for fair
presentation of such consolidated financial statements for the periods
indicated.
1
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FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Consolidated Balance Sheets of the Corporation and subsidiaries at
March 31, 1997, March 31, 1996, and December 31, 1996, respectively, set forth
on page T-18 of the Corporation's First Quarter Financial Supplement for the
three months ended March 31, 1997 (the "Financial Supplement"), are incorporated
herein by reference.
The Consolidated Statements of Income of the Corporation and subsidiaries
for the three months ended March 31, 1997 and 1996, set forth on page T-19 of
the Financial Supplement, are incorporated herein by reference.
The Consolidated Statements of Cash Flows of the Corporation and
subsidiaries for the three months ended March 31, 1997 and 1996, set forth on
page T-20 of the Financial Supplement, are incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
2
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PART II. OTHER INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations appears on pages 2 through 16 and T-1 through T-20 of the Financial
Supplement and is incorporated herein by reference.
A copy of the Financial Supplement is being filed as Exhibit (19) to this
Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the annual meeting of the stockholders of the Corporation held on April
15, 1997, the following proposals were approved:
1. Proposal to elect the following individuals as directors of the Corporation:
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FOR WITHHELD
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Class I:
Charles M. Shelton, Sr........................................... 229,416,008 1,414,280
Class II:
A. Dano Davis.................................................... 229,408,409 1,421,879
Roddey Dowd, Sr.................................................. 229,420,467 1,409,821
Arthur M. Goldberg............................................... 229,350,609 1,479,205
William H. Goodwin, Jr........................................... 229,427,927 1,402,361
Jack A. Laughery................................................. 229,393,358 1,436,930
Radford D. Lovett................................................ 229,423,927 1,406,361
Mackey J. McDonald............................................... 229,325,942 1,504,346
Randolph N. Reynolds............................................. 229,230,723 1,598,610
John D. Uible.................................................... 229,406,605 1,423,683
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2. Proposal to ratify the appointment of KPMG Peat Marwick LLP as auditors of
the Corporation for 1997:
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FOR AGAINST ABSTAIN
229,936,421 366,093 527,774
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
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EXHIBIT NO. DESCRIPTION
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(4) Instruments defining the rights of security holders, including indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(19) The Corporation's First Quarter 1997 Financial Supplement.
(27) The Corporation's Financial Data Schedule.**
(99) First Union Corporation of Virginia and Subsidiaries Summarized Financial Information.
</TABLE>
* The Corporation agrees to furnish to the Commission upon request, copies of
the instruments, including indentures, defining the rights of the holders of
the long-term debt of the Corporation and its consolidated subsidiaries.
** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1997, a Current Report on Form 8-K,
dated January 13, 1997, was filed with the Commission by the Corporation.
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST UNION CORPORATION
Date: May 13, 1997
By: /s/JAMES H. HATCH
JAMES H. HATCH
SENIOR VICE PRESIDENT AND CORPORATE
CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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(4) Instruments defining the rights of security holders, including indentures.*
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges.
(19) The Corporation's First Quarter 1997 Financial Supplement.
(27) The Corporation's Financial Data Schedule.**
(99) First Union Corporation of Virginia and Subsidiaries Summarized Financial Information.
</TABLE>
* The Corporation agrees to furnish to the Commission upon request, copies of
the instruments, including indentures, defining the rights of the holders of
the long-term debt of the Corporation and its consolidated subsidiaries.
** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
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Exhibit (12)
FIRST UNION CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
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Three
Months
Ended
Mar. 31, Years Ended December 31,
----------- -----------------------------------------------------
(Dollars in millions) 1997 1996 1995 1994 1993 1992
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EXCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations $ 726 2,310 2,219 2,088 1,795 977
Fixed charges, excluding capitalized
interest 422 1,739 1,266 816 608 570
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Earnings (A) $ 1,148 4,049 3,485 2,904 2,403 1,547
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Interest, excluding interest on deposits $ 388 1,672 1,198 747 538 502
Distributions on guaranteed preferred
beneficial interests 17 - - - - -
One-third of rents 17 67 68 69 70 68
Capitalized interest - 4 3 1 - -
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Fixed charges (B) $ 422 1,743 1,269 817 608 570
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Consolidated ratios of earnings to fixed
charges, excluding interest on deposits (A)/(B) 2.72 X 2.32 2.75 3.55 3.95 2.71
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INCLUDING INTEREST ON DEPOSITS
Pretax income from continuing operations $ 726 2,310 2,219 2,088 1,795 977
Fixed charges, excluding capitalized
interest 1,165 4,699 4,120 2,862 2,552 3,010
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Earnings (C) $ 1,891 7,009 6,339 4,950 4,347 3,987
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Interest, including interest on deposits $ 1,131 4,632 4,052 2,793 2,482 2,942
Distributions on guaranteed preferred
beneficial interests 17 - - - - -
One-third of rents 17 67 68 69 70 68
Capitalized interest - 4 3 1 - -
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Fixed charges (D) $ 1,165 4,703 4,123 2,863 2,552 3,010
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Consolidated ratios of earnings to fixed
charges, including interest on deposits (C)/(D) 1.62 X 1.49 1.54 1.73 1.70 1.32
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<PAGE>
FIRST QUARTER 1997
FIRST UNION CORPORATION
AND SUBSIDIARIES
Management's Analysis of Operations
Quarterly Financial Supplement
Three Months Ended March 31, 1997
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FIRST UNION CORPORATION AND SUBSIDIARIES
FIRST QUARTER FINANCIAL SUPPLEMENT
THREE MONTHS ENDED MARCH 31, 1997
TABLE OF CONTENTS
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PAGE
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Financial Highlights 1
Manangement's Analysis of Operations 2
Consolidated Summaries of Income, Per Common Share and Balance Sheet Data T-1
Selected Lines of Business T-2
Internal Capital Growth and Dividend Payout Ratios T-3
Selected Quarterly Data T-3
Securities Available for Sale T-4
Investment Securities T-5
Loans T-6
Allowance for Loan Losses and Nonperforming Assets T-7
Intangible Assets T-8
Foreclosed Properties T-8
Deposits T-8
Time Deposits in Amounts of $100,000 or More T-8
Long-Term Debt T-9
Changes in Stockholders' Equity T-10
Capital Ratios T-11
Off-Balance Sheet Derivative Financial Instruments T-12
Off-Balance Sheet Derivatives - Expected Maturities T-14
Off-Balance Sheet Derivatives Activity T-15
Net Interest Income Summaries T-16
Consolidated Balance Sheets T-18
Consolidated Statements of Income T-19
Consolidated Statements of Cash Flows T-20
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FINANCIAL HIGHLIGHTS
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THREE MONTHS ENDED
MARCH 31,
------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996
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FINANCIAL HIGHLIGHTS
Net income $ 471 243
Dividends on preferred stock -- 4
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Net income applicable to common stockholders after merger-related
restructuring charges 471 239
After tax restructuring charges -- 181
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Net income applicable to common stockholders before merger-related
restructuring charges $ 471 420
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PER COMMON SHARE DATA
Net income after merger-related restructuring charges $ 1.67 0.85
Net income before merger-related restructuring charges 1.67 1.50
Cash dividends 0.58 0.52
Book value 33.86 31.80
Period-end price $ 81.125 60.375
Average common shares (IN THOUSANDS) 282,553 280,374
Actual common shares (IN THOUSANDS) 279,832 281,064
Dividend payout ratios (based on operating earnings) 34.73% 34.67
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PERFORMANCE HIGHLIGHTS
Before merger-related restructuring charges
Return on average assets (a) (b) 1.42% 1.30
Return on average common equity (a) (c) 19.58 18.67
Overhead efficiency ratio (excludes expenses on trust capital securities) (d) 56 57
Net charge-offs to
Average loans, net (a) 0.61 0.66
Average loans, net, excluding Bankcard (a) 0.20 0.45
Nonperforming assets to loans, net and foreclosed properties 0.81 0.93
Net interest margin (a) 4.37% 4.19
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CASH EARNINGS (EXCLUDING OTHER INTANGIBLE AMORTIZATION)
Before merger-related restructuring charges
Net income applicable to common stockholders $ 524 472
Net income per common share $ 1.86 1.68
Return on average tangible assets (a) 1.61% 1.49
Return on average tangible common equity (a) (c) 30.74 27.85
Overhead efficiency ratio (excludes expenses on trust capital securities) (d) 53% 54
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PERIOD-END BALANCE SHEET DATA
Securities available for sale $ 14,411 17,178
Investment securities 2,408 2,927
Loans, net of unearned income 95,487 89,990
Earning assets 121,134 117,870
Total assets 136,730 130,581
Noninterest-bearing deposits 18,275 16,726
Interest-bearing deposits 74,128 73,792
Long-term debt 7,604 7,538
Guaranteed preferred beneficial interests 990 --
Common stockholders' equity 9,474 8,939
Total stockholders' equity $ 9,474 9,110
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(a) Quarterly amounts annualized.
(b) Based on net income.
(c) Based on net income applicable to common stockholders and average common
stockholders' equity excluding average net unrealized gains or losses on
debt and equity securities.
(d) 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, including
investment securities transactions.
1
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MANAGEMENT'S ANALYSIS OF OPERATIONS
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EARNINGS HIGHLIGHTS
First Union earned $471 million in net income applicable to common stockholders
in the first quarter of 1997, a 12 percent increase from operating earnings of
$420 million before merger-related restructuring charges in the first quarter of
1996.On a per common share basis, first quarter 1997 earnings were $1.67, an 11
percent increase from operating earnings of $1.50 in the first quarter of 1996.
First quarter 1996 earnings after merger-related restructuring charges were $239
million, or $.85 per share.
Key factors in the first quarter 1997 earnings growth compared with the first
quarter of 1996 were:
o 5 percent growth in tax-equivalent net interest income;
o 47 percent growth in noninterest, or fee, income (excluding investment
securities transactions); and
o Good expense control, reflected in an overhead efficiency ratio of 56
percent compared with 57 percent (excluding expenses related to the
issuance of certain capital securities and the merger-related restructuring
charges). More information on these capital securities is in the GUARANTEED
PREFERRED BENEFICIAL INTERESTS section.
Also included in the first quarter of 1997 were the results of three purchase
accounting acquisitions that closed in the fourth quarter of 1996.
Tax-equivalent net interest income was $1.3 billion in the first quarter of 1997
compared with $1.2 billion in the first quarter of 1996. First Union's strategic
decision to allocate more resources to lines of business that produce fee income
was apparent in the increase in noninterest, or fee, income (excluding
investment securities transactions) to $749 million in the first quarter of 1997
from $510 million in the first quarter of 1996.
