SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (THE "EXCHANGE ACT") for the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
for the transition period from __________ to ____________
Commission file number 1-10000
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0898180
(State of incorporation) (I.R.S. Employer Identification No.)
ONE FIRST UNION CENTER
CHARLOTTE, NC 28288-0013
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 374-6565
Securities registered pursuant to Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Common Stock, $3.33 1/3 par value New York Stock Exchange, Inc.
(including rights attached thereto) (the "NYSE")
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
As of January 31, 2000, there were 984,981,528 shares of the registrant's common
stock outstanding, $3.33 1/3 par value per share, and based on the last reported
sale price of $33.5625 per share on the NYSE on such date, the aggregate market
value of the registrant's common stock held by those persons deemed by the
registrant to be nonaffiliates was approximately $32.8 billion.
DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
<TABLE>
<CAPTION>
INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K
---------------------- --------------------------------
<S> <C> <C>
1. Certain portions of the Corporation's Annual Part I -- Items 1 and 2; Part II -- Items 5, 6, 7, 7A
Report to Stockholders for the year ended and 8.
December 31, 1999 ("Annual Report").
2. Certain portions of the Corporation's Proxy Part III -- Items 10, 11, 12 and 13.
Statement for the Annual Meeting of Stockholders
to be held on April 18, 2000 ("Proxy Statement").
</TABLE>
<PAGE>
PART I
FIRST UNION CORPORATION (THE "CORPORATION") MAY FROM TIME TO TIME MAKE WRITTEN
OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN THE
CORPORATION'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING
THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS HERETO AND 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 INCLUDE, AMONG OTHERS, STATEMENTS WITH RESPECT
TO THE CORPORATION'S BELIEFS, PLANS, OBJECTIVES, GOALS, EXPECTATIONS,
ANTICIPATIONS, ESTIMATES AND INTENTIONS THAT ARE SUBJECT TO SIGNIFICANT RISKS
AND UNCERTAINTIES AND ARE SUBJECT TO CHANGE BASED ON VARIOUS FACTORS (MANY OF
WHICH ARE BEYOND THE CORPORATION'S CONTROL). THE WORDS "MAY", "COULD", "SHOULD",
"WOULD", "BELIEVE", "ANTICIPATE", "ESTIMATE", "EXPECT", "INTEND", "PLAN" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE
FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE CORPORATION'S FINANCIAL
PERFORMANCE TO DIFFER MATERIALLY FROM THAT 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, INCLUDING
INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(THE "FEDERAL RESERVE BOARD"); INFLATION; INTEREST RATE, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF COMPETITIVE NEW PRODUCTS AND SERVICES BY
THE CORPORATION AND THE ACCEPTANCE OF SUCH PRODUCTS AND SERVICES BY CUSTOMERS;
THE WILLINGNESS OF CUSTOMERS TO SUBSTITUTE COMPETITORS' PRODUCTS AND SERVICES
FOR THE CORPORATION'S PRODUCTS AND SERVICES AND VICE VERSA; THE IMPACT OF
CHANGES IN FINANCIAL SERVICES' LAWS AND REGULATIONS (INCLUDING LAWS CONCERNING
TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES; FUTURE
ACQUISITIONS; THE GROWTH AND PROFITABILITY OF THE CORPORATION'S NONINTEREST OR
FEE INCOME BEING LESS THAN EXPECTED; UNANTICIPATED REGULATORY OR JUDICIAL
PROCEEDINGS; 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 INCORPORATES BY REFERENCE THOSE FACTORS INCLUDED IN
THE CORPORATION'S PREVIOUSLY FILED CURRENT REPORTS ON FORM 8-K. THE CORPORATION
DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR
ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE CORPORATION.
ITEM 1. BUSINESS.
GENERAL
The Corporation was incorporated under the laws of North Carolina in 1967 and is
registered as a financial holding company and a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). Pursuant to a
corporate reorganization in 1968, a predecessor of First Union National Bank
("FUNB") and First Union Mortgage Corporation, a mortgage banking firm acquired
by such predecessor in 1964, became subsidiaries of the Corporation.
The Corporation provides a wide range of commercial and retail banking and trust
services through full-service banking offices in Connecticut, Delaware, Florida,
Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Virginia and Washington, D.C. Such offices are operated by
FUNB, based in Charlotte, North Carolina, except in Delaware, where such offices
are operated by First Union Bank of Delaware. The Corporation also provides
various other financial services, including mortgage banking, credit card,
investment banking, investment advisory, home equity lending, asset-based
lending, leasing, insurance, international and securities brokerage services,
through other subsidiaries.
The Corporation's principal executive offices are located at One First Union
Center, Charlotte, North Carolina 28288-0013 (telephone number (704) 374-6565).
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, the Corporation has concentrated its efforts on building a large,
diversified financial services organization, primarily doing business in the
eastern region of the United States. Since November 1985, the Corporation has
completed over 80 banking-related acquisitions. In 1999, the Corporation
acquired EVEREN Capital Corporation ("EVEREN"), a Chicago-based broker dealer.
Additional information with respect to the EVEREN acquisition and certain other
acquisitions is set forth in Note 2 on pages C-11 through C-15 in the Annual
Report and incorporated herein by reference.
2
<PAGE>
The Corporation is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected.
Additional information relating to the business of the Corporation and its
subsidiaries is included in the information set forth on pages 13 through 19,
Table 2 on pages T-2 through T-7 and in Note 9 on pages C-24 through C-26 in the
Annual Report and incorporated herein by reference. Information relating to the
Corporation only is set forth in Note 16 on pages C-37 through C-40 in the
Annual Report and incorporated herein by reference.
COMPETITION
The Corporation's subsidiaries face substantial competition in their operations
from banking and nonbanking institutions, including savings and loan
associations, credit unions, money market funds and other investment vehicles,
mutual fund advisory companies, brokerage firms, insurance companies, leasing
companies, credit card issuers, mortgage banking companies, investment banking
companies, finance companies and other types of financial services providers.
SUPERVISION AND REGULATION
THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE
REGULATORY FRAMEWORK APPLICABLE TO FINANCIAL HOLDING COMPANIES AND BANK HOLDING
COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION
RELEVANT TO THE CORPORATION. THE REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR
THE PROTECTION OF DEPOSITORS AND THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR
THE PROTECTION OF SECURITY HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION
DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN
APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF THE CORPORATION.
GENERAL
As a financial holding company and a bank holding company, the Corporation is
subject to regulation under the BHCA and its examination and reporting
requirements. The earnings of the Corporation's subsidiaries, and therefore the
earnings of the Corporation, are affected by general economic conditions,
management policies and the legislative and governmental actions of various
regulatory authorities, including the Federal Reserve Board, the Comptroller of
the Currency (the "Comptroller") and the Federal Deposit Insurance Corporation
(the "FDIC"). In addition, there are numerous governmental requirements and
regulations which affect the activities of the Corporation and its subsidiaries.
PAYMENT OF DIVIDENDS
The Corporation is a legal entity separate and distinct from its banking and
other subsidiaries. A major portion of the revenues of the Corporation result
from amounts paid as dividends to the Corporation by its national bank
subsidiaries. The prior approval of the Comptroller is required if the total of
all dividends declared by a national bank in any calendar year will exceed the
sum of such bank's net profits for that year and its retained net profits for
the preceding two calendar years, less any required transfers to surplus.
Federal law also prohibits national banks from paying dividends which would be
greater than the bank's undivided profits after deducting statutory bad debt in
excess of the bank's allowance for loan losses.
Under the foregoing dividend restrictions and certain restrictions applicable to
certain of the Corporation's nonbanking subsidiaries, as of December 31, 1999,
the Corporation's subsidiaries, without obtaining affirmative governmental
approvals, could pay aggregate dividends of $1.5 billion to the Corporation
during 2000. In 1999, the Corporation's subsidiaries paid $2.6 billion in cash
dividends to the Corporation.
In addition, the Corporation and its banking subsidiaries are subject to various
general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
bank or bank holding company that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof. The appropriate federal
regulatory authorities have indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsound and unsafe
banking practice and that banking organizations should generally pay dividends
only out of current
3
<PAGE>
operating earnings.
BORROWINGS BY THE CORPORATION
There are also various legal restrictions on the extent to which the Corporation
and its nonbank subsidiaries can borrow or otherwise obtain credit from its
banking subsidiaries. In general, these restrictions require that any such
extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Corporation or such nonbank
subsidiaries, to ten percent of the lending bank's capital stock and surplus,
and as to the Corporation and all such nonbank subsidiaries in the aggregate, to
20 percent of such lending bank's capital stock and surplus.
CAPITAL ADEQUACY
Under the risk-based capital requirements for bank holding companies, the
minimum requirement for the ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) is
eight percent. At least half of the total capital is to be composed of common
stockholders' equity, retained earnings, a limited amount of qualifying
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill and certain intangibles ("tier 1
capital" and together with tier 2 capital "total capital"). The remainder of
total capital may consist of mandatory convertible debt securities and a limited
amount of subordinated debt, qualifying preferred stock and loan loss allowance
("tier 2 capital"). At December 31, 1999, the Corporation's tier 1 capital and
total capital ratios were 7.08 percent and 10.87 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These requirements provide for a minimum
leverage ratio of tier 1 capital to adjusted average quarterly assets less
certain amounts ("leverage ratio") equal to three percent for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a leverage ratio of from at least four percent. The Corporation's
leverage ratio at December 31, 1999, was 5.97 percent. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Corporation of any specific minimum leverage
ratio or tier 1 leverage ratio applicable to it.
Each of the Corporation's subsidiary banks is subject to similar capital
requirements adopted by the Comptroller or other applicable regulatory agency.
Neither the Comptroller nor such applicable regulatory agency has advised any of
the Corporation's subsidiary banks of any specific minimum leverage ratios
applicable to it. The capital ratios of the bank subsidiaries of the Corporation
are set forth in Table 12 on page T-16 in the Annual Report and incorporated
herein by reference.
SUPPORT OF SUBSIDIARY BANKS
The Federal Deposit Insurance Act, as amended ("FDIA"), among other things,
imposes liability on an institution the deposits of which are insured by the
FDIC, such as the Corporation's subsidiary banks, for certain potential
obligations to the FDIC incurred in connection with other FDIC-insured
institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is impaired
by losses or otherwise, the Comptroller is authorized to require payment of the
deficiency by assessment upon the bank's stockholders, pro rata, and to the
extent necessary, if any such assessment is not paid by any stockholder after
three months notice, to sell the stock of such stockholder to make good the
deficiency. Under Federal Reserve Board policy, the Corporation is expected to
act as a source of financial strength to each of its subsidiary banks and to
commit resources to support each of such subsidiaries. This support may be
required at times when, absent such Federal Reserve Board policy, the
Corporation may not find itself able to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary banks. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
The FDIA, among other things, requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized". A depository institution's
capital tier will depend upon where its capital levels compare to various
relevant capital measures and certain other factors, as established by
regulation.
Federal regulatory authorities have adopted regulations establishing relevant
capital measures and relevant capital levels applicable to
4
<PAGE>
FDIC-insured banks. The relevant capital measures are the total capital ratio,
the tier 1 capital ratio and the leverage ratio. Under the regulations, an
FDIC-insured bank will be: (i) "well capitalized" if it has a total capital
ratio of ten percent or greater, a tier 1 capital ratio of six percent or
greater and a leverage ratio of five percent or greater and is not subject to
any order or written directive by any such regulatory authority to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total capital ratio of eight percent or greater, a tier
1 capital ratio of four percent or greater and a leverage ratio of four percent
or greater (three percent in certain circumstances) and is not "well
capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less
than eight percent, a tier 1 capital ratio of less than four percent or a
leverage ratio of less than four percent (three percent in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than six percent, a tier 1 capital ratio of less than three
percent or a leverage ratio of less than three percent; and (v) "critically
undercapitalized" if its tangible equity is equal to or less than two percent of
average quarterly tangible assets. An institution may be downgraded to, or
deemed to be in, a capital category that is lower than is indicated by its
capital ratios if it is determined to be in an unsafe or unsound condition or if
it receives an unsatisfactory examination rating with respect to certain
matters. As of December 31, 1999, all of the Corporation's deposit-taking
subsidiary banks had capital levels that qualify them as being "well
capitalized" under such regulations.
The FDIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be "undercapitalized". "Undercapitalized" depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized", and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator. A bank that is not "well capitalized" is subject to
certain limitations relating to so-called "brokered" deposits.
DEPOSITOR PREFERENCE STATUTE
Under federal law, deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of such an institution by any receiver.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA"), authorized interstate acquisitions of banks and bank holding companies
without geographic limitation beginning one year after enactment. In addition,
it authorized, beginning June 1, 1997, a bank to merge with a bank in another
state as long as neither of the states opted out of interstate branching between
the date of enactment of the IBBEA and May 31, 1997. In addition, a bank may
establish and operate a DE NOVO branch in a state in which the bank does not
maintain a branch if that state expressly permits DE NOVO branching. It was
pursuant to authority from IBBEA that the Corporation reorganized certain of its
subsidiary banks in 1997 and in February 1998, as a result of which FUNB, based
in Charlotte, North Carolina, operates in 11 states and Washington, D.C.
FINANCIAL MODERNIZATION ACT OF 1999
The Gramm-Leach-Bliley Financial Modernization Act of 1999 was enacted on
November 12, 1999. The Modernization Act:
o allows bank holding companies meeting management, capital and CRA
standards to engage in a substantially broader range of nonbanking
activities than was permissible prior to enactment, including
insurance underwriting and making merchant banking investments in
commercial and financial companies;
o allows insurers and other financial services companies to acquire
banks;
o removes various restrictions that applied to bank holding company
ownership of securities firms and mutual fund advisory companies;
and
o establishes the overall regulatory structure applicable to bank
holding companies that also engage in insurance and securities
operations.
This part of the Modernization Act became effective on March 11, 2000. The
Federal Reserve Board has notified the Corporation that, effective March 13,
2000, the Corporation is authorized to operate as a financial holding company
and therefore is eligible to engage in
5
<PAGE>
the broader range of activities that are permitted by the Modernization Act. The
Modernization Act will also modify other current financial laws, including laws
related to financial privacy and community reinvestment. The new financial
privacy provisions will generally prohibit financial institutions, including
First Union, from disclosing nonpublic personal financial information to
nonaffiliated third parties unless customers have the opportunity to "opt out"
of the disclosure.
ADDITIONAL INFORMATION
Additional information related to certain accounting and regulatory matters is
set forth on page 28 in the Annual Report and incorporated herein by reference.
ITEM 2. PROPERTIES.
As of December 31, 1999, the Corporation and its subsidiaries owned 1,287
locations and leased 3,402 locations in 48 states, Washington, D.C., and 29
foreign countries from which their business is conducted, including a
multi-building office complex in Charlotte, North Carolina, which serves as the
administrative headquarters of the Corporation and most of its subsidiaries.
Additional information relating to the Corporation's lease commitments is set
forth in Note 14 on page C-35 in the Annual Report and incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation and certain of its subsidiaries have been named as defendants in
various legal actions arising from their normal business activities in which
varying amounts are claimed. Although the amount of any ultimate liability with
respect to such matters cannot be determined, in the opinion of management,
based upon the opinions of counsel, any such liability will not have a material
effect on the consolidated financial position of the Corporation and its
subsidiaries.
A number of purported class actions were filed in June through August 1999
against the Corporation in the United States District Courts for the Western
District of North Carolina and for the Eastern District of Pennsylvania. These
actions name the Corporation and certain of its executive officers as defendants
and are purported to be on behalf of persons who purchased shares of the
Corporation's common stock from August 14, 1998 through May 24, 1999. These
complaints allege various violations of federal securities law, including
violations of Section 10(b) of the Exchange Act, and that the defendants made
materially misleading statements and/or material omissions which artificially
inflated prices for the Corporation's common stock. Plaintiffs seek a judgment
awarding damages and other relief. The Corporation believes the allegations
contained in these actions are without merit and will vigorously defend them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Corporation's common stock is listed on the NYSE. Table 4 on page T-9 in the
Annual Report sets forth information relating to the quarterly prices of, and
quarterly dividends paid on, the common stock for the two-year period ended
December 31, 1999, and incorporated herein by reference. Prices shown represent
the high, low and quarter-end sale prices of the common stock as reported on the
NYSE Composite Transactions tape for the periods indicated. As of December 31,
1999, there were 168,989 holders of record of the common stock.
Subject to the prior rights of holders of any outstanding shares of the
Corporation's preferred stock or Class A preferred stock, holders of common
stock are entitled to receive such dividends as may be legally declared by the
Board of Directors of the Corporation (the "Board") and, in the event of
dissolution and liquidation, to receive the net assets of the Corporation
remaining after payment of all liabilities, in proportion to their respective
holdings. Additional information concerning certain limitations on the payment
of dividends by the Corporation and its subsidiaries is set forth above under
"Business -- Supervision and Regulation; Payment of Dividends" and in Note 16 on
page C-37 in the Annual Report and incorporated herein by reference.
Each outstanding share of common stock currently has attached to it one right (a
"Right") issued pursuant to an Amended and Restated Shareholder Protection
Rights Agreement (the "Rights Agreement"). Each Right entitles its registered
holder to purchase one one-hundredth of a share of a junior participating series
of the Corporation's Class A preferred stock designed to have economic and
voting terms similar to those of one share of common stock, for $105.00, subject
to adjustment (the "Rights Exercise Price"), but only after the earlier to occur
(the "Separation Time") of: (i) the tenth business day (subject to extension)
after any person (an "Acquiring Person") (x) commences a tender or exchange
offer, which, if consummated, would result in such person becoming the
beneficial
6
<PAGE>
owner of 15 percent or more of the outstanding shares of common stock, or (y) is
determined by the Federal Reserve Board to "control" the Corporation within the
meaning of the BHCA, subject to certain exceptions; and (ii) the tenth business
day after the first date (the "Flip-in Date") of a public announcement by the
Corporation that a person has become an Acquiring Person. The Rights will not
trade separately from the shares of common stock unless and until the Separation
Time occurs.
The Rights Agreement provides that a person will not become an Acquiring Person
under the BHCA control test described above if either (i) the Federal Reserve
Board's control determination would not have been made but for such person's
failure to make certain customary passivity commitments, or such person's
violation of such commitments made, to the Federal Reserve Board, so long as the
Federal Reserve Board determines that such person no longer controls the
Corporation within 30 days (or 60 days in certain circumstances), or (ii) the
Federal Reserve Board's control determination was not based on such a failure or
violation and such person (x) obtains a noncontrol determination within three
years, and (y) is using its best efforts to allow the Corporation to make any
acquisition or engage in any legally permissible activity notwithstanding such
person's being deemed to control the Corporation for purposes of the BHCA.
The Rights will not be exercisable until the business day following the
Separation Time. The Rights will expire on the earliest of: (i) the Exchange
Time (as defined below); (ii) the close of business on December 28, 2000; and
(iii) the date on which the Rights are redeemed or terminated as described below
(in any such case, the "Expiration Time"). The Rights Exercise Price and the
number of Rights outstanding, or in certain circumstances the securities
purchasable upon exercise of the Rights, are subject to adjustment upon the
occurrence of certain events.
In the event that prior to the Expiration Time a Flip-in Date occurs, the
Corporation will take such action as shall be necessary to ensure and provide
that each Right (other than Rights beneficially owned by an Acquiring Person or
any affiliate, associate or transferee thereof, which Rights shall become void)
shall constitute the right to purchase, from the Corporation, shares of common
stock having an aggregate market price equal to twice the Rights Exercise Price
for an amount in cash equal to the then current Rights Exercise Price. In
addition, the Board may, at its option, at any time after a Flip-in Date, elect
to exchange all of the then outstanding Rights for shares of common stock, at an
exchange ratio of two shares of common stock per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the Separation Time (the "Rights Exchange Rate"). Immediately upon such
action by the Board (the "Exchange Time"), the right to exercise the Rights will
terminate, and each Right will thereafter represent only the right to receive a
number of shares of common stock equal to the Rights Exchange Rate. If the
Corporation becomes obligated to issue shares of common stock upon exercise of
or in exchange for Rights, the Corporation, at its option, may substitute
therefor shares of junior participating Class A preferred stock upon exercise of
each Right at a rate of two one-hundredths of a share of junior participating
Class A preferred stock upon the exchange of each Right.
The Rights may be canceled and terminated without any payment to holders thereof
at any time prior to the date they become exercisable and are redeemable by the
Corporation at $0.01 per right, subject to adjustment upon the occurrence of
certain events, at any date between the date on which they become exercisable
and the Flip-in Date. The Rights have no voting rights and are not entitled to
dividends.
The Rights will not prevent a takeover of the Corporation. The Rights, however,
may cause substantial dilution to a person or group that acquires 15 percent or
more of the common stock (or that acquires "control" of the Corporation within
the meaning of the BHCA) unless the Rights are first redeemed or terminated by
the Board. Nevertheless, the Rights should not interfere with a transaction that
is in the best interests of the Corporation and its stockholders because the
Rights can be redeemed or terminated, as hereinabove described, before the
consummation of such transaction.
The complete terms of the Rights are set forth in the Rights Agreement. The
foregoing description of the Rights and the Rights Agreement is qualified in its
entirety by reference to such document. A copy of the Rights Agreement can be
obtained upon written request to the Rights Agent, First Union National Bank,
1525 West W. T. Harris Blvd., 363, Charlotte, North Carolina 28288-1153.
Additional information relating to the Corporation's common stock is set forth
in Note 8 on pages C-21 through C-23 in the Annual Report and incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
In response to this Item, the information set forth in Table 1 on page T-1 in
the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In response to this Item, the information set forth on pages 10 through 31 and
pages T-1 through T-27 in the Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
7
<PAGE>
In response to this Item, the information set forth on pages 24 through 27,
pages T-17 through T-24 and pages C-33 through C-35 in the Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
In response to this Item, the information set forth in Table 4 on page T-9 and
on pages C-1 through C-40 in the Annual Report is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Corporation are elected to their offices for one
year terms at the meeting of the Board in April of each year. The terms of any
executive officers elected after such date expire at the same time as the terms
of the executive officers elected on such date. The names of each of the
executive officers of the Corporation in office on December 31, 1999, their
ages, their positions with the Corporation on such date, and, if different,
their business experience during the past five years, are as follows:
Edward E. Crutchfield (58). Chairman and Chief Executive Officer. Also, a
director of the Corporation. Mr. Crutchfield is resigning as Chief Executive
Officer, effective as of the Annual Meeting of Stockholders on April 18,
2000, due to illness. Mr. Crutchfield will continue to hold the office of
Chairman.
G. Kennedy Thompson (49). President, since December 1999. Previously, Vice
Chairman, from October 1998 to December 1999, Executive Vice President, from
November 1996 to October 1998, and President, First Union-Florida, prior to
November 1996. Also, a director of the Corporation. Mr. Thompson will also
be Chief Executive Officer, effective as of the Annual Meeting of
Stockholders on April 18, 2000.
Donald A. McMullen, Jr. (51). Vice Chairman, since August 1999. Previously,
Executive Vice-President.
Benjamin P. Jenkins, III (55). Vice Chairman, since August 1999. Previously,
President, First Union-Florida, from June 1999 to August 1999, and
President, First Union-VA/MD/DC, prior to June 1999.
B. J. Walker (69). Vice Chairman.
Robert T. Atwood (59). Executive Vice President and Chief Financial Officer.
Mark C. Treanor (53). Executive Vice President, Secretary and General
Counsel, since August 1999. Previously, Senior Vice President and Senior
Deputy General Counsel, August 1998 to August 1999, and senior partner,
Treanor, Pope & Hughes, prior to August 1998.
In addition to the foregoing, the information set forth in the Proxy Statement
under the heading "General Information and Nominees", and under the subheading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the heading
"Other Matters Relating to Executive Officers and Directors " is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
In response to this Item, the information set forth in the Proxy Statement under
the heading "Executive Compensation", excluding the information under the
subheadings "HR Committee Report on Executive Compensation" and "Performance
Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In response to this Item, the information set forth in the Proxy Statement
relating to the ownership of Common Stock by the directors, executive officers
and principal stockholders of the Corporation under the headings "Voting
Securities and Principal Holders" and "General Information and Nominees" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
8
<PAGE>
In response to this Item, the information set forth in the Proxy Statement under
the subheadings "General" and "Certain Relationships" under the heading
"Other Matters Relating to Executive Officers and Directors" is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The consolidated financial statements of the Corporation, including the
notes thereto and independent auditors' report thereon, are set forth on pages
C-1 through C-40 of the Annual Report, and are incorporated herein by reference.
All financial statement schedules are omitted since the required information is
either not applicable, is immaterial or is included in the consolidated
financial statements of the Corporation and notes thereto. A list of the
exhibits to this Form 10-K is set forth on the Exhibit Index immediately
preceding such exhibits and is incorporated herein by reference.
(b) During the quarter ended December 31, 1999, no Current Reports on Form 8-K,
were filed by the Corporation with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST UNION CORPORATION
Date: March 15, 2000
BY: /S/ JAMES H. HATCH
-----------------------
JAMES H. HATCH
SENIOR VICE PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C> <C>
EDWARD E. CRUTCHFIELD* Chairman and Chief Executive Officer and Director
----------------------
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer
-----------------
ROBERT T. ATWOOD
JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal
--------------- Accounting Officer)
JAMES H. HATCH
EDWARD E. BARR* Director
---------------
EDWARD E. BARR
G. ALEX BERNHARDT* Director
------------------
G. ALEX BERNHARDT
ERSKINE B. BOWLES* Director
------------------
ERSKINE B. BOWLES
W. WALDO BRADLEY* Director
-----------------
W. WALDO BRADLEY
ROBERT J. BROWN* Director
----------------
ROBERT J. BROWN
A. DANO DAVIS * Director
-------------
A. DANO DAVIS
NORWOOD H. DAVIS, JR.* Director
----------------------
NORWOOD H. DAVIS, JR.
R. STUART DICKSON* Director
------------------
R. STUART DICKSON
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C> <C>
B. F. DOLAN* Director
------------
B. F. DOLAN
RODDEY DOWD, SR.* Director
-----------------
RODDEY DOWD, SR.
______________________ Director
ARTHUR M. GOLDBERG
WILLIAM H. GOODWIN, JR.* Director
------------------------
WILLIAM H. GOODWIN, JR.
FRANK M. HENRY* Director
---------------
FRANK M. HENRY
JAMES E. S. HYNES* Director
-----------------
JAMES E. S. HYNES
ERNEST E. JONES* Director
----------------
ERNEST E. JONES
HERBERT LOTMAN* Director
----------------
HERBERT LOTMAN
RADFORD D. LOVETT* Director
------------------
RADFORD D. LOVETT
MACKEY J. MCDONALD* Director
-------------------
MACKEY J. MCDONALD
PATRICIA A. MCFATE* Director
-------------------
PATRICIA A. MCFATE
__________________ Director
JOSEPH NEUBAUER
RANDOLPH N. REYNOLDS* Director
---------------------
RANDOLPH N. REYNOLDS
JAMES M. SEABROOK* Director
------------------
JAMES M. SEABROOK
______________ Director
RUTH G. SHAW
LANTY L. SMITH* Director
---------------
LANTY L. SMITH
G. KENNEDY THOMPSON* Director
--------------------
G. KENNEDY THOMPSON
*By Mark C. Treanor, Attorney-in-Fact
/s/ MARK C. TREANOR
-------------------
MARK C. TREANOR
</TABLE>
Date: March 15, 2000
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C>
(3)(a) Restated Articles of Incorporation of the Corporation. Incorporated by reference to Exhibit (4)
to the Corporation's 1998 Third Quarter
Report on Form 10-Q.
(3)(b) Bylaws of the Corporation, as amended. Incorporated by reference to Exhibit (3)(b)
to the Corporation's 1995 Annual Report
on Form 10-K.
(4)(a) Instruments defining the rights of the holders of the *
Corporation's long-term debt.
(4)(b) The Corporation's Amended and Restated Shareholder Incorporated by reference to Exhibit(4)
Protection Rights Agreement. to the Corporation's Current Report on
Form 8-K dated October 16, 1996.
(10)(a) The Corporation's Amended and Restated Management Incorporated by reference to Exhibit
Incentive Plan. (10)(a) to the Corporation's 1995 Annual
Report on Form 10-K.
(10)(b) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit
Officers. (10)(b) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(c) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit
Non-Employee Directors. (10)(c) to the Corporation's 1989 Annual
Report on Form 10-K.
(10)(d) The Corporation's Contract Executive Deferred Incorporated by reference to Exhibit
Compensation Plan. (10)(d) to the Corporation's 1997 Annual
Report on Form 10-K.
(10)(e) The Corporation's Supplemental Executive Long-Term Incorporated by reference to Exhibit
Disability Plan. (10)(d) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(f) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit
(10)(f) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(g) The Corporation's Retirement Plan for Non-Employee Incorporated by reference to Exhibit
Directors. (10)(g) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(h) The Corporation's 1988 Master Stock Compensation Incorporated by reference to Exhibit (28)
Plan. to the Corporation's Registration
Statement No. 33-47447.
(10)(i) The Corporation's 1992 Master Stock Compensation Incorporated by reference to Exhibit (28)
Plan. to the Corporation's Registration
Statement No. 33-47447.
(10)(j) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10)(k)
Edward E. Crutchfield. to the Corporation's 1994 Annual Report on
Form 10-K.
(10)(k) Management Restricted Stock Award Agreement. Incorporated by reference to Exhibit (10)
to the Corporation's 1997 Second Quarter
Report on Form 10-Q.