Average net loans in the first quarter of 1997 were $94.6 billion compared with
$93.0 billion in the fourth quarter of 1996 and $89.3 billion in the first
quarter of 1996. Nonperforming assets at March 31, 1997, were $778 million, or
0.81 percent of net loans and foreclosed properties, compared with $763 million,
or 0.80 percent, at December 31, 1996, and $842 million, or 0.93 percent, at
March 31, 1996. Annualized net charge-offs were 0.61 percent in the first
quarter of 1997 compared with 0.75 percent in the fourth quarter of 1996 and
0.66 percent in the first quarter of 1996. Excluding net charge-offs related to
the credit card portfolio, first quarter 1997 annualized net charge-offs were
0.20 percent compared with 0.29 percent in the fourth quarter of 1996 and 0.45
percent in the first quarter of 1996. At March 31, 1997, the owned credit card
portfolio represented 5 percent of the total loan portfolio.
OUTLOOK
First Union will take advantage of the opportunity afforded by the Riegle-Neal
Interstate Banking and Branching Efficiency Act (discussed further in ACCOUNTING
AND REGULATORY MATTERS) to operate national banks across state lines by
consolidating our banks in phases during this year and during the first quarter
of 1998. This consolidation will not affect our management structure.
After consolidation, First Union National Bank will conduct commercial banking
operations throughout our regional marketplace. Regional offices will be
designated according to the state
in which operations are conducted (e.g., First Union-Florida, First
Union-Georgia, First Union-South Carolina, First Union-North Carolina, First
Union-Tennessee, First Union-Virginia/Maryland/D.C., and First Union-North
(including New Jersey, Pennsylvania, New York and Connecticut.)
2
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First Union will retain First Union Home Equity Bank, N.A., to provide home
equity loans and First Union Bank of Delaware for certain insurance powers. In
addition, we will establish a credit card bank in Georgia, First Union Direct
Bank, N.A., to house our credit card operations. We have also established a
trust bank in Delaware, First Union Trust Company, N.A., to provide
institutional asset and corporate trust services.
We believe this consolidation of banking entities will increase liquidity and
create a more efficient use of capital. The first phase will merge our banks in
Georgia, Florida and North Carolina in June 1997. The second phase will continue
the consolidation with South Carolina, Tennessee, Virginia, Maryland,
Washington, D.C., and Connecticut in July 1997. The final consolidation in the
rest of the northern part of our company is scheduled to occur in February 1998.
First Union continues to see growth in the revenue-enhancing lines of business
in which we have made discretionary investments over the past several years. We
believe First Union is well-prepared for the challenges of an increasingly
competitive environment with a diverse business mix. 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 delivery areas of our company. These higher growth business lines
diversify our revenue streams and complement our loan, deposit and other
products offered through our Consumer Bank and Commercial Bank. We have
redesigned our Consumer Bank and streamlined processes in our Commercial Bank to
improve customer service, increase sales and generate efficiencies. As a result,
we expect strong sales momentum in light of demographic trends and our entry
into new markets.
Our primary management attention is focused on leveraging our existing business
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 adverse changes 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 opportunities are evaluated as a part of our ongoing capital
allocation decision-making process. Decisions to pursue acquisitions will be
measured against our financial performance guidelines adopted in 1996 and other
financial objectives, including a projected 18-month recovery from any initial
dilution (excluding restructuring charges). Acquisition discussions and in some
cases negotiations also take place, and future acquisitions involving cash, debt
or equity securities may be expected.
The ACCOUNTING AND REGULATORY MATTERS section provides information about
legislative, accounting and regulatory matters that have recently been adopted
or proposed.
BUSINESS SEGMENTS
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BUSINESS FOCUS
First Union's operations are divided into four primary lines of business
encompassing more than 40 distinct product and service areas. These are Consumer
Banking, Capital Markets, Capital Management, including trust operations, and
the Commercial Bank. Additional information can be found in Table 2.
CONSUMER BANK
The Consumer Bank, our primary deposit-taking entity, provides an attractive
source of funding for the corporation's lending activities. The Consumer Bank
also originates secured and unse-
3
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cured consumer loans, first and second
residential mortgages, direct installment loans, credit cards, auto loans and
leases and student loans. The Consumer Bank includes the Customer Direct Access
Division (CDAD), First Union Home Equity Bank, N.A., and mortgage banking.
The Consumer Bank also is a major distribution or referral mechanism for
products from other business segments, including Capital Management products and
small business loans. Our full-service retail branch network is located in
Connecticut, Delaware, Florida, Georgia, Maryland, New Jersey, New York, North
Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C.
The Consumer Bank also encompasses remote and electronic distribution methods,
including direct access over the Internet, by telephone or by card product.
Average consumer loans at March 31, 1997, increased 9 percent on an annualized
basis from the fourth quarter of 1996, or 11 percent excluding a sale of certain
adjustable rate mortgages (ARMs). Key growth areas in the consumer portfolio
continue to be direct and home equity loans. With respect to the credit card
portfolio, and consistent with the rest of the industry, we experienced an
increase in personal bankruptcies, partially offset by a decrease in
contractually past due accounts. Credit cards and direct lending continue to be
the highest yielding portfolios.
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 for compliance with fair lending practices.
CDAD incorporates a range of customer access and distribution channels,
including those mentioned above as well as centralized, sophisticated customer
call centers. CDAD also includes card products such as credit cards, debit cards
and automated teller machine cards. The managed credit card portfolio was $6.9
billion at March 31, 1997, compared with $7.0 billion at December 31, 1996.
These amounts include $1.5 billion of securitized credit cards.
The Consumer Bank includes First Union Mortgage Corporation, which had a
mortgage servicing portfolio of $51.6 billion at March 31, 1997, compared with
$50.8 billion at December 31, 1996. Mortgage banking income increased to $50
million in the first three months of 1997 from $37 million in the first three
months of 1996. Mortgage banking operations are conducted across the nation.
CAPITAL MARKETS
Our Capital Markets Group provides investment banking products and services
including loan syndications, asset securitizations, public finance, municipal
and corporate debt underwriting and interest rate and currency risk management
products. Our primary focus is on serving our middle-market customers with a
complete selection of capital markets products. In addition Capital Markets at
First Union includes the lending activities of our U.S. Corporate Banking and
our Specialized Industries Groups, (including communications, health care and
insurance), and commercial leasing and international trade finance. The
International Division of the Capital Markets Group primarily provides
traditional trade finance and commercial banking to our customer base, and
capital markets products to U.S. subsidiaries of foreign corporations.
Capital Markets activities contributed noninterest income of $149 million in the
first quarter of 1997 compared with $89 million in the first quarter of 1996,
substantially all of which was included in sundry income. Key Capital Markets
growth areas in the first quarter of 1997 were risk management products,
international trade finance, merchant banking, and fixed income trading and
sales.
While Capital Markets is primarily a fee income business, the Capital Markets
Group also contributed $88 million in tax-equivalent net interest income in the
first quarter of 1997 compared with $77 million in the first quarter of 1996.
Average loans, net of $11.4 billion and average deposits of
4
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$3.6 billion in the
first quarter of 1997 were housed in the Specialized Industries, Leveraged
Finance and International divisions of the Capital Markets Group.
CAPITAL MANAGEMENT
Our Capital Management Group includes mutual funds; brokerage services;
personal, institutional and corporate trust; insurance; private banking;
financial planning; Individual Retirement Accounts (IRAs) and other asset
management businesses and products.
Capital Management results in the first quarter of 1997 included the full impact
of the purchase accounting acquisition of Keystone Investments, Inc., which
closed on December 11, 1996. Capital Management fee income increased in the
first quarter of 1997 to $203 million from $157 million in the fourth quarter of
1996 and $126 million in the first quarter of 1996. The largest component of
Capital Management fee income was trust fees, which increased to $81 million in
the first quarter of 1997 from $79 million in the fourth quarter of 1996, and
$71 million in the first quarter of 1996. Mutual fund fees increased to $58
million in the first quarter of 1997 from $24 million in the fourth quarter of
1996, and $19 million in the first quarter of 1996. Trust fee income and mutual
fund fee income both include money management fees applicable to trust customers
invested in the First Union-advised Evergreen Keystone families of mutual funds.
These money management fees were $7 million in the first quarter of 1997 and in
the fourth quarter of 1996 and $4 million in the first quarter of 1996.
Brokerage commissions increased to $36 million in the first quarter of 1997 from
$29 million in the fourth quarter of 1996, and $22 million in the first quarter
of 1996. Insurance commissions, which include annuities, increased to $24
million in the first quarter of 1997 from $22 million in the fourth quarter of
1996, and $10 million in the first quarter of 1996.
Capital Management assets under management, which include mutual funds and trust
services, increased at March 31, 1997, to $62.0 billion from $61.4 billion at
year-end 1996.
The Evergreen Keystone families of mutual funds, increased to $28.7 billion in
assets under management at March 31, 1997, from $27.1 billion at December 31,
1996.
While Capital Management is primarily a fee income business, the Capital
Management Group also contributed $9 million in tax-equivalent net interest
income in the first quarter of 1997. Average loans of $220 million and average
deposits of $1.2 billion in the first quarter of 1997 were housed in the Capital
Management Group, primarily in its Private Banking Group.
COMMERCIAL BANK
The Commercial Bank offers a variety of lending, commercial deposit and cash
management products and services to corporate, middle-market, commercial and
small business customers. 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. Average commercial loans at
March 31, 1997, were essentially flat with year-end 1996 and March 31, 1996.
The Commercial Bank's tax-equivalent interest income was $770 million in the
first quarter of 1997 compared with $769 million in the fourth quarter of 1996
and $762 million in the first quarter of 1996.
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
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of credit loss from
any single borrower or group of borrowers. A majority of our commercial loans
are for less than $10 million.
RESULTS OF OPERATIONS
INCOME STATEMENT REVIEW
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NET INTEREST INCOME
Tax-equivalent net interest income increased 5 percent to $1.3 billion in the
first quarter of 1997 from $1.2 billion in the first quarter of 1996. The
increase in net interest income was primarily the result of loan growth, an
improved net interest margin and the fourth quarter purchase accounting
acquisitions.
Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In the first quarter of 1997, $13
million in gross interest income would have been recorded if all nonaccrual and
restructured loans had been current in accordance with their original terms and
had been outstanding throughout the period, or since origination if held for
part of the period. The amount of interest income related to these assets and
included in income in the first quarter of 1997 was $1 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
4.37 percent in the first quarter of 1997 compared with 4.19 percent in the
first quarter of 1996 and 4.20 percent in the fourth quarter of 1996. The margin
increase in the first quarter of 1997 was primarily a result of a reduction in
lower-yielding assets and a lower cost of funds. In addition, the fourth quarter
1996 margin was suppressed by temporary factors such as higher year-end
borrowing costs. It should be noted that the margin is not our primary
management focus or goal. Our goal is to increase net interest income. The
average rate earned on earning assets was 8.19 percent in
the first quarter of 1997 and 8.02 percent in the first quarter of 1996. The
average rate paid on interest-bearing liabilities was 4.39 percent in the first
quarter of 1997 and 4.40 percent in the first quarter of 1996.
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, changing customer
demands and demographic shifts by making discretionary investments to enhance
revenue 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 47 percent growth in noninterest
income, excluding investment securities transactions, to $749 million in the
first quarter of 1997 from $510 million in the first quarter of 1996.
Virtually all categories of noninterest income increased in the first quarter of
1997 from the first quarter a year ago. Fee income from Capital Management and
Capital Markets activities made up nearly half of total noninterest income in
the first quarter of 1997. These two groups are discussed further in the
BUSINESS SEGMENTS section. A $60 million gain from the sale of the ARMs also was
reflected in the first quarter of 1997. Service fees on deposits rose 20 percent
from the first quarter of 1996, reflecting the fourth quarter 1996 purchase
accounting acquisitions and some seasonality.
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TRADING ACTIVITIES
Our Capital Markets Group also makes a key contribution to noninterest income
through trading profits. Trading profits were $26 million in the first quarter
of 1997 compared with $21 million in the first quarter of 1996. A decline in
trading profits from $50 million in the fourth quarter of 1996 was primarily
related to the timing of certain transactions. Trading account assets were $3.6
billion at March 31, 1997 compared with $3.9 billion at year-end 1996. 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 was $1.2 billion in the first quarter of 1997 compared with
$1.3 billion in the first quarter of 1996 (which included the merger-related
restructuring charges of $281 million pre-tax) and $1.1 billion in the fourth
quarter of 1996. The increase from the fourth quarter largely was the result of
the incremental impact of the fourth quarter purchase accounting acquisitions
and expenses associated with our capital securities issues. More information on
these capital securities is in the GUARANTEED PREFERRED BENEFICIAL INTERESTS
section.
The increases in various categories of noninterest expense reflect 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, and in technology and retail branch transformation. Our
overhead efficiency ratio continued to improve even as we increased our
discretionary investments. This ratio was 56 percent in the
first quarter of 1997, an improvement from 57 percent in the first quarter of
1996 and in the fourth quarter of 1996. These ratios exclude amounts related to
the capital securities issues and the merger-related restructuring charges.
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 March 31, 1997, we had $2.8
billion in other intangible assets compared with $2.4 billion at March 31,1996,
and $2.8 billion at December 31, 1996. Costs related to environmental matters
were not material.
BALANCE SHEET REVIEW
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SECURITIES AVAILABLE FOR SALE
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 $4 million in the first quarter of 1997
compared with $11 million in the fourth quarter of 1996 and $15 million in the
first quarter of 1996.
At March 31, 1997, we had securities available for sale with a market value of
$14.4 billion compared with $14.2 billion at year-end 1996. The market value of
securities available for sale was $196 million below amortized cost at March 31,
1997.
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The average rate earned on securities available for sale in the first quarter of
1997 was 6.64 percent compared with 6.54 percent in the first quarter of 1996.
The average maturity of the portfolio was 5.39 years at March 31, 1997.
INVESTMENT SECURITIES
The investment securities portfolio consists of U.S. Government agency,
corporate, municipal and mortgage-backed securities, and collateralized mortgage
obligations. Our investment securities amounted to $2.4 billion at March 31,
1997, and $2.5 billion at December 31, 1996.
The average rate earned on investment securities was 8.50 percent in the first
quarter of 1997 and 8.62 percent in the first quarter of 1996. The average
maturity of the portfolio was 6.24 years at March 31, 1997.
LOANS
The loan portfolio, which represents our largest asset class, 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 March 31, 1997, was composed of 44 percent in commercial
loans and 56 percent in consumer loans. The portfolio mix did not change
significantly from year-end 1996.
Net loans at March 31, 1997, were $95.5 billion compared with $95.9 billion at
December 31, 1996. The decline in period-end loans largely reflected the sale of
$1.1 billion in ARMs. Average net loans were $94.6 billion in the first quarter
of 1997 and $93.0 billion in the fourth quarter of 1996. The increase in
average loans was primarily attributable to fourth quarter 1996 purchase
accounting acquisitions and it was somewhat offset by the ARM sale.
At March 31, 1997, unused loan commitments related to commercial and consumer
loans were $27.4 billion and $21.9 billion, respectively. Commercial and standby
letters of credit were $5.1 billion at March 31, 1997. At March 31, 1997, loan
participations sold to other lenders amounted to $910 million. They were
recorded as a reduction of gross loans.
The average rate earned on loans was 8.63 percent in the first quarter of 1997
compared with 8.52 percent in the first quarter of 1996. The improvement in the
average rate on loans was achieved despite a general decrease in market rates
used to price loans. For example, the prime rate decreased to an average of 8.27
percent in the first quarter of 1997 from an average rate of 8.34 percent in the
first quarter of 1996. Factors contributing to the increase in the rate on loans
included a reduction in lower-yielding mortgage loans, the upward repricing of
credit cards loans, and growth in high-yielding leveraged leases. The reduction
in mortgage loans resulted from the sale of $1.1 billion of ARMs in the first
quarter of 1997 and our strategy to retain only a portion of mortgage loans we
originate. In addition natural runoff from our existing mortgage portfolio
exceeded the balance of loans we chose to retain. The improvement in the yield
on credit cards reflected the repricing of loans originated with lower
introductory rates and the targeted repricing of certain accounts to improve
overall profitability.
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
March 31, 1997, and December 31, 1996. This portfolio included commercial real
estate mortgage loans of $9.2 billion at March 31, 1997, compared with $9.5
billion at December 31, 1996.
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ASSET QUALITY
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NONPERFORMING ASSETS
At March 31, 1997, nonperforming assets were $778 million, or 0.81 percent of
net loans and foreclosed properties, compared with $763 million, or 0.80
percent, at December 31, 1996.
Loans or properties of less than $5 million each made up 84 percent, or $656
million, of nonperforming assets at March 31, 1997. Of the rest:
o 6 loans or properties between $5 million and $10 million each accounted for
$43 million; and
o 4 loans or properties over $10 million each accounted for $79 million.
Fifty-four percent of nonperforming assets were collateralized primarily by real
estate at March 31, 1997, and at year-end 1996.
PAST DUE LOANS
Accruing loans 90 days past due were $283 million at March 31,1997, compared
with $290 million at December 31, 1996. Of the past dues, $13 million were
related to commercial and commercial real estate loans and $270 million were
related to retail loans. At March 31, 1997, 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 was not significant.
NET CHARGE-OFFS
Net charge-offs amounted to $144 million in the first quarter of 1997 compared
with $174 million in the fourth quarter of 1996 and $148 million in the first
quarter of 1996. Annualized net charge-offs were 0.61 percent in the first
quarter of 1997 compared with 0.75 percent in the fourth quarter of 1996 and
0.66 percent in the first quarter of 1996. Excluding net charge-offs related to
the credit card portfolio, annualized first quarter 1997 net charge-offs were
0.20 percent compared with 0.29 percent in the fourth quarter of 1996 and 0.45
percent in the first quarter of 1996. At March 31, 1997, the owned credit card
portfolio represented 5 percent of the total loan portfolio.
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.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $145 million in the first quarter of 1997 compared
with $120 million in the fourth quarter of 1996 and $70 million in the first
quarter of 1996. 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
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$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 both March 31, 1997, and December 31, 1996.
At March 31, 1997, impaired loans, which are included in nonaccrual loans,
amounted to $338 million compared with $347 million at December 31, 1996. 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 at March
31, 1997, was $21 million related to $198 million of impaired loans. The
remaining impaired loans were recorded at or below fair value. In the first
quarter of 1997 the average recorded investment in impaired loans was $345
million, and $4 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 $11.8
billion commercial real estate portfolio at March 31, 1997, was located in our
East Coast banking region.
LIQUIDITY AND FUNDING SOURCES
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Liquidity planning and management are necessary to ensure we maintain the
ability to fund operations cost-effectively and to meet current and future
obligations 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, student, 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
$201 million at March 31, 1997.
CORE DEPOSITS
Core deposits are a fundamental and cost-effective funding source for any
banking institution. Core deposits include savings, negotiable order of
withdrawal (NOW), money market, noninterest-bearing and other consumer time
deposits. Core deposits were $88.5 billion at March 31, 1997, compared with
$90.1 billion at December 31, 1996. The decline largely reflected runoff that is
typical following acquisitions and customers' movement into investment products.
The portion of core deposits in higher-rate, other consumer time deposits was 34
percent at March 31, 1997, and 35 percent at year-end 1996. 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.
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Average core deposit balances were $87.5 billion in the first quarter of 1997
and $86.9 billion in the fourth quarter of 1996. In the first quarter of 1997
and fourth quarter of 1996, average noninterest-bearing deposits were 19 percent
and 20 percent, respectively, of average core deposits. Average balances in
savings and NOW, and other consumer time deposits were higher when compared with
the fourth quarter of 1996, while noninterest-bearing and 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 March 31, 1997, were $26.2 billion compared with $27.8
billion at year-end 1996. Average purchased funds in the first quarter of 1997
were $26.1 billion compared with $29.1 billion in the fourth quarter of 1996.
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.
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; and depreciation and amortization. This cash was
available in the first quarter of 1997 to increase earning assets or to reduce
borrowings as needed.
LONG-TERM DEBT
Long-term debt was 80 percent of total stockholders' equity at March 31, 1997,
compared with 77 percent at year-end 1996.
Under a shelf registration statement filed with the Securities and Exchange
Commission, we currently have available for issuance $640 million of senior or
subordinated debt securities. The sale of any additional debt securities will
depend on future market conditions, funding needs and other factors.