(10)(l) The Corporation's Management Long-Term Cash Incorporated by reference to Exhibit
Incentive Plan. (10)(m) to the Corporation's 1992 Annual
Report on Form 10-K.
(10)(m) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10)
John R. Georgius. to Amendment No. 1 to the Corporation's
Registration Statement No. 33-60835.
(10)(n) The Corporation's Elective Deferral Plan. Incorporated by reference to Exhibit (4)
to the Corporation's Registration
Statement No. 33-60913.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
<S> <C> <C>
(10)(o) The Corporation's 1996 Master Stock Compensation Incorporated by reference to Exhibit (10)
Plan. to the Corporation's 1996 First Quarter
Report on Form 10-Q.
(10)(p) The Corporation's 1998 Stock Incentive Plan. Incorporated by reference to Exhibit (10)
to the Corporation's 1998 Second Quarter
Report on Form 10-Q.
(10)(q) Employment Agreement between the Corporation Filed herewith.
and G. Kennedy Thompson.
(10)(r) Form of Employment Agreement between the Filed herewith.
Corporation and certain officers of the Corporation
(including Austin A. Adams, Robert T. Atwood,
Benjamin P. Jenkins, III, Donald A. McMullen, Jr.,
and Mark C. Treanor).
(12) Computations of Consolidated Ratios of Earnings to Filed herewith.
Fixed Charges.
(13) The Corporation's 1999 Annual Report to Filed herewith.
Stockholders.**
(21) List of the Corporation's subsidiaries. Filed herewith.
(23) Consent of KPMG LLP. Filed herewith.
(24) Power of Attorney. Filed herewith.
(27) The Corporation's Financial Data Schedule.***
(99) Business Segments for each of the eight quarters ended Filed herewith.
December 31, 1999.
</TABLE>
* The Corporation agrees to furnish to the Securities and Exchange
Commission upon request, copies of the instruments, including indentures,
defining the rights of the holders of the long-term debt of the
Corporation and its subsidiaries.
** Except for those portions of the Annual Report which are expressly
incorporated by reference in this Form 10-K, the Annual Report is
furnished for the information of the Securities and Exchange Commission
only and is not to be deemed "filed" as part of such Form 10-K.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.
12
EXHIBIT 10 (Q)
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT, made and entered into as of this 15th day
of November, 1999, by and between First Union Corporation (the "Company"), a
North Carolina corporation, and G. KENNEDY THOMPSON (the "Executive");
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued service of the Executive. The
Board believes it is imperative to encourage the Executive's full attention and
dedication to the Company, and to provide the Executive with compensation and
benefits arrangements upon a termination of employment with the Company which
ensure that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations.
NOW, THEREFORE, in order to accomplish the objectives set forth above
and in consideration of the mutual covenants herein contained, the parties
hereby agree as follows:
1. Employment Period. (a) The "Effective Date" shall mean the date
hereof.
(b) The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company
upon the terms and conditions set forth in this Agreement, for the period
commencing on the Effective Date and ending on the fifth anniversary thereof
(the "Employment Period"); provided, however, that commencing on the date one
year after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), unless previously terminated, the Employment Period shall be
automatically extended so as to terminate five years from such Renewal Date,
unless at least 90 days prior to the Renewal Date the Company or the Executive,
respectively, shall give notice to the Executive or the Company, respectively,
that the Employment Period shall not be so extended. Notwithstanding the
foregoing, in the event a "Change in Control" (as defined herein) occurs, the
Employment Period, unless previously terminated, shall be extended immediately
prior to the Change in Control so that the Employment Period shall terminate no
earlier than five years from such Change in Control.
2. Terms of Employment. (a) Positions and Duties. (i) During the
Employment Period, the Company agrees to employ the Executive, and the Executive
agrees to serve as an employee of the Company and as an employee of one or more
of its subsidiaries, in such capacity and with such authority, duties and
responsibilities as the Company's Chairman of the Board of Directors may from
time to time designate. During the
1
<PAGE>
Employment Period, the Executive also agrees to serve as a Director on the
Company's Board of Directors, as well as a member of any committee of the Board
of Directors to which the Executive may be elected or appointed.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote his full professional attention and time during
normal business hours to the business and affairs of the Company and to perform
the responsibilities assigned to the Executive hereunder. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(C) manage personal investments, so long as such activities do not interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement and are consistent with the Company's
policies. It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation. (i) Salary and Bonus. For all services
rendered by the Executive in any capacity under this Agreement, the Company
shall pay the Executive during the Employment Period as compensation (i) an
annual salary in an amount not less than the amount of the Executive's annual
salary as of the Effective Date (the "Annual Base Salary") and (ii) such annual
cash incentive bonus, if any, as may be awarded to him by the Board of Directors
of the Company or by a Committee designated by the Board (the "Annual Bonus").
Such salary shall be payable in accordance with the Company's customary payroll
practices, and any such bonus shall be payable in cash in accordance with the
Company's incentive bonus plans from which the Annual Bonus is awarded. During
the Employment Period prior to the Date of Termination, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. In the event the Executive's
actual Annual Base Salary is increased above the then current Annual Base Salary
during the Employment Period, such increased Annual Base Salary shall constitute
"Annual Base Salary" for purposes of this Agreement.
(ii) Employee Benefits. During the Employment Period
prior to the Date of Termination, the Executive and/or the Executive's family,
as the case may be, shall be eligible to participate in
2
<PAGE>
employee benefit plans generally available to employees of the Company or its
subsidiaries, including without limitation, employee stock purchase plans,
savings plans, retirement plans, welfare benefit plans (including, without
limitation, medical, prescription, dental, disability, life, accidental death,
and travel accident insurance, but excluding severance plans) and similar plans,
practices, policies and programs. In addition, during the Employment Period, the
Executive shall be eligible to participate in the Company's stock-based
incentive compensation plans then available to other peer executives of the
Company with awards thereunder determined by the Board of Directors of the
Company or by a Committee designated by the Board, in its sole discretion.
(iii) Expenses. During the Employment Period prior to
the Date of Termination, the Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at the time immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(iv) Fringe Benefits. During the Employment Period
prior to the Date of Termination, the Executive shall be entitled to fringe
benefits including, without limitation, tax and financial planning services,
payment of club dues, and if applicable, use of an automobile and payment of
related expenses, in accordance with the plans, practices, programs and policies
of the Company and its affiliated companies in effect for the Executive at the
time immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(v) Office and Support Staff. During the Employment
Period prior to the Date of Termination, the Executive shall be entitled to an
office or offices of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal to those
provided to the Executive by the Company and its affiliated companies at the
time immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) Paid Time Off. During the Employment Period
prior to the Date of Termination, the Executive shall be entitled to paid time
off in accordance with the plans, policies, programs and practices of the
Company and its affiliated companies as in effect for the Executive at the time
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and
3
<PAGE>
its affiliated companies.
(vii) Indemnification/D&O Insurance. During the
Employment Period for acts prior to the Date of Termination, the Executive shall
be entitled to indemnification with respect to the performance of his duties
hereunder, and directors' and officers' liability insurance, on the same terms
and conditions as generally available to other peer executives of the Company
and its affiliated companies.
3. Termination of Employment.(a) Retirement, Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
or Retirement (as defined herein) during the Employment Period. For purposes of
this Agreement, "Retirement" shall mean either (i) voluntary termination of the
Executive's employment upon satisfaction of the requirements for early
retirement under the Company's tax-qualified defined benefit pension plan or
(ii) voluntary termination of the Executive's employment upon satisfaction of
the requirements for normal retirement under the terms of the Company's
tax-qualified defined benefit pension plan. If the Company determines in good
faith that Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the continued and willful failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes that the Executive has not
substantially performed the Executive's duties and a reasonable time for such
substantial performance has elapsed since delivery of such demand, or
4
<PAGE>
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chairman of the Board of
Directors or a senior executive officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. Following a Change in Control (as defined herein), the Company's
termination of the Executive's employment shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
such Board), finding that, in the good faith opinion of such Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, in the absence of a written consent of the Executive which expressly
refers to a provision of this Section 3(c):
(i) prior to a Change in Control, the substantial
diminution in the overall importance of the Executive's role, as determined by
balancing (A) any increase or decrease in the scope of the Executive's
management responsibilities against (B) any increase or decrease in the relative
sizes of the businesses, activities or functions (or portions thereof) for which
the Executive has responsibility; provided, however, that none of (I) a change
in the Executive's title, (II) a change in the hierarchy, and (III) a change in
the Executive's responsibilities from line to staff or vice versa, either
individually or in the aggregate shall be considered Good Reason;
(ii) any failure by the Company to comply with any
material provision of this Agreement (including, without limitation, any
provision of Section 2 of this Agreement), other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and
5
<PAGE>
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
(iv) following a Change in Control, the relocation of
the principal place of the Executive's employment to a location that is more
than 35 miles from such principal place of employment immediately prior to the
date the proposed Change in Control is publicly announced, or the Company's
requiring the Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective Date;
(v) following a Change in Control, the Company's
requiring the Executive or all or substantially all of the employees of the
Company who report directly to the Executive immediately prior to the date the
proposed Change in Control is publicly announced to be based at any office or
location other than such person's office or location on such date;
(vi) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement; or
(vii) following a Change in Control, assignment to
the Executive of any duties inconsistent in any respect with the Executive's
position as in effect immediately prior to the public announcement of the
proposed Change in Control (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any other action by the
Company which results in any diminution in such position, authority, duties or
responsibilities.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive (including any such determination when
the Executive is then eligible for Retirement). In the event the Company
challenges the Executive's determination of Good Reason, the Company shall
continue to make the payments and provide the benefits to the Executive as set
forth in Section 4(a). If it is finally judicially determined that the
Executive's termination was not for Good Reason, the Executive shall reimburse
the Company the amounts to which it is finally judicially determined to be
entitled.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific
6
<PAGE>
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, the date of
receipt of the Notice of Termination, unless the Company agrees to a later date
no more than 30 days after such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Executive for Good Reason or
Retirement, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (iii) if
the Executive's employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies the Executive of such
termination or any later date specified therein within 30 days of such notice,
as the case may be, (iv) if the Executive's employment is terminated by reason
of death or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be, and (v) if the Executive's employment is
terminated by the Executive for other than Good Reason, death, Disability or
Retirement, the date that is 60 days after the date of receipt of the Notice of
Termination by the Company, provided, however, the Company may elect to waive
such notice or place the Executive on paid leave for all or any part of such
60-day period during which the Executive will be entitled to continue to receive
the Annual Base Salary but shall not receive any Annual Bonus or any other
payment from the Company other than reimbursement for expenses as contemplated
in Section 2(b)(iii) and continued participation in the employee benefit plans
as contemplated in Section 2(b)(ii).
(f) Change in Control. For purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power
7
<PAGE>
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"; provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in Control: (1) any
acquisition directly from the Company, (2) any acquisition by the Company, (3)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (4)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) of this Section 3(f); or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection to such
nomination) shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or contests by or on behalf of a
Person other than the Board; or
(iii) Consummation of a reorganization, merger, share
exchange or consolidation or sale of other disposition of all or substantially
all of the assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from the Business Combination)
8
<PAGE>
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board immediately prior to the time of
the execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
4. Obligations of the Company upon Termination. (a) Good Reason; other
than for Cause, Death, Disability or Retirement. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, Death, Disability or Retirement or the Executive shall terminate
employment for Good Reason, then in consideration for past services and in
consideration for the undertakings set forth in Section 7 hereof:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not theretofore paid,
and (2) the product of (x) an Annual Bonus of an amount equal to the greater of
(I) the highest annual cash incentive bonus paid by the Company to the Executive
for the three calendar years prior to the Date of Termination or (II) the
highest annual cash incentive bonus paid by the Company to the Executive for the
three calendar years prior to the date of this Employment Agreement (the "Base
Bonus"), and (y) a fraction, the numerator of which is the number of days in the
fiscal year in which the Date of Termination occurs through the Date of
Termination, and the denominator of which is 365, to the extent not theretofore
paid (the "Pro Rata Bonus"), (3) any unpaid Annual Bonus for the prior year, (4)
any compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and (5) any accrued paid time off, in each case to
the extent not theretofore paid (the sum of the amounts described in clauses
(1), (2), (3), (4) and (5) shall be hereinafter referred to as the "Accrued
Obligations"); and
(B) the amount equal to the product of (1)
five and (2) the sum of the Executive's Annual Base Salary immediately prior to
the Date of Termination and the Base Bonus.
For purposes of determining the Base Bonus hereunder, the Company
9
<PAGE>
shall exclude any special or one-time bonuses and any premium enhancements to
bonuses but shall include any portions of bonuses (other than the excluded
bonuses) which have been deferred by the Executive;
(ii) the Company shall pay to the Executive, in the
manner in which the Executive elects (which may be in a lump sum in cash), an
amount equal to the actuarial equivalent (calculated using the actuarial
assumptions and/or methodology utilized by the Company as of the Effective Date)
of the Executive's actual benefit (paid or payable), if any, under the Company's
Supplemental Retirement Plan (the "SERP") as of the Date of Termination;
provided, however, if the Executive is not then vested in his retirement benefit
pursuant to the terms of the SERP, the Company will accelerate the Executive's
vesting and pay the Executive his retirement benefit accrued as of the Date of
Termination as if the Executive had been fully vested on the Date of
Termination;
(iii) for five years after the Executive's Date of
Termination (or for the remainder of the Executive's life if such Date of
Termination is after a Change in Control), or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy, the
Company shall continue medical, dental and life insurance benefits to the
Executive and/or the Executive's family on a substantially equivalent basis to
those which would have been provided to them in accordance with the medical,
dental and life insurance plans, programs, practices and policies described in
Section 2(b)(iv) of this Agreement if the Executive's employment had not been
terminated, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, dental and/or life
insurance benefits under another employer provided plan, the medical, dental
and/or life insurance benefits described herein shall terminate. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have terminated employment with
the Company on the Date of Termination; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (excluding any severance plan, program,
policy or practice) through the Date of Termination (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the
10
<PAGE>
Executive's legal representatives under this Agreement, other than for payment
of Accrued Obligations, Other Benefits, the payment pursuant to Section
4(a)(ii), and the payment of an amount equal to the Executive's Annual Base
Salary. Accrued Obligations and cash payments pursuant to the preceding sentence
shall be paid to the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4(b) shall include, without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, death benefits then applicable to
the Executive.
(c) Retirement. If the Executive's employment is terminated by
reason of the Executive's Retirement during the Employment Period, this
Agreement shall terminate without further obligations to the Executive under
this Agreement, other than for payment of Accrued Obligations and Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, without limitation, and the Executive shall be entitled to receive, all
retirement benefits then applicable to the Executive, including but not limited
to any SERP benefits then applcable to the Executive.
(d) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations, Other Benefits, the payment pursuant to
Section 4(a)(ii), and the payment of an amount equal to the Executive's Annual
Base Salary. Accrued Obligations and the cash payments pursuant to the preceding
sentence shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this Section 4(d) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits then applicable to the Executive.
(e) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated by the Company for Cause or by the Executive
without Good Reason during the Employment Period, this Agreement shall terminate
without further obligations of the Company to the Executive other than the
obligation to pay to the Executive (x) his Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case only to the extent owing and
theretofore unpaid.
5. Non-exclusivity of Rights. Nothing in this Agreement shall
11
<PAGE>
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify (excluding any severance plan
or program of the Company), nor subject to Section 11(f), shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
6. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). Notwithstanding the foregoing, if it is finally judicially
determined that the Executive brought any claims contemplated in the previous
sentence in bad faith, the Executive shall reimburse the Company for such fees
and expenses which are reasonably related to such bad faith claim.
7. Covenants. (a) The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
related businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies (or
predecessors thereto). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.
12
<PAGE>
(b) (i) While employed by the Company and for three years
after the Date of Termination, the Executive shall not, directly or indirectly,
on behalf of the Executive or any other person, solicit for employment by other
than the Company or encourage to leave the employ of the Company, any person
employed by the Company or its affiliated companies at any time prior to the
Date of Termination.
(ii) While employed by the Company and for two years
after the Date of Termination, the Executive will not become a director or
officer or consultant engaging in activities similar to those performed by a
senior officer for any business which is in competition with any line of
business of the Company or its affiliates and in which the Executive
participated in a direct capacity while he was employed by the Company or its
affiliates at any time within the one year period preceding the Effective Date
and which has offices in any location in which the Executive had supervisory
responsibility in the geographic footprint of First Union National Bank
(including but not limited to, Florida, Georgia, South Carolina, Tennessee,
North Carolina, Virginia, Maryland, Pennsylvania, New Jersey, Delaware, New
York, Connecticut, and Washington, D.C. plus any other state or states added
during the Employment Period) during that one year period. The Executive
expressly acknowledges the reasonableness of such restrictions and such
geographic area. Further, during such period, the Executive will not acquire an
equity or equity-like interest in such an organization for his own account,
except that he may acquire equity interests of not more than 5% of any such
organization from time to time as an investment. Notwithstanding anything to the
contrary contained herein, this Section 7(b)(ii) shall not apply if (A) the
Executive terminates employment with the Company pursuant to Retirement, (B) the
Company terminates the Executive's employment without Cause following a Change
in Control, or (C) the Executive terminates his employment for Good Reason
following a Change in Control.
(c) In the event of a breach or threatened breach of this
Section 7, the Executive agrees that the Company shall be entitled to injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, the Executive acknowledges that damages would be inadequate
and insufficient. Following the occurrence of a Change in Control, in no event
shall an asserted violation of the provisions of this Section 7 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(d) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 7;
provided, however, upon termination of this Agreement due to the Company's or
the Executive's failure to extend the term of this Agreement pursuant to Section
1(b), Section 7(b)(ii) shall no longer apply to the Executive if the Executive's
employment shall
13
<PAGE>
terminate after the term of this Agreement expires.
(e) The Executive hereby agrees that prior to accepting
employment with any other person or entity during the Employment Period or
during the three years following the Date of Termination, the Executive will
provide such prospective employer with written notice of the existence of this
Agreement and the provisions of Section 3(e) and this Section 7, with a copy of
such notice delivered simultaneously to the Company in accordance with Section
11(c). The foregoing provision shall not apply if the Company terminates the
Executive's employment without Cause following a Change in Control, or if the
Executive terminates his employment for Good Reason following a Change in
Control.
8. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive following a Change in Control (whether paid
or payable or distributed or distributable pursuant to the terms of the
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor statute) or any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG LLP or such other certified public accounting firm reasonably acceptable
to the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 30 business days of
the receipt of notice from the Company that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 8, shall be paid by the Company to the
Executive by the due date for the payment of any Excise Tax, or, if earlier, 30
days after the receipt of the Accounting Firm's determination. Any determination
by
14
<PAGE>
the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order to effectively contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in
15
<PAGE>
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt of an amount advanced by the Company
pursuant to Section 8(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto) upon receipt thereof. If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
(e) For purposes of this Section 8, any reference to the
Executive shall be deemed to include the Executive's surviving spouse, estate
and/or beneficiaries with respect to payments or adjustments provided by this
Section 8.
9. Successors. (a) This Agreement is personal to the Executive and
without the prior consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
16
<PAGE>
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly in writing and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Arbitration. Except with respect to matters arising under Section 7
of this Agreement, any disputes or controversies arising under or in connection
with this Agreement (including, without limitation, whether any such disputes or
controversies have been brought in bad faith) shall be settled exclusively by
arbitration in Charlotte, North Carolina in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
11. General Provisions. (a) Governing Law; Amendment; Modification.
This Agreement shall be governed and construed in accordance with the laws of
the State of North Carolina, without reference to principles of conflict of
laws. This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
(b) Severability. If, for any reason, any provision of this
Agreement is held invalid, such invalidity shall not affect any other provision
of this Agreement not held so invalid, and each such other provision shall to
the full extent consistent with law continue in full force and effect. If any
provision of this Agreement shall be held invalid in part, such invalidity shall
in no way affect the rest of such provision not held so invalid and the rest of
such provision, together with all other provisions of this Agreement, shall to
the full extent consistent with law continue in full force and effect.
(c) Notices. All notices under this Agreement shall be in
writing and shall be deemed effective when delivered in person (in the Company's
case, to its Secretary) or forty-eight (48) hours after deposit thereof in the
U.S. mail, postage prepaid, for delivery as registered or certified mail --
addressed, in the case of the Executive, to such Executive at his residential
address, and in the case of the Company, to its corporate headquarters,
attention of the Secretary, or to such other address as the Executive or the
Company
17
<PAGE>
may designate in writing at any time or from time to time to the other party. In
lieu of notice by deposit in the U.S. mail, a party may give notice by telegram
or telex.
(d) Tax Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.
(e) Strict Compliance. The Executive's or the Company's
failure to insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c) of this Agreement, shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) Entire Understanding. From and after the Effective Date
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
(g) Conflicts with Plans. To the extent any plan, policy,
practice or program of or contract or agreement with the Company (including,
without limitation, the SERP) attempts to cap, restrict, limit or reduce
payments to the Executive hereunder (including, without limitation, Section 4.7
of the SERP), such caps, restrictions, limitations or reductions are expressly
modified to permit the payments contemplated hereby and the parties intend that
the terms of this Agreement shall be construed as having precedence over any
such caps, restricitions, limitations or reductions.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officers thereunto duly authorized, and the Executive has signed
this Agreement under seal, all as of the date and year first above written.
FIRST UNION CORPORATION [SEAL]
ATTEST:
By:______________________
Name: Edward E. Crutchfield _________________________
Title: Chairman and Chief Mark C. Treanor
Executive Officer Secretary
__________________________ (SEAL)
G. Kennedy Thompson
19
EXHIBIT 10(r)
FORM OF EMPLOYMENT AGREEMENT
----------------------------
This EMPLOYMENT AGREEMENT, made and entered into as of this ______ day
of ______________, 1999, by and between First Union Corporation (the "Company"),
a North Carolina corporation, and ________________ (the "Executive");
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued service of the Executive. The
Board believes it is imperative to encourage the Executive's full attention and
dedication to the Company, and to provide the Executive with compensation and
benefits arrangements upon a termination of employment with the Company which
ensure that the compensation and benefits expectations of the Executive will be
satisfied and which are competitive with those of other corporations.
NOW, THEREFORE, in order to accomplish the objectives set forth above
and in consideration of the mutual covenants herein contained, the parties
hereby agree as follows:
1. Employment Period. (a) The "Effective Date" shall mean the date
hereof.
(b) The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company
upon the terms and conditions set forth in this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary thereof
(the "Employment Period"); provided, however, that commencing on the date one
year after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), unless previously terminated, the Employment Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 90 days prior to the Renewal Date the Company or the Executive,
respectively, shall give notice to the Executive or the Company, respectively,
that the Employment Period shall not be so extended. Notwithstanding the
foregoing, in the event a "Change in Control" (as defined herein) occurs, the
Employment Period, unless previously terminated, shall be extended immediately
prior to the Change in Control so that the Employment Period shall terminate no
earlier than three years from such Change in Control.
2. Terms of Employment. (a) Positions and Duties. (i) During the
Employment Period, the Company agrees to employ the Executive, and the Executive
agrees to serve as an employee of the Company and as an employee of one or more
of its subsidiaries, in such capacity and with such authority, duties and
responsibilities as the Company's Chairman of the Board of Directors or
President may from time to time
1
<PAGE>
designate.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote his full professional attention and time during
normal business hours to the business and affairs of the Company and to perform
the responsibilities assigned to the Executive hereunder. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions, and
(C) manage personal investments, so long as such activities do not interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement and are consistent with the Company's
policies. It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation. (i) Salary and Bonus. For all services
rendered by the Executive in any capacity under this Agreement, the Company
shall pay the Executive during the Employment Period as compensation (i) an
annual salary in an amount not less than the amount of the Executive's annual
salary as of the Effective Date (the "Annual Base Salary") and (ii) such annual
cash incentive bonus, if any, as may be awarded to him by the Board of Directors
of the Company or by a Committee designated by the Board (the "Annual Bonus").
Such salary shall be payable in accordance with the Company's customary payroll
practices, and any such bonus shall be payable in cash in accordance with the
Company's incentive bonus plans from which the Annual Bonus is awarded. During
the Employment Period prior to the Date of Termination, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. In the event the Executive's
actual Annual Base Salary is increased above the then current Annual Base Salary
during the Employment Period, such increased Annual Base Salary shall constitute
"Annual Base Salary" for purposes of this Agreement.
(ii) Employee Benefits. During the Employment Period
prior to the Date of Termination, the Executive and/or the Executive's family,
as the case may be, shall be eligible to participate in employee benefit plans
generally available to employees of the Company or its subsidiaries, including
without limitation, employee stock purchase plans, savings plans, retirement
plans, welfare benefit plans
2
<PAGE>
(including, without limitation, medical, prescription, dental, disability, life,
accidental death, and travel accident insurance, but excluding severance plans)
and similar plans, practices, policies and programs. In addition, during the
Employment Period, the Executive shall be eligible to participate in the
Company's stock-based incentive compensation plans then available to other peer
executives of the Company with awards thereunder determined by the Board of
Directors of the Company or by a Committee designated by the Board, in its sole
discretion.
(iii) Expenses. During the Employment Period prior to
the Date of Termination, the Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at the time immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(iv) Fringe Benefits. During the Employment Period
prior to the Date of Termination, the Executive shall be entitled to fringe
benefits including, without limitation, tax and financial planning services,
payment of club dues, and if applicable, use of an automobile and payment of
related expenses, in accordance with the plans, practices, programs and policies
of the Company and its affiliated companies in effect for the Executive at the
time immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(v) Office and Support Staff. During the Employment
Period prior to the Date of Termination, the Executive shall be entitled to an
office or offices of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal to those
provided to the Executive by the Company and its affiliated companies at the
time immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vi) Paid Time Off. During the Employment Period
prior to the Date of Termination, the Executive shall be entitled to paid time
off in accordance with the plans, policies, programs and practices of the
Company and its affiliated companies as in effect for the Executive at the time
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
3
<PAGE>
(vii) Indemnification/D&O Insurance. During the
Employment Period for acts prior to the Date of Termination, the Executive shall
be entitled to indemnification with respect to the performance of his duties
hereunder, and directors' and officers' liability insurance, on the same terms
and conditions as generally available to other peer executives of the Company
and its affiliated companies.
3. Termination of Employment.(a) Retirement, Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
or Retirement (as defined herein) during the Employment Period. For purposes of
this Agreement, "Retirement" shall mean either (i) voluntary termination of the
Executive's employment upon satisfaction of the requirements for early
retirement under the Company's tax-qualified defined benefit pension plan or
(ii) voluntary termination of the Executive's employment upon satisfaction of
the requirements for normal retirement under the terms of the Company's
tax-qualified defined benefit pension plan. If the Company determines in good
faith that Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the continued and willful failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes that the Executive has not
substantially performed the Executive's duties and a reasonable time for such
substantial performance has elapsed since delivery of such demand, or
(ii) the willful engaging by the Executive in illegal
4
<PAGE>
conduct or gross misconduct which is materially injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chairman of the Board of
Directors or a senior executive officer of the Company or based upon the advice
of counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. Following a Change in Control (as defined herein), the Company's
termination of the Executive's employment shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before
such Board), finding that, in the good faith opinion of such Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, in the absence of a written consent of the Executive which expressly
refers to a provision of this Section 3(c):
(i) prior to a Change in Control, the substantial
diminution in the overall importance of the Executive's role, as determined by
balancing (A) any increase or decrease in the scope of the Executive's
management responsibilities against (B) any increase or decrease in the relative
sizes of the businesses, activities or functions (or portions thereof) for which
the Executive has responsibility; provided, however, that none of (I) a change
in the Executive's title, (II) a change in the hierarchy, and (III) a change in
the Executive's responsibilities from line to staff or vice versa, either
individually or in the aggregate shall be considered Good Reason;
(ii) any failure by the Company to comply with any
material provision of this Agreement (including, without limitation, any
provision of Section 2 of this Agreement), other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
5
<PAGE>
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
(iv) following a Change in Control, the relocation of
the principal place of the Executive's employment to a location that is more
than 35 miles from such principal place of employment immediately prior to the
date the proposed Change in Control is publicly announced, or the Company's
requiring the Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective Date;
(v) following a Change in Control, the Company's
requiring the Executive or all or substantially all of the employees of the
Company who report directly to the Executive immediately prior to the date the
proposed Change in Control is publicly announced to be based at any office or
location other than such person's office or location on such date;
(vi) any failure by the Company to comply with and
satisfy Section 9(c) of this Agreement; or
(vii) following a Change in Control, assignment to
the Executive of any duties inconsistent in any respect with the Executive's
position as in effect immediately prior to the public announcement of the
proposed Change in Control (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any other action by the
Company which results in any diminution in such position, authority, duties or
responsibilities.