DEBT OBLIGATIONS
We have a $350 million, committed back-up line of credit that expires in
December 1998. This credit facility contains financial covenants that require
First Union to maintain a minimum level of tangible net worth, restrict double
leverage ratios and require capital levels at subsidiary banks to meet
regulatory standards. First Union has not used this line of credit. During 1997
$1.1 billion of long-term debt will mature, including bank notes of $572
million. Funds for the payment of long-term debt will come from operations or,
if necessary, additional borrowings.
GUARANTEED PREFERRED BENEFICIAL INTERESTS
In January 1997 we issued $495 million of trust capital securities. As a result,
$990 million of capital securities were outstanding as of March 31, 1997. A
subsidiary trust of the corporation issued these capital securities, and the
corporation receives the proceeds by issuing junior subordinated debentures to
the trust. These capital securities are considered tier 1 capital for regulatory
purposes. Expenses related to the issuance of capital securities is included in
sundry expense.
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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 March 31, 1997, total stockholders' equity was $9.5 billion compared with
$10.0 billion at December 31, 1996, and 280 million common shares were
outstanding compared with 287 million shares at December 31, 1996. In the first
quarter of 1997, we purchased 9.9 million shares of our common stock in the open
market at a cost of $836 million, pursuant to a standing board of directors'
authorization to repurchase up to 25 million shares of common stock.
We paid $166 million in dividends to common stockholders in the first quarter of
1997.
At March 31, 1997, stockholders' equity was reduced by a $132 million unrealized
after-tax loss related to debt and equity securities. The SECURITIES AVAILABLE
FOR SALE section provides additional information about debt and equity
securities.
SUBSIDIARY DIVIDENDS
Our banking subsidiaries are the largest source of parent company dividends.
Capital requirements established by regulators limit dividends that these and
certain other of our subsidiaries can pay. 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 $395
million available for dividends at March 31, 1997, without prior regulatory
approval. Our subsidiaries paid $177 million in dividends to the parent
corporation in the first quarter of 1997.
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
March 31, 1997, the tier 1 and total capital ratios were 7.28 percent and 12.24
percent, respectively, compared with 7.33 percent and 12.33 percent at December
31, 1996.
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 March 31, 1997, and 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. 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
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Board has not advised us of any specific minimum leverage ratio
applicable to us.
Each subsidiary bank is subject to similar capital requirements. 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 March 31, 1997, our deposit-taking subsidiary
banks 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. The OUTLOOK and the ACCOUNTING
AND REGULATORY MATTERS Sections provide additional information about the
consolidation of our state banks.
INTEREST RATE RISK MANAGEMENT
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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
of the corporation 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 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. 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 estimate. Our policy limit for
the maximum negative impact on earnings per share resulting from high rate or
low rate scenarios is 5 percent. The policy measurement period begins with the
fourth month forward and ends with the 15th month (i.e., a 12-month period).
Our April 1997 estimate for future short-term interest rates includes an average
federal funds rate rising from 5.58 percent in April 1997 to 5.93 percent by
December 1997, then declining to 5.79 percent by June 1998. Based on the April
1997 outlook, if interest rates were to rise 100 basis points above the
estimated short-term rate scenarios (i.e. follow the high rate scenario), the
model indicates that earnings during the policy measurement period would be
negatively affected by 4.0 percent. Our model indicates that earnings would
benefit by 3.8 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 and time periods. These alternate
"what-if" scenarios may include interest rate paths both
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higher, lower and more
volatile than those used for policy measurement and extend to periods beyond the
policy measurement period.
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.
Despite significant year-to-year fluctuations in the market value of both on-
and off-balance sheet positions and related fluctuations in 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 depreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $84 million at
March 31, 1997, compared with fair value appreciation of $188 million at
December 31, 1996.
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 $25
million, respectively, at March 31, 1997. 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.
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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
used in our Asset/Liability Management activities. 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 they are
bilateral. As of March 31, 1997, the total credit risk in excess of thresholds
was $77 million. The fair value of collateral held was 118 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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Statement of Financial Accounting Standards No. 128,"Earnings per Share,"
establishes standards for computing and presenting earnings per share ("EPS").
This Standard replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the statement of income for entities with complex capital structures,
and it requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution, and it is computed by dividing net income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.
This Standard is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This Standard requires restatement of all prior-period EPS data
presented. Currently, the difference between the Corporation's basic and fully
diluted EPS is less than three percent.
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.
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 corporation adopted the appropriate provisions of the
Standard on January 1, 1997, and they have not been material. The effect of the
adoption of the remainder of the provisions on January 1, 1998, is not expected
to be material to the corporation.
15
<PAGE>
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. Information about
First Union's consolidation under this legislation is in the OUTLOOK section.
Various other legislative and accounting proposals concerning the banking
industry are pending in Congress and with the Financial Accounting Standards
Board, respectively. Given the uncertainty of the proposal process, we cannot
assess the impact of any such proposals on our financial condition or results of
operations.
16
<PAGE>
<TABLE>
<CAPTION>
Table 1
CONSOLIDATED SUMMARIES OF INCOME, PER COMMON SHARE AND BALANCE SHEET DATA
- - ----------------------------------------------------------------------------------------------------------------------------------
Twelve 1997 1996
Months ---------- ------------------------------------------------
Ended
Mar. 31, FIRST Fourth Third Second First
(In millions, except per share data) 1997 QUARTER Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income $ 9,707 2,418 2,435 2,423 2,431 2,339
- - ----------------------------------------------------------------------------------------------------------------------------------
Interest income (a) $ 9,782 2,434 2,452 2,440 2,456 2,364
Interest expense 4,636 1,131 1,180 1,158 1,167 1,127
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 5,146 1,303 1,272 1,282 1,289 1,237
Provision for loan losses 450 145 120 105 80 70
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses (a) 4,696 1,158 1,152 1,177 1,209 1,167
Securities available for sale transactions 20 4 11 2 3 15
Investment security transactions 3 - 1 - 2 1
Noninterest income 2,561 749 673 598 541 510
Merger-related restructuring charges (b) - - - - - 281
SAIF special assessment (c) 133 - - 133 - -
Noninterest expense 4,412 1,169 1,113 1,078 1,052 1,011
- - ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (a) 2,735 742 724 566 703 401
Income taxes 933 255 247 192 239 133
Tax-equivalent adjustment 75 16 17 17 25 25
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income 1,727 471 460 357 439 243
Dividends on preferred stock 5 - 1 1 3 4
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 1,722 471 459 356 436 239
- - ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $ 6.17 1.67 1.66 1.29 1.55 0.85
Cash dividends $ 2.26 0.58 0.58 0.58 0.52 0.52
Average common shares (In thousands) - 282,553 278,298 274,001 282,576 280,374
Average common stockholders' equity (d)
Quarter-to-date $ - 9,761 9,314 8,905 9,167 8,930
Year-to-date - 9,761 9,079 9,000 9,049 8,930
Common stock price
High 95 5/8 95 5/8 77 67 7/8 64 5/8 62 7/8
Low 57 1/2 73 3/8 67 61 1/8 57 1/2 51 1/2
Period-end $ 81 1/8 81 1/8 74 66 3/4 60 7/8 60 3/8
To earnings ratio (e) 13.15X 13.15 13.83 13.68 12.30 12.85
To book value 240 % 240 212 209 188 190
Book value $ 33.86 33.86 34.83 31.94 32.46 31.80
BALANCE SHEET DATA
Assets 136,730 136,730 140,127 133,882 139,886 130,581
Long-term debt $ 7,604 7,604 7,660 7,332 7,807 7,538
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Tax-equivalent.
(b) Merger-related restructuring charges amounted to $181 million after tax in
the first quarter of 1996.
(c) The SAIF special assessment amounted to $86 million after tax in the third
quarter of 1996.
(d) Quarter-to-date and year-to-date average common stockholders' equity
excludes average net unrealized gains or losses on debt and equity
securities.
(e) Based on net income applicable to common stockholders.
T-1
<PAGE>
<TABLE>
<CAPTION>
Table 2
SELECTED LINES OF BUSINESS (a)
- - ------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 1997
------------------------------------------------------------------------------
First
Customer Union
Direct Home Other
Access Equity Consumer Mortgage Capital Capital
(In millions) Division Bank Banking Banking Mgt. Markets
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income (b) $ 247 89 453 487 29 543
Interest expense 92 61 275 441 20 455
Noninterest income 43 7 6 50 203 149
- - ------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Net charge-offs 99 2 29 6 - (2)
Average loans, net 5,448 3,738 19,534 25,216 220 11,413
Nonperforming assets 22 15 94 214 - 79
Average deposits - - - - 1,162 3,623
Assets under care - - - - 159,624 -
Assets under management - - - - 61,976 -
Residential loans serviced $ - - - 51,561 - -
- - ------------------------------------------------------------------------------------------------------------------------
</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-2
<PAGE>
<TABLE>
<CAPTION>
Table 3
INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
- - -------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ------------------------------------------------
FIRST Fourth Third Second First
QUARTER Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERNAL CAPITAL GROWTH (a)
Assets to stockholders' equity 13.90X 14.60 15.08 14.80 14.20
X
Return on assets 1.42% 1.35 1.06 1.30 0.75
- - ---------------------------------------------------------------------------------------------------------------------------------
Return on total stockholders' equity (b) 19.58% 19.59 15.83 18.94 10.72
X
Earnings retained 65.27% 64.61 55.78 65.91 38.09
- - ---------------------------------------------------------------------------------------------------------------------------------
Internal capital growth (b) 12.78% 12.66 8.83 12.48 4.08
- - ---------------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIOS ON
Operating earnings
Common shares 34.73% 34.94 36.25 33.55 34.67
Preferred and common shares 34.73% 35.39 35.65 34.09 35.47
Net income
Common shares 34.73% 34.94 44.96 33.55 61.18
Preferred and common shares 34.73% 35.39 44.22 34.09 61.91
- - ---------------------------------------------------------------------------------------------------------------------------------
Return on common stockholders'
equity (b) (c) 19.58% 19.63 15.91 19.11 10.76
- - ---------------------------------------------------------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
Table 4
SELECTED QUARTERLY DATA
- - -------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ------------------------------------------------
FIRST Fourth Third Second First
(Dollars in millions) QUARTER Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST UNION MORTGAGE CORPORATION
PERMANENT LOAN ORIGINATIONS
Residential
Direct (a) $ 838 855 883 1,296 946
Wholesale 780 356 - 1 42
- - -------------------------------------------------------------------------------------------------------------------------
Total $ 1,618 1,211 883 1,297 988
- - -------------------------------------------------------------------------------------------------------------------------
VOLUME OF RESIDENTIAL
LOANS SERVICED $ 51,561 50,762 46,370 49,321 49,900
- - -------------------------------------------------------------------------------------------------------------------------
FIRST UNION CORPORATION
OTHER DATA
ATMs 2,441 2,429 2,313 2,119 2,142
Employees 44,450 44,333 45,116 45,353 44,968
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes originations of affiliated banks.