For purposes of this Section 3(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive (including any such determination when
the Executive is then eligible for Retirement). In the event the Company
challenges the Executive's determination of Good Reason, the Company shall
continue to make the payments and provide the benefits to the Executive as set
forth in Section 4(a). If it is finally judicially determined that the
Executive's termination was not for Good Reason, the Executive shall reimburse
the Company the amounts to which it is finally judicially determined to be
entitled.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and
6
<PAGE>
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, the date of
receipt of the Notice of Termination, unless the Company agrees to a later date
no more than 30 days after such notice, as the case may be, (ii) if the
Executive's employment is terminated by the Executive for Good Reason or
Retirement, the date of receipt of the Notice of Termination or any later date
specified therein within 30 days of such notice, as the case may be, (iii) if
the Executive's employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies the Executive of such
termination or any later date specified therein within 30 days of such notice,
as the case may be, (iv) if the Executive's employment is terminated by reason
of death or Disability, the date of death of the Executive or the Disability
Effective Date, as the case may be, and (v) if the Executive's employment is
terminated by the Executive for other than Good Reason, death, Disability or
Retirement, the date that is 60 days after the date of receipt of the Notice of
Termination by the Company, provided, however, the Company may elect to waive
such notice or place the Executive on paid leave for all or any part of such
60-day period during which the Executive will be entitled to continue to receive
the Annual Base Salary but shall not receive any Annual Bonus or any other
payment from the Company other than reimbursement for expenses as contemplated
in Section 2(b)(iii) and continued participation in the employee benefit plans
as contemplated in Section 2(b)(ii).
(f) Change in Control. For purpose of this Agreement, a
"Change in Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company
7
<PAGE>
Voting Securities"; provided, however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a Change in Control: (1) any
acquisition directly from the Company, (2) any acquisition by the Company, (3)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (4)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) of this Section 3(f); or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection to such
nomination) shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or contests by or on behalf of a
Person other than the Board; or
(iii) Consummation of a reorganization, merger, share
exchange or consolidation or sale of other disposition of all or substantially
all of the assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from the Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the
8
<PAGE>
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and (C)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board
immediately prior to the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
4. Obligations of the Company upon Termination. (a) Good Reason; other
than for Cause, Death, Disability or Retirement. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause, Death, Disability or Retirement or the Executive shall terminate
employment for Good Reason, then in consideration for past services and in
consideration for the undertakings set forth in Section 7 hereof:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the aggregate of the
following amounts:
(A) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not theretofore paid,
and (2) the product of (x) an Annual Bonus of an amount equal to the greater of
(I) the highest annual cash incentive bonus paid by the Company to the Executive
for the three calendar years prior to the Date of Termination or (II) the
highest annual cash incentive bonus paid by the Company to the Executive for the
three calendar years prior to the date of this Employment Agreement (the "Base
Bonus"), and (y) a fraction, the numerator of which is the number of days in the
fiscal year in which the Date of Termination occurs through the Date of
Termination, and the denominator of which is 365, to the extent not theretofore
paid (the "Pro Rata Bonus"), (3) any unpaid Annual Bonus for the prior year, (4)
any compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and (5) any accrued paid time off, in each case to
the extent not theretofore paid (the sum of the amounts described in clauses
(1), (2), (3), (4) and (5) shall be hereinafter referred to as the "Accrued
Obligations"); and
(B) the amount equal to the product of (1)
three and (2) the sum of the Executive's Annual Base Salary immediately prior to
the Date of Termination and the Base Bonus.
For purposes of determining the Base Bonus hereunder, the Company shall exclude
any special or one-time bonuses and any premium enhancements to bonuses but
shall include any portions of bonuses
9
<PAGE>
(other than the excluded bonuses) which have been deferred by the Executive;
(ii) the Company shall pay to the Executive, in the
manner in which the Executive elects (which may be in a lump sum in cash), an
amount equal to the actuarial equivalent (calculated using the actuarial
assumptions and/or methodology utilized by the Company as of the Effective Date)
of the Executive's actual benefit (paid or payable), if any, under the Company's
Supplemental Retirement Plan (the "SERP") as of the Date of Termination;
(iii) for three years after the Executive's Date of
Termination (or for the remainder of the Executive's life if such Date of
Termination is after a Change in Control), or such longer period as may be
provided by the terms of the appropriate plan, program, practice or policy, the
Company shall continue medical, dental and life insurance benefits to the
Executive and/or the Executive's family on a substantially equivalent basis to
those which would have been provided to them in accordance with the medical,
dental and life insurance plans, programs, practices and policies described in
Section 2(b)(iv) of this Agreement if the Executive's employment had not been
terminated, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical, dental and/or life
insurance benefits under another employer provided plan, the medical, dental
and/or life insurance benefits described herein shall terminate. For purposes of
determining eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have terminated employment with
the Company on the Date of Termination; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies (excluding any severance plan, program,
policy or practice) through the Date of Termination (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations, Other Benefits, the payment pursuant to Section 4(a)(ii), and the
payment of an amount equal to the Executive's Annual Base Salary. Accrued
Obligations and cash payments pursuant to the preceding sentence shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
10
<PAGE>
Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, death benefits then applicable to the Executive.
(c) Retirement. If the Executive's employment is terminated by
reason of the Executive's Retirement during the Employment Period, this
Agreement shall terminate without further obligations to the Executive under
this Agreement, other than for payment of Accrued Obligations and Other
Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall
include, without limitation, and the Executive shall be entitled to receive, all
retirement benefits then applicable to the Executive, including but not limited
to any SERP benefits then applcable to the Executive.
(d) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations, Other Benefits, the payment pursuant to
Section 4(a)(ii), and the payment of an amount equal to the Executive's Annual
Base Salary. Accrued Obligations and the cash payments pursuant to the preceding
sentence shall be paid to the Executive in a lump sum in cash within 30 days of
the Date of Termination. With respect to the provision of Other Benefits, the
term Other Benefits as utilized in this Section 4(d) shall include, and the
Executive shall be entitled after the Disability Effective Date to receive,
disability and other benefits then applicable to the Executive.
(e) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated by the Company for Cause or by the Executive
without Good Reason during the Employment Period, this Agreement shall terminate
without further obligations of the Company to the Executive other than the
obligation to pay to the Executive (x) his Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case only to the extent owing and
theretofore unpaid.
5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify (excluding any severance plan
or program of the Company), nor subject to Section 11(f), shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are
11
<PAGE>
vested benefits or which the Executive is otherwise entitled to receive under
any plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
6. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). Notwithstanding the foregoing, if it is finally judicially
determined that the Executive brought any claims contemplated in the previous
sentence in bad faith, the Executive shall reimburse the Company for such fees
and expenses which are reasonably related to such bad faith claim.
7. Covenants. (a) The Executive shall hold in a fiduciary capacity for
the benefit of the Company all secret or confidential information, knowledge or
data relating to the Company or any of its affiliated companies, and their
related businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies (or
predecessors thereto). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it.
(b) (i) While employed by the Company and for three years
after the Date of Termination, the Executive shall not, directly or indirectly,
on behalf of the Executive or any other person, solicit for employment by other
than the Company or encourage to leave the employ of the Company, any person
employed by the Company or its affiliated companies at any time prior to the
Date of Termination.
12
<PAGE>
(ii) While employed by the Company and for two years
after the Date of Termination, the Executive will not become a director or
officer or consultant engaging in activities similar to those performed by a
senior officer for any business which is in competition with any line of
business of the Company or its affiliates and in which the Executive
participated in a direct capacity while he was employed by the Company or its
affiliates at any time within the one year period preceding the Effective Date
and which has offices in any location in which the Executive had supervisory
responsibility in the geographic footprint of First Union National Bank
(including but not limited to, Florida, Georgia, South Carolina, Tennessee,
North Carolina, Virginia, Maryland, Pennsylvania, New Jersey, Delaware, New
York, Connecticut, and Washington, D.C. plus any other state or states added
during the Employment Period) during that one year period. The Executive
expressly acknowledges the reasonableness of such restrictions and such
geographic area. Further, during such period, the Executive will not acquire an
equity or equity-like interest in such an organization for his own account,
except that he may acquire equity interests of not more than 5% of any such
organization from time to time as an investment. Notwithstanding anything to the
contrary contained herein, this Section 7(b)(ii) shall not apply if (A) the
Executive terminates employment with the Company pursuant to Retirement, (B) the
Company terminates the Executive's employment without Cause following a Change
in Control, or (C) the Executive terminates his employment for Good Reason
following a Change in Control.
(c) In the event of a breach or threatened breach of this
Section 7, the Executive agrees that the Company shall be entitled to injunctive
relief in a court of appropriate jurisdiction to remedy any such breach or
threatened breach, the Executive acknowledges that damages would be inadequate
and insufficient. Following the occurrence of a Change in Control, in no event
shall an asserted violation of the provisions of this Section 7 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
(d) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 7;
provided, however, upon termination of this Agreement due to the Company's or
the Executive's failure to extend the term of this Agreement pursuant to Section
1(b), Section 7(b)(ii) shall no longer apply to the Executive if the Executive's
employment shall terminate after the term of this Agreement expires.
(e) The Executive hereby agrees that prior to accepting
employment with any other person or entity during the Employment Period or
during the three years following the Date of Termination, the Executive will
provide such prospective employer with written notice of the existence of this
Agreement and the provisions of
13
<PAGE>
Section 3(e) and this Section 7, with a copy of such notice delivered
simultaneously to the Company in accordance with Section 11(c). The foregoing
provision shall not apply if the Company terminates the Executive's employment
without Cause following a Change in Control, or if the Executive terminates his
employment for Good Reason following a Change in Control.
8. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive following a Change in Control (whether paid
or payable or distributed or distributable pursuant to the terms of the
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor statute) or any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by KPMG LLP or such other certified public accounting firm reasonably acceptable
to the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 30 business days of
the receipt of notice from the Company that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 8, shall be paid by the Company to the
Executive by the due date for the payment of any Excise Tax, or, if earlier, 30
days after the receipt of the Accounting Firm's determination. Any determination
by the Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies
14
<PAGE>
pursuant to Section 8(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order to effectively contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of
15
<PAGE>
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt of an amount advanced by the Company
pursuant to Section 8(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 8(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto) upon receipt thereof. If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
(e) For purposes of this Section 8, any reference to the
Executive shall be deemed to include the Executive's surviving spouse, estate
and/or beneficiaries with respect to payments or adjustments provided by this
Section 8.
9. Successors. (a) This Agreement is personal to the Executive and
without the prior consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
16
<PAGE>
assume expressly in writing and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
10. Arbitration. Except with respect to matters arising under Section 7
of this Agreement, any disputes or controversies arising under or in connection
with this Agreement (including, without limitation, whether any such disputes or
controversies have been brought in bad faith) shall be settled exclusively by
arbitration in Charlotte, North Carolina in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
11. General Provisions. (a) Governing Law; Amendment; Modification.
This Agreement shall be governed and construed in accordance with the laws of
the State of North Carolina, without reference to principles of conflict of
laws. This Agreement may not be modified or amended except by an instrument in
writing signed by the parties hereto.
(b) Severability. If, for any reason, any provision of this
Agreement is held invalid, such invalidity shall not affect any other provision
of this Agreement not held so invalid, and each such other provision shall to
the full extent consistent with law continue in full force and effect. If any
provision of this Agreement shall be held invalid in part, such invalidity shall
in no way affect the rest of such provision not held so invalid and the rest of
such provision, together with all other provisions of this Agreement, shall to
the full extent consistent with law continue in full force and effect.
(c) Notices. All notices under this Agreement shall be in
writing and shall be deemed effective when delivered in person (in the Company's
case, to its Secretary) or forty-eight (48) hours after deposit thereof in the
U.S. mail, postage prepaid, for delivery as registered or certified mail --
addressed, in the case of the Executive, to such Executive at his residential
address, and in the case of the Company, to its corporate headquarters,
attention of the Secretary, or to such other address as the Executive or the
Company may designate in writing at any time or from time to time to the other
party. In lieu of notice by deposit in the U.S. mail, a party may give notice by
telegram or telex.
(d) Tax Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any
17
<PAGE>
applicable law or regulation.
(e) Strict Compliance. The Executive's or the Company's
failure to insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 3(c) of this Agreement, shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) Entire Understanding. From and after the Effective Date
this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
(g) Conflicts with Plans. To the extent any plan, policy,
practice or program of or contract or agreement with the Company (including,
without limitation, the SERP) attempts to cap, restrict, limit or reduce
payments to the Executive hereunder (including, without limitation, Section 4.7
of the SERP), such caps, restrictions, limitations or reductions are expressly
modified to permit the payments contemplated hereby and the parties intend that
the terms of this Agreement shall be construed as having precedence over any
such caps, restricitions, limitations or reductions.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officers thereunto duly authorized, and the Executive has signed
this Agreement under seal, all as of the date and year first above written.
FIRST UNION CORPORATION [SEAL]
ATTEST:
By:______________________
Name: Edward E. Crutchfield _________________________
Title: Chairman and Chief Mark C. Treanor
Executive Officer Secretary
__________________________ (SEAL)
[Executive]
19
EXHIBIT (12)
<TABLE>
<CAPTION>
FIRST UNION CORPORATION AND SUBSIDIARIES
COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST
ON DEPOSITS
Pretax income from continuing
operations $ 4,831 3,965 3,793 3,534 3,409
Fixed charges, excluding capitalized
interest 3,751 3,504 2,526 2,224 1,821
- -------------------------------------------------------------------------------------------------------------------------------
Earnings (A) $ 8,582 7,469 6,319 5,758 5,230
- -------------------------------------------------------------------------------------------------------------------------------
Interest, excluding interest on deposits $ 3,645 3,395 2,420 2,120 1,716
One-third of rents 106 109 106 104 105
Capitalized interest - - - 5 4
- -------------------------------------------------------------------------------------------------------------------------------
Fixed charges (B) $ 3,751 3,504 2,526 2,229 1,825
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated ratios of earnings to
fixed charges, excluding interest
on deposits (A)/(B) 2.29 X 2.13 2.50 2.58 2.87
- -------------------------------------------------------------------------------------------------------------------------------
INCLUDING INTEREST
ON DEPOSITS
Pretax income from continuing
operations $ 4,831 3,965 3,793 3,534 3,409
Fixed charges, excluding capitalized
interest 7,805 7,820 6,674 6,255 5,837
- -------------------------------------------------------------------------------------------------------------------------------
Earnings (C) $ 12,636 11,785 10,467 9,789 9,246
- -------------------------------------------------------------------------------------------------------------------------------
Interest, including interest on deposits $ 7,699 7,711 6,568 6,151 5,732
One-third of rents 106 109 106 104 105
Capitalized interest - - - 5 4
- -------------------------------------------------------------------------------------------------------------------------------
Fixed charges (D) $ 7,805 7,820 6,674 6,260 5,841
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated ratios of earnings to
fixed charges, including interest
on deposits (C)/(D) 1.62 X 1.51 1.57 1.56 1.58
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FIRST UNION CORPORATION ANNUAL REPORT
(FIRST UNION Logo appears here)
1999
<PAGE>
About First Union
INNOVATIVE BUSINESS MODEL First Union [NYSE: FTU], founded in
1908 as Union National Bank in Charlotte, North Carolina, has grown from the
nation's 50th largest banking company with $7.3 billion in assets in 1984 into
one of the nation's leading financial services companies. Not only are we the
sixth largest banking company with $253 billion in assets at December 31, 1999,
but over the past five years we have transformed ourselves into the eighth
largest securities business, based on revenue, and sixth largest broker-dealer,
with 6,600 registered representatives. We have grown into a major asset manager
with $170 billion in assets under management (including $80 billion in mutual
funds), the fourth largest manager of discretionary personal trust assets, and a
leading provider of insurance products such as annuities.
FULL PRODUCT ARRAY First Union's business model is well-positioned to meet
customer demand for innovative products and new ways of doing business. Since
1994, we have expanded our products and services from the traditional
deposit-taking and lending functions of a commercial bank to a full range of
capital raising, market making and financial advisory services provided in our
investment banking, brokerage and asset management operations.
EXCELLENT TECHNOLOGY We also have created a broad, flexible and fully integrated
distribution platform to enable our customers to interact with us however,
wherever and whenever they want. Our goal is to be both "high tech" and "high
touch" -- applying the latest technological advances to custom build
individualized financial solutions for each client.
MULTIPLE CHANNELS Our business strategy is to remain broadly diversified and
to be fully integrated in our product and service array and distribution
channels. But we are guided by one focus: to deliver the same high-touch value
and quality service, whether our customers visit one of our 2,300 financial
centers or 330 brokerage offices nationwide, or choose the convenience of
banking at one of our 3,800 automated teller machines, calling our Direct Bank
at 1-800-413-7898 or logging on to the Internet at firstunion.com.
MARKET POWER Our efforts to diversify geographically have produced the largest
domestic deposit share from Connecticut to Florida as we serve nearly
16 million customers. Now, with our October 1999 acquisition of EVEREN Capital
Corporation, we are placing new innovative tools and product offerings in the
hands of our 6,600 registered representatives in 41 states.
Contents
3 Letter to
Our Stockholders
9 Index to
Special Topics
10 Management's
Analysis of
Operations
32 Glossary
T-1 Financial Tables
C-1 Management's
Statement of
Responsibility
C-2 Independent
Auditors' Report
C-3 Audited Financial
Statements
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Percent
Years Ended December 31, Increase
(Dollars in millions, except per share data) 1999 1998 (Decrease)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Net income before merger-related and restructuring charges (Operating earnings) $ 3,486 3,696 (6)%
After-tax merger-related and restructuring charges 263 805 (67)
- ------------------------------------------------------------------------------------------------------------
Net income after merger-related and restructuring charges $ 3,223 2,891 11 %
- -------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Diluted earnings
Net income before merger-related and restructuring charges $ 3.60 3.77 (5)%
Net income after merger-related and restructuring charges 3.33 2.95 13
Basic earnings
Net income before merger-related and restructuring charges 3.63 3.81 (5)
Net income after merger-related and restructuring charges 3.35 2.98 12
Cash dividends 1.88 1.58 19
Book value (a) 16.91 17.20 (2)
Year-end price $ 32.9375 60.8125 (46)
Dividend payout ratio (Based on operating earnings) 52.22% 41.24 --
Average shares (In thousands)
Diluted 966,863 980,112 (1)
Basic 959,390 969,131 (1)
Actual shares (In thousands) 988,315 982,223 1 %
- -------------------------------------------------------------------------------------------------------------------
PERFORMANCE HIGHLIGHTS
Before merger-related and restructuring charges
Return on average assets 1.51% 1.66 --
Return on average stockholders' equity (a) 21.60 22.70 --
Overhead efficiency ratio (a) 58.32 56.72 --
Net charge-offs as a percentage of average loans, net 0.52 0.48 --
Nonperforming assets to loans, net, and foreclosed properties (a) 0.79 0.63 --
Net interest margin 3.79% 3.81 --
- -------------------------------------------------------------------------------------------------------------------
CASH EARNINGS (Excluding goodwill and other intangible amortization)
Before merger-related and restructuring charges
Net income $ 3,817 3,982 (4)%
Diluted earnings per share $ 3.94 4.06 (3)
Return on average tangible assets 1.69% 1.82 --
Return on average tangible stockholders' equity (a) 34.67 32.62 --
Overhead efficiency ratio (a) 55.62% 54.20 -- %
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Securities available for sale $ 51,277 37,434 37 %
Investment securities 1,758 2,025 (13)
Loans, net of unearned income (a) 135,566 134,149 1
Total assets (a) 253,024 237,087 7
Noninterest-bearing deposits 31,375 35,614 (12)
Interest-bearing deposits 109,672 106,853 3
Long-term debt 31,975 22,949 39
Stockholders' equity (a) $ 16,709 16,897 (1)%
</TABLE>
(a) Prior year amounts have been reclassified to conform to the presentation in
1999.
1
<PAGE>
STATISTICAL INFORMATION
SCOPE AND SCALE OF BUSINESS
Banking Services
Credit and deposit transaction
services for all customers
Managed Loan
Portfolio
(bar chart appears here with following plot points)
1997 $188 billion
1998 $221 billion
1999 $240 billion
Number 1
--------------------
in domestic deposits
on East Coast
3rd largest
--------------------
cash management
provider in the U.S.
Securities Business
Capital raising, market making
and financial advisory services
for corporate, institutional and
individual clients
First Union Securities
Revenues
(bar chart appears here with the following plot points)
1997 1998 1999
Capital Management $1.5 billion $2.2 billion $2.8 billion
Capital Markets $1.9 billion $2.3 billion $3.1 billion
------------ ------------ ------------
$3.4 billion $4.5 billion $5.9 billion
6th largest
-------------
broker-dealer
$378 billion
-------------------
in capital raised
for clients in 1999
Asset Management
Asset accumulation, preservation and financial planning for all clients
(Bar charts appear here with the following plot points)
1997 1998 1999
Assets Under
Management $80 billion $153 billion $170 billion
Evergreen
Mutual Funds $42 billion $ 69 billion $ 80 billion
Trust/Other $38 billion $ 84 billion $ 90 billion
Brokerage and Insurance
(Bar charts appear here with the following plot points)
1998 1999
Brokerage Client
Assets $78 billion $168 billion
1998 1999
Registered
Representatives 4,346 6,638
1998 1999
Locations 23 states 41 states
4th largest
--------------------------
personal trust accounts
Top 20
--------------------------
mutual funds
2nd largest
--------------------------
bank provider of annuities
STRATEGIC GROWTH BUSINESSES
Merger and Acquisition Advisory
$4 billion
--------------------------
in 1999 completions
M&A engagements up 42 percent in 1999
No. 2 in deals under $250 million
Merchant Banking
$3 billion
--------------------------
in 1999 commitments
Top 10 ranking among bank holding companies making
private equity and mezzanine investments
1999 investments reached record $1.4 billion
Equity Underwriting, Sales and Trading
$10 billion
--------------------------
in 1999 volume
Managed 45 equity offerings for clients
Capital raised for clients increased fivefold in 1999
Loan Syndications (Agent-Only)
$75 billion
--------------------------
in leveraged and nonleveraged
transactions, ranking No. 6
Ranked No. 4 in leveraged transactions (agent-only)
Doubled value of leveraged deals in 1999
High Yield Debt
$12 billion
--------------------------
in 1999 originations
Asset Securitization
$32 billion
--------------------------
in public and private issuance, ranking No. 11
Risk Management
$42 billion
--------------------------
notional value of derivatives structured for clients in 1999
Leading fixed income derivatives provider
to the middle market
Real Estate Capital Markets
$3.5 billion
--------------------------
in commercial mortgage-backed securitization
(conduit and fusion) volume, ranking No. 1
Trust
$90 billion
--------------------------
in personal and institutional trust assets
Evergreen Mutual Funds
$80 billion
--------------------------
in First Union-advised mutual funds,
serving 3 million shareholders
More than doubled 4- and 5-Star Morningstar ratings
from 19 to 43 in 1999
E-Commerce
1.2 million
--------------------------
online retail customers, up 200 percent in 1999
Online banking, brokerage and bill payment through
a single point of access
2
<PAGE>
LETTER TO OUR STOCKHOLDERS
(Photo of First Union building appears here)
Dear Stockholders,
With all of the activity of the past few years, it is time to update you on
our basic strategy and the way it translates into value for you and our
customers.
From the beginning, our strategy has been to build geographic diversity,
scope and scale and to create a company ideally positioned to serve the changing
needs of customers and create value for stockholders.
In 1999, the framework came together as we envisioned:
o We are the nation's sixth largest banking company, based on assets;
o We are the nation's sixth largest broker-dealer, based on registered
representatives, with brokerage offices in 41 states;
o Our company is now well-balanced, with nearly 50 percent of our earnings
stream coming from fee income and 50 percent from interest income.
These initiatives have transformed our company. Recognizing this
transformation, in late 1999 we launched First Union Securities, which brings
together under one name the key engines of our growth, Capital Markets and
Capital Management. We created a nationwide securities platform with the
acquisition of EVEREN Capital Corporation. We stepped up development of new
technology and multiple, synchronized delivery channels, including the Internet.
We reorganized our state banking network under the General Bank to leverage our
superior product array, including retail brokerage services and access to the
capital markets.
This groundwork has positioned your company to be among the financial
industry's leaders in the future. While 2000 continues to be a transition year,
we believe as the year progresses into 2001 that our stockholders will begin to
reap the rewards of these initiatives. We are confident that our superior
business model will enable us to create value for our stockholders and deliver
strong results for our clients in the years ahead.
In 1999, our operating earnings (excluding one-time items) were $3.3
billion, or $3.40 per share. Our return on stockholders' equity was 21.60
percent, which was among the best in the banking industry. However, 1999 was
unquestionably a difficult year. The sheer number of initiatives we had under
way lent a great deal of complexity to our business and our operating
performance. In particular, the area of customer service was not up to our
standards. We were also disappointed with our stock price underperformance. We
take little solace that bank stocks in general declined significantly in 1999.
Our goal is to outperform industry averages.
3
<PAGE>
LETTER TO OUR STOCKHOLDERS
We worked diligently throughout the year to address critical issues
surrounding customer service and acquisition integration, and we believe many of
the problems that surfaced in early 1999 have been resolved. Two complicating
factors -- the final conversion of the former CoreStates (the largest merger in
our history) on top of the implementation of a new model for retail banking --
were one-time events and are behind us. By year-end, we also saw improvement in
The Money Store, where we have begun to centralize credit underwriting and to
apply First Union's standards for credit quality and operational processes.
Throughout our company, we have refocused attention on customer service
standards. We have taken concrete steps to support the best efforts of employees
by increasing staffing and training, enhancing systems capabilities to better
track customer inquiries and instituting Executive Helplines to enable employees
to quickly resolve difficult service problems. We revamped incentive plans to
encourage quality service and sales equally. As a result, customer satisfaction
scores have improved across the board. Our goal is to increase service quality
to such a level that it creates a competitive advantage.
THE RIGHT BUSINESS MODEL We began 2000 with confidence that we have established
a transformational business model with the flexibility to evolve with our
customers' needs.
As we have been saying in this space for many years, the traditional bank
asset-gathering model has matured. A new model for wealth management, investment
banking and, in particular, a strategy for e-commerce is required to distinguish
the financial industry leaders of the future.
First Union Securities embodies this new model and positions First Union to
benefit from two key trends -- first, the needs of visionary CEOs at growing
companies who depend on industry knowledge, ideas and capital to execute their
growth plans, and second, the increasing desire of individual clients for
investment products such as stocks, mutual funds, insurance, financial planning
and trust services.
With First Union Securities, we have achieved a workable and working blend
of the cultures of "bank" and "securities firm," which is helping us to execute
our strategy in innovative ways. For example, First Investment Advisors, a part
of our Capital Management Group, recently established a private equity
fund-of-funds with $92 million in capital commitments. This new fund was created
to provide our clients access to leading leveraged buyout and venture capital
partnerships that emerge through the activities of investment bankers in our
Capital Markets Group.
These high-growth businesses have resulted in a growing proportion of our
revenue coming from fee income, which provides a balance to the interest income
generated through our General Bank. In 1999, 48 percent of our revenues came
from fee and other income, excluding portfolio securities transactions, compared
with 45 percent in 1998.
First Union Securities is founded on, and is fed by, the long-term
relationships in our General Bank. Our General Bank, which encompasses consumer
and commercial banking operations in our East Coast marketplace, could hardly be
called a "traditional bank" today. It is the result of years of initiatives to
modernize, streamline and increase productivity through new products and
services such as mutual funds and annuities, and a new corporate culture that
actively emphasizes sales and service.
In fact, I believe our foundation gives us a great deal of flexibility in
the face of a rapidly changing financial landscape. There is no clearer example
than what we have seen with the mushrooming growth of the Internet.
INNOVATION IN E-COMMERCE Until the beginning of 1999, First Union's Internet
strategy had been developmental, focused on using the Internet as an additional
choice among multiple channels for reaching our customers. Throughout 1999, we
stepped up Internet development, adding new functions, content and customers
almost daily. Today, our customers can manage their checking, bill payment and
brokerage activities through the convenience of a single access code. We also
can originate deposit accounts, mortgage loans, home equity loans and credit
cards online. For our commercial customers, our strategy is focused on building
a complete payments capability that enables them to handle every facet of the
payments process online -- from an initial order to billing, collections and
inventory management. We ended the year with more than 1.2 million online retail
customers, 29,000 online commercial customers and 20,000 brokerage clients --
all without significant advertising. During 2000, we will further develop all of
these channels to help our financial specialists and brokers serve their clients
more fully.
E-COMMERCE INVESTMENTS AND JOINT VENTURES In addition, we are taking multiple
paths in the development of e-commerce opportunities, including joint ventures,
alliances and strategic equity investments in innovative "dot-com" companies.
We believe one of our most significant projects -- both for us and for the
industry -- is our joint venture called Spectrum. This online bill presentment
and bill payment venture was developed at "Internet speed," from beginning
4
<PAGE>
LETTER TO OUR SHAREHOLDERS
discussions with our two partners in February 1999 to the formation of a limited
liability company in October 1999. By November we were up and running. With 60
million buyers and 79,000 billers among the three partners at the onset and more
banks signing on daily, this represents an enormous potential universe of users
for Spectrum.
Other projects include our equity interest in a small business portal,
BrightLane.com, which is designed to provide purchasing power, expert advice and
convenient services at a single online source. These services include
recruiting, office products, payroll, benefits, web services, plus Customer Care
coaches to provide support, and financial services, which First Union will
provide. Our growing portfolio of strategic investments spans retail, wholesale
and investment banking applications such as our 15 percent stake in virtual
investment bank Capital.com.
In summary, First Union is one of only a handful of financial services
companies that has assembled the resources and capabilities to invest in the
products, technology and intellectual capital needed to participate in this
technological revolution.
So, on the edge of a new century, we are optimistic about First Union's
prospects. We have in place the very flexible, very entrepreneurial, very
competitive company that we envisioned 15 years ago when our interstate
expansion began. We are offering the broad-based financial services that
customers demand today, and we will continue to evolve to meet customers'
desires.
Even as we grow and change, we remain committed to rewarding our long-term
investors through stock buybacks, dividends and other corporate measures. In
1999, we completed the 22nd year of increased dividends. First Union, including
its predecessor Union National Bank, has paid a dividend every year since 1910.
Additionally, we repurchased 52 million shares of our stock in 1999, and our
Board approved a new 50 million share buyback program in May 1999. Management
and the Board continued to review and assess First Union's corporate governance
policies. We are proud of these important policies, which we design to help
build long-term stockholder value and to ensure that our management and the
Board remain accountable to you, our stockholders.
PEOPLE POWER None of this progress would have been possible without the hard
work of our employees, the wise counsel of our directors and the support of our
customers and stockholders. For that, we are very grateful.
I would like to thank John Georgius, who retired at year-end 1999, for the
determination and commitment that marked his nine-year tenure as president.
(Photo of Edward E. Crutchfield appears here)
Edward E. Crutchfield
Chairman and
Chief Executive Officer
(Photo of G. Kennedy Thompson appears here)
G. Kennedy Thompson
President
In mid-1999, Ken Thompson, a 23-year veteran of First Union with roots in
corporate banking, the General Bank and Capital Markets, was named to succeed
John as president of First Union.
Ken and I spent a lot of our time in 1999 with groups of employees
throughout our corporation. This may well have been the most fulfilling thing
that we did in 1999, as we came away from these meetings inspired by the
dedication and caring that our employees truly have for serving their customers.
As I have said many times, I am in awe of the dedication of our employees.
I am proud to be associated with a group of people who believe, as I do, that
the more we do for our customers and our communities, the better off we will be
as a company. On the following page, you may read more about First Union's
community development and outreach programs.
These are the kind of values that we believe set First Union apart in our
quest to keep the humanity in our company, no matter how large we become. It is
our fervent wish that First Union will continue to be regarded as a company
where the most talented people want to work, where customers want to do business
and where stockholders want to invest their money. Thank you, again, for your
interest in First Union.
Sincerely,
/s/ Edward E. Crutchfield
Edward E. Crutchfield
Chairman and Chief Executive Officer
February 22, 2000
5
<PAGE>
COMMUNITY FOCUS
"What you are doing in terms of volunteering and
tutoring...it can turn this country around. It can help make
every child at risk a child of promise,
and we have no more important task before us."
General Colin L. Powell, chairman, America's Promise - The Youth Alliance,
addressing First Union's Senior Leadership Conference,
September 24, 1999
With these words, General Colin Powell, chairman of America's Promise,
helped First Union kick off one of the largest corporate literacy events in
history, our Reading First campaign. This unique event characterized 1999, a
year when new heights were reached in our commitment to the communities we
serve.
EDUCATION FIRST At First Union, we believe that helping build a firm foundation
in education is the most important investment we can make in America's future.
As a result, improving education continues to be our top community involvement
priority, with a special focus on early childhood literacy. We feel that helping
a child learn to read -- and love to read -- is the best way to improve that
child's chance for success in school and in life.
To celebrate the tenth anniversary of First Union's Education First
program, our three-week Reading First campaign promoted the importance of
reading aloud to children. Thousands of First Union employees and community
partners visited more than 76,000 classrooms to read the Dr. Seuss classic Oh!
The Places You'll Go to approximately 2 million children. Close to 100,000 books
were donated to classrooms and school libraries.
Due to the extraordinary efforts of our employees this year, we are on
track to fulfill the pledge we made to America's Promise of contributing 2.4
million volunteer hours to education by the end of 2000. A particular point of
pride came in October 1999 when the Points of Light Foundation cited First Union
employees for making a difference in the lives of children through educational
outreach.
Employee volunteerism is a cornerstone of our company, grounded in our
long-standing Time Away From Work policy, which offers employees four hours of
paid time-off each month to volunteer in education. We also support our
communities with financial resources. In 1999, First Union gave more than $55
million in charitable contributions through company, foundation and employee
gifts to support hundreds of programs that have the potential to effect
positive, long-lasting change in our communities.
Our commitment to community development is no less passionate. We, along
with our community partners, believe that a comprehensive approach to community
development -- one that encompasses small business growth, affordable housing,
urban renewal and personal empowerment -- is the most effective path to
much-needed urban revitalization.
INVESTING IN COMMUNITIES In 1999, our community development loans and
investments exceeded $12 billion, the highest level in our history. We recognize
the vast opportunity in the emerging community development market and will
continue to elevate our presence in this key arena. Part of this growth is
coming from our new Community Development Lending Unit, which applies
profit-driven goals to accelerate the pace of revitalization and enhance social
services in communities across our marketplace.
Appreciating the critical role that small businesses and farms play in
economic development, we provided $4.5 billion in loans, leases and other
financial products for emerging entrepreneurs and their growing companies. We
are also an industry leader in helping families realize their dream of home
ownership. In 1999, we originated more than $5.5 billion in affordable home
loans and investments that helped more than 78,000 families move into their own
homes, many for the first time.
RESPONSIBLE LENDING First Union is setting the standard for fair and responsible
home equity lending. National and local community leaders recently endorsed The
Money Store as a place where borrowers are treated fairly, applauding our
ground-breaking efforts to align home equity loan pricing, products and
underwriting within all of our home equity channels.
We are very proud of the culture our people have built: one that encourages
active involvement and investment in the communities that support us. At First
Union, we believe that helping our communities prosper is more than a corporate
responsibility...it's the right thing to do.
6
<PAGE>
FIRST UNION ACROSS THE NATION
First Union ranks number 1, 2 or 3
in deposit share in 20 of the East Coast's
top 30 metropolitan areas.
(Map appears here)
o Financial Centers
(square) First Union Securities
(triangle) First Union Home
Equity Bank, N.A.
(star) First Union Mortgage
Corporation
(diamond) The Money Store
BANKING UNITS
Florida
Branches: 468
ATMs: 874
Market Share: 16.62%
Ranking: No. 2
Pennsylvania
Branches: 333
ATMs: 563
Market Share: 13.73%
Ranking: No. 2
New Jersey
Branches: 314
ATMs: 614
Market Share: 12.28%
Ranking: No. 2
North Carolina
Branches: 203
ATMs: 433
Market Share: 13.26%
Ranking: No. 4
Virginia
Branches: 170
ATMs: 291
Market Share: 12.17%
Ranking: No. 2
Georgia
Branches: 119
ATMs: 382
Market Share: 9.47%
Ranking: No. 4
Connecticut
Branches: 80
ATMs: 118
Market Share: 6.39%
Ranking: No. 4
Maryland
Branches: 72
ATMs: 109
Market Share: 6.89%
Ranking: No. 6
South Carolina
Branches: 53
ATMs: 103
Market Share: 6.03%
Ranking: No. 6
New York
Branches: 47
ATMs: 98
Market Share: 1.93%
Ranking: No. 14
Tennessee
Branches: 41
ATMs: 60
Market Share: 2.67%
Ranking: No. 7
Washington, D.C.
Branches: 26
ATMs: 60
Market Share: 15.87%
Ranking: No. 3
Delaware
Branches: 20
ATMs: 50
Market Share: 1.98%
Ranking: No. 9
Source: SNL Securities;
market share data represents
deposits at June 30, 1999.
7
<PAGE>
HEADQUARTERS AND PRINCIPAL SUBSIDIARIES
HEADQUARTERS
First Union Corporation
One First Union Center
Charlotte, North Carolina
28288
704-374-6161
REGIONAL
HEADQUARTERS
First Union-Atlantic
(Includes the states of
Connecticut, New Jersey
and New York)
190 River Road
Summit, New Jersey
07901
973-565-3200
First Union-Florida
225 Water Street
Jacksonville, Florida
32202
904-361-2265
First Union-Georgia
999 Peachtree Street
Suite 1200
Atlanta, Georgia
30309
404-827-7399
First Union-Mid-Atlantic
(Includes the states
of Maryland, North
Carolina, South Carolina,
Tennessee, Virginia and
Washington, D.C.)
One First Union Center
Charlotte, North Carolina
28288
704-374-6161
First Union-Penn/Del
(Includes the states
of Delaware and
Pennsylvania)
1339 Chestnut Street
Widener Building
13th Floor
Philadelphia, Pennsylvania
19107
215-985-6000
PRINCIPAL
SUBSIDIARIES
Congress Financial
Corporation
Asset-based lending.
1133 Avenue of
the Americas
New York, New York
10036
212-545-4325
First Union
Bank of Delaware
Full-service commercial
bank.
One Rodney Square
Tenth and King Streets
Wilmington, Delaware
19801
302-888-7500
First Union
Brokerage Services, Inc.
Securities brokerage firm.
One First Union Center
Charlotte, North Carolina
28288
704-374-6927
First Union
Capital Partners, Inc.
Investment and merchant
banking.
One First Union Center
Charlotte, North Carolina
28288
704-374-4656
First Union
Commercial Corporation
Equipment lease financing.
One First Union Center
Charlotte, North Carolina
28288
704-374-4900
First Union
Direct Bank, N.A.
Card products, including
credit and debit cards,
remote and electronic
delivery channels.
699 Broad Street
Augusta, Georgia
30903
800-413-7898
First Union
Home Equity Bank, N.A.
Home equity loans.
1000 Louis Rose Place
Charlotte, North Carolina
28262
704-593-9300
First Union
Mortgage Corporation
Mortgage banking and
insurance services.
Two First Union Center
Charlotte, North Carolina
28288
800-654-9322
First Union
National Bank
Full-service commercial
bank.
One First Union Center
Charlotte, North Carolina
28288
704-374-6161
First Union
Rail Corporation
Railcar leasing.
6250 River Road
Suite 5000
Rosemont, Illinois
60018
847-318-7575
First Union
Securities, Inc.
Investment banking,
retail and institutional
brokerage and securities
products and services.
One First Union Center
Charlotte, North Carolina
28288
704-374-6161
The Money Store, Inc.
Home equity, student and
small business loans.
707 Third Street
West Sacramento, California
95605
916-617-2000
FOREIGN
BRANCHES
Nassau, Bahamas
Hong Kong, China
(Restricted License Branch)
London, England
Tokyo, Japan
Seoul, South Korea
Taipei, Taiwan
REPRESENTATIVE
OFFICES
Buenos Aires,
Argentina
Sydney, Australia
Manama, Bahrain
Sao Paulo, Brazil
Santiago, Chile
Beijing, China
Hong Kong, China
Shanghai, China
Bogota, Colombia
Guayaquil, Ecuador
Cairo, Egypt
London, England
Paris, France
Hamburg, Germany
Mumbai, India
Jakarta, Indonesia
Milan, Italy
Tokyo, Japan
Kuala Lumpur,
Malaysia
Mexico City, Mexico
Panama City, Panama
Manila, Philippines
Singapore
Johannesburg,
South Africa
Seoul, South Korea
Madrid, Spain
Taipei, Taiwan
Bangkok, Thailand
Istanbul, Turkey
Dubai, United Arab
Emirates
San Diego, California
8
<PAGE>
Index to Special Topics
<TABLE>
<S> <C>
GENERAL INFORMATION
Annual Meeting.............................................................Back Page
Board of Directors.................................................Inside Back Cover
Community Focus....................................................................6
Description of Business.....................................Inside Front Cover, 2, 3
Employees........................................................................T-1
Headquarters and Principal Subsidiaries............................................8
Market Share..........................Inside Front Cover, 2, 3, 4, 7, 14, 15, 17, 18
Year 2000.........................................................................13
CAPITAL RESOURCES
Regulatory Capital................................................23, 31, T-16, C-21
Stockholders' Equity........................................1, 23, 31, T-1, C-3, C-5
COMMON STOCK
Book Value....................................................................1, T-1
Dividends......................................1, 5, 23, 31, T-1, T-8, C-4, C-5, C-6
Market Price.............................................................1, T-1, T-9
Shares, Number Outstanding.......................1, 23, 31, T-1, C-3, C-4, C-5, C-32
Stockholders, Number of..........................................................T-1
LIQUIDITY
Debt Ratings...............................................................Back Page
LOANS
Average Balances..........15, 16, 17, 18, 19, 30, T-2, T-3, T-4, T-5, T-6, T-7, T-26
Commercial Real Estate....................................................20, 21, 30
Consumer Loan Portfolio.......................................16, 19, 30, T-10, C-16
Geographic Concentrations.........................................................21
Industry Concentrations.......................................................20, 21
Loan Loss Allowance...............................20, 30, T-12, T-13, C-3, C-9, C-17
Loan Loss Provision............20, 30, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, T-12,
C-4, C-6, C-9, C-12, C-17, C-25, C-26, C-39, C-40
Mix at Year-End...............................................................19, 30
Net Charge-Offs............................................1, 10, 20, 30, T-12, C-17
Nonperforming Assets.........................................1, 10, 20, 21, 30, T-12
Project Type......................................................................20
PROFITABILITY
Earnings Performance......1, 3, 10, 28, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, C-4,
C-32, C-39
Fee and Other Income......1, 10, 11, 12, 14, 15, 16, 17, 18, 29, T-1, T-2, T-3, T-4,
T-5, T-6, T-7, T-9, C-4, C-12, C-24, C-25, C-26, C-39
Income Per Share.........................................1, 3, 10, 28, T-1, T-9, C-4
Net Interest Income........12, 14, 15, 17, 18, 28, 29, T-1, T-2, T-3, T-4, T-5, T-6,
T-7, T-9, T-26, C-4, C-39
Net Interest Margin..................................................1, 12, 29, T-26
Noninterest Expense.............10, 13, 15, 16, 17, 18, 29, T-1, T-2, T-3, T-4, T-5,
T-6, T-7, T-9, C-4, C-12, C-25, C-26, C-27, C-39
Results of Operations.....1, 3, 10, 28, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, C-4,
C-39
Return on Average Assets.........................................1, 10, 28, T-8, T-9
Return on Average Stockholders' Equity...1, 3, 10, 28, T-2, T-3, T-4, T-5, T-6, T-7,
T-8, T-9
RISK MANAGEMENT
Asset Quality............................................1, 20, 30, T-12, T-13, C-17
Derivative Transactions....................27, 31, T-17, T-22, T-23, T-24, C-8, C-33
Market Risk Management..................................................24, 31, C-33
SECURITIES
Available For Sale......................1, 25, 31, T-1, T-9, T-17, T-18, T-25, T-26,
C-3, C-4, C-6, C-7, C-16, C-36, C-39, C-40
Investment..............................1, 26, 31, T-1, T-9, T-17, T-20, T-25, T-26,
C-3, C-4, C-6, C-16, C-36, C-38, C-39, C-40
Trading Activities.........15, 16, 27, 29, T-2, T-3, T-4, T-5, T-6, T-7, T-25, T-26,
C-3, C-4, C-25, C-26, C-36, C-38, C-39, C-40
</TABLE>
Contents
10 Management's
Analysis of
Operations
T-1 Financial Tables
T-26 Five-Year Net
Interest Income
Summaries
C-1 Management's
Statement of
Responsibility
C-2 Independent
Auditors' Report
C-3 Consolidated
Balance Sheets
C-4 Consolidated
Statements
of Income
C-5 Consolidated
Statements
of Changes in
Stockholders'
Equity
C-6 Consolidated
Statements
of Cash Flows
C-7 Notes to
Consolidated
Financial
Statements
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
The following discussion and other portions of this Annual Report contain
various forward-looking statements. Please refer to our 1999 Annual Report on
Form 10-K for a discussion of various factors that could cause our actual
results to differ materially from those expressed in such forward-looking
statements.
Earnings Highlights
First Union's operating earnings in 1999 were $3.5 billion, or $3.60 per
share, compared with operating earnings of $3.7 billion in 1998, or $3.77.
Excluding nonrecurring gains amounting to 20 cents per share related to the sale
of First Union's interest in Electronic Payment Services, Inc. and the sale of
net assets associated with our factoring business, operating earnings in 1999
were $3.3 billion, or $3.40 per share. Operating earnings exclude merger-related
and restructuring charges of $263 million after tax, or 27 cents per share, in
1999 and $805 million after tax, or 82 cents, in 1998. After merger-related and
restructuring charges, net income in 1999 was $3.2 billion, or $3.33 per share,
compared with $2.9 billion, or $2.95, in 1998.
Operating earnings in 1999 represent a return on average stockholders'
equity of 21.60 percent and a return on average assets of 1.51 percent.
In the fourth quarter of 1999, operating earnings were $846 million, or 86
cents per share, compared with $993 million, or $1.00, in the fourth quarter of
1998. Operating earnings in the fourth quarter of 1999 exclude merger-related
and restructuring charges of $4 million after tax, with no impact to earnings
per share, compared with $136 million, or 13 cents per share, in the fourth
quarter of 1998. After merger-related and restructuring charges, net income in
the fourth quarter of 1999 was $842 million, or 86 cents per share, compared
with $857 million, or 87 cents, in 1998.
Fee and other income, excluding portfolio securities transactions,
increased 15 percent to $7.0 billion in 1999 compared with $6.1 billion in 1998.
The majority of the increase in fee income came from First Union Securities
(encompassing Capital Markets and Capital Management), which generated a 37
percent increase in fee income to $4.1 billion compared with $3.0 billion in
1998. In addition to very strong internal growth, these results include
approximately $190 million in brokerage fee income from EVEREN Capital
Corporation. This acquisition, which was accounted for as a purchase, was
completed on October 1, 1999, and created the nation's sixth
(Pie chart appears here with the following plot points)
BUSINESS SEGMENT CONTRIBUTIONS
TO PROFITABILITY -- NET INCOME*
(Percent)
Capital Markets 30%
Consumer 22%
Capital Management 17%
Commercial 16%
Treasury/Nonbank** 15%
* Before merger-related and restructuring charges.
**Includes securities gains/losses.
largest retail brokerage company. First Union has more than 6,600 registered
representatives in 2,700 retail offices in 41 states and Washington, D.C.
Noninterest expense, excluding merger-related and restructuring charges,
amounted to $8.5 billion in 1999, compared with $7.8 billion in 1998. Expenses
in 1999 include approximately $200 million related to EVEREN.
Credit quality continued to be stable. Net charge-offs were 0.52 percent of
average net loans, compared with 0.48 percent in the year-ago period.
Nonperforming assets as a percentage of net loans and foreclosed properties were
0.79 percent in 1999 compared with 0.63 percent in 1998.
OUTLOOK The scale and scope of our business has changed dramatically as we have
realized our goal of creating a new kind of financial services company to
achieve future growth. Today, customers want much broader and more sophisticated
products and services, and they want a variety of new and different product
delivery channels that emphasize convenience, speed and control. Fortunately, we
have been laying the groundwork since 1994 for a new financial services business
model that would address these needs, guided by our vision of a company that
would generate about 50 percent of its income from its banking business and 50
percent from its securities business. On the banking side, we have transformed a
traditional banking business into one with a multi-channel distribution
strategy, an innovative product array and a focused sales and service culture.
We have invested in advanced technology to serve our customers more effectively
through our financial centers, brokerage offices, First Union Direct (our
centralized sales and service call centers) and the Internet.
Our Internet strategy consists of three dimensions: web enabling all of our
products and services; making
10
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
selective investments in e-commerce companies to access technology and customers
and achieve attractive returns on capital; and web enabling our internal
infrastructure. The number of customers using our online services increased 200
percent from year-end 1998. We ended 1999 with more than 1.2 million online
retail customers, 29,000 online commercial customers and 20,000 brokerage
clients.
On the securities side of our business, we have applied our resources
toward building investment banking, brokerage and asset management capabilities.
In 1999, we positioned our Capital Markets and Capital Management businesses
under one name, First Union Securities. Our commercial and consumer products
delivered through our state banking channels were folded into our General Bank.
Within our General Bank, deposit and lending products are sold in our financial
centers along with nontraditional financial products, enabling extensive
cross-sell opportunities for the products and services offered by First Union
Securities and the mortgage loans, home equity loans and other personal finance
products offered by our Specialty Finance businesses.
The high-growth businesses in which we have invested have resulted in a
growing proportion of our revenue coming from fee-producing businesses. In 1999,
48 percent of our revenues came from fee and other income, excluding portfolio
securities transactions, compared with 45 percent in 1998.
The transformation to the new business model has resulted in increased
choices in how, when and where our customers do business with us. In this
significant undertaking, we have simultaneously transformed our branch delivery
system to the new business model while integrating CoreStates Financial Corp, a
pooling of interests merger, which was consummated in April 1998 and converted
by November 1998. Through extensive training, the addition of staff at high
volume offices, specific plans to maintain higher sales and service staffing
levels, enhancements to key business processes and a revitalized focus on
service delivery, we have improved results in our retail branch network. We are
seeing encouraging trends in the performance measurements we use for evaluating
service quality, new product sales volumes and the economic contribution of new
product sales. While the transformation to the new business model poses some
short-term risk to earnings, we believe that the failure to replace the
traditional bank asset-gathering model poses greater long-term risks.
As a result of this continuing investment in our new business model,
including development of Internet capabilities, full staffing and training in
our retail finan-cial centers and further development of First Union Securities,
expense growth moderately outpaced revenue growth in 1999 and likely will
continue to do so in 2000. It should be noted that an increasing percentage of
our expense base is variable, and linked to increased revenue growth.
The Accounting and Regulatory Matters section provides information about
accounting and regulatory matters that have recently been adopted or proposed,
as well as information on recent legislative develop- ments and the potential
impact of permissible business activities for us.
MERGER AND CONSOLIDATION ACTIVITY
On October 1, 1999, we completed the acquisition of EVEREN Capital Corporation,
a full-service brokerage and asset management firm based in Chicago, Illinois.
This transaction provides First Union with a nationwide brokerage platform and
augments our equity research, trading, underwriting and distribution
capabilities. The acquisition, which was accounted for as a purchase, was an
all-stock transaction providing for each share of EVEREN common stock to be
exchanged for 0.8286 shares of First Union common stock, which valued the
acquisition for accounting purposes at $31.00 per EVEREN share, or $1.1 billion.
We recorded approximately $900 million of goodwill in connection with this
acquisition. In addition, we estimate that we will incur approximately $80
million in merger-related charges, an increase from our original estimate of $60
million, consisting primarily of expenses related to systems conversion and
integration. Of this amount, $20 million was recorded in 1999 and the rest is
expected to be incurred in 2000. The amount of goodwill recorded at December 31,
1999, and the merger-related charges to be incurred in 2000 are preliminary
estimates and are subject to refinements of certain fair value adjustments and
integration strategies, which could result in significant changes to these
estimates.
In addition, in connection with the acquisition, approximately $87 million
in restricted shares of First Union common stock was issued to certain EVEREN
employees, primarily brokers. This is an employee retention pool that vests over
a three-year period and the compensation cost will be charged to expense over
the vesting period.
11
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
As of December 31, 1999, we had repurchased in the open market 13 million
shares of First Union common stock in connection with this acquisition and we
expect to repurchase shares equal to the remaining 18 million shares in 2000.
The Liquidity and Funding Sources - Stockholders' Equity section provides
further information related to our buyback programs.
We continue to evaluate acquisition and investment opportunities that we
believe would enhance our existing product capabilities and complement our
long-term goals. Acquisition and investment discussions and in some cases
negotiations may take place from time to time, and future transactions involving
cash, debt or equity securities may be expected.
CORPORATE RESULTS OF OPERATIONS
NET INTEREST MARGIN Tax-equivalent net interest income was $7.6 billion in 1999
compared with $7.4 billion in 1998. 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 3.79 percent in 1999 compared with 3.81
percent in 1998. There was a decrease in the average rate on earning assets from
7.77 percent in 1998 to 7.64 percent in 1999. Our average rate paid on
liabilities decreased from 4.59 percent to 4.42 percent year over year. The net
interest margin was negatively affected by the funding cost associated with an
increase in the level of net noninterest earning assets. This was somewhat
offset by a lower average interest rate environment in 1999. Deposit
divestitures in late 1998 related primarily to the CoreStates merger also
contributed to a declining margin as lower cost deposit funding was replaced
with higher cost borrowings. It should be noted that we focus on net income and
economic contribution when evaluating corporate strategies and we place less
importance on the net interest margin impact of these decisions.
More information on the securities and off-balance sheet transactions we
use to manage interest rate sensitivity is included in the Market Risk
Management section.
FEE AND OTHER INCOME We are continually developing products to meet the
challenges of increasing competition, changing customer demands and demographic
shifts. We have pursued strategic investments to build high-growth lines of
business to increase fee income. For example, over the years we have
significantly broadened our product lines, particularly in Capital Markets and
Capital Management, to provide additional sources of fee income that complement
our long-standing banking products and services. These investments were
reflected in a 15 percent increase in fee and other income, exclud-ing portfolio
securities transactions, to $7.0 billion in 1999 from $6.1 billion in 1998.
Fee and other income from First Union Securities amounted to 58 percent of
fee and other income, excluding portfolio securities transactions, in 1999. Led
by strong results in investment banking and trading, Capital Markets fee and
other income increased 50 percent to $1.7 billion in 1999 compared with 1998,
which was a period of diminished trading activities due to significant turmoil
in the global financial markets. Investment banking results included $578
million of merchant banking and other related gains in 1999 compared with $236
million in 1998. Capital Management fee and other income increased 28 percent to
$2.3 billion in 1999 from $1.8 billion in 1998. These activities are discussed
further in the Business Segments section.
In addition, strong results in securitization activity contributed to the
increase in fee and other income. Securitization income increased by $169
million to $417 million primarily from the securitization and sale of credit
card receivables, SBA loans and student loans in 1999. Residential mortgage
income of $405 million in 1999 included $126 million of gains from the
securitization and sale of $4.2 billion of residential mortgage loans compared
with $203 million of gains in 1998.
In 1999, portfolio-related net securities losses were $62 million, which
included a $79 million impairment loss on certain residual interests in
securitizations. This write-down was the result of the impact of revised loss
assumptions on the valuation of residual interests. More information related to
residual interests is included in the Securities Available for Sale and Asset
Securitizations sections. In 1998, we realized portfolio securities gains of
$357 million, including a $7 million impairment loss, as we took advantage of
market conditions to reposition the portfolio.
Sundry income declined by $217 million to $656 million in 1999 compared
with $873 million in 1998. Sundry income in 1999 included a gain of $109 million
on the sale of net assets associated with our factoring business and a net gain
of $177 million from the acquisition by Concord EFS, Inc. (Concord) of
Electronic Payment Services, Inc., in which First Union held a 20 percent
interest, and the
12
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
subsequent sale of the Concord shares. Sundry income also included branch sale
gains amounting to $23 million in 1999. In 1998, branch sale gains amounted to
$254 million, which included $117 million of CoreStates-related branch sale
gains. In 1998, we also recognized previously deferred gains of $156 million in
connection with two equity method investments. Also included in sundry income in
1998 was a $57 million gain on the sale of our merchant card business. There
were no other individually significant items included in the change in sundry
income in 1999 compared with 1998.
NONINTEREST EXPENSE Noninterest expense was $8.9 billion in 1999 and $9.1
billion in 1998. Noninterest expense included EVEREN and The Money Store from
the date these purchase accounting acquisitions closed on October 1, 1999, and
June 30, 1998, respectively. In addition, 1999 expenses included $404 million of
merger-related and restructuring charges compared with $1.2 billion in 1998. In
1999, this included merger-related expenses of $75 million related to
CoreStates, $20 million related to EVEREN and a $347 million restructuring
charge related to the restructuring plan we announced in March 1999. See Note 2:
Acquisitions and Merger-Related and Restructuring Charges in the consolidated
financial statements for more information.
In addition to expenses associated with The Money Store and EVEREN and to
the merger-related and restructuring charges, expenses in 1999 reflected higher
personnel costs, primarily incentives associated with revenue growth in Capital
Markets and Capital Management, and continued spending related to increased
training and staffing in our retail financial centers. The operating overhead
efficiency ratio before merger-related and restructuring charges was 58.32
percent in 1999 and 56.72 percent in 1998. The overhead efficiency ratio is
likely to rise over time as we focus on building our securities business, which
is an industry that inherently has higher overhead efficiency ratios.
Amortization of intangible assets predominantly represents the amortization
of goodwill and deposit base premium related to purchase accounting
acquisitions. The increase in amortization expense in 1999 from 1998 was
attributable to goodwill and other intangibles recorded in connection with the
acquisition of The Money Store and EVEREN. We had $5.6 billion in goodwill and
other intangible assets at December 31, 1999, and $5.0 billion at December 31,
1998.
Noninterest expense included $35 million in 1999 and $21 million in 1998
related to the Year 2000 project. As of December 31, 1999, $61 million has been
incurred since project inception, and we estimate that project costs incurred in
2000 will be nominal. We successfully completed the Year 2000 changeover with no
significant customer service issues. We will continue to monitor all business
processes throughout 2000 to address any issues that might arise and to ensure
that all processes continue to function properly. We will also continue to
monitor our customers, vendors and other third parties for Year 2000 related
issues.
INCOME TAXES Income taxes were $1.6 billion in 1999 and $1.1 billion in 1998. As
a result of corporate reorganization decisions, we realized an after-tax benefit
of $270 million in the fourth quarter of 1998. The effective tax rate increased
to 33 percent in 1999 from 27 percent in 1998, and we believe that the rate in
1999 will be more representative of our effective tax rate in the future.
Business Segments
METHODOLOGY First Union's operations are divided into five business segments
encompassing more than 60 distinct product and service units. These segments
include Capital Markets, Capital Management, Consumer, Commercial and
Treasury/Nonbank. Additional information can be found in Table 2.