T-3
<PAGE>
<TABLE>
<CAPTION>
Table 5
SECURITIES AVAILABLE FOR SALE
- - ---------------------------------------------------------------------------------------------------------------------------------
March 31, 1997
----------------------------------------------------------------------------------------------
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>
MARKET VALUE
U.S. Treasury $ 14 1,735 586 2 2,337 - 40 2,377 4.18
U.S. Government agencies - 2,080 6,971 25 9,076 (11) 168 9,233 5.89
CMOs 68 826 - - 894 (7) 19 906 3.62
State, county and municipal - - 11 47 58 - - 58 18.31
Other 59 948 117 922 2,046 (31) 18 2,033 4.60
- - -------------------------------------------------------------------------------------------------------------------------
Total $ 141 5,589 7,685 996 14,411 (49) 245 14,607 5.39
- - ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 141 5,589 7,685 123 13,538 (29) 245 13,754
Sundry securities - - - 873 873 (20) - 853
- - -------------------------------------------------------------------------------------------------------------------------
Total $ 141 5,589 7,685 996 14,411 (49) 245 14,607
- - -------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 144 5,641 7,834 135 13,754
Sundry securities - - - 853 853
- - -------------------------------------------------------------------------------------------
Total $ 144 5,641 7,834 988 14,607
- - -------------------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Treasury 5.84 % 5.81 7.04 7.89 6.12
U.S. Government agencies - 6.94 6.72 8.04 6.78
CMOs 7.39 7.36 - - 7.36
State, county and municipal - - 5.99 5.75 5.80
Other 7.09 6.10 7.43 5.20 5.80
Consolidated 7.11 % 6.51 6.76 5.30 6.57
- - -------------------------------------------------------------------------------------------
</TABLE>
Included in "U.S. Government agencies" and "Other" at March 31, 1997, 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 March 31, 1997, these securities had a weighted average maturity of
3.42 years and a weighted average yield of 5.65 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 7.42
percent based on a weighted average funding cost differential of (1.77) 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 March 31, 1997. 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 7.5 percent
in North Carolina; 5.5 percent in Florida; 4.5 percent in South Carolina; 6
percent in Georgia and Tennessee; 7 percent in Maryland; 9.975 percent in
Washington, D.C.; 4.87 percent in Delaware; 6.5 percent in New Jersey; and 10.5
percent in Connecticut.
There were commitments to purchase securities at a cost of $55 million that had
a market value of $54 million at March 31, 1997. There were no commitments to
sell securities at March 31, 1997. 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 for the three months ended March 31, 1997, were $15 million
and $11 million, respectively. There were no gains or losses on sundry
securities.
T-4
<PAGE>
<TABLE>
<CAPTION>
Table 6
INVESTMENT SECURITIES
- - -----------------------------------------------------------------------------------------------------------------------------------
March 31, 1997
------------------------------------------------------------------------------------------------
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 $ - 231 790 19 1,040 18 (7) 1,051 5.90
CMOs 159 294 - - 453 5 (1) 457 2.15
State, county and municipal 50 220 144 368 782 97 (1) 878 8.62
Other 1 11 9 112 133 3 - 136 11.31
- - ------------------------------------------------------------------------------------------------------------------------
Total $ 210 756 943 499 2,408 123 (9) 2,522 6.24
- - -------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
Debt securities $ 210 756 943 432 2,341 123 (9) 2,455
Sundry securities - - - 67 67 - - 67
- - ------------------------------------------------------------------------------------------------------------------------
Total $ 210 756 943 499 2,408 123 (9) 2,522
- - ------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
Debt securities $ 211 776 967 501 2,455
Sundry securities - - - 67 67
- - ----------------------------------------------------------------------------------------
Total $ 211 776 967 568 2,522
- - ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE YIELD
U.S. Government agencies -% 7.52 7.66 7.33 7.62
CMOs 6.93 7.97 - - 7.61
State, county and municipal 10.12 10.65 10.83 11.37 10.98
Other 7.79 7.70 7.76 7.25 7.32
Consolidated 7.69% 8.61 8.15 10.29 8.69
- - ----------------------------------------------------------------------------------------
</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 March 31, 1997.
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 7.5 percent
in North Carolina; 5.5 percent in Florida; 4.5 percent in South Carolina; 6
percent in Georgia and Tennessee; 7 percent in Maryland; 9.975 percent in
Washington, D.C.; 4.87 percent in Delaware; 6.5 percent in New Jersey; and 10.5
percent in Connecticut.
There were no commitments to purchase or sell investment securities at March 31,
1997. There were no gains or losses realized on repurchase agreement
underdeliveries and calls of investment securities for the three months ended
March 31, 1997.
T-5
<PAGE>
<TABLE>
<CAPTION>
Table 7
LOANS
- - ---------------------------------------------------------------------------------------------------------------
1997 1996
---------- ------------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Commercial, financial and agricultural $ 24,357 23,639 23,791 23,267 23,317
Real estate - construction and other 2,600 2,674 2,832 2,860 2,599
Real estate - mortgage 9,245 9,504 9,456 9,534 9,734
Lease financing 5,464 4,852 4,255 3,954 3,599
Foreign 1,089 1,085 925 713 763
- - ---------------------------------------------------------------------------------------------------------------
Total commercial 42,755 41,754 41,259 40,328 40,012
- - ---------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 27,144 28,683 26,603 27,229 27,204
Installment loans - Bankcard (a) 5,387 5,551 5,450 5,000 4,037
Installment loans - other 19,001 18,596 17,964 17,625 17,598
Vehicle leasing 3,704 3,480 3,118 2,939 2,768
- - ---------------------------------------------------------------------------------------------------------------
Total retail 55,236 56,310 53,135 52,793 51,607
- - ---------------------------------------------------------------------------------------------------------------
Total loans 97,991 98,064 94,394 93,121 91,619
- - ---------------------------------------------------------------------------------------------------------------
UNEARNED INCOME
Loans 511 488 440 432 436
Lease financing 1,993 1,718 1,434 1,350 1,193
- - ---------------------------------------------------------------------------------------------------------------
Total unearned income 2,504 2,206 1,874 1,782 1,629
- - ---------------------------------------------------------------------------------------------------------------
Loans, net $ 95,487 95,858 92,520 91,339 89,990
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Installment loans - Bankcard include credit card, ICR, signature and First
Choice amounts.
T-6
<PAGE>
<TABLE>
<CAPTION>
Table 8
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- - -----------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- -------------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of quarter $ 1,365 1,377 1,416 1,436 1,508
Provision for loan losses 145 120 105 80 70
Allowance of loans acquired or sold, net - 42 - 2 6
Loan losses, net (144) (174) (144) (102) (148)
- - ---------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter $ 1,366 1,365 1,377 1,416 1,436
- - ---------------------------------------------------------------------------------------------------------------------------
(as a % of loans, net) 1.43 % 1.42 1.49 1.55 1.60
- - ---------------------------------------------------------------------------------------------------------------------------
(as a % of nonaccrual and restructured loans) 199 % 204 188 195 197
- - ---------------------------------------------------------------------------------------------------------------------------
(as a % of nonperforming assets) 175 % 179 167 169 171
- - ---------------------------------------------------------------------------------------------------------------------------
LOAN LOSSES
Commercial, financial and agricultural $ 13 31 25 23 65
Real estate - construction and other 1 1 1 - 4
Real estate - mortgage 14 12 15 33 13
Installment loans - Bankcard 105 93 97 68 55
Installment loans - Bankcard special adjustment (a) - 34 - - -
Installment loans - other and Vehicle leasing 36 41 38 38 35
- - ---------------------------------------------------------------------------------------------------------------------------
Total 169 212 176 162 172
- - ---------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 11 12 9 42 12
Real estate - construction and other - 2 - - 1
Real estate - mortgage 1 2 2 7 2
Installment loans - Bankcard 6 15 13 3 2
Installment loans - other and Vehicle leasing 7 7 8 8 7
- - ---------------------------------------------------------------------------------------------------------------------------
Total 25 38 32 60 24
- - ---------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 144 174 144 102 148
- - ---------------------------------------------------------------------------------------------------------------------------
(as % of average loans, net) (b) 0.61 % 0.75 0.64 0.45 0.66
- - ---------------------------------------------------------------------------------------------------------------------------
(as % of average loans, net, excluding Bankcard) (b) 0.20 % 0.29 0.28 0.17 0.45
- - ---------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 221 218 294 311 330
Commercial real estate loans 111 118 137 156 157
Consumer real estate loans 214 199 186 163 133
Installment loans 128 120 110 92 107
- - ---------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 674 655 727 722 727
Restructured loans 11 14 3 4 1
Foreclosed properties 93 94 95 110 114
- - ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 778 763 825 836 842
- - ---------------------------------------------------------------------------------------------------------------------------
(as % of loans, net and foreclosed properties) 0.81 % 0.80 0.89 0.91 0.93
- - ---------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days $ 283 290 291 272 275
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Installment loans - Bankcard includes a fourth quarter 1996 one-time
charge-off related to an anticipated regulatory change which would reduce
the period delinquent loans could be held before charge-off.
(b) Annualized.