Our management reporting model measures business segment results. Because
of the complexity of the corporation, we have used various estimates and
allocation methodologies in the preparation of the Business Segments financial
information. We continually evaluate our allocation methodologies as we refine
our approach to measuring segment results. In early 1999, we made significant
refinements to certain allocation methodologies and the prior period information
has been restated to reflect these refinements. These refinements include the
allocation of certain nonearning assets and liabilities and the related funding
cost from Treasury/Nonbank to the other business segments; elimination of the
tax-equivalization of net interest income such that the tax effect is now
included in income tax expense; and adjustments to certain capital attribution
formulas. These methodology refinements better reflect the way we manage our
business. See Note 9: Business Segments in the consolidated financial statements
for additional information.
13
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
CAPITAL MARKETS Our Capital Markets products and services are designed to
provide a full range of capital raising, market making and financial advisory
services to meet the needs of corporate and institutional clients. We provide
full execution including corporate finance, equity research, merger and
acquisition advisory services, and debt and equity financing in 18 industry
specializations. We have developed Capital Markets expertise as a natural
extension of our commercial bank offerings. Our large General Bank franchise
provides a strong platform for the delivery of Capital Markets products and
services to meet client needs.
Our relationship coverage begins in our East Coast banking markets, and it
extends nationwide through industry expertise in automotive, banking, building
and forest products, business and consumer services, defense, aerospace and
technical services, diversified manufacturing, energy, furnishings and textiles,
healthcare, insurance, media, real estate, retail and consumer products,
specialty finance, technology, telecommunications, utilities, and private equity
groups. In addition, our International unit continues to develop and utilize
strong correspondent banking relationships overseas.
Capital Markets has five lines of business: (1) Investment Banking, which
includes merger and acquisition advisory services; merchant banking; loan
syndication; investment grade debt; high yield debt; equity sales, trading,
research and underwriting; fixed income sales and trading; municipal sales,
trading and underwriting; fixed income and equity derivatives; foreign exchange;
and asset securitization; (2) Real Estate Finance, primarily commercial real
estate finance, structured product servicing and affordable housing investments;
(3) Traditional Banking, which encompasses corporate lending activities for
corporate clients with annual sales greater than $100 million and asset-based
lending; (4) Commercial Leasing and Rail, which includes operating, finance and
leveraged leasing, and the nation's second largest general purpose railcar
leasing operation; and (5) International, whose mission is to meet the trade
finance and foreign exchange needs of our domestic customers and correspondent
financial institutions around the world, and to provide commercial banking
products to financial institutions and corporate clients overseas.
Capital Markets net income increased 52 percent to $1.0 billion in 1999
from $687 million in 1998. Net interest income increased 22 percent to $1.3
billion in 1999, with average loans up 12 percent and significant growth in
cross-border leasing. Fee and other income increased 35 percent to $1.4 billion
in 1999 compared with 1998. In addition to a modest contribution from EVEREN,
this increase principally reflected strength in Investment Banking, which was
driven by strong mer-chant banking gains. Also contributing to the significant
increase in fee and other income in Investment Banking were third party asset
securitizations, with a $54 million increase to $83 million, and loan
syndications, with a $37 million increase to $116 million, as well as increasing
contributions from merger and acquisition advisory services and high yield debt.
Our merchant banking business, in which First Union makes principal
investments in equity and mezzanine securities, is an integral part of our
investment banking strategy. In 1999, we recognized $578 million of merchant
banking and other related gains compared with $236 million in 1998. These gains
were exceptionally strong in 1999, and we do not anticipate the same level of
gains in 2000. See Note 1: Summary of Significant Accounting Policies in the
consolidated financial statements for additional information related to these
transactions.
(Pie chart appears here with the following plot points)
CAPITAL MARKETS
Contributions to Group Profitability
(Percent)
Investment Banking 44%
Commercial Leasing and Rail 20%
Traditional Banking 20%
International 9%
Real Estate Finance 7%
CAPITAL MARKETS RANKINGS
o No. 2 M&A Advisory
(Deals < $250 million)
o Top 10 merchant banking
among commercial banks
o Leading fixed-income
derivatives provider to
the middle market
o No. 4 Leveraged loan
syndications (agent-only)
o No. 1 Commercial
mortgage-backed
securities issues (conduit
and fusion) and No. 11
asset securitizations
o No. 13 High yield debt
(lead and co-managed)
o No. 5 International
trade services
14
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
Trading account profits increased from $124 million in 1998 to $346 million
in 1999. The 1998 results included the negative impact of the turmoil in the
global financial markets that occurred in the last half of 1998. Several areas
showed strong 1999 results including commercial mortgage-backed securities
within Real Estate Finance, which contributed $151 million to the increase.
Investment Banking also showed strong results in trading account profits, with
equity sales and trading contributing $49 million, as well as significant
contributions from fixed income and equity derivatives and foreign exchange.
Trading account assets were $14.9 billion at December 31, 1999, compared with
$9.8 billion at December 31, 1998. Trading activities are undertaken primarily
to satisfy the investment and risk management needs of our customers and
secondarily to enhance our earnings through profitable trading for the
corporation's own account. Market making and position taking activities across a
wide array of financial instruments add to our ability to optimally serve our
customers.
For our Real Estate Finance business, the economic benefit of the
affordable housing business is primarily derived from tax credits, which reduce
income tax expense. In reporting the Real Estate Finance results, the tax
credits have been classified in fee and other income, where the amortization of
the investment is reported. These tax credits are reclassified to income tax
expense for purposes of reporting Capital Markets segment and consolidated
results. The reclassification is presented in "Other."
The revenues from Capital Markets businesses, particularly trading and
merchant banking gains, are typically more volatile than revenues from more
traditional banking businesses and can vary significantly with market
conditions.
Noninterest expense was $1.3 billion in 1999 compared with $1.1 billion in
1998. The increase in expenses from 1998 was largely due to higher personnel
costs, including incentives associated with increased headcount and increased
revenue. The increase also includes a modest impact from EVEREN, which is
reflected in our results as of October 1, 1999.
Average net loans were $37 billion in 1999 and $33 billion in 1998. Loan
growth between the two periods was generated primarily in the corporate banking,
commercial leasing and leveraged finance units.
Capital Markets continues to expand its relationship banking efforts,
including increased industry coverage and an expanded international presence.
Because our international strategy is to support the trade finance needs of our
domestic customers and correspondent financial institutions around the world
rather than to lend to sovereign nations or foreign companies, we have limited
credit exposure to emerging markets.
CAPITAL MANAGEMENT Through the Capital Management Group (CMG), we have created
a growing, diversified trust, investment management and brokerage organization,
with products and services that provide the link between traditional banking and
investing for retail and institutional customers. CMG is organized into five
major lines of business: retail brokerage and insurance services, trust
services, mutual funds, cap account and private client banking.
CMG offers a full line of investment products and services distributed
through multiple channels, including our national retail brokerage branch
network, full-service retail financial centers in our East Coast marketplace and
our online brokerage. CMG's assets under management increased 11 percent from
year-end 1998 to $170 billion by December 31, 1999, including $80 billion in the
Evergreen mutual funds and $90 billion in trust and institutional assets.
Capital Management net income increased 37 percent to $584 million in 1999
compared with $426 million in 1998. Net interest income amounted to $526 million
in 1999 compared with $412 million in 1998. Capital Management products and
services primarily generate fee income. Capital Management fee and other income
increased 28 percent to $2.3 billion in 1999 from $1.8 billion in 1998. Growth
in fee and other income was strong across all business lines, with exceptional
growth in Retail Brokerage and Insurance Services and CAP Account.
CAPITAL MANAGEMENT RANKINGS
o No. 6 Broker/Dealer
o No. 20 Mutual fund
complex
o No. 2 Estate account
provider
o No. 4 Personal trust
accounts
o No. 5 Asset manage-
ment accounts
o Top Quartile customer
service ranking
among all fund
companies rated
by DALBAR
15
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
(Pie chart appears here with the following plot points)
CAPITAL MANAGEMENT
Contributions to Group Profitability
(Percent)
Trust Services and Mutual Funds 46%
Retail Brokerage and Insurance Services 24%
CAP Account 20%
Private Client Banking 10%
Noninterest expense in 1999 was $1.9 billion compared with $1.5 billion in
1998. This increase reflected higher personnel costs, primarily incentives
associated with revenue growth, as well as the impact of EVEREN.
Retail Brokerage and Insurance Services provides individuals with access to
one of the widest arrays of financial products and services in the industry,
ranging from stocks, bonds, mutual funds, private equity funds and annuities to
retirement, trust and estate planning, and tax and investment strategies for
insurance and risk management. Fee and other income from this line of business
increased 46 percent in 1999 to $1.1 billion. In addition to very strong
internal growth, retail brokerage results for 1999 included approximately $190
million in brokerage fee income from EVEREN. Client trading activity in retail
brokerage increased 53 percent from 1998 and the market value of client assets
increased to $168 billion at December 31, 1999. Bank annuity sales volume was
$2.1 billion in 1999 compared with $1.6 billion in 1998.
Our Trust Services business encompasses personal trust, corporate trust and
benefit services, and institutional trust services. Trust fee and other income
increased 11 percent in 1999 from 1998. Personal trust fees amounted to more
than 50 percent of trust fees in 1999 and in 1998.
Assets in the First Union-advised Evergreen mutual funds at December 31,
1999, were $80 billion compared with $69 billion at December 31, 1998. These
funds may be purchased through First Union's financial centers, retail brokerage
offices, the online brokerage, First Union Direct, trust services offices and
through third party broker-dealers. Mutual fund fees increased 12 percent to
$460 million in 1999 compared with 1998.
The CAP Account is an asset management product that enables our customers
to manage their securities trading and banking activities in a single,
consolidated account. Income related to the CAP Account is therefore reflected
in several of Capital Management's lines of business, including Retail Brokerage
and Insurance Services and Mutual Funds. CAP Account amounts in Table 2 reflect
CAP Account fees and the funding benefit attributed to the on-balance sheet
deposits. CAP Account assets increased to $56 billion at December 31, 1999,
compared with $38 billion at year-end 1998, and the number of CAP Accounts
increased to 603,000 compared with 430,000 at year-end 1998. We are seeing
increased investment activity through this product. As an example, the number of
brokerage trades increased 68 percent in 1999 from 1998.
Private Client Banking provides high net worth retail clients with a single
point of access to First Union's investment products, mortgages, personal loans,
trusts, financial planning, brokerage services and other products and services.
Private Client Banking had $3.6 billion in average net loans in 1999 and 1998,
and average deposits of $3.1 billion in 1999 compared with $2.7 billion in 1998.
We are focusing a great deal of attention on our wealth management businesses to
capture a growing share of the trend toward higher savings and investing as baby
boomers move away from their heavy spending years and an enormous
intergenerational wealth transfer takes place.
We anticipate continued growth in all Capital Management business lines as
we introduce products and services throughout our 41-state and Washington, D.C.,
network and as we enhance relationships with new and existing customers.
CONSUMER Our retail delivery strategy is premised on building lifetime customer
relationships by providing a full range of superior products, flexible delivery
and quality customer service across all channels. Our multiple channels,
including retail financial centers, direct telephone bank, call centers, ATMs
and the Internet, are fully integrated, enabling customers to have a single view
of their accounts.
The Consumer segment includes First Union Mortgage (FUMC), our mortgage
origination and servicing business; Home Equity, encompassing First Union Home
Equity Bank (FUHEB) and The Money Store; Credit Cards, which includes the $1.9
billion owned credit card portfolio and the income from the $4.7 billion
securitized portfolio; and Retail Branch Products, which includes our portfolio
of first
16
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
CONSUMER RANKINGS
o No. 1 East Coast
deposit share
o No. 1 Home equity
originations
o No. 2 SBA lender
o No. 3 Branch network
o No. 4 Automated
teller network
o No. 5 Debit and
ATM card issuer
o No. 6 Student loan
originator
o No. 15 Mortgage
servicer
mortgage loans, installment loans and the various consumer deposit products with
the exception of the CAP Account, which is included in Capital Management.
Consumer generated $766 million in net income in 1999 compared with $1.1
billion in 1998. The decrease in net income was the result of a decline in fee
and other income to $1.7 billion from $1.9 billion in 1998 and an increase in
noninterest expense.
Net interest income was essentially unchanged at $3.4 billion in 1999 and
1998. Net interest income in Retail Branch Products was negatively affected by a
decline in average balances primarily as a result of branch divestitures in late
1998 and the movement of deposits to our Capital Management products and
services. In Credit Cards, net interest income was negatively affected by the
securitization of $1.1 billion and $1.7 billion of credit card receivables in
1999 and 1998, respectively. These credit card securitizations resulted in gains
of $77 million and $119 million in 1999 and 1998, respectively, and will provide
ongoing fee income. FUMC net interest income declined due to lower originations
resulting from the higher interest rate environment. Partially offsetting this
decline in net interest income was an increase in the home equity businesses
reflecting our decision in early 1999 to retain home equity loans as on-balance
sheet loans.
(Pie chart appears here with the following plot points)
CONSUMER
Contributions to Group Profitability
(Percent)
Retail Branch Products 72%
Credit Cards 14%
First Union Mortgage 11%
Home Equity and The Money Store 3%
The decline in fee and other income primarily resulted from the impact of
branch divestitures in 1998 and lower securitization gains. Retail Branch
Products fees were affected by decreased levels of mortgage loan securitization
gains and lower service fees related to the divestiture of deposits in late
1998, and the movement of approximately $5.6 billion of deposits into our
alternative customer investment products in 1999. Mortgage loan securitization
or sale gains declined to $83 million in 1999 from $136 million in 1998. In
addition, Credit Card fees declined due to lower securitization gains. In the
home equity businesses, fee and other income decreased due to an impairment loss
of $79 million related to residual interests on certain home equity
securitizations, partially offset by the favorable impact of a full year of The
Money Store. Home Equity securitization gains were $136 million in 1999 and $128
million in 1998. The gains in 1998 were related to subprime home equity loans.
FUMC fees declined as a result of lower originations due to the higher interest
rate environment. Further information is included in the Fee and Other Income,
Securities Available for Sale and Asset Securitizations sections.
Noninterest expense was $3.5 billion in 1999 compared with $3.3 billion in
1998. The increase in the year over year comparisons was largely related to the
addition of The Money Store for a full year.
Average consumer loans in 1999 were $43 billion compared with $50 billion
in 1998. In addition to the impact from $298 million in loans sold in connection
with CoreStates-related branch divestitures, the decrease in the consumer loan
portfolio reflects the sale or securitization of $5.6 billion in mortgage and
credit card loans in 1999 and $7.9 billion in 1998. We also securitized and
retained as securities available for sale $7.3 billion in prime equity lines in
1999 and $2.9 billion in 1998 to facilitate funding flexibility. The Securities
Available for Sale and Asset Securitizations sections provide further
information, including a discussion of our business strategy for funding
consumer loans. Table 5 provides information related to our total managed
portfolio of consumer loans.
Average consumer deposits were $71 billion in 1999 and $78 billion in 1998,
largely reflecting the divestiture of $3.4 billion of deposits primarily in late
1998, $2.2 billion of which related to the CoreStates merger. The decline also
reflects the movement of deposits into our alternative customer investment
products.
17
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
COMMERCIAL Our wholesale delivery strategy is to provide a comprehensive array
of financial solutions, including traditional commercial lending and cash
management products, primarily focused on small-business customers (annual
sales up to $10 million), commercial customers (annual sales of $10 million to
$100 million) and corporate customers (annual sales of $100 million to $2
billion). The corporate customer relationships will be served in capital markets
in 2000.
We have an integrated relationship approach that leverages the strong
relationships in our Commercial business with the capabilities of our Capital
Markets business to provide complex financing solutions, risk management
products and international services, and with the capabilities of our Capital
Management business to provide property and casualty insurance, pension plans
and 401(k) plans. The Commercial segment is divided into four lines of business:
Small Business Banking, which represents only the lending done through our Small
Business Banking Division (SBBD); Lending, which is all other commercial lending
within our state delivery network and loans to small businesses originated
within our state delivery network rather than through SBBD; Real Estate Banking,
which is lending by our specialized real estate bankers; and Cash Management and
Deposit Services. Small Business Administration (SBA) lending, which is
primarily generated through The Money Store, is included in the Consumer
segment.
Commercial generated net income of $560 million in 1999 compared with $604
million in 1998. The decline largely reflected lower net interest income as a
result of tightening spreads due to competitive pricing and lower loan balances.
Net interest income was $1.6 billion in 1999 compared with $1.7 billion in 1998.
Fee and other income increased 7 percent to $551 million in 1999, led by strong
cash management results.
(Pie chart appears here with the following plot points)
COMMERCIAL
Contributions to Group Profitability
(Percent)
Cash Management and Deposit Services 80%
Real Estate Banking 10%
Lending 5%
Small Business Banking 5%
Noninterest expense of $1.2 billion was unchanged from 1998.
Key contributions to the Commercial segment came from Cash Management and
Deposit Services. New product sales in Cash Management rose 17 percent in 1999
from 1998 as a result of strong sales efforts and online product offerings. Cash
Management, which has been delivering products electronically for several years,
stepped up development of Internet-based products in 1999 including electronic
bill payment and present-ment, small business bill payment and wholesale lock-
box image technology. Deposits were flat compared with 1998.
Average loans related to Real Estate Banking declined 5 percent from 1998,
largely due to our focus on off-balance sheet product offerings through Capital
Markets and our focus on managing our real estate exposure. Average loans in
Small Business Banking increased 6 percent to $2.7 billion in 1999 compared with
1998. Key initiatives in the Small Business Banking Division include the
complete staffing of the Business Banking Call Center for sales and service
designed to improve customer retention and deposit growth. Average commercial
loans in 1999 declined to $33 billion from $36 billion in 1998. The decline
primarily reflects our emphasis on providing capital markets financing
alternatives for our clients and increasing the percentage of fee income in our
earnings stream. As a result of these corporate strategies, we have been able to
maintain our underwriting standards in competitive pricing environments.
We had $10 billion in small business loans in 1999, including loans
originated through the SBBD, The Money Store SBA loan program and through other
origination channels.
COMMERCIAL RANKINGS
o Top 3 Middle-market
lender
o No. 3 Cash management
provider
o Top 10 Small business
lender
o No. 1 Retail lockbox and
No. 3 wholesale lockbox
o No. 2 Corporate
check clearing
o No. 5 Fed Wire
transactions
o No. 5 Automated
clearinghouse
o No. 5 Controlled
disbursements
18
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
TREASURY/NONBANK SEGMENT The Treasury/Nonbank segment includes management of
our securities portfolios, our overall funding requirements and our asset and
liability management functions. The Treasury/Nonbank segment also contains the
goodwill asset and the associated funding cost; certain nonrecurring revenue
items discussed in Fee and Other Income; certain expenses that are not allocated
to the business segments, including goodwill amortization; and corporate
charges. In the fourth quarter of 1999, we reclassified our discontinued auto
finance business to the Treasury/Nonbank segment. The Liquidity and Funding
Sources and Market Risk Management sections provide information about our
funding sources, asset and liability management functions and securities
portfolios.
Credit Risk Management
LOANS The loan portfolio, which represents our largest asset, is a significant
source of interest income and fee income. Elements of the loan portfolio are
subject to differing levels of credit and interest rate risk. Our lend-ing
strategy stresses quality growth and portfolio diversification by product,
geography and industry. A common credit underwriting structure is in place
throughout the corporation.
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 generally used to finance fixed assets or acquisitions.
Commercial real estate loans are typically used to finance the construction or
purchase of commercial real estate. 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.
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.
Net loans were $136 billion at December 31, 1999, and $134 billion at
December 31, 1998. Commercial loans represented 57 percent and consumer loans 43
percent of the loan portfolio at December 31, 1999. Increases in loan
originations in 1999 were partially offset by the securitization of certain
consumer loans, primarily $7.3 billion in prime equity lines that were
securitized and retained as securities available for sale in 1999.
Average net loans were $132 billion in 1999 and in 1998. The average rate
earned on loans was 8.22 percent in 1999 compared with 8.46 percent in 1998.
At December 31, 1999, unused loan commitments related to commercial and
consumer loans were $95 billion and $41 billion, respectively. Commercial and
standby letters of credit were $12 billion and loan participations sold to other
lenders amounted to $1.6 billion at December 31, 1999.
(Pie charts appear here with the following plot points)
YEAR-END LOANS
(Percent)
Commercial, Financial and Agricultural 37%
Consumer Real Estate-Mortgage 21%
Installment Loans-Other 18%
Lease Financing 9%
Commercial Real Estate 8%
Foreign 3%
Vehicle Leasing 3%
Installment Loans-Bankcard 1%
YEAR-END COMMERCIAL LOANS
(Percent)
Commercial, Financial and Agricultural 64%
Lease Financing 16%
Real Estate-Mortgage 11%
Foreign 6%
Real Estate-Construction and Other 3%
YEAR-END MANAGED CONSUMER LOANS
(Percent)
Residential Mortgages 54%
Home Equity Loans 24%
Other Conumer Lending Products 12%
Card Products 5%
Student Loans 4%
Auto Lending 1%
19
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
YEAR-END COMMERCIAL LOANS
Industry Classification In Millions
- -----------------------------------------------------
Manufacturing $ 11,753
Retail trade 3,348
Wholesale trade 4,845
Services 7,385
Healthcare 2,586
Financial services 7,515
Insurance 954
Real estate-related 2,879
Communication 2,055
Transportation 2,831
Public utilities 1,481
Agriculture 814
Construction 1,283
Mining 1,192
Individuals 4,072
Public administration 1,831
Other 12,592
- -----------------------------------------------------
Total $ 69,416
- -----------------------------------------------------
YEAR-END COMMERCIAL
REAL ESTATE LOANS
Number
Project Type In Millions of Loans
- -----------------------------------------------------
Apartments $ 1,991 1,073
Condominiums 147 156
Industrial 1,239 1,595
Land-improved 606 770
Land-unimproved 275 312
Lodging 213 136
Office building 1,824 1,797
Retail 1,759 1,318
Single family 441 1,697
Other 2,708 3,265
- -----------------------------------------------------
Total $ 11,203 12,119
- -----------------------------------------------------
Asset Quality
NONPERFORMING ASSETS At December 31, 1999, nonperforming assets were $1.1
billion, or 0.79 percent of net loans and foreclosed properties, compared with
$844 million, or 0.63 percent, at December 31, 1998. Weakness in parts of the
healthcare industry due to changes in federal reimbursement policies contributed
$54 million to the increase, and there is the potential for further increases in
nonperforming assets related to this industry segment. The increase in
installment loan nonperforming assets reflects our decision to hold The Money
Store home equity loans in the loan portfolio rather than securitize them. The
Money Store nonperforming assets were $138 million at December 31, 1999, an
increase of $100 million from December 31, 1998. Over the same period, The Money
Store loans increased by $1.9 billion to $5.6 billion.
Nonperforming loans reduce interest income because the contribution from
these loans is eliminated or sharply reduced. In 1999, $81 million in gross
interest income would have been recorded if all nonaccrual and restructured
loans had been performing in accordance with their original terms and if they
had been outstanding throughout the entire period (or since origination if held
for part of the period). The amount of interest income recorded on these assets
in 1999 was $23 million.
Past Due Loans
Accruing loans 90 days past due were $188 million
at December 31, 1999, compared with $346 million at December 31, 1998. Of these
past due loans at December 31, 1999, $11 million were commercial loans or
commercial real estate loans and $177 million were consumer loans, of which $13
million related to The Money Store.
Net Charge-Offs
Net charge-offs amounted to $688 million in 1999 and $638 million in 1998.
Net charge-offs were 0.52 percent of average net loans in 1999 compared with
0.48 percent in 1998.
Provision and Allowance for Loan Losses
The loan loss provision was $692 million in 1999
compared with $691 million in 1998. The allowance for loan losses was $1.8
billion at December 31, 1999, and at December 31, 1998. The allowance as a
percentage of loans was 1.30 percent at December 31, 1999, compared with 1.36
percent at year-end 1998. We consider the allowance for loan losses adequate to
cover probable credit losses inherent in the loan portfolio.
Our methodology for determining the allowance for loan losses establishes
both an allocated and an unallocated component. The allocated portion of the
allowance represents the results of analyses of individual commercial loans and
pools of loans within the portfolio. The allocated portion of the allowance for
commercial loans is based principally on current loan grades, historical loan
loss rates adjusted to reflect current conditions, as well as analyses of other
factors that may have affected the collectibility of loans in the portfolio. We
analyze all commercial loans with
20
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
YEAR-END NONPERFORMING ASSETS
EXCLUDING COMMERCIAL LOANS
Industry Classification In Millions
- -----------------------------------------------------
Apartments $ 3
Industrial 3
Land-improved 4
Land-unimproved 15
Office buildings 7
Retail 1
Single family 223
Other 259
- -----------------------------------------------------
Total $ 515
- -----------------------------------------------------
YEAR-END NONACCRUAL
COMMERCIAL LOANS
Industry Classification In Millions
- -----------------------------------------------------
Manufacturing $ 74
Retail trade 14
Wholesale trade 29
Services 92
Healthcare 147
Financial services 45
Real estate-related 9
Transportation 19
Public utilities 1
Agriculture 9
Construction 4
Individuals 23
Other 85
- -----------------------------------------------------
Total $ 551
- -----------------------------------------------------
a principal balance in excess of $1 million that are being monitored as
potential credit problems to determine whether such loans are impaired, with
impairment measured by reference to the borrowers' collateral values and cash
flows. The allocated portion of the allowance for consumer loans is based
principally on loan payment status and historical loss rates adjusted to reflect
current conditions. The unallocated portion of our allowance for loan losses
represents the results of analyses that measure probable losses inherent in our
portfolio that are not adequately captured in the allocated allowance analyses.
These analyses include consideration of unidentified losses inherent in the
portfolio resulting from changing underwriting criteria, including acquired loan
portfolios, changes in the types and mix of loans originated, industry
concentrations and evaluations, allowance levels relative to selected overall
credit criteria and other economic indicators used to estimate probable incurred
losses.
Impaired loans, which are included in nonaccrual loans, amounted to $603
million at December 31, 1999, compared with $424 million at December 31, 1998.
Included in the allowance for loan losses at December 31, 1999, was $106 million
related to $526 million of impaired loans. The remaining impaired loans were
recorded at or below fair value. In 1999, the average recorded investment in
impaired loans was $518 million, and $25 million of interest income was
recognized on impaired loans. This income was recognized using the cash-basis
method of accounting.
Geographic Exposure
The loan portfolio in the East Coast region of the United States is spread
primarily across 106 metropolitan areas with diverse economies. Our largest
markets are: Atlanta, Georgia; Charlotte, North Carolina; Miami and
Jacksonville, Florida; Newark, New Jersey; New York, New York; Philadelphia,
Pennsylvania; and Washington, D.C. Substantially all of the $11 billion
commercial real estate portfolio at December 31, 1999, was located in our East
Coast banking region.
Liquidity and Funding Sources
Liquidity planning and management are necessary to ensure we maintain the
ability to fund operations cost-effectively and to meet current and future
obligations such as loan commitments and deposit outflows. In this process, we
focus on both assets and liabilities and on the manner in which they combine to
provide adequate liquidity to meet the corporation's needs.
Funding sources primarily include customer-based core deposits but also
include purchased funds and cash flows from operations. First Union is one of
the nation's largest core deposit-funded banking institutions. Our large 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.
Liquidity is maintained through maturity management and through our ability
to liquidate assets, primarily securities available for sale. Another
significant source of asset liquidity is the ability to securitize assets such
as credit card receivables and auto, student and mortgage loans. Other
off-balance sheet sources of liquidity exist as well.
21
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
Core Deposits
Core deposits were $122 billion at December 31, 1999, compared with $131
billion at December 31, 1998. The $8.6 billion decline since year-end 1998
primarily reflects the movement of noninterest-bearing and time deposits into
alternative investment products.
In response to growing customer demand for investment products as
alternatives to deposit products, we began offering mutual funds, annuities and
other investment products in 1994. Although this strategy reduces our deposit
base, it also enables us to retain valuable customer relationships that might
otherwise be lost to other financial services companies. We estimate that in
1999, core deposits of approximately $5.6 billion moved into those alternative
customer investment products.
The portion of core deposits in higher-rate, other consumer time deposits
was 28 percent at December 31, 1999, and 27 percent at December 31, 1998. 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. They are also less expensive to process.
Average core deposit balances were $122 billion in 1999 and $126 billion in
1998. In 1998, we divested $3.4 billion of consumer deposits. These were
primarily regulatory-required divestitures in connection with acquisitions.
In 1999 and 1998, average noninterest-bearing deposits were 25 percent and
24 percent, respectively, of average core deposits. Average balances in savings
and NOW and noninterest-bearing deposits were higher in 1999 when compared with
1998, while money market and other consumer time deposits were lower. Deposits
can be affected by numerous factors, including branch closings and
consolidations, seasonal factors and the rates being offered compared to other
investment opportunities. The Net Interest Income Summaries table provides
additional information about average core deposits.
Purchased Funds
Average purchased funds, which include wholesale borrowings with maturities
of 12 months or less, were $55 billion in 1999 compared with $57 billion in
1998. This decline reflects our strategy to fund more of our balance sheet with
long-term debt and wholesale borrowings with original maturities of greater than
12 months. Purchased funds at December 31, 1999, were $69 billion compared
with $53 billion at year-end 1998. The December 31, 1999, balance was unusually
high as a result of balance sheet positioning in preparation for potential Year
2000 issues. Conversely, purchased funds at December 31, 1998, were unusually
low as a result of asset sales late in 1998, the proceeds from which were not
reinvested until early 1999.