Any loans classified by regulatory examiners as loss, doubtful, substandard or
special mention that have not been disclosed herein or under the "Loans" or
"Asset Quality" narrative discussions do not (i) represent or result from trends
or uncertainties that management expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information that causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
T-7
<PAGE>
<TABLE>
<CAPTION>
Table 9
INTANGIBLE ASSETS
- - -------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ------------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE SERVICING ASSETS $ 234 199 134 150 147
- - -------------------------------------------------------------------------------------------------------------------
CREDIT CARD PREMIUM $ 32 35 38 42 45
- - -------------------------------------------------------------------------------------------------------------------
OTHER INTANGIBLE ASSETS
Goodwill $ 2,308 2,359 1,867 1,919 1,912
Deposit base premium 510 479 500 530 514
Other 9 11 12 12 9
- - -------------------------------------------------------------------------------------------------------------------
Total $ 2,827 2,849 2,379 2,461 2,435
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 10
FORECLOSED PROPERTIES
- - --------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- --------------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Foreclosed properties $ 110 111 112 130 136
- - --------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, beginning of quarter 17 17 20 22 25
Provision for foreclosed properties - 2 - (2) (1)
Dispositions, net - (2) (3) - (2)
- - --------------------------------------------------------------------------------------------------------------------------------
Allowance for foreclosed properties, end of quarter 17 17 17 20 22
- - --------------------------------------------------------------------------------------------------------------------------------
Foreclosed properties, net $ 93 94 95 110 114
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 11
DEPOSITS
- - -------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ------------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 18,275 18,632 18,008 16,831 16,726
Savings and NOW accounts 27,097 26,693 25,009 25,492 25,149
Money market accounts 13,061 13,468 13,019 12,843 13,149
Other consumer time 30,114 31,284 30,086 31,079 31,179
- - -------------------------------------------------------------------------------------------------------------------------
Total core deposits 88,547 90,077 86,122 86,245 86,203
Foreign 866 1,854 2,303 2,232 1,439
Other time 2,990 2,884 3,019 2,976 2,876
- - -------------------------------------------------------------------------------------------------------------------------
Total deposits $ 92,403 94,815 91,444 91,453 90,518
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Table 12
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
- - ------------------------------------------------------------------------------
March 31, 1997
----------------------
Time Other
(In millions) Certificates Time
- - ------------------------------------------------------------------------------
MATURITY OF
3 months or less $ 3,216 -
Over 3 months through 6 months 1,456 -
Over 6 months through 12 months 1,265 -
Over 12 months 1,182 -
- - -------------------------------------------------------------------------------
Total $ 7,119 -
- - -------------------------------------------------------------------------------
T-8
<PAGE>
<TABLE>
<CAPTION>
Table 13
LONG-TERM DEBT
- - ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- -----------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEBENTURES AND NOTES ISSUED BY THE PARENT COMPANY
7-1/2% debentures due 2002 $ 16 16 16 16 16
Floating rate extendible notes due 2005 10 10 10 10 10
11% notes - - - - 18
6-3/4% notes due 1998 250 250 249 249 249
Floating rate notes due 1998 300 300 300 300 300
Fixed rate medium-term subordinated notes, varying
rates and terms to 2001 54 54 54 54 54
Floating rate subordinated notes due 2003 149 149 149 149 149
11% subordinated and variable rate notes - - - - 18
8-1/8% subordinated notes - - 100 100 100
9.45% subordinated notes due 1999 249 249 249 249 250
9.45% subordinated notes due 2001 148 148 148 148 148
8-1/8% subordinated notes due 2002 249 249 249 249 249
8% subordinated notes due 2002 224 224 223 223 223
7-1/4% subordinated notes due 2003 149 149 149 149 149
6-5/8% subordinated notes due 2005 248 248 248 248 248
6% subordinated notes due 2008 198 197 197 197 197
6-3/8% subordinated notes due 2009 148 148 148 148 148
8% subordinated notes due 2009 149 149 149 149 149
8.77% subordinated notes due 2004 149 149 149 149 149
7.05% subordinated notes due 2005 248 248 248 248 248
6-7/8% subordinated notes due 2005 249 249 249 248 248
7% subordinated notes due 2006 198 198 198 198 198
7.18% subordinated notes due 2011 59 59 59 59 59
7-1/2% subordinated notes due 2006 297 297 297 - -
7-1/2% subordinated debentures due 2035 246 246 246 246 246
6.55% subordinated debentures due 2035 249 249 249 249 249
6.824%/7.574% subordinated debentures due 2026 298 298 298 - -
- - ------------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes issued by the Parent Company 4,534 4,533 4,631 4,035 4,072
- - ------------------------------------------------------------------------------------------------------------------------------------
DEBENTURES AND NOTES OF SUBSIDIARIES
Floating rate senior notes - - - 200 200
Debentures and notes with varying rates and terms to 2015 64 65 39 41 43
9-3/4% senior notes due 2003 156 158 - - -
Subordinated bank notes with varying rates and terms to 2036 1,222 1,247 997 1,537 1,465
6.80% subordinated notes due 2003 149 149 149 149 150
9-5/8% subordinated notes due 1999 149 149 150 150 150
Floating rate subordinated notes due 1997 - 25 25 25 25
8-1/2% subordinated notes due 1998 149 149 149 149 149
9-7/8% subordinated capital notes due 1999 75 75 75 75 75
9-5/8% subordinated capital notes due 1999 74 74 75 75 75
10-1/2% collateralized mortgage obligations due 2014 35 37 40 46 46
- - ------------------------------------------------------------------------------------------------------------------------------------
Total debentures and notes of subsidiaries 2,073 2,128 1,699 2,447 2,378
- - -----------------------------------------------------------------------------------------------------------------------------------
OTHER DEBT
Notes payable to FDIC - - - 47 51
Advances from the Federal Home Loan Bank 930 930 933 1,208 958
Mortgage notes and other debt 43 44 45 45 54
Capitalized leases 24 25 24 25 25
- - ----------------------------------------------------------------------------------------------------------------------------------
Total other debt 997 999 1,002 1,325 1,088
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 7,604 7,660 7,332 7,807 7,538
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-9
<PAGE>
<TABLE>
<CAPTION>
Table 14
CHANGES IN STOCKHOLDERS' EQUITY
- - ----------------------------------------------------------------------------------------------------------------------------------
Twelve 1997 1996
Months ----------- ---------------------------------------------
Ended
Mar. 31, FIRST Fourth Third Second First
(In millions) 1997 QUARTER Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 9,110 10,008 8,689 9,316 9,110 9,043
Net income 1,727 471 460 357 439 243
Redemption of preferred stock (109) - - (109) - -
Purchase of common stock (1,767) (836) (36) (816) (79) (37)
Common stock issued for stock options exercised 323 101 87 41 94 25
Common stock issued through dividend
reinvestment plan 32 11 1 11 9 11
Common stock issued for purchase accounting
acquisitions 888 4 884 - - 124
Cash dividends paid on
Preferred stock (5) - (1) (1) (3) (4)
Common stock (632) (166) (162) (157) (147) (145)
Unrealized gain (loss) on debt and
equity securities (93) (119) 86 47 (107) (150)
- - ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 9,474 9,474 10,008 8,689 9,316 9,110
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-10
<PAGE>
<TABLE>
<CAPTION>
Table 15
CAPITAL RATIOS
- - -----------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- --------------------------------------------------
FIRST Fourth Third Second First
(In millions) QUARTER Quarter Quarter Quarter Quarter
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS (a)
Qualifying capital
Tier 1 capital $ 7,752 7,633 6,414 7,020 6,749
Total capital 13,027 12,842 10,996 11,792 11,479
Adjusted risk-based assets 106,451 104,126 100,508 98,786 96,358
Adjusted leverage ratio assets $ 126,465 124,419 122,759 125,440 121,385
Ratios
Tier 1 capital 7.28% 7.33 6.38 7.11 7.00
Total capital 12.24 12.33 10.94 11.94 11.91
Leverage 6.13 6.13 5.23 5.60 5.56
Stockholders' equity to assets
Quarter-end 6.93 7.14 6.49 6.66 6.98
Average 7.20% 6.85 6.63 6.76 7.04
- - --------------------------------------------------------------------------------------------------------------------------
BANK CAPITAL RATIOS (b)
Tier 1 capital
First Union National Bank of North Carolina 6.51% 6.43 6.32 6.66 6.60
First Union National Bank 9.45 8.98 11.75 10.69 10.01
First Union Bank of Delaware 13.86 13.61 15.39 13.98 22.84
First Union Home Equity Bank 8.27 8.40 8.02 7.61 7.08
Total capital
First Union National Bank of North Carolina 10.11 10.20 10.03 10.71 10.55
First Union National Bank 12.45 12.22 13.56 12.56 11.87
First Union Bank of Delaware 15.11 14.87 16.65 15.28 24.12
First Union Home Equity Bank 10.87 10.77 10.47 9.91 9.46
Leverage
First Union National Bank of North Carolina 6.15 5.95 5.98 5.80 5.64
First Union National Bank 7.59 7.06 9.04 8.09 7.59
First Union Bank of Delaware 11.43 10.60 12.07 11.02 19.91
First Union Home Equity Bank 7.42% 7.84 7.14 6.71 6.53
- - --------------------------------------------------------------------------------------------------------------------------
</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.
(b) By the end of 1997, it is anticipated that all First Union bank
affiliates will be merged into First Union National Bank of North
Carolina, except those included herein. Accordingly, historical
information related to such affiliates is not presented, and historical
ratios for First Union National Bank of North Carolina are not restated.
T-11
<PAGE>
<TABLE>
<CAPTION>
Table 16
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- - ------------------------------------------------------------------------------------------------------------------------------------
Weighted
Average Rate Estimated
----------------------------------------
March 31, 1997 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 $18,628 6.37 % 5.57 % 1.75 Converts floating rate loans to fixed
Carrying amount $ 86 rate. Adds to liability sensitivity.
Unrealized gross gain 19 Similar characteristics to a fixed
Unrealized gross loss (67) income security funded with variable rate
liabilities. Includes $3.7 billion of indexed
amortizing swaps, with $248 million maturing
within 1 year and $3.5 billion within 4 years.
--------
Total 38
- - ----------------------------------- ---------
Total asset rate
conversions $18,628 6.37 % 5.57 % 1.75 $ 38
- - -------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Interest rate swaps $ 7,087 6.96 % 5.81 % 9.62 Converts $4.2 billion of fixed rate
Carrying amount $ 9 long-term debt to floating rate by
Unrealized gross gain 39 matching the terms of the swap
Unrealized gross loss (163) to the debt issue. Rate sensitivity
remains unchanged due to the direct linkage of the
swap to the debt issue. Also converts $898 million
of fixed rate CDs to variable rate, $954 million
of fixed rate bank notes to floating rate and $1.0
billion of fixed rate mezzanine debt to variable
rate.
---------
Total (115)
---------
Other financial instruments 150 4.00 - 6.31 $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 $ 7,237 6.90 % 5.81 % 9.55 $ (115)
- - -------------------------------------------------------------------------------
</TABLE>
T-12
<PAGE>
<TABLE>
<CAPTION>
Table 16
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- - ----------------------------------------------------------------------------------------------------------------------------------
Weighted
Average Rate Estimated
-------------------------------------------------------------------------------------
March 31, 1997 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 $ 5,055 - % 6.37 % 0.22 Paid a premium for the right to lock
Carrying amount $ 3 in the 3 month LIBOR reset rates on
Unrealized gross gain - pay variable rate swaps. $5.1
Unrealized gross loss (3) billion effective June 1997.
----------
Total -
----------
Interest rate caps 168 5.56 7.03 2.46 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 4,187 - 5.82 0.22 Locks in 3 month LIBOR reset rates
Carrying amount - on pay variable rate swaps. $4.2
Unrealized gross gain 2 billion effective June 1997.
Unrealized gross loss -
----------
Total 2
----------
CMT floor 100 6.42 6.37 4.09 First Union Mortgage Corporation
Carrying amount 1 paid a premium for a CMT floor in
Unrealized gross gain - order to offset the decline in value of
Unrealized gross loss - mortgage servicing in a falling rate
environment.
----------
Total 1
----------
Long eurodollar futures 12,477 6.37 - 1.13 Converts floating rate LIBOR-based
Carrying amount - loans to fixed rate. Adds to liability
Unrealized gross gain - sensitivity. Similar characteristics to
Unrealized gross loss (11) fixed income security funded with
variable rate liabilities. $2.5 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 (11)
- - --------------------------------------------- ----------
Total rate
sensitivity hedges $21,987 6.36 % 6.14 % 0.77 $ (7)
- - -------------------------------------------------------------------------------
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Estimated maturity approximates duration except for 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 March 31, 1997. 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-13
<PAGE>
<TABLE>
<CAPTION>
Table 17
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a)
- - -------------------------------------------------------------------------------------------------------------------------------
March 31, 1997 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 $ 9,945 975 7,708 - - 18,628
Weighted average receive rate 6.27% 5.28 6.63 - - 6.37
Estimated fair value $ 41 (8) 5 - - 38
- - -------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount $ 1,272 186 444 3,775 1,560 7,237
Weighted average receive rate 6.31% 5.52 7.59 6.90 7.34 6.90
Estimated fair value $ 4 (2) 13 (59) (71) (115)
- - -------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount $ 15,739 5,055 1,193 - - 21,987
Weighted average receive rate 6.13% - 6.55 - - 6.36
Estimated fair value $ (5) (3) 1 - - (7)
- - -------------------------------------------------------------------------------------------------------------------------------
</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 16.
T-14
<PAGE>
<TABLE>
<CAPTION>
Table 18
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a)
- - ------------------------------------------------------------------------------------------------------------------------
Asset Liability Rate
Rate Rate Asset Sensitivity
(In millions) Conversions Conversions Hedges Hedges Total
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 19,796 6,430 662 42,558 69,446
Additions - 1,000 - 6,098 7,098
Maturities/Amortizations (1,168) (193) (662) (24,596) (26,619)
Terminations - - - (2,073) (2,073)
----------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $ 18,628 7,237 - 21,987 47,852
- - ------------------------------------------------------------------------------------------------------------------------
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
</TABLE>
T-15
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- - -----------------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1997 FOURTH QUARTER 1996
-------------------------------------------------------------------
Average Average
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
(Dollars in millions) Balances Expense Paid Balances Expense Paid
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 229 2 4.18% $ 127 2 5.83%
Federal funds sold and securities
purchased under resale agreements 5,297 73 5.61 6,947 92 5.32
Trading account assets (a) 3,107 50 6.51 4,190 73 6.87
Securities available for sale (a) 14,019 232 6.64 14,257 238 6.68
Investment securities (a)
U.S. Government and other 1,646 30 7.37 1,668 33 7.70
State, county and municipal 787 22 10.87 823 22 10.67
--------------------
- - -----------------------------------------------------------------------
Total investment securities 2,433 52 8.50 2,491 55 8.68
- - ------------------------------------------------------------------------- ----------------------
Loans (a) (b)
Commercial
Commercial, financial and agricultural 23,391 437 7.57 23,326 445 7.59
Real estate - construction and other 2,642 55 8.44 2,723 57 8.33
Real estate - mortgage 9,393 195 8.40 9,522 202 8.41
Lease financing 2,502 68 10.87 2,071 51 10.01
Foreign 1,022 15 6.16 907 14 6.16
--------------------
- - --------------------------------------------------------------------- --
Total commercial 38,950 770 8.01 38,549 769 7.94
- - ------------------------------------------------------------------------- ----------------------
Retail
Real estate - mortgage 28,268 549 7.77 27,664 534 7.73
Installment loans - Bankcard (c) 5,448 190 13.92 5,521 184 13.34
Installment loans - other and Vehicle
leasing 21,952 516 9.51 21,294 505 9.44
-------------------- ----------------------
- - ------------------------------------------------------------------------
Total retail 55,668 1,255 9.06 54,479 1,223 8.97
- - ------------------------------------------------------------------------- ----------------------
Total loans 94,618 2,025 8.63 93,028 1,992 8.54
- - ------------------------------------------------------------------------- ----------------------
Total earning assets 119,703 2,434 8.19 121,040 2,452 8.08
------------------- ------------------
Cash and due from banks 5,530 5,660
Other assets 9,661 9,171
----------
- - --------------------------------------------------------------
Total assets $ 134,894 $ 135,871
- - --------------------------------------------------------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 26,675 182 2.76 25,742 172 2.67
Money market accounts 13,190 93 2.85 13,304 100 2.99
Other consumer time 30,684 395 5.22 30,675 401 5.20
Foreign 1,741 22 5.27 1,999 27 5.30
Other time 3,481 51 5.95 3,166 51 6.44
- - ------------------------------------------------------------------------- ----------------------
Total interest-bearing deposits 75,771 743 3.98 74,886 751 3.99
Federal funds purchased and securities
sold under repurchase agreements 16,724 206 5.00 19,148 241 4.99
Commercial paper 905 11 5.05 954 12 5.10
Other short-term borrowings 3,296 47 5.73 3,820 55 5.75
Long-term debt 7,632 124 6.49 7,550 121 6.41
- - ------------------------------------------------------------------------- ----------------------
Total interest-bearing liabilities 104,328 1,131 4.39 106,358 1,180 4.42
------------------- ------------------
Noninterest-bearing deposits 16,925 17,193
Other liabilities 3,022 2,824
Guaranteed preferred beneficial interests 913 188
Stockholders' equity 9,706 9,308
---------- ----------
- - -----------------------------------------------------
Total liabilities and stockholders'
equity $ 134,894 $ 135,871
- - --------------------------------------------------------------- ----------
Interest income and rate earned $ 2,434 8.19% $ 2,452 8.08%
Interest expense and equivalent rate paid 1,131 3.82 1,180 3.88
------------------- ----------------------
- - -----------------------------------------------------------------
Net interest income and margin $ 1,303 4.37% $ 1,272 4.20%
- - ------------------------------------------------------------------------------------ --------------------
</TABLE>
(a) Yields related to securities and loans exempt from both federal and state
income taxes, federal income taxes only or state income taxes only are
stated on a fully tax-equivalent basis. They are reduced by the
nondeductible portion of interest expense, assuming a federal tax rate of
35 percent; and tax rates of 7.50 percent in North Carolina; 5.5 percent
in Florida; 4.5 percent in South Carolina; 6 percent in Georgia and
Tennessee; 7 percent in Maryland; 9.975 percent in Washington, D.C.; 4.87
percent in Delaware; 6.5 percent in New Jersey; and 10.50 percent in
Connecticut. Lease financing amounts include related deferred income
taxes.
T-16
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1996 SECOND QUARTER 1996 FIRST QUARTER 1996
-------------------------------------------------------------------------------------------------------------------------------
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> <C>
$ 65 1 8.73% $ 183 1 3.21% $ 127 3 7.58%
5,760 77 5.26 6,100 79 5.22 5,728 75 5.28
5,359 88 6.58 4,101 72 6.98 3,081 47 6.18
15,657 260 6.62 20,907 341 6.54 17,007 278 6.54
1,693 31 7.57 1,767 34 7.41 1,890 34 7.38
894 24 10.67 1,001 28 11.01 1,126 30 10.71
------------------------ ---------------------- ------------------------
2,587 55 8.64 2,768 62 8.71 3,016 64 8.62
------------------------ ---------------------- ------------------------
22,825 446 7.78 23,070 447 7.78 23,036 443 7.73
2,846 60 8.35 2,779 59 8.51 2,546 55 8.73
9,480 200 8.41 9,615 202 8.48 9,832 210 8.58
2,063 48 9.37 1,914 48 9.90 1,810 43 9.54
721 12 6.36 696 10 6.26 690 11 6.21
------------------------ ---------------------- ------------------------
37,935 766 8.04 38,074 766 8.09 37,914 762 8.08
------------------------ ---------------------- ------------------------
26,855 529 7.88 27,236 526 7.72 27,419 526 7.68
5,257 173 13.16 4,527 151 13.41 4,133 149 14.38
20,445 491 9.55 19,982 458 9.22 19,808 460 9.33
------------------------ ---------------------- ------------------------
52,557 1,193 9.06 51,745 1,135 8.80 51,360 1,135 8.85
------------------------ ---------------------- ------------------------
90,492 1,959 8.63 89,819 1,901 8.50 89,274 1,897 8.52
------------------------ ---------------------- ------------------------
119,920 2,440 8.12 123,878 2,456 7.95 118,233 2,364 8.02
---------------------------- ----------------- --------------------
5,333 5,063 5,052
8,178 7,517 7,452
---------- ---------- ----------
$ 133,431 $ 136,458 $ 130,737
---------- ---------- ----------
25,126 173 2.73 25,359 164 2.61 24,626 160 2.60
13,239 93 2.79 13,100 90 2.77 13,267 92 2.78
30,467 398 5.20 30,975 408 5.30 31,861 422 5.33
1,856 24 5.24 2,364 29 4.92 2,272 31 5.51
3,195 46 5.67 3,173 38 4.79 2,824 41 5.88
------------------------ ---------------------- ------------------------
73,883 734 3.95 74,971 729 3.92 74,850 746 4.01
19,038 234 4.91 20,719 254 4.93 16,321 207 5.10
830 11 5.03 841 10 5.00 987 13 5.18
3,841 56 5.78 4,102 56 5.42 3,651 48 5.37
7,849 123 6.27 7,615 118 6.18 7,243 113 6.27
------------------------ ---------------------- ------------------------
105,441 1,158 4.37 108,248 1,167 4.33 103,052 1,127 4.40
---------------------------- ----------------- --------------------
16,585 16,628 16,286
2,556 2,364 2,193
- - -
8,849 9,218 9,206
---------- ---------- ----------
$ 133,431 $ 136,458 $ 130,737
---------- ---------- ----------
$ 2,440 8.12% $ 2,456 7.95% $ 2,364 8.02%
1,158 3.85 1,167 3.78 1,127 3.83
---------------------------- ----------------- --------------------
$ 1,282 4.27% $ 1,289 4.17% $ 1,237 4.19%
---------------------------- ----------------- --------------------
</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.