LONG-TERM DEBT Long-term debt, which includes any wholesale borrowings with an
original maturity in excess of 12 months, amounted to $32 billion at December
31, 1999, and $23 billion at year-end 1998. The level of long-term debt was
increased to take advantage of favorable market conditions and to provide a
funding alternative to purchased funds.
At December 31, 1999, long-term debt included
$2.0 billion of trust capital securities compared with $1.7 billion at December
31, 1998. Subsidiary trusts issued these capital securities and used the
proceeds to purchase junior subordinated debentures from the corporation. These
capital securities are considered tier 1 capital for regulatory purposes.
In 1999, we issued $1.4 billion of senior notes. Under a shelf registration
statement filed with the Securities and Exchange Commission, we had $450 million
of senior or subordinated debt securities, common stock or preferred stock
available for issuance as of December 31, 1999. The sale of any additional debt
or equity securities will depend on future market conditions, funding needs and
other factors.
Our principal banking subsidiary, First Union National Bank, has available
a global note program for the issuance of up to $20 billion of senior and
subordinated notes. Under the program, $17 billion of the notes had been issued
at December 31, 1999. In June 1999, First Union National Bank established an
additional global note program for the issuance of up to $25 billion of senior
and subordinated notes. At December 31, 1999, no notes had been issued under
this program. The sale of any additional notes will depend on future market
conditions, funding needs and other factors.
In 2000, long-term debt of $13 billion will mature. Funds for the payment
of long-term debt will come from operations and refinancings.
Credit Lines
We have $350 million in committed back-up lines of credit, $175 million of
which expires in June 2000 and the
22
<PAGE>
remaining $175 million of which expires in July 2002. These credit facilities
contain 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 these
lines of credit.
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.
Stockholders' equity was $17 billion at December 31, 1999, and at December
31, 1998. Common shares outstanding amounted to 988 million at December 31,
1999, compared with 982 million at December 31, 1998. In 1999, we repurchased 39
million shares of First Union common stock at a cost of $2.1 billion, and in
1998, we repurchased 50 million shares at a cost of $3.1 billion (38 million
shares related to The Money Store acquisition). In addition, as of December 31,
1999, we also had repurchased 13 million shares at a cost of $559 million (a
total of approximately 31 million shares is expected to be repurchased) related
to the EVEREN acquisition. Based on the Board authorizations for share
repurchases in November 1998 and May 1999, each for 50 million shares, at
December 31, 1999, we had authority to repurchase up to 51 million shares of our
common stock, which is incremental to additional share repurchases related to
the EVEREN acquisition.
In early 1999, the Board authorized the use of forward equity sales
transactions (equity forwards) in connection with our buyback programs. The use
of equity forwards is intended to provide us with the ability to purchase shares
under the buyback programs in the open market and then issue shares in private
transactions to a counterparty in the amounts necessary to maintain targeted
capital ratios. Under the terms of the equity forwards, we issued shares of
common stock to an investment banking firm (the counterparty) at a specified
price that approximated market value. Simultaneously, we entered into a forward
contract with the same counterparty to repurchase the shares at the same price
plus a premium (the forward price). The equity forwards mature at various times
in 2000. The equity forwards can be extended by mutual consent of the
counterparties. In 1999, we entered into equity forwards involving 17 million
shares at a cost of $800 million. In addition to the equity forwards, we also
entered into a forward purchase contract, involving 11 million shares. See Note
8: Common Stock and Capital Ratios in the consolidated financial statements for
additional information related to these transactions.
We paid $1.8 billion in dividends to common stockholders in 1999 compared
with $1.5 billion in 1998. This represented a dividend payout ratio on operating
earnings of 52.22 percent in 1999.
At December 31, 1999, stockholders' equity was reduced by $930 million in
accumulated other comprehensive income, net, substantially all of which was
related to net unrealized losses on debt and equity securities.
At December 31, 1999, deferred compensation amounts, which historically
were included in other assets and which relate to the unvested portion of
restricted stock awards, were reclassified as a reduction of stockholders'
equity. All prior periods, including related ratios and other data, reflect this
reclassification.
Subsidiary Dividends
First Union National Bank is the largest source of parent company
dividends. Capital requirements established by regulators limit dividends that
this subsidiary and certain other of our subsidiaries can pay. Under these and
other limitations, which include an internal requirement to maintain all
deposit-taking banks at the well-capitalized level, at December 31, 1999, our
subsidiaries had $1.5 billion available for dividends that could be paid without
prior regulatory approval. Our subsidiaries paid $2.6 billion in dividends to
the parent company in 1999. In addition, the consolidation of our principal bank
in our northern region with our North Carolina-based bank resulted in a
reduction of its capital by $600 million, which was paid to the parent company
in 1999.
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 including tier 1 capital, total capital and
leverage capital. The minimum level of tier 1 capital and total capital to
risk-weighted assets, including certain off-balance sheet financial instruments,
is currently 4 percent and 8 percent, respectively. At December 31, 1999, our
tier 1 and total capital ratios were 7.08 percent and
23
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
10.87 percent, respectively, compared with 6.81 percent and 10.99 percent at
December 31, 1998.
In addition, the minimum leverage ratio of tier 1 capital to adjusted
average quarterly assets is 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 4
percent. Our leverage ratio at December 31, 1999, was 5.97 percent and at
December 31, 1998, 5.91 percent.
The regulations also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. The Federal Reserve Board has
indicated it will continue to consider a tangible tier 1 leverage ratio
(deducting all intangibles) in evaluating proposals for expansion or new
activity. The Federal Reserve Board has not advised us of any specific minimum
leverage ratio applicable to us. Each subsidiary bank is subject to similar
capital requirements. 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. To be in the highest capital tier, or considered well
capitalized, banks must have a leverage ratio of 5 percent, a tier 1 capital
ratio of 6 percent and a total capital ratio of 10 percent. At December 31,
1999, our deposit-taking subsidiary banks met the capital and leverage ratio
requirements for well capitalized banks. First Union Home Equity Bank, N.A.,
First Union Trust Company, N.A., and First Union Direct Bank, N.A., are not
deposit-taking banks.
Market Risk Management
Interest Rate Risk Methodology 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.
Our methodology for measuring exposure to interest rate risk for policy
measurement is intended to ensure we include a sufficiently broad range of rate
scenarios and patterns of rate movements that we believe to be reasonably
possible. Our methodology measures the impact that 200 basis point rate changes
would have on earnings per share over the subsequent 12 months.
Our earnings simulation model reflects a number of variables that we
identify as being affected by interest rates. For example, our model captures
rate of change differentials, such as federal funds rates versus savings account
rates; maturity effects, such as calls on securities; and rate barrier effects,
such as caps and floors on loans. It also captures changing balance sheet
levels, such as securities, commercial and consumer loans (both floating and
fixed rate) and noninterest-bearing deposits. In addition, our model considers
leads and lags that occur in long-term rates as short-term rates move away from
current levels; the elasticity in the repricing characteristics of savings and
money market deposits; and the effects of prepayment volatility on various
fixed-rate assets such as residential mortgages, mortgage-backed securities and
consumer loans. These and certain other effects are evaluated in developing the
scenarios from which sensitivity of earnings to changes in interest rates is
determined.
In analyzing interest rate sensitivity for policy measurement, we compare
our forecasted earnings per share in both a "high rate" and "low rate" scenario
to a base-line scenario. One base-line scenario is our estimated most likely
path for future short-term interest rates over the next 24 months. The second
base-line scenario holds short-term rates flat at their current level over our
forecast horizon. The "high rate" and "low rate" scenarios assume gradual 200
basis point increases or decreases in the federal funds rate from the beginning
point of each base-line scenario over the most current 12-month period. Our
policy limit for the maximum negative impact on earnings per share resulting
from "high rate" or "low rate" scenarios is 5 percent. The policy limit applies
to both the "most likely rate" scenario and the "flat rate" scenario. The policy
measurement period is 12 months in length, beginning with the first month of the
forecast.
24
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
(Line chart appears here with the following plot points)
INTEREST RATE SENSITIVITY ASSUMPTIONS
Fed Funds
Rate
10
9
8 8.50% 9.00%
7 Base Line + 200
6 6.50% 7.00%
5 5.50% Base Line
4 4.50% 5.00%
3 Base Line - 200
2
1
Policy Period
---------------------------
Jan 00---------------Dec 00 Dec 01
Earnings Sensitivity
Our "flat rate" scenario holds the federal funds rate constant at 5.50
percent through December 2001. Based on the January 2000 outlook, if interest
rates were to follow our "high rate" scenario (i.e., a 200 basis point increase
in short-term rates from our "flat rate" scenario), the model indicates that
earnings during the policy measurement period would be negatively affected by
3.3 percent. Our model indicates that earnings would benefit by 3.9 percent in
our "low rate" scenario (i.e., a 200 basis point decline in short-term rates
from our "flat rate" scenario).
For our "most likely rate" scenario, we currently believe that the market
forward implied rate ("market rate") is the most appropriate. This scenario
assumes that the federal funds rate gradually rises to 6.50 percent by the end
of the year 2000. Sensitivity to the "market rate" scenario is measured using a
gradual 200 basis point increase over a 12-month period. Our model indicates
that earnings would be negatively affected by 3.7 percent in a "high rate"
scenario relative to the "market rate" over the policy period.
In addition to the standard scenarios used to analyze rate sensitivity over
the policy measurement period, we regularly analyze the potential impact of
other remote, more extreme interest rate scenarios. These alternate "what if"
scenarios may include interest rate paths that are higher, lower and more
volatile than those used for policy measurement. We also perform our analysis
for time periods that reach beyond the 12-month policy period. For example,
based on our January 2000 outlook, if interest rates in 2001 were 200 basis
points higher than the "market rate" scenario, those earnings would be
negatively affected by 6.0 percent.
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 we implement such strategies when we believe
those actions are prudent. As new monthly outlooks become available, we will
continue to formulate strategies aimed at protecting earnings from the potential
negative effects of changes in interest rates.
Unrealized Gains (Losses)
in Certain Financial Instruments
Information related to unrealized gains and losses in the securities
available for sale, investment securities and off-balance sheet derivative
portfolios is in Table 13. Changes in the market value of the instruments in
these three portfolios, and corresponding unrealized gains and losses, primarily
result from changes in market interest rates. These three portfolios are the
primary means we use to manage overall interest rate risk while enhancing
corporate earnings. Changes in the market value of these portfolios offset
changes in market value and future interest income or expense related to other
balance sheet items, such as loans, deposits and borrowings.
At December 31, 1999, these portfolios had a net unrealized loss of $1.2
billion.
Securities Available for Sale
The securities available for sale portfolio consists primarily of U.S.
Treasury, U.S. Government agency, municipal and asset-backed securities. It also
includes residual interests that resulted from our securitization transactions
accounted for as sales as well as purchased residual interests. At December 31,
1999, we had securities available for sale with a market value of $51 billion
compared with $37 billion at year-end 1998.
Securities available for sale transactions resulted in net realized losses
of $62 million in 1999, including a
(Pie chart appears here with the following plot points)
YEAR-END SECURITIES AVAILABLE FOR SALE
(Percent)
U.S. Government Agencies 47%
Asset-Backed 33%
Other 16%
U.S. Treasury 4%
25
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
(Pie chart appears here with the following plot points)
YEAR-END INVESTMENT SECURITIES
(Percent)
U.S. Government Agencies 59%
State, County and Municipals 35%
Collateralized Mortgage Obligations 3%
Other 3%
$79 million impairment loss on certain residual interests, compared with net
realized gains of $353 million in 1998, including a $7 million impairment loss.
Activity in this portfolio is undertaken primarily to manage liquidity and
interest rate risk and to take advantage of market conditions that create more
economically attractive returns on these investments.
The average rate earned on securities available for sale was 6.83 percent
in 1999 and 6.60 percent in 1998. The average maturity of the portfolio was 8.36
years at December 31, 1999.
Investment Securities
The investment securities portfolio consists primarily of U.S. Government
agency, corporate, municipal and mortgage-backed securities, and collateralized
mortgage obligations. Our investment securities had a carrying value and a
market value of $1.8 billion at December 31, 1999, and a carrying value of $2.0
billion and a market value of $2.2 billion at December 31, 1998. Included in
portfolio securities gains in 1998 was $4 million real- ized on repurchase
agreement underdeliveries and calls of investment securities.
The average rate earned on investment securities was 8.19 percent in 1999
and 8.04 percent in 1998. The average maturity of the portfolio was 5.90 years
at December 31, 1999.
Asset Securitizations
In an asset securitization transaction that meets the applicable criteria
to be accounted for as a sale, loans are securitized and sold, a gain is
recognized at the time of the sale, and for transactions in which First Union
retains an interest in the cash flows of the assets sold, an interest- only or
residual certificate (residual interest) is recorded. For student loans, SBA
loans, credit card receivables and certain other consumer loans, asset
securitization is our primary funding strategy. Residential mortgage loans may
be either securitized and sold as they are originated or retained on-balance
sheet, based on an analysis of various factors at the time of origination or
purchase. In 1998, asset securitizations were the primary funding strategy for
certain types of home equity loans. In early 1999, we reevaluated our business
strategy for funding subprime home equity loan products and decided to retain
them on our balance sheet.
Included in securities available for sale at December 31, 1999, were
residual interests with a market value of $583 million, which included net
unrealized gains of $84 million. These residual interests resulted from
securitizations of SBA, credit card, student, auto and home equity loans and
lines of credit. At December 31, 1998, securities available for sale included
residual interests with a market value of $379 million, which included net
unrealized gains of $4 million. Residual interests with a market value of $1.2
billion were classified as trading account assets at December 31, 1998.
In connection with the adoption of Statement of Financial Accounting Standards
No. 134 on January 1, 1999, these residual interests were reclassified to
securities available for sale.
We use complex modeling techniques to estimate the fair value of residual
interests. These modeling techniques estimate the amount and timing of cash
flows over the estimated life of the residual interests using assumptions for
discount rates, collateral prepayment, delinquency and loss trends, and
servicing effectiveness. The determination of the appropriate assumptions to be
used in the valuation model is subjective, and minor changes in assumptions can
have a significant impact on the fair value of a residual interest and the
timing of recognition of an impairment loss in earnings.
In 1999, we transferred $744 million of mortgage-related residual interests
and $8.7 billion of other mortgage-related securities to a trust in exchange for
a new security representing substantially all of the interest in the assets
transferred to the trust. Substantially all of the corporation's investment in
mortgage-related residual interests was included in this transfer. The assets
were transferred to the trust at their respective carrying values at the date of
transfer, and the transfer did not result in recognition of any gain or loss.
Prior to the transfer, we
26
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
recognized a $79 million impairment loss on certain residual interests. This
transaction has the effect of reducing the leverage inherent in the residual
interests that were transferred. Changes in future loss and prepayment
assumptions on the transferred assets will be reflected in reduced yield on the
new security. This new security is classified in securities available for sale,
and at December 31, 1999, it had a market value of $8.8 billion, which included
an unrealized gain of $196 million.
Off-Balance Sheet Derivatives
for Interest Rate Risk Management
As part of our overall interest rate risk management strategy, we use
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 risk management include various interest rate swap, futures and option
structures 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 interest rate risk management will not have
any significant unintended effect on corporate earnings. 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.
The fair value of off-balance sheet derivatives used to manage our interest
rate sensitivity was $213 million, based on a notional amount of $190 billion,
at December 31, 1999, compared with $1.1 billion, based on a notional amount of
$49 billion, at December 31, 1998. The increase in the notional amount of
derivatives in 1999 primarily resulted from additional interest rate swaps and
futures contracts. The aggregate outstanding notional amount of these positions
will reduce substantially by December 31, 2000. From time to time, we re-balance
our off-balance sheet positions to reflect current market conditions and
management's assessment of desired balance sheet characteristics, and this can
result in significant changes in derivative notional amounts. At December 31,
1999, deferred gains and losses related to terminated positions were not
significant.
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. At December 31, 1999, the total mark-to-market related credit risk for
derivative transactions in excess of counterparty thresholds was $759 million.
The fair value of collateral held approximated the total mark-to-market related
credit risk in excess of counterparty thresholds as of that date. 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.
Trading Risk Management
Trading activities are undertaken primarily to satisfy the investment and
risk management needs of our customers and secondarily to enhance our earnings
through profitable trading for the corporation's own account. We trade a variety
of debt securities and foreign exchange instruments, as well as financial and
foreign currency derivatives, in order to provide customized solutions for the
risk management challenges faced by our customers. We maintain diversified
trading positions in both the fixed income and foreign exchange markets. Risk is
controlled through the use of value-at-risk (VAR) limits and an active,
independent monitoring process.
We use the VAR methodology for measuring the market risk of the
corporation's trading positions. This statistical methodology uses recent market
volatility to estimate the maximum daily trading loss that the corporation would
expect to incur, on average, 97.5 percent of the time. The model also estimates
the effect of the interrelationships among the various trading instruments to
determine how much risk is eliminated by offsetting positions. The VAR analysis
is supplemented by stress testing on a daily basis. The analysis captures all
financial assets and liabilities that are considered trading positions. The
calculation uses historical data from the most recent 252 business days. The
total VAR amount at December 31, 1999, was $6 million, compared with $19 million
at December 31, 1998, substantially all of which related to interest rate risk.
The high, low and average VARs in 1999 were $19 million, $6 million and $11
million, respectively, and in 1998, $26 million, $9 million and $15 million,
respectively.
27
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
Accounting and Regulatory Matters
Statement of Financial Accounting Standards No. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, conforms the accounting for
securities retained after the securitization of mortgage loans with the
accounting for securities retained after the securitization of other types of
assets. Under this Standard, residual interests resulting from the
securitization of mortgage loans held for sale are classified either in
securities available for sale or in trading account assets based on intent. The
corporation adopted this Standard on January 1, 1999, and as a result, we
reclassified all interest-only and residual certificates to securities available
for sale.
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by Standards No. 137,
establishes accounting and reporting standards for derivatives and hedging
activities. This Standard requires that all derivatives be recognized as assets
or liabilities in the balance sheet and that these instruments be measured at
fair value through adjustments to either other comprehensive income or current
earnings, depending on the purpose for which the derivative is held. This
Standard significantly changes the accounting for hedge-related derivatives. For
the corporation, the Standard is effective January 1, 2001. The corporation is
in the process of assessing the impact of this Standard.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution are afforded a priority over other general unsecured claims against
an institution, including federal funds and letters of credit, in the
liquidation or other resolution of such an institution by any receiver.
In 1999, the President signed into law the Gramm-Leach-Bliley Financial
Modernization Act of 1999 (Modernization Act). The Modernization Act allows bank
holding companies meeting management, capital and Community Reinvestment Act
standards to engage in a substantially broader range of nonbanking activities
than was permissible before enactment, including underwriting insurance and
making merchant banking investments in commercial and financial companies. It
also allows insurers and other financial services companies to acquire banks;
removes various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations. This part of
the Modernization Act will become effective on March 12, 2000. First Union
currently believes it meets the requirements for the broader range of activities
that will be permitted by the Modernization Act.
The Modernization Act also modifies current law related to financial
privacy and community reinvestment. The new privacy provisions will generally
prohibit financial institutions, including First Union, from disclosing
nonpublic personal financial information to nonaffiliated third parties unless
customers have the opportunity to "opt out" of the disclosure.
Earnings and Balance Sheet Analysis
(1998 compared with 1997)
First Union's operating earnings in 1998 were $3.7 billion, an increase of
27 percent from $2.9 billion in 1997. On a per share basis, operating earnings
increased 25 percent to $3.77 in 1998 from $3.01 in 1997. These results
represented a return on average stockholders' equity of 22.70 percent and a
return on average assets of 1.66 percent.
Operating earnings represent earnings before merger-related and
restructuring charges of $805 million after tax in 1998 and $204 million after
tax in 1997. These merger-related and restructuring charges in 1998 were
primarily associated with the April 1998 pooling of interests acquisition of
CoreStates Financial Corp. After these charges, earnings per share were $2.95 in
1998 and $2.80 in 1997.
Tax-equivalent net interest income was $7.4 billion in 1998 compared with
$7.9 billion in 1997. The decline reflects a changing earning asset mix,
primarily related to the sale and securitization of certain higher-yielding
consumer loans and to the investment of excess capital in lower-yielding
securities.
Nonperforming loans reduce interest income because the contribution from
these loans is eliminated or sharply reduced. In 1998, $67 million in gross
interest income would have been recorded if all nonaccrual and restructured
loans had been performing in accordance with their original terms and if they
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 1998 was $19 million.
28
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
The net interest margin was 3.81 percent in 1998 compared with 4.53 percent
in 1997. The average rate on earning assets decreased from 8.29 percent in 1997
to 7.77 percent in 1998. Our average rate paid on liabilities increased from
4.43 percent to 4.59 percent over this same period.
Fee and other income, excluding portfolio securities transactions,
increased 42 percent to $6.1 billion in 1998 from $4.3 billion in 1997.
Trading account profits were $124 million in 1998 compared with $237
million in 1997. Trading account assets were $9.8 billion at December 31, 1998,
compared with $6.0 billion at December 31, 1997.
Noninterest expense was $9.1 billion in 1998 compared with $7.2 billion in
1997. Noninterest expense included $1.2 billion of merger-related and
restructuring charges compared with $284 million in 1997. In addition to
merger-related and restructuring charges, expenses in 1998 reflected the
purchase accounting acquisition of The Money Store; higher personnel costs,
primarily incentives associated with revenue growth in Capital Markets and
Capital Management; spending related to our retail delivery model
implementation; and advertising expense related to our branding campaign. The
operating overhead efficiency ratio before merger-related and restructuring
charges was 56.72 percent in 1998 compared with 56.78 percent in 1997.
The $1.2 billion of 1998 pre-tax merger-related and restructuring charges
was associated primarily with the acquisition and the integration of CoreStates.
This amount consisted of $798 million of restructuring charges and $414 million
of other merger-related charges. Included in merger-related charges is a $185
million gain from regulatory-mandated branch sales. Substantially all of the
unpaid restructuring charges of $398 million at year-end 1998 were paid in 1999.
Income taxes were $1.1 billion in 1998 and in 1997. As a result of several
years of effective tax planning, we realized an after-tax benefit of $270
million in the fourth quarter of 1998 and $264 million in the fourth quarter of
1997. The effective tax rate declined to 27 percent in 1998 from 29 percent in
1997.
Capital Markets produced net income of $687 million in 1998 compared with
$642 million in 1997. Net interest income increased 8 percent to $1.1 billion in
1998, with average loans up 24 percent. Fee and other income increased 50
percent to $1.0 billion in 1998. Trading profits declined from $237 million in
1997 to $124 million in 1998, reflecting a net $90 million mark-to-market
writedown of commercial mortgages warehoused for securitization and the
associated hedges. This reflects a writedown of $159 million in connection with
the third quarter 1998 flight to quality, which was partially offset by a $69
million recovery in commercial real estate securitizations. Noninterest expense
was $1.1 billion in 1998 compared with $929 million in 1997. Average net loans
were $33 billion in 1998 compared with $26 billion in 1997.
Capital Management produced net income of $426 million in 1998 compared
with $321 million in 1997. Net interest income amounted to $412 million in 1998
compared with $342 million in 1997, with average loan growth of 20 percent,
primarily from the Private Client Banking unit and Wheat First Union. Fee and
other income in 1998 increased 56 percent to $1.8 billion, primarily related to
the addition of Wheat First Union and to strong growth in retail brokerage,
mutual funds and trust. Noninterest expense in 1998 was $1.5 billion compared
with $977 million in 1997, primarily due to the addition of Wheat First Union.
Consumer generated $1.1 billion in net income in 1998 compared with $971
million in 1997. Net interest income was $3.4 billion in 1998 compared with $3.9
billion in 1997. Fee and other income was $1.9 billion in 1998 compared with
$1.5 billion in 1997. Noninterest expense was $3.3 billion in 1998 compared with
$3.1 billion in 1997. Expenses in 1998 included the addition of The Money Store
to our expense base, costs related to the implementation of our retail delivery
strategy, and expenses related to increased mortgage volume.
Average consumer loans in 1998 were $50 billion compared with $53 billion
in 1997. The decrease in the consumer loan portfolio reflects the sale or
securitization of certain loans. As part of our strategy in 1998, we securitized
or sold $11 billion of consumer loans, including residential mortgages and
adjustable rate mortgages (ARMs), home equity loans, student loans, community
reinvestment loans, credit card receivables and other unsecured consumer loans.
Commercial had net income of $604 million in 1998 compared with $571
million in 1997. Net interest income was $1.7 billion in 1998 compared with $1.8
billion in 1997. Fee and other income increased 8 percent to $515 million in
1998, led by increased cash management volume. Noninterest expense declined 8
percent to $1.2 billion in 1998.
29
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
Average commercial loans in 1998 declined 6 percent from 1997, due to
reduced loan originations and renewals, as well as to the transfer of corporate
customer relationships to Capital Markets.
Net loans at December 31, 1998, were $134 billion compared with $132
billion at December 31, 1997. Average net loans were $132 billion in 1998
compared with $135 billion in 1997. Commercial loan originations in 1998 were
led by Capital Markets lending. Consumer loan originations were strong in
mortgages (including refinancings) and home equity. Origination volume was
offset by the securitization and the sale of loans as part of our balance sheet
management strategy to maximize our return on investment.
The loan portfolio at December 31, 1998, was composed of 58 percent in
commercial loans and 42 percent in consumer loans. The composition of our loan
port- folio changed as a result of the sale and the securitization of certain
assets such as residential mortgage and credit card loans when this strategy
produced a better return than would be realized by holding these assets. At
December 31, 1998, unused loan commitments related to commercial and consumer
loans were $96 billion and $35 billion, respectively. Commercial and standby
letters of credit were $11 billion at December 31, 1998. At December 31, 1998,
loan participations sold to other lenders amounted to $4 billion.
The average rate earned on loans was 8.46 percent in 1998 compared with
8.80 percent in 1997. The primary factor contributing to the decline was the
restructuring of our unsecured consumer loan port-
folio. This restructuring, in conjunction with a general downward trend in
Treasury rates over this period, was only partially offset by growth in
high-yielding leveraged leases.
Commercial real estate loans amounted to 8 percent of the total portfolio
at December 31, 1998, compared with 12 percent at December 31, 1997. This
portfolio included commercial real estate mortgage loans of $9 billion at
December 31, 1998, and $13 billion at December 31, 1997. The decline reflects
amortization, payoffs resulting from customers obtaining term financing and
reclassifications within the former CoreStates portfolio.
At December 31, 1998, nonperforming assets were $844 million, or 0.63
percent of net loans and foreclosed properties, compared with $991 million, or
0.75 percent, at December 31, 1997.
Accruing loans 90 days past due were $346 million at December 31, 1998,
compared with $326 million at December 31, 1997. Of the past dues at December
31, 1998, $109 million were commercial loans or commercial real estate loans and
$237 million were consumer loans.
Net charge-offs amounted to $638 million in 1998 compared with $872 million
in 1997. Net charge-offs were 0.48 percent of average net loans in 1998 compared
with 0.65 percent in 1997.
The loan loss provision was $691 million in 1998 compared with $1.1 billion
in 1997. The allowance for loan losses was $1.8 billion at December 31, 1998,
and at December 31, 1997.
Impaired loans, which are included in nonaccrual loans, amounted to $424
million at December 31, 1998, compared with $485 million at December 31, 1997.
Included in the allowance for loan losses at December 31, 1998, was $80 million
related to $397 million of impaired loans. The remaining impaired loans were
recorded at or below fair value. In 1998, the average recorded investment in
impaired loans was $428 million, and $29 million of interest income was
recognized on loans while they were impaired. This income was recognized using a
cash-basis method of accounting.
Core deposits were $131 billion at December 31, 1998, compared with $127
billion at December 31, 1997. The portion of core deposits in higher-rate, other
consumer time deposits was 27 percent at December 31, 1998, and 29 percent at
December 31, 1997. Average core deposit balances were $126 billion in 1998 and
$124 billion in 1997. In 1998 and 1997, average noninterest-bearing deposits
were 24 percent and 22 percent of average core deposits, respectively. Average
balances in savings and NOW and noninterest-bearing deposits were higher when
compared with 1997, while money market and other consumer time deposits were
lower.
Purchased funds at December 31, 1998, were $53 billion compared with $42
billion at year-end 1997, with the increase largely reflecting the effects of
loan growth, branch sales, the acquisition of The Money Store, and the stock
buyback program announced in November 1998. Our decision to hold certain assets
on the balance sheet during the financial market turmoil in the third and fourth
quarters of 1998 also contributed to the increase in purchased funds. Average
purchased funds in 1998 were $57 billion compared with $39 billion in 1997.
30
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
Long-term debt amounted to $23 billion at December 31, 1998, and $13
billion at year-end 1997. At December 31, 1998 and 1997, long-term debt included
$1.7 billion of trust capital securities.
Stockholders' equity was $17 billion at December 31, 1998, and $15 billion
at December 31, 1997. Common shares outstanding amounted to 982 million at
December 31, 1998, compared with 961 million at December 31, 1997. In 1998, we
repurchased 40 million shares of our common stock in the open market at a cost
of $2.4 billion, all of which were repurchased in connection with purchase
accounting acquisitions (38 million shares related to The Money Store).
Additionally in November 1998, we announced a 50 million share buyback program,
and by year-end 1998, we had repurchased 10 million shares at a cost of $617
million. We paid $1.5 billion in dividends to common stockholders in 1998
compared with $1.1 billion in 1997. This represented a dividend payout ratio on
operating earnings of 41.24 percent in 1998. At December 31, 1998, stockholders'
equity included a $407 million net unrealized after-tax gain related to debt and
equity securities.
At December 31, 1998, the tier 1 and total capital ratios were 6.81 percent
and 10.99 percent, respectively, compared with 8.36 percent and 12.95 percent at
December 31, 1997. The leverage ratio at December 31, 1998, was 5.91 percent and
at December 31, 1997, it was 7.03 percent.
At December 31, 1998, we had securities available for sale with a market
value of $37 billion compared with $24 billion at year-end 1997. The market
value of securities available for sale was $636 million above amortized cost at
December 31, 1998. The average rate earned on securities available for sale in
1998 was 6.60 percent and 6.83 percent in 1997. The average maturity of the
portfolio was 6.40 years at December 31, 1998.
Our investment securities amounted to $2.0 billion at December 31, 1998,
and $3.5 billion at December 31, 1997. The average rate earned on investment
securities was 8.04 percent in 1998 and 7.97 percent in 1997. The average
maturity of the portfolio was 5.08 years at December 31, 1998.
The net fair value appreciation of off-balance sheet derivative financial
instruments used to manage interest rate sensitivity was $1.1 billion at
December 31, 1998, compared with fair value appreciation of $566 million at
December 31, 1997.
31
<PAGE>
GLOSSARY
Asset Securitization
A funding method whereby
a pool of accumulated loans
is sold, generally to a trust,
which simultaneously sells
interests in the underlying
cash flows of the pool to
third party investors. While
the loans are sold, the seller
often retains the servicing
rights to the loans, generating
an ongoing income stream
over the life of the loans.
Asset Sensitivity
A situation in which a company's
asset, liability and
off-balance sheet financial
instrument mix results in
diminished net interest
income in a declining inter-
est rate environment.
Collateralized Mortgage
Obligation (CMO)
A mortgage-backed bond
that is divided into separate
maturity classes called
tranches. The cash flows for
each tranche are paid out in
a specific order to investors
based on the prepayment
characteristics of the under-
lying mortgages.
Debit Cards
A method of payment that
is tied to a customer's
checking account. When
used to make a purchase,
the bank-issued debit card
(which looks like a credit
card) acts as a "plastic check,"
and money is deducted
directly from the customer's
checking account.
Derivatives
A term used to include
a broad base of financial
instruments that are, for
the most part, "derived"
from underlying securities
traded in the cash markets.
Examples include interest
rate swaps, swaptions, options
and futures contracts.
Digital Cash
A system that allows a
person or company to pay
for goods or services by
transmitting a number from
one computer to another,
but unlike credit card systems,
does not provide information
about the buyer.
Earnings Per Common Share
- - Basic
Net income, adjusted for
preferred stock dividends,
divided by average common
shares outstanding.
Earnings Per Common Share
- - Diluted
Net income, adjusted
for preferred dividends,
divided by the sum of aver-
age common shares out-
standing and common
stock equivalents, including
employee stock options
and convertible securities.
Electronic Commerce
(E-Commerce)
Conducting business online.
This includes, for example,
buying and selling products
with digital cash and via the
Electronic Data Interchange.
Electronic Data Interchange
(EDI)
The transfer of data between
different companies using
networks such as the Internet.
Fee and Other Income
All income other than interest
and dividend income.
Futures Contract
An agreement to buy or sell
a specific amount of a commodity
or financial instrument
at a particular price
on a stipulated future date.
Interest Rate Swap
A contractual arrangement
between two parties in which
each agrees to exchange
interest rate payments for
a specified period of time.
These payments are
calculated on a "notional amount,"
and no exchange of principal
occurs. Interest rate swaps
are commonly used to
manage the asset or liability
sensitivity of a balance sheet
by converting fixed rate
assets or liabilities to float-
ing rates, or vice versa.
Internet
The global association of
computers that carries data
and makes the exchange of
information possible.
Liability Sensitivity
A situation in which a company's
asset, liability and
off-balance sheet financial
instrument mix results in
diminished net interest
income in a rising interest
rate environment.
Loan Loss Provision
The noncash expense item
charged to earnings and
added to the allowance
for loan losses.
Managed Loan Portfolio
Owned and securitized loan
receivables.
Mark-To-Market
A method of accounting for
a corporation's assets or liabilities
by recording them
at their current market
values, rather than at their
historical costs.
Mortgage Servicing Portfolio
Mortgage loans owned by
investors for which a company
manages payment
processing, remittance and
escrow accounts.
Net Charge-Offs
The amount of loans written
off as uncollectible, net of the
recovery of loans previously
written off as uncollectible.
Net Interest Margin
The difference between
the tax-equivalent yield on
earning assets and the rate
paid on funds to support
those assets, divided by
average earning assets.
Net Operating Revenue
The sum of tax-equivalent
net interest income and fee
and other income.
Nonperforming Assets
Assets on which income is
not being accrued for financial
reporting purposes; restructured
loans on which interest
rates or terms of repayment
have been materially revised;
and other real estate that has
been acquired through loan
foreclosures, in-substance
foreclosures or deeds received
in lieu of loan payments.
Notional Amount
The principal amount of a
financial instrument on which
a derivative transaction is based.
In an interest rate swap,
for example, the "notional"
amount is used to calculate
the interest rate cash flows to
be exchanged. No exchange
of principal occurs.
Option
An agreement that allows, but
does not require, a holder to
buy (or sell) a commodity or
financial instrument at a
predetermined price for a specified
time.
Overhead Efficiency Ratio
Noninterest expense divided by
net operating revenue.
Pooling Of Interests
Accounting
An accounting method that
may restate historical financial
information of the surviving
company in a merger as if the
two entities were always one,
depending on the material sig-
nificance of the acquired company
to the acquiring company.
Purchase Accounting
An accounting method that
adds the fair market value
of assets and liabilities of the
company acquired to those
of the acquiror at the time of
acquisition. Historical financial
information of the acquiror is
not restated.
Return On Assets (ROA)
Net income as a percentage of
average assets.
Return On Common Equity
(ROE)
Net income applicable to common
stockholders as a percentage
of average common
stockholders' equity.
Security Gains Or Losses
A gain or loss resulting from
the sale of a security at a price
above or below the security's
carrying value.
Stockholders' Equity
A balance sheet amount that
represents the total invest-
ment in the corporation by
holders of preferred and
common stock.
32
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
CONSOLIDATED SUMMARIES OF INCOME, PER COMMON SHARE, BALANCE SHEET AND OTHER DATA
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA) 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARIES OF INCOME
Interest income $ 15,151 14,988 14,362 13,758 13,028 10,245
====================================================================================================================================
Interest income (a) $ 15,269 15,105 14,461 13,876 13,177 10,405
Interest expense 7,699 7,711 6,568 6,151 5,732 3,739
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (a) 7,570 7,394 7,893 7,725 7,445 6,666
Provision for loan losses 692 691 1,103 678 403 458
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses (a) 6,878 6,703 6,790 7,047 7,042 6,208
Securities transactions - portfolio (b) (62) 357 55 100 82 28
Fee and other income (c) 6,995 6,078 4,267 3,435 2,976 2,336
Merger-related and restructuring charges (d) 404 1,212 284 421 233 107
Other noninterest expense (c) 8,458 7,844 6,936 6,509 6,309 5,558
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (a) 4,949 4,082 3,892 3,652 3,558 2,907
Income taxes 1,608 1,074 1,084 1,261 1,213 938
Tax-equivalent adjustment 118 117 99 118 149 160
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 3,223 2,891 2,709 2,273 2,196 1,809
Dividends on preferred stock - - - 9 26 46
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders before redemption premium 3,223 2,891 2,709 2,264 2,170 1,763
Redemption premium on preferred stock - - - - - 41
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders after redemption premium $ 3,223 2,891 2,709 2,264 2,170 1,722
====================================================================================================================================
PER COMMON SHARE DATA
Basic $ 3.35 2.98 2.84 2.33 2.21 1.86
Diluted 3.33 2.95 2.80 2.30 2.17 1.83
Cash dividends $ 1.88 1.58 1.22 1.10 0.98 0.86
Average shares - Basic (IN THOUSANDS) 959,390 969,131 955,241 973,712 979,852 927,941
Average shares - Diluted (IN THOUSANDS) 966,863 980,112 966,792 982,755 1,001,145 946,969
Average common stockholders' equity (c) $ 15,932 15,878 14,327 13,726 12,902 11,367
Book value (c) 16.91 17.20 15.82 14.77 13.87 12.51
Common stock price
High 65 1/16 65 11/16 52 7/8 38 1/2 29 3/8 23 3/4
Low 32 7/16 44 11/16 36 5/8 25 3/4 20 5/8 19 5/8
Year-end $ 32 15/16 60 13/16 51 1/4 37 27 3/4 20 5/8
To earnings ratio (e) 9.89 X 20.61 X 18.30 16.09 12.79 11.27
To book value (c) 195 % 353 % 324 251 200 165
BALANCE SHEET DATA
Assets (c) $ 253,024 237,087 205,609 197,259 188,809 159,544
Long-term debt $ 31,975 22,949 13,487 11,604 9,586 6,405
OTHER DATA
ATMs 3,778 3,690 3,701 3,458 3,165 2,039
Employees 71,659 71,486 65,943 67,793 68,978 54,479
Common stockholders 168,989 146,775 120,437 103,538 89,257 54,236
====================================================================================================================================
</TABLE>
(a) Tax-equivalent.
(b) Securities transactions include investment securities gains of $171,000 in
1999; $4 million in 1998; $3 million in 1997; $4 million in 1996; $6 million in
1995; and $4 million in 1994.
(c) Certain prior period amounts have been reclassified to conform to the
presentation in 1999.
(d) After-tax merger-related and restructuring charges amounted to $263 million
in 1999; $805 million in 1998; $204 million in 1997; $272 million in 1996; $163
million in 1995; and $70 million in 1994.
(e) Based on diluted earnings per share.
T-1
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 141 77 702 251 156 - 1,327
Provision for loan losses 7 - 213 5 - - 225
Trading account profits 286 60 - - - - 346
Fee and other income 1,035 95 40 167 204 (148) 1,393
Noninterest expense 715 123 191 109 211 - 1,349
Income tax expense 279 37 129 94 57 (148) 448
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 461 72 209 210 92 - 1,044
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 45.11 % 34.00 7.72 94.65 15.63 - 21.93
Average loans, net $ 3,439 2,102 21,334 5,129 4,803 - 36,807
Average deposits 2,835 784 3,231 21 4,565 - 11,436
Average attributed stockholders'
equity (b) $ 1,021 211 2,718 222 594 - 4,766
====================================================================================================================================
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data $
Net interest income 96 51 - 205 174 - 526
Provision for loan losses - - - - - - -
Fee and other income 1,136 678 460 119 17 (94) 2,316
Noninterest expense 1,009 431 232 130 96 - 1,898
Income tax expense 85 114 87 74 36 (36) 360
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 138 184 141 120 59 (58) 584
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 34.75 % 77.83 64.12 72.50 22.99 - 49.32
Average loans, net $ - 140 - - 3,645 - 3,785
Average deposits - 2,658 - 14,201 3,120 - 19,979
Average attributed stockholders'
equity (b) $ 396 236 160 165 255 (31) 1,181
====================================================================================================================================
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 76 558 219 2,503 3,356
Provision for loan losses 1 69 156 99 325
Fee and other income 317 195 348 886 1,746
Noninterest expense 253 639 243 2,400 3,535
Income tax expense 53 18 64 341 476
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 86 27 104 549 766
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 75.23 % 2.15 23.11 26.95 19.55
Average loans, net $ 1,542 12,636 2,242 26,737 43,157
Average deposits 1,196 152 11 69,597 70,956
Average attributed stockholders'
equity (b) $ 114 1,324 448 2,040 3,926
====================================================================================================================================
(CONTINUED)
</TABLE>
T-2
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 85 376 184 970 1,615
Provision for loan losses 4 67 24 - 95
Fee and other income - - - 551 551
Noninterest expense 41 304 68 794 1,207
Income tax expense 15 (24) 35 278 304
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 25 29 57 449 560
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 13.44 % 2.20 10.37 60.72 20.08
Average loans, net $ 2,749 22,167 8,571 - 33,487
Average deposits - - - 25,996 25,996
Average attributed stockholders'
equity (b) $ 183 1,316 549 740 2,788
====================================================================================================================================
FIRST
CAPITAL CAPITAL UNION TREASURY/
(In millions) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (c)
Income statement data
Net interest income $ 1,327 526 1,853 3,356 1,615 628 7,452
Provision for loan losses 225 - 225 325 95 47 692
Trading account profits 346 - 346 - - 5 351
Fee and other income 1,393 2,316 3,709 1,746 551 576 6,582
Noninterest expense 1,349 1,898 3,247 3,535 1,207 873 8,862
Income tax expense 448 360 808 476 304 20 1,608
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 1,044 584 1,628 766 560 269 3,223
After-tax merger-related and
restructuring charges - - - - - 263 263
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 1,044 584 1,628 766 560 532 3,486
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.93 % 49.32 27.38 19.55 20.08 16.26 21.60
Average loans, net $ 36,807 3,785 40,592 43,157 33,487 15,138 132,374
Average deposits 11,436 19,979 31,415 70,956 25,996 6,745 135,112
Average attributed stockholders'
equity (b) $ 4,766 1,181 5,947 3,926 2,788 3,271 15,932
====================================================================================================================================
(CONTINUED)
</TABLE>
T-3
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 113 66 624 116 173 - 1,092
Provision for loan losses - - 112 6 12 - 130
Trading account profits 215 (91) - - - - 124
Fee and other income 554 86 78 188 212 (86) 1,032
Noninterest expense 551 113 181 108 189 - 1,142
Income tax expense 118 (20) 155 52 70 (86) 289
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 213 (32) 254 138 114 - 687
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 25.12 % (12.69) 11.92 91.61 19.96 - 17.36
Average loans, net $ 2,649 1,788 18,913 4,557 4,833 - 32,740
Average deposits 2,345 656 3,736 21 4,688 - 11,446
Average attributed stockholders'
equity (b) $ 849 259 2,121 151 569 - 3,949
====================================================================================================================================
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 38 55 2 155 162 - 412
Provision for loan losses - - - - 5 - 5
Fee and other income 777 609 411 76 17 (85) 1,805
Noninterest expense 700 416 215 107 82 - 1,520
Income tax expense 44 95 76 48 35 (32) 266
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 71 153 122 76 57 (53) 426
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 26.69 % 71.19 60.12 71.25 22.86 - 44.87
Average loans, net $ - 113 - - 3,572 - 3,685
Average deposits - 2,316 - 11,671 2,727 - 16,714
Average attributed stockholders'
equity (b) $ 267 215 145 108 247 (28) 954
====================================================================================================================================
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 93 310 328 2,698 3,429
Provision for loan losses 2 11 211 127 351
Fee and other income 346 223 394 982 1,945
Noninterest expense 311 398 259 2,323 3,291
Income tax expense 48 47 97 470 662
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 78 77 155 760 1,070
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 49.44 % 9.45 34.90 33.65 29.16
Average loans, net $ 2,203 7,554 3,461 37,269 50,487
Average deposits 1,339 82 12 76,563 77,996
Average attributed stockholders'
equity (b) $ 156 805 447 2,257 3,665
====================================================================================================================================
(CONTINUED)
</TABLE>
T-4
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 86 463 211 977 1,737
Provision for loan losses 4 68 19 - 91
Fee and other income - - - 515 515
Noninterest expense 39 309 62 804 1,214
Income tax expense 16 14 50 263 343
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 27 72 80 425 604
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 15.83 % 5.10 12.85 60.77 20.78
Average loans, net $ 2,602 24,512 9,020 - 36,134
Average deposits - - - 25,904 25,904
Average attributed stockholders'
equity (b) $ 168 1,414 629 699 2,910
====================================================================================================================================
FIRST
CAPITAL CAPITAL UNION TREASURY/
(In millions) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (c)
Income statement data
Net interest income $ 1,092 412 1,504 3,429 1,737 607 7,277
Provision for loan losses 130 5 135 351 91 114 691
Trading account profits 124 - 124 - - (1) 123
Fee and other income 1,032 1,805 2,837 1,945 515 1,015 6,312
Noninterest expense 1,142 1,520 2,662 3,291 1,214 1,889 9,056
Income tax expense 289 266 555 662 343 (486) 1,074
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 687 426 1,113 1,070 604 104 2,891
After-tax merger-related and
restructuring charges - - - - - 805 805
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 687 426 1,113 1,070 604 909 3,696
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.36 % 44.87 22.70 29.16 20.78 20.66 22.70
Average loans, net $ 32,740 3,685 36,425 50,487 36,134 9,014 132,060
Average deposits 11,446 16,714 28,160 77,996 25,904 4,270 136,330
Average attributed stockholders'
equity (b) $ 3,949 954 4,903 3,665 2,910 4,400 15,878
====================================================================================================================================
(CONTINUED)
</TABLE>
T-5
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 138 43 662 77 87 - 1,007
Provision for loan losses 2 - 25 3 2 - 32
Trading account profits 147 90 - - - - 237
Fee and other income 306 67 33 203 131 (50) 690
Noninterest expense 306 124 198 157 144 - 929
Income tax expense 103 32 180 38 28 (50) 331
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 180 44 292 82 44 - 642
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 32.22 % 29.09 17.09 57.10 11.70 - 21.83
Average loans, net $ 2,214 1,068 16,212 4,115 2,829 - 26,438
Average deposits 1,001 274 2,842 22 2,522 - 6,661
Average attributed stockholders'
equity (b) $ 560 148 1,708 144 383 - 2,943
====================================================================================================================================
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 16 52 (4) 135 143 - 342
Provision for loan losses - - - - 4 - 4
Fee and other income 316 556 266 56 9 (45) 1,158
Noninterest expense 276 384 161 77 79 - 977
Income tax expense 22 86 38 43 26 (17) 198
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 34 138 63 71 43 (28) 321
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 33.04 % 69.03 43.24 68.69 20.98 - 46.40
Average loans, net $ - 94 - - 2,977 - 3,071
Average deposits - 2,233 - 10,289 2,228 - 14,750
Average attributed stockholders'
equity (b) $ 105 200 93 101 202 (15) 686
====================================================================================================================================
FIRST RETAIL
UNION HOME CREDIT BRANCH
(In millions) MORTGAGE EQUITY CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 47 130 614 3,075 3,866
Provision for loan losses 6 9 491 120 626
Fee and other income 214 91 238 909 1,452
Noninterest expense 247 75 376 2,420 3,118
Income tax expense 3 53 (5) 552 603
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 5 84 (10) 892 971
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 6.15 % 57.18 (1.31) 36.44 28.99
Average loans, net $ 1,268 4,529 6,410 40,879 53,086
Average deposits 880 1 11 79,444 80,336
Average attributed stockholders'
equity (b) $ 81 149 679 2,445 3,354
====================================================================================================================================
(CONTINUED)
</TABLE>
T-6
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 77 590 254 922 1,843
Provision for loan losses 3 75 14 - 92
Fee and other income - - - 477 477
Noninterest expense 42 343 67 862 1,314
Income tax expense 12 60 66 205 343
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 20 112 107 332 571
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 13.17 % 7.59 15.59 50.55 19.19
Average loans, net $ 2,261 25,801 10,211 - 38,273
Average deposits - - - 24,247 24,247
Average attributed stockholders'
equity (b) $ 148 1,482 687 656 2,973
====================================================================================================================================
FIRST
CAPITAL CAPITAL UNION CONSUMER COMMERCIAL TREASURY/
(In millions) MARKETS MGT. SECURITIES BANK BANK NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (c)
Income statement data
Net interest income $ 1,007 342 1,349 3,866 1,843 736 7,794
Provision for loan losses 32 4 36 626 92 349 1,103
Trading account profits 237 - 237 - - 15 252
Fee and other income 690 1,158 1,848 1,452 477 293 4,070
Noninterest expense 929 977 1,906 3,118 1,314 882 7,220
Income tax expense 331 198 529 603 343 (391) 1,084
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 642 321 963 971 571 204 2,709
After-tax merger-related and
restructuring charges - - - - - 204 204
- ------------------------------------------------------------------------------------------------------------------------------------
Net incomes before
merger-related and
restructuring charges $ 642 321 963 971 571 408 2,913
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.83 % 46.40 26.54 28.99 19.19 9.33 20.29
Average loans, net $ 26,438 3,071 29,509 53,086 38,273 13,649 134,517
Average deposits 6,661 14,750 21,411 80,336 24,247 6,853 132,847
Average attributed stockholders'
equity (b) $ 2,943 686 3,629 3,354 2,973 4,371 14,327
====================================================================================================================================
</TABLE>
(a) Business Segment information reflects the April 1998 pooling of interests
merger with CoreStates. The information also reflects the 1998 divestiture of
$3.4 billion of deposits, $2.2 billion of which related to the CoreStates
merger. Information related to the purchase accounting acquisitions of The Money
Store and EVEREN on June 30, 1998, and October 1, 1999, respectively, is
included from the date the acquisitions occurred. See the "Business Segments"
discussion in Management's Analysis of Operations for further information about
the methodology and assumptions used in presenting this information.
(b) Average attributed stockholders' equity excludes merger-related and
restructuring charges. The return on average attributed stockholders' equity for
the Capital Management Mutual Funds unit is net of the amount included in Other.
(c) In the consolidated data, First Union Securities represents the total of
Capital Markets and Capital Management.
T-7
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
SELECTED PERFORMANCE, DIVIDEND PAYOUT AND OTHER RATIOS
- --------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS (a)
Assets to stockholders' equity (b) 14.46 X 13.99 13.68 13.68 13.26 12.66
Return on assets (b) 1.40 % 1.30 1.38 1.20 1.26 1.20
Return on total stockholders' equity (b) 20.23 % 18.21 18.91 16.43 16.75 15.25
===============================================================================================================================
DIVIDEND PAYOUT RATIOS ON
Operating earnings
Common shares 52.22 % 41.24 39.18 39.18 36.13 38.30
Preferred and common shares 52.22 41.24 39.18 39.38 36.84 39.84
Net income
Common shares 56.46 52.72 42.12 45.55 38.84 39.85
Preferred and common shares 56.46 % 52.72 42.12 45.76 39.57 41.41
===============================================================================================================================
OTHER RATIOS ON
Operating earnings
Return on assets 1.51 % 1.66 1.49 1.39 1.36 1.25
Return on common
stockholders' equity (b) (c) 21.60 22.70 20.29 18.84 18.08 15.76
Net income
Return on common
stockholders' equity (b) (c) 20.23 % 18.21 18.91 16.50 16.82 15.15
===============================================================================================================================
</TABLE>
(a) Based on average balances and net income.
(b) Prior year amounts have been reclassified to conform to the presentation in
1999.
(c) Based on average balances and net income applicable to common stockholders.
T-8
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
SELECTED QUARTERLY DATA
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------- -----------------------------------------------
(IN MILLIONS, EXCEPT PER
SHARE DATA) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 4,143 3,812 3,624 3,572 3,768 3,891 3,727 3,602
Interest expense 2,198 1,930 1,779 1,792 1,970 2,048 1,922 1,771
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,945 1,882 1,845 1,780 1,798 1,843 1,805 1,831
Provision for loan losses 173 175 180 164 167 239 150 135
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 1,772 1,707 1,665 1,616 1,631 1,604 1,655 1,696
Securities transactions -
portfolio (7) (79) (1) 25 98 211 25 23
Fee and other income (a) 1,844 1,519 1,707 1,925 1,644 1,602 1,506 1,326
Merger-related and
restructuring charges 6 - - 398 205 24 954 29
Noninterest expense (a) 2,354 1,940 2,053 2,111 2,282 1,898 1,855 1,809
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,249 1,207 1,318 1,057 886 1,495 377 1,207
Income taxes 407 405 445 351 29 500 128 417
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 842 802 873 706 857 995 249 790
====================================================================================================================================
PER SHARE DATA
Basic earnings $ 0.86 0.84 0.92 0.73 0.87 1.02 0.27 0.82
Diluted earnings 0.86 0.84 0.90 0.73 0.87 1.01 0.26 0.81
Cash dividends 0.47 0.47 0.47 0.47 0.42 0.42 0.37 0.37
Common stock price
High 43 5/8 48 3/8 55 15/16 65 1/16 63 15/16 65 11/16 63 58 1/4
Low 32 7/16 35 5/16 42 1/16 48 5/8 44 11/16 47 9/16 55 1/4 47 1/16
Period-end $ 32 15/16 35 5/8 47 1/8 53 7/16 60 13/16 51 3/16 58 1/4 56 13/16
====================================================================================================================================
SELECTED RATIOS (a) (b)
Return on assets 1.37 % 1.39 1.56 1.28 1.48 1.73 0.46 1.52
Return on stockholders'
equity 20.00 20.82 22.30 17.85 20.22 24.01 6.82 20.53
Stockholders' equity to assets 6.85 % 6.68 7.01 7.15 7.30 7.19 6.69 7.41
====================================================================================================================================
SELECTED RATIOS (a) (c)
Return on assets 1.38 % 1.39 1.56 1.74 1.71 1.75 1.62 1.56
Return on stockholders'
equity 19.78 % 20.47 21.94 24.32 22.49 23.42 23.89 21.01
====================================================================================================================================
</TABLE>
(a) Prior year amounts have been reclassified to conform to the presentation in
1999.
(b) Based on average balances and net income.
(c) Based on average balances and net income excluding after-tax merger-related
and restructuring charges.
T-9
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS - ON-BALANCE SHEET AND TOTAL MANAGED PORTFOLIO
DECEMBER 31,
-----------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ON-BALANCE SHEET
COMMERCIAL
Commercial, financial and agricultural $ 51,683 53,961 46,117 41,489 40,959 35,220
Real estate - construction and other 2,435 2,628 3,037 3,474 3,350 2,651
Real estate - mortgage 8,768 8,565 13,160 14,300 15,071 14,533
Lease financing 12,742 9,730 8,610 6,348 4,556 2,278
Foreign 4,991 4,805 3,885 2,842 1,675 1,121
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial 80,619 79,689 74,809 68,453 65,611 55,803
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 29,296 21,729 28,998 33,181 32,782 26,615
Installment loans - Bankcard (a) 1,879 2,779 3,914 7,295 5,358 5,837
Installment loans - other (b) 24,814 27,816 22,271 23,855 22,493 18,153
Vehicle leasing 4,483 6,162 5,331 4,529 3,615 2,799
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail 60,472 58,486 60,514 68,860 64,248 53,404
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 141,091 138,175 135,323 137,313 129,859 109,207
Unearned income 5,525 4,026 3,636 2,666 1,954 1,242
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net (ON-BALANCE SHEET) $ 135,566 134,149 131,687 134,647 127,905 107,965
====================================================================================================================================
TOTAL MANAGED PORTFOLIO
(INCLUDING ON- AND OFF-BALANCE
SHEET PORTFOLIOS)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL $ 112,878 100,001 84,583 71,430 67,174 57,294
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 68,330 63,672 64,595 62,946 60,283 42,939
Installment loans - Bankcard (a) 6,627 6,487 7,066 10,492 5,358 5,837
Installment loans - other (b) 47,338 44,611 26,733 26,050 23,188 18,708
Vehicle leasing 4,483 6,162 5,331 4,529 3,615 2,799
- ------------------------------------------------------------------------------------------------------------------------------------
Total retail 126,778 120,932 103,725 104,017 92,444 70,283
- ------------------------------------------------------------------------------------------------------------------------------------
Total managed portfolio $ 239,656 220,933 188,308 175,447 159,618 127,577
====================================================================================================================================
</TABLE>
(a) Installment loans - Bankcard include credit card, instant cash reserve,
signature and First Choice.
(b) Certain prior period amounts have been reclassified to conform to the
presentation in 1999.