T-17
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - -------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ------------------------------------------------
FIRST Fourth Third Second First
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,998 6,509 6,101 5,456 5,250
Interest-bearing bank balances 230 316 40 73 51
Federal funds sold and securities
purchased under resale agreements 5,019 7,024 5,660 6,197 4,417
- - -------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 11,247 13,849 11,801 11,726 9,718
- - -------------------------------------------------------------------------------------------------------------------------
Trading account assets 3,579 3,934 4,779 4,793 3,307
Securities available for sale 14,411 14,182 13,729 21,835 17,178
Investment securities 2,408 2,501 2,566 2,681 2,927
Loans, net of unearned income 95,487 95,858 92,520 91,339 89,990
Allowance for loan losses (1,366) (1,365) (1,377) (1,416) (1,436)
- - -------------------------------------------------------------------------------------------------------------------------
Loans, net 94,121 94,493 91,143 89,923 88,554
- - -------------------------------------------------------------------------------------------------------------------------
Premises and equipment 4,127 4,073 3,811 2,863 2,734
Due from customers on acceptances 634 763 571 518 392
Other intangible assets 2,827 2,849 2,379 2,461 2,435
Other assets 3,376 3,483 3,103 3,086 3,336
- - -------------------------------------------------------------------------------------------------------------------------
Total assets $ 136,730 140,127 133,882 139,886 130,581
- - -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 18,275 18,632 18,008 16,831 16,726
Interest-bearing deposits 74,128 76,183 73,436 74,622 73,792
- - -------------------------------------------------------------------------------------------------------------------------
Total deposits 92,403 94,815 91,444 91,453 90,518
Short-term borrowings 22,335 23,024 22,910 27,895 20,371
Bank acceptances outstanding 634 764 571 516 392
Other liabilities 3,290 3,361 2,936 2,899 2,652
Long-term debt 7,604 7,660 7,332 7,807 7,538
- - -------------------------------------------------------------------------------------------------------------------------
Total liabilities 126,266 129,624 125,193 130,570 121,471
- - -------------------------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests
in Corporation's junior subordinated
deferrable interest debentures 990 495 - - -
- - -------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock - - 48 163 171
Common stock, $3.33-1/3 par value;
authorized 750,000,000 shares 933 958 901 940 937
Paid-in capital 1,641 2,336 1,408 2,128 2,099
Retained earnings 7,032 6,727 6,431 6,231 5,942
Unrealized loss on debt and equity securities,
net (132) (13) (99) (146) (39)
- - -------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 9,474 10,008 8,689 9,316 9,110
- - -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 136,730 140,127 133,882 139,886 130,581
- - -------------------------------------------------------------------------------------------------------------------------
MEMORANDA
Securities available for sale-amortized cost $ 14,607 14,194 13,871 22,051 17,226
Investment securities-market value 2,522 2,636 2,691 2,797 3,060
Common stockholders' equity, net of unrealized
loss on debt and equity securities $ 9,474 10,008 8,641 9,153 8,939
Preferred shares outstanding (In thousands) - - 1,911 2,599 2,897
Common shares outstanding (In thousands) 279,832 287,348 270,508 281,948 281,064
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-18
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - -----------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------- ----------------------------------------------------------
FIRST Fourth Third Second First
(In millions, except per share data) QUARTER Quarter Quarter Quarter Quarter
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,019 1,986 1,953 1,896 1,889
Interest and dividends on securities available for sale 230 236 258 336 274
Interest and dividends on investment securities
Taxable income 30 32 31 33 34
Nontaxable income 15 15 16 19 20
Trading account interest 49 72 87 67 44
Other interest income 75 94 78 80 78
- - -----------------------------------------------------------------------------------------------------------------------------
Total interest income 2,418 2,435 2,423 2,431 2,339
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 743 751 734 729 746
Interest on short-term borrowings 264 308 301 320 268
Interest on long-term debt 124 121 123 118 113
- - ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,131 1,180 1,158 1,167 1,127
- - -----------------------------------------------------------------------------------------------------------------------------
Net interest income 1,287 1,255 1,265 1,264 1,212
Provision for loan losses 145 120 105 80 70
- - ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,142 1,135 1,160 1,184 1,142
- - ----------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trading account profits 26 50 23 8 21
Service charges on deposit accounts 193 174 165 166 161
Mortgage banking income 50 40 38 40 37
Capital management income 203 157 145 138 126
Securities available for sale transactions 4 11 2 3 15
Investment security transactions - 1 - 2 1
Fees for other banking services 41 39 41 44 33
Sundry income 236 213 186 145 132
- - -----------------------------------------------------------------------------------------------------------------------------
Total noninterest income 753 685 600 546 526
- - -----------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries 480 490 454 425 412
Other benefits 125 102 99 101 113
- - -----------------------------------------------------------------------------------------------------------------------------
Personnel expense 605 592 553 526 525
Occupancy 91 93 82 83 93
Equipment 121 118 108 98 93
Advertising 22 10 10 10 11
Telecommunications 27 25 27 25 25
Travel 21 20 23 27 22
Postage, printing and supplies 41 37 43 40 42
FDIC assessment 5 - 15 14 12
Professional fees 20 30 23 29 6
External data processing 15 16 24 38 36
Other intangible amortization 67 60 60 61 62
Merger-related restructuring charges - - - - 281
SAIF special assessment - - 133 - -
Sundry expense 134 112 110 101 84
- - ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,169 1,113 1,211 1,052 1,292
- - ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 726 707 549 678 376
Income taxes 255 247 192 239 133
- - ----------------------------------------------------------------------------------------------------------------------------
Net income 471 460 357 439 243
Dividends on preferred stock - 1 1 3 4
- - -----------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 471 459 356 436 239
- - ------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income $ 1.67 1.66 1.29 1.55 0.85
Cash dividends 0.58 0.58 0.58 0.52 0.52
AVERAGE COMMON SHARES ( In thousands) 282,553 278,298 274,001 282,576 280,374
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-19
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------------
(In millions) 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 471 243
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 7 11
Provision for loan losses 145 70
Provision for foreclosed properties - (1)
Securities available for sale transactions (4) (15)
Investment security transactions - (1)
Depreciation and amortization 180 145
Trading account assets, net 355 (1,426)
Gain on sale of adjustable rate mortgages (60) -
Mortgage loans held for resale (23) (121)
Gain on sale of segregated assets (2) (1)
Other assets, net 127 231
Other liabilities, net (71) (413)
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 1,125 (1,278)
- - -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 3,014 5,626
Maturities of securities available for sale 304 1,458
Purchases of securities available for sale (3,731) (6,098)
Sales and underdeliveries of investment securities 1 3
Maturities of investment securities 109 266
Purchases of investment securities (20) (50)
Sale of adjustable rate mortgages 1,094 -
Origination of loans, net (785) 1,158
Sales of premises and equipment 18 10
Purchases of premises and equipment (172) (252)
Purchases of mortgage servicing rights - (7)
Other intangible assets, net (7) 1
Purchases of banking organizations, net of acquired cash equivalents - 37
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (175) 2,152
- - -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (2,412) (2,770)
Securities sold under repurchase agreements and other short-term borrowings, net (689) 814
Issuances of guaranteed preferred beneficial interests 495 -
Issuances of long-term debt - 562
Payments of long-term debt (56) (155)
Sales of common stock 112 35
Purchases of common stock (836) (37)
Cash dividends paid (166) (149)
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (3,552) (1,700)
- - -------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (2,602) (826)
Cash and cash equivalents, beginning of year 13,849 10,544
- - -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 11,247 9,718
- - -------------------------------------------------------------------------------------------------------------------------------
NONCASH ITEMS
Increase in foreclosed properties and a decrease in loans $ 1 1
Conversion of preferred stock to common stock - 12
Issuance of common stock for purchase accounting acquisitions 4 124
Effect on stockholders' equity of an unrealized loss on debt and equity securities
included in
Securities available for sale (184) (249)
Other assets (deferred income taxes) $ (65) (99)
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,998
<INT-BEARING-DEPOSITS> 230
<FED-FUNDS-SOLD> 5,019
<TRADING-ASSETS> 3,579
<INVESTMENTS-HELD-FOR-SALE> 14,411
<INVESTMENTS-CARRYING> 2,408
<INVESTMENTS-MARKET> 2,522
<LOANS> 97,991
<ALLOWANCE> (1,366)
<TOTAL-ASSETS> 136,730
<DEPOSITS> 92,403
<SHORT-TERM> 22,335
<LIABILITIES-OTHER> 3,290
<LONG-TERM> 7,604
0
0
<COMMON> 933
<OTHER-SE> 8,541
<TOTAL-LIABILITIES-AND-EQUITY> 136,730
<INTEREST-LOAN> 2,019
<INTEREST-INVEST> 275
<INTEREST-OTHER> 75
<INTEREST-TOTAL> 2,418
<INTEREST-DEPOSIT> 743
<INTEREST-EXPENSE> 1,131
<INTEREST-INCOME-NET> 1,287
<LOAN-LOSSES> 145
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 1,169
<INCOME-PRETAX> 726
<INCOME-PRE-EXTRAORDINARY> 726
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 4.37
<LOANS-NON> 674
<LOANS-PAST> 283
<LOANS-TROUBLED> 11
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,365
<CHARGE-OFFS> 169
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 1,366
<ALLOWANCE-DOMESTIC> 927
<ALLOWANCE-FOREIGN> 5
<ALLOWANCE-UNALLOCATED> 434
</TABLE>
<PAGE>
Exhibit (99)
FIRST UNION CORPORATION OF VIRGINIA AND SUBSIDIARIES
SUMMARIZED FINANCIAL DATA
MARCH 31, 1997 AND 1996
- - --------------------------------------------------------------------------------
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
Three Months Ended
March 31,
--------------------
(In millions) 1997 1996
---- ----
Net interest income $160 144
Income before income taxes 104 87
Net income $ 67 55
---- ----
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31,
-----------------------
(In millions) 1997 1996
------- -------
Assets $19,595 16,759
Securities available for sale 4,215 2,930
Investment securities 377 486
Loans, net of unearned income 10,687 10,359
Stockholder's equity $ 1,823 1,410
------- -------