T-10
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
CERTAIN COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
---------------------------------------------------------------------------
REAL
COMMERCIAL, ESTATE-
FINANCIAL CONSTRUCTION REAL
AND AND ESTATE-
(IN MILLIONS) AGRICULTURAL OTHER MORTGAGE FOREIGN TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED RATE
1 year or less $ 1,914 84 326 3,188 5,512
1-5 years 3,842 117 1,532 15 5,506
After 5 years 2,476 75 752 - 3,303
- --------------------------------------------------------------------------------------------------------------------------------
Total 8,232 276 2,610 3,203 14,321
- --------------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE
1 year or less 16,855 694 842 1,542 19,933
1-5 years 23,178 1,183 3,279 238 27,878
After 5 years 3,418 282 2,037 8 5,745
- --------------------------------------------------------------------------------------------------------------------------------
Total 43,451 2,159 6,158 1,788 53,556
- --------------------------------------------------------------------------------------------------------------------------------
Total $ 51,683 2,435 8,768 4,991 67,877
================================================================================================================================
</TABLE>
T-11
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of year $ 1,826 1,847 2,212 2,308 2,259 2,259
Provision for loan losses 692 691 1,103 678 403 458
Allowance relating to loans acquired, transferred
to accelerated disposition or sold (73) (74) (596) 50 193 82
Loan losses, net (688) (638) (872) (824) (547) (540)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 1,757 1,826 1,847 2,212 2,308 2,259
===================================================================================================================================
as % of loans, net (a) 1.30 % 1.36 1.40 1.64 1.80 2.09
===================================================================================================================================
as % of nonaccrual and restructured loans 181 % 246 211 241 252 228
===================================================================================================================================
as % of nonperforming assets 165 % 216 186 211 201 170
===================================================================================================================================
LOAN LOSSES
Commercial, financial and agricultural $ 355 281 172 221 187 276
Real estate - commercial construction
and mortgage 24 15 49 98 64 123
Real estate - residential mortgage 20 27 54 60 97 123
Installment loans - Bankcard (b) 166 241 511 439 255 110
Installment loans - other and vehicle leasing 263 235 288 258 163 125
- -----------------------------------------------------------------------------------------------------------------------------------
Total 828 799 1,074 1,076 766 757
- -----------------------------------------------------------------------------------------------------------------------------------
LOAN RECOVERIES
Commercial, financial and agricultural 63 65 74 120 103 101
Real estate - commercial construction
and mortgage 9 11 23 33 24 20
Real estate - residential mortgage 3 1 9 12 22 23
Installment loans - Bankcard 10 16 35 40 23 18
Installment loans - other and vehicle leasing 55 68 61 47 47 55
- -----------------------------------------------------------------------------------------------------------------------------------
Total 140 161 202 252 219 217
- -----------------------------------------------------------------------------------------------------------------------------------
Loan losses, net $ 688 638 872 824 547 540
===================================================================================================================================
as % of average loans, net (b) 0.52 % 0.48 0.65 0.64 0.45 0.53
===================================================================================================================================
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 551 362 384 324 514 569
Commercial real estate loans 55 67 135 218 - -
Consumer real estate loans 150 184 233 240 - -
Installment loans 212 128 124 123 131 -
Real estate loans - - - - 260 397
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 968 741 876 905 905 966
Foreclosed properties (c) 98 103 115 142 243 362
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 1,066 844 991 1,047 1,148 1,328
===================================================================================================================================
as % of loans, net, and foreclosed properties (a) 0.79 % 0.63 0.75 0.78 0.90 1.23
===================================================================================================================================
Accruing loans past due 90 days $ 188 346 326 474 445 350
===================================================================================================================================
</TABLE>
(a) Certain prior period amounts have been reclassified to conform to the
presentation in 1999.
(b) Installment loans - Bankcard includes a 1996 one-time charge-off of $34
million related to a regulatory change that reduced the period that delinquent
loans could be held before charge-off. This amount is not included in charge-off
ratios.
(c) Restructured loans are insignificant.
T-12
<PAGE>
<TABLE>
<CAPTION>
TABLE 8
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ---------------- ---------------- ----------------- ---------------
LOANS LOANS LOANS LOANS LOANS
% OF % OF % OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL
(IN MILLIONS) AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 754 37 % $ 724 39 % $ 480 35 % $ 543 30 % $ 645 32 %
Real estate -
Construction and
other 20 2 34 2 44 2 90 3 102 3
Mortgage 83 27 103 22 149 31 284 34 405 36
Installment loans -
Bankcard 106 1 145 2 225 3 442 5 322 4
Other and vehicle
leasing 252 21 207 25 227 20 309 21 334 20
Lease financing 15 9 5 7 46 6 73 5 37 4
Foreign 19 3 12 3 49 3 39 2 60 1
Unallocated 508 - 596 - 627 - 432 - 403 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 1,757 100 % $ 1,826 100 % $ 1,847 100 % $ 2,212 100 % $ 2,308 100 %
===================================================================================================================================
</TABLE>
T-13
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
INTANGIBLE ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GOODWILL AND OTHER
INTANGIBLE ASSETS
Goodwill $ 5,091 4,376 2,465 2,650 2,202 1,665
Deposit base premium 257 360 473 551 622 627
Origination network 274 294 - - - -
Other 4 6 10 15 19 29
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 5,626 5,036 2,948 3,216 2,843 2,321
============================================================================================================================
MORTGAGE AND OTHER
SERVICING ASSETS $ 703 637 427 284 209 135
============================================================================================================================
CREDIT CARD PREMIUM $ 6 14 24 35 46 62
============================================================================================================================
</TABLE>
T-14
<PAGE>
<TABLE>
<CAPTION>
TABLE 10
DEPOSITS
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CORE DEPOSITS
Noninterest-bearing $ 31,375 35,614 31,005 29,713 27,706 24,542
Savings and NOW accounts 37,748 38,649 37,281 35,892 36,654 33,634
Money market accounts (a) 19,405 20,822 21,240 21,193 18,719 19,284
Other consumer time 33,812 35,809 37,324 42,457 42,857 36,671
- ------------------------------------------------------------------------------------------------------------------------------
Total core deposits 122,340 130,894 126,850 129,255 125,936 114,131
Foreign (a) 6,729 5,427 3,928 3,307 4,720 5,916
Other time 11,978 6,146 6,299 3,867 3,456 2,592
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 141,047 142,467 137,077 136,429 134,112 122,639
==============================================================================================================================
(a) Certain prior year amounts have been reclassified to conform to the
presentation in 1999.
<CAPTION>
TABLE 11
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE (a)
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
--------------------------
(IN MILLIONS) TIME CERTIFICATES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
MATURITY OF
3 months or less $ 6,391
Over 3 months through 6 months 2,756
Over 6 months through 12 months 5,780
Over 12 months 2,802
- ----------------------------------------------------------------------------------------------------------------------
Total $ 17,729
======================================================================================================================
</TABLE>
(a) There were no deposits classified as other time deposits in amounts of
$100,000 or more at December 31, 1999.
T-15
<PAGE>
<TABLE>
<CAPTION>
TABLE 12
CAPITAL RATIOS
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------------
(IN MILLIONS) 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED CAPITAL RATIOS (a) (b)
Qualifying capital
Tier 1 capital $ 14,204 13,327 13,846 11,276 10,039 7,821
Total capital 21,810 21,518 21,459 17,976 16,043 12,157
Adjusted risk-weighted assets 200,704 195,757 165,676 143,467 136,215 94,377
Adjusted leverage ratio assets $ 238,082 225,534 196,962 168,384 163,625 116,612
Ratios
Tier 1 capital 7.08 % 6.81 8.36 7.86 7.37 8.29
Total capital 10.87 10.99 12.95 12.53 11.78 12.88
Leverage 5.97 5.91 7.03 6.70 6.14 6.71
STOCKHOLDERS' EQUITY TO ASSETS (b)
Year-end 6.60 7.13 7.36 7.37 7.27 7.50
Average 6.92 % 7.15 7.31 7.31 7.54 7.90
===================================================================================================================================
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank 7.26 % 7.48 6.97 6.43 6.46 7.32
First Union Bank of Delaware 10.83 11.44 11.83 13.61 25.45 -
First Union Home Equity Bank 22.32 11.91 10.95 8.40 7.50 7.60
Total capital
First Union National Bank 10.22 10.38 10.20 10.20 10.15 10.69
First Union Bank of Delaware 11.89 12.82 13.09 14.87 26.74 -
First Union Home Equity Bank 25.88 13.82 13.20 10.77 10.09 12.10
Leverage
First Union National Bank 6.48 6.69 6.02 5.95 5.72 6.10
First Union Bank of Delaware 7.08 6.96 6.24 10.60 17.20 -
First Union Home Equity Bank 15.42 % 10.86 10.16 7.84 6.48 7.22
===================================================================================================================================
</TABLE>
(a) Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4.00 percent and a minimum ratio of total
capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio of
tier 1 capital to adjusted average quarterly assets is from 3.00 percent to 4.00
percent.
(b) Prior year amounts have been reclassified to conform to the presentation in
1999.
T-16
<PAGE>
<TABLE>
<CAPTION>
TABLE 13
UNREALIZED GAINS (LOSSES) IN CERTAIN FINANCIAL INSTRUMENTS
- ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SECURITIES PORTFOLIOS (a)
Securities available for sale (b) $ (1,431) 636
Investment securities 51 137
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - securities portfolios (1,380) 773
Less unrealized gains (losses) in securities considered
an economic hedge of mortgage servicing rights (79) 14
- ---------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses), net - securities portfolios (1,301) 759
- ---------------------------------------------------------------------------------------------------------------------
OFF-BALANCE SHEET DERIVATIVE FINANCIAL
INSTRUMENTS (a)
Asset rate conversions (b) (504) 390
Liability rate conversions 338 472
Rate sensitivity hedges 4 (23)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) - off-balance sheet
derivative financial instruments (162) 839
Less unrealized gains (losses) in interest rate swaps
designated as offsets to fixed rate debt (262) 472
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized gains - off-balance sheet
derivative financial instruments 100 367
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) $ (1,201) 1,126
=====================================================================================================================
</TABLE>
(a) Additional information related to the securities portfolios can be found in
Tables 14and 15. Additional information related to off-balance sheet derivative
financial instruments can be found in Tables 16, 17 and 18.
(b) At December 31, 1999, unrealized gains of $14 million associated with $8.3
billion of interest rate swaps that qualify as asset rate conversions of
securities available for sale are included with the securities available for
sale portfolio.
T-17
<PAGE>
<TABLE>
<CAPTION>
TABLE 14
SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
----------------------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
1 YEAR 1-5 5-10 AFTER 10 ----------------------- AMORTIZED MATURITY
(IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET VALUE
U.S. Treasury $ 3 1 1,660 517 2,181 - 167 2,348 12.75
U.S. Government agencies 32 803 21,621 1,806 24,262 1 1,216 25,477 8.89
Asset-backed 378 10,295 5,821 568 17,062 290 409 17,181 6.31
State, county and municipal - 1 39 856 896 1 13 908 27.96
Sundry 1,032 741 2,845 2,258 6,876 223 141 6,794 7.10
- --------------------------------------------------------------------------------------------------------------------------
Total $ 1,445 11,841 31,986 6,005 51,277 515 1,946 52,708 8.36
====================================================================================================================================
MARKET VALUE
Debt securities $ 1,445 11,841 31,986 4,098 49,370 320 1,916 50,966
Equity securities - - - 1,907 1,907 195 30 1,742
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 1,445 11,841 31,986 6,005 51,277 515 1,946 52,708
- --------------------------------------------------------------------------------------------------------------------------
AMORTIZED COST
Debt securities $ 1,389 11,681 33,544 4,352 50,966
Equity securities - - - 1,742 1,742
- ---------------------------------------------------------------------------------------
Total $ 1,389 11,681 33,544 6,094 52,708
=======================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 5.17 % 4.56 5.76 5.70 5.74
U.S. Government agencies 5.76 7.03 6.47 6.47 6.49
Asset-backed 8.63 8.16 6.87 10.66 7.79
State, county and municipal - 9.34 7.43 9.09 9.02
Sundry 5.33 6.71 7.55 3.90 5.98
Consolidated 6.10 % 7.99 6.60 6.28 6.86
=======================================================================================
DECEMBER 31, 1998
----------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE
U.S. Treasury $ 66 1 2,477 238 2,782 201 - 2,581 10.14
U.S. Government agencies 225 6,203 18,483 - 24,911 212 18 24,717 5.89
Asset-backed 315 2,545 4,311 49 7,220 95 46 7,171 6.42
State, county and municipal 4 2 19 56 81 1 - 80 15.92
Sundry 92 547 266 1,535 2,440 216 25 2,249 8.00
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 702 9,298 25,556 1,878 37,434 725 89 36,798 6.40
====================================================================================================================================
MARKET VALUE
Debt securities $ 702 9,298 25,556 604 36,160 520 87 35,727
Equity securities - - - 1,274 1,274 205 2 1,071
- --------------------------------------------------------------------------------------------------------------------------
Total $ 702 9,298 25,556 1,878 37,434 725 89 36,798
==========================================================================================================================
AMORTIZED COST
Debt securities $ 690 9,209 25,216 612 35,727
Equity securities - - - 1,071 1,071
- ---------------------------------------------------------------------------------------
Total $ 690 9,209 25,216 1,683 36,798
=======================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 6.70 % 4.96 6.05 6.05 6.07
U.S. Government agencies 5.82 6.71 6.48 - 6.53
Asset-backed 8.77 7.52 6.64 7.85 7.05
State, county and municipal 9.29 7.15 7.23 7.28 7.38
Sundry 4.34 7.10 6.39 5.34 5.85
Consolidated 7.03 % 6.95 6.46 5.58 6.56
=======================================================================================
</TABLE>
T-18
<PAGE>
- --------------------------------------------------------------------------------
Securities available for sale with an aggregate amortized cost of $27.0 billion
at December 31, 1999, are pledged to secure U.S. Government and other public
deposits and for other purposes as required by various statutes or agreements.
Included in U.S. Government agencies and Sundry securities at December 31, 1999,
are $2.6 billion of securities denominated in currencies other than the U.S.
dollar. At December 31, 1999, these securities had a weighted average maturity
of 8.91 years and a weighted average yield of 7.24 percent.
Included in Asset-backed securities at December 31, 1999, are interest-only and
residual certificates with a market value of $583 million; gross unrealized
gains and losses of $88 million and $4 million, respectively; and an amortized
cost of $499 million.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Average maturity excludes equity securities and money market funds.
Yields related to securities exempt from federal and state income taxes 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
applicable state tax rates.
At December 31, 1999 and 1998, there were forward commitments to purchase
securities at a cost which approximates a market value of $22 million and $4.0
billion, respectively. At December 31, 1999, there were commitments to sell
securities at a cost which approximates a market value of $46 million.
Gross gains and losses realized on the sale of debt securities in 1999 were $69
million and $131 million, respectively, and gross gains and losses realized on
equity securities were $147 million and $14 million, respectively. Gross gains
and losses realized on the sale of debt securities in 1998 were $399 million and
$62 million, respectively, and gross gains and losses realized on equity
securities were $18 million and $2 million, respectively. Gross gains and losses
realized on the sale of debt securities in 1997 were $54 million and $43
million, respectively, and gross gains and losses realized on equity securities
were $52 million and $11 million, respectively.
T-19
<PAGE>
<TABLE>
<CAPTION>
TABLE 15
INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
----------------------------------------------------------------------------------------------
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. Treasury $ 11 - 1 - 12 - - 12 0.63
U.S. Government agencies 41 148 854 1 1,044 7 23 1,028 5.31
CMOs 58 - 1 - 59 - - 59 0.65
State, county and municipal 49 142 277 147 615 68 1 682 7.64
Sundry 3 22 1 2 28 - - 28 2.95
- ----------------------------------------------------------------------------------------------------------------------
Total $ 162 312 1,134 150 1,758 75 24 1,809 5.90
====================================================================================================================================
MARKET VALUE
Debt securities $ 163 322 1,154 170 1,809
==========================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 4.72 % - 4.74 - 4.72
U.S. Government agencies 6.86 7.17 6.60 5.26 6.69
CMOs 8.22 - 10.39 - 8.27
State, county and municipal 9.35 10.21 11.86 11.41 11.17
Sundry 7.52 7.02 7.60 6.61 7.07
Consolidated 7.95 % 8.54 7.89 11.33 8.31
===========================================================================================
DECEMBER 31, 1998
----------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
CARRYING VALUE
U.S. Treasury $ 5 7 - - 12 - - 12 1.23
U.S. Government agencies - 891 151 3 1,045 25 1 1,069 4.08
CMOs 100 65 - - 165 3 - 168 0.98
State, county and municipal 102 165 235 245 747 110 - 857 7.65
Sundry 24 27 2 3 56 - - 56 2.13
- ----------------------------------------------------------------------------------------------------------------------
Total $ 231 1,155 388 251 2,025 138 1 2,162 5.08
====================================================================================================================================
MARKET VALUE
Debt securities $ 234 1,190 434 304 2,162
==========================================================================================
WEIGHTED AVERAGE
YIELD
U.S. Treasury 4.78 % 4.70 - - 4.73
U.S. Government agencies - 6.95 6.51 8.43 6.89
CMOs 8.71 7.21 - - 8.12
State, county and municipal 9.97 9.95 11.41 11.96 11.07
Sundry 7.12 7.32 7.26 5.14 7.13
Consolidated 9.02 % 7.39 9.48 11.84 8.53
=========================================================================================
</TABLE>
T-20
<PAGE>
- --------------------------------------------------------------------------------
Investment securities with an aggregate amortized cost of $919 million at
December 31, 1999, are pledged to secure U.S. Government and other public
deposits and for other purposes as required by various statutes or agreements.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Yields related to securities exempt from federal and state income taxes 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
applicable state tax rates.
There were no commitments to purchase or sell investment securities at December
31, 1999 and 1998.
Gross gains realized on repurchase agreement underdeliveries and calls of
investment securities were $171,000, $4 million and $3 million in 1999, 1998 and
1997, respectively.
T-21
<PAGE>
<TABLE>
<CAPTION>
TABLE 16
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a)
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
NOTIONAL CARRYING --------------------------- MARKET MATURITY IN
(In millions) AMOUNT AMOUNT (f) GAINS LOSSES VALUE YEARS (g)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSET RATE CONVERSIONS (b)
Interest rate swaps $ 50,910 39 63 200 (98) 2.81
Options (c) 6,451 115 - 353 (238) 8.48
Futures 190 - - - - 0.25
- --------------------------------------------------------------------------------------------------------------------
Total asset rate conversions $ 57,551 154 63 553 (336) 3.44
====================================================================================================================================
LIABILITY RATE CONVERSIONS (d)
Interest rate swaps $ 62,988 18 661 437 242 5.65
Options (c) 11,170 31 115 1 145 1.56
- --------------------------------------------------------------------------------------------------------------------
Total liability rate conversions $ 74,158 49 776 438 387 5.04
====================================================================================================================================
RATE SENSITIVITY HEDGES (e)
Basis swaps $ 706 - - - - 3.11
Options (c) 9,743 158 1 30 129 1.19
Futures 46,122 - 33 - 33 0.25
Options on futures 2,000 - - - - 0.72
- --------------------------------------------------------------------------------------------------------------------
Total rate sensitivity hedges $ 58,571 158 34 30 162 0.46
====================================================================================================================================
DECEMBER 31, 1998
------------------------------------------------------------------------------
GROSS UNREALIZED AVERAGE
NOTIONAL CARRYING ------------------------- MARKET MATURITY IN
(In millions) AMOUNT AMOUNT (f) GAINS LOSSES VALUE YEARS (g)
- -----------------------------------------------------------------------------------------------------------------------------------
ASSET RATE CONVERSIONS (b)
Interest rate swaps $ 18,351 41 397 14 424 2.75
Options (c) 7,557 135 18 11 142 8.21
- --------------------------------------------------------------------------------------------------------------------
Total asset rate conversions $ 25,908 176 415 25 566 4.34
====================================================================================================================================
LIABILITY RATE CONVERSIONS (d)
Interest rate swaps $ 8,898 27 504 32 499 5.21
Options (c) 170 1 - - 1 4.57
- --------------------------------------------------------------------------------------------------------------------
Total liability rate conversions $ 9,068 28 504 32 500 5.20
====================================================================================================================================
RATE SENSITIVITY HEDGES (e)
Basis swaps $ 785 - - - - 4.10
Options (c) 12,169 34 - 29 5 1.32
Futures 1,500 - 6 - 6 0.25
- --------------------------------------------------------------------------------------------------------------------
Total rate sensitivity hedges $ 14,454 34 6 29 11 1.36
====================================================================================================================================
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Off-balance sheet derivative financial instruments with a notional amount of
$49.3 billion and $25.9 billion at December 31, 1999 and 1998, respectively,
primarily convert floating rate loans to fixed rate. The 1999 notional amount
includes a $29.2 billion interest rate swap maturing in December 2000 that is
extendible at the option of the counterparty as a $7.5 billion forward-starting
swap that qualifies as an asset rate conversion and which matures in 2012. At
December 31, 1999, interest rate swaps with a notional amount of $8.3 billion
are rate conversions of securities available for sale.
(c) Includes purchased interest rate floors, caps and collars and purchased
options on swaps.
(d) Off-balance sheet derivative financial instruments with a notional amount of
$36.2 billion and $9.0 billion at December 31, 1999 and 1998, respectively,
convert fixed rate liabilities, primarily CD's, long-term debt and bank notes,
to floating rate. The 1999 notional amount of $36.2 billion includes a $26.2
billion interest rate swap that declines on a quarterly basis through December
2000, based on the estimated decline in the balance of the designated fixed rate
liabilities, to $6.0 billion which matures in 2009. Off-balance sheet derivative
financial instruments with a notional amount of $38.0 billion, of which $27.0
billion are forward-starting swaps at December 31, 1999, convert floating rate
liabilities, primarily deposits and long-term debt, to fixed rate.
(e) Off-balance sheet derivative financial instruments designated as rate
sensitivity hedges are primarily used to modify the interest rate
characteristics of pay-variable interest rate swaps under asset rate conversions
or liability rate conversions.
(f) Carrying amount includes accrued interest receivable or payable and
unamortized premiums.
(g) Estimated maturity approximates average life.
T-22
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a)
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999
---------------------------------------------------------------------------------
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 - swaps $ 32,386 2,041 2,219 3,647 10,617 50,910
Notional amount - other 115 67 221 6,238 - 6,641
Weighted average receive rate (b) 6.91 % 6.36 6.28 6.47 7.04 6.86
Weighted average pay rate (b) 6.08 % 6.20 6.22 6.10 6.14 6.11
Estimated fair value $ 18 (3) (24) (289) (38) (336)
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount - swaps $ 20,926 734 2,550 22,213 16,565 62,988
Notional amount - other - 11,000 170 - - 11,170
Weighted average receive rate (b) 6.61 % 7.30 6.75 6.49 7.37 6.63
Weighted average pay rate (b) 6.10 % 6.09 6.25 6.04 6.15 6.09
Estimated fair value $ (105) 150 (14) 258 98 387
- ---------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount - swaps $ 82 87 355 182 - 706
Notional amount - other 55,622 2,243 - - - 57,865
Weighted average receive rate (b) 6.46 % 6.46 6.46 6.46 - 6.46
Weighted average pay rate (b) 5.58 % 5.58 5.58 5.58 - 5.58
Estimated fair value $ 144 18 - - - 162
=================================================================================================================================
DECEMBER 31, 1998
---------------------------------------------------------------------------------
1 YEAR 1 -2 2 -5 5 -10 AFTER 10
(In millions) OR LESS YEARS YEARS YEARS YEARS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
ASSET RATE CONVERSIONS
Notional amount - swaps $ 3,616 9,861 3,763 711 400 18,351
Notional amount - other 1,032 - 231 6,294 - 7,557
Weighted average receive rate (b) 6.84 % 6.56 6.16 5.75 6.65 6.50
Weighted average pay rate (b) 5.38 % 5.22 5.44 5.45 5.24 5.31
Estimated fair value $ 57 218 96 146 49 566
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITY RATE CONVERSIONS
Notional amount - swaps $ 1,587 493 1,784 4,879 155 8,898
Notional amount - other - - 170 - - 170
Weighted average receive rate (b) 6.37 % 6.33 6.78 6.74 6.31 6.65
Weighted average pay rate (b) 5.30 % 5.64 5.38 5.43 5.73 5.41
Estimated fair value $ 41 5 95 349 10 500
- ---------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVITY HEDGES
Notional amount - swaps $ 79 82 330 294 - 785
Notional amount - other 11,426 - 2,243 - - 13,669
Weighted average receive rate (b) 5.56 % 5.56 5.56 5.56 - 5.56
Weighted average pay rate (b) 4.94 % 4.94 4.94 4.94 - 4.94
Estimated fair value $ 7 - 4 - - 11
=================================================================================================================================
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
(b) Weighted average receive and pay rates include the impact of currently
effective interest rate swaps and basis swaps only, and therefore, they exclude
the impact of forward-starting interest rate swaps. Substantially all of the
currently effective interest rate swaps are receive-fixed/pay-variable with pay
rates generally based on one-to-six month LIBOR, and they are the pay rates in
effect at December 31, 1999 and 1998.
T-23
<PAGE>
<TABLE>
<CAPTION>
TABLE 18
OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a)
- ---------------------------------------------------------------------------------------------------------------------------
ASSET LIABILITY RATE
RATE RATE SENSITIVITY
(IN MILLIONS) CONVERSIONS CONVERSIONS HEDGES TOTAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 17,714 11,422 20,880 50,016
Additions 11,422 1,361 10,775 23,558
Maturities and amortizations (3,413) (2,348) (15,794) (21,555)
Terminations and redesignations, net 185 (1,367) (1,407) (2,589)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 25,908 9,068 14,454 49,430
Additions 39,631 69,045 85,659 194,335
Maturities and amortizations (6,559) (3,955) (35,793) (46,307)
Terminations and redesignations, net (1,429) - (5,749) (7,178)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 57,551 74,158 58,571 190,280
===========================================================================================================================
</TABLE>
(a) Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-24
<PAGE>
<TABLE>
<CAPTION>
TABLE 19
INTEREST DIFFERENTIAL
- ---------------------------------------------------------------------------------------------------------------------------------
1999 COMPARED TO 1998 1998 Compared to 1997
-------------------------------------------- ---------------------------------
INTEREST VARIANCE Interest Variance
INCOME/ ATTRIBUTABLE TO (c) Income/ Attributable to (c)
EXPENSE --------------------------- Expense ----------------------
(In millions) VARIANCE RATE VOLUME Variance Rate Volume
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-bearing bank balances $ (95) (17) (78) (48) 1 (49)
Federal funds sold and securities
purchased under resale agreements (167) (26) (141) 227 (46) 273
Trading account assets (a) 54 (12) 66 214 (9) 223
Securities available for sale (a) 667 90 577 899 (63) 962
Investment securities (a)
U.S. Government and other (43) (4) (39) (58) (5) (53)
State, county and municipal (13) 4 (17) (17) 5 (22)
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities (56) - (56) (75) - (75)
- ---------------------------------------------------------------------------------------------------------------------------------
Loans (a) (b) (295) (321) 26 (660) (448) (212)
Other earning assets (b) 56 - 56 87 43 44
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets $ 164 (286) 450 644 (522) 1,166
=================================================================================================================================
INTEREST-BEARING LIABILITIES
Deposits (262) (198) (64) 168 153 15
Short-term borrowings (354) (118) (236) 776 (45) 821
Long-term debt 604 (140) 744 199 (36) 235
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ (12) (456) 444 1,143 72 1,071
=================================================================================================================================
Net interest income $ 176 170 6 (499) (594) 95
=================================================================================================================================
</TABLE>
(a) Yields related to securities and loans exempt from federal and state income
taxes 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 applicable state tax rates. Lease financing amounts include related
deferred income taxes.
(b) Certain prior year amounts have been reclassified to conform to the
presentation in 1999.
(c) Changes attributable to rate/volume are allocated to both rate and volume on
an equal basis.
T-25
<PAGE>
<TABLE>
<CAPTION>
FIRST UNION CORPORATION
NET INTEREST INCOME SUMMARIES
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 1999 YEAR ENDED 1998
---------------------------------------- -----------------------------------
AVERAGE AVERAGE
INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
(IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE PAID
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing bank balances $ 835 39 4.58 % $ 2,331 134 5.76 %
Federal funds sold and securities
purchased under resale agreements 9,526 459 4.82 12,381 626 5.06
Trading account assets (a) (d) 9,638 609 6.32 8,598 555 6.46
Securities available for sale (a) (d) 43,767 2,989 6.83 35,177 2,322 6.60
Investment securities (a) (d)
U.S. Government and other 1,163 78 6.73 1,727 121 6.99
State, county and municipal 700 75 10.62 867 88 10.12
- ----------------------------------------------------------------------------- ------------------------
Total investment securities 1,863 153 8.19 2,594 209 8.04
- ----------------------------------------------------------------------------- ------------------------
Loans (a) (b) (d)
Commercial
Commercial, financial and agricultural 52,710 4,197 7.96 50,080 3,926 7.84
Real estate - construction and other 2,648 202 7.63 2,912 245 8.42
Real estate - mortgage 8,468 663 7.82 9,663 821 8.50
Lease financing 4,967 629 12.65 4,454 502 11.28
Foreign 4,500 273 6.08 4,297 287 6.68
- ----------------------------------------------------------------------------- ------------------------
Total commercial 73,293 5,964 8.14 71,406 5,781 8.10
- ----------------------------------------------------------------------------- ------------------------
Retail
Real estate - mortgage 25,306 1,788 7.07 26,114 1,968 7.54
Installment loans - Bankcard 2,293 305 13.30 3,634 566 15.56
Installment loans - other and
vehicle leasing (c) 31,482 2,820 8.96 30,906 2,857 9.24
- ----------------------------------------------------------------------------- ------------------------
Total retail 59,081 4,913 8.32 60,654 5,391 8.89
- ----------------------------------------------------------------------------- ------------------------
Total loans 132,374 10,877 8.22 132,060 11,172 8.46
- ----------------------------------------------------------------------------- ------------------------
Other earning assets (c) 1,933 143 7.38 1,175 87 7.41
- ----------------------------------------------------------------------------- ------------------------
Total earning assets 199,936 15,269 7.64 194,316 15,105 7.77
======================== ======================
Cash and due from banks 9,178 9,132
Other assets (c) 21,205 18,765
- ----------------------------------------------------------------- -----------
Total assets $ 230,319 $ 222,213
================================================================= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits
Savings and NOW accounts 37,448 1,035 2.77 34,917 937 2.68
Money market accounts (c) 20,031 631 3.15 22,742 755 3.32
Other consumer time 33,557 1,675 4.99 37,291 1,987 5.33
Foreign (c) 5,553 259 4.66 4,429 238 5.38
Other time 7,528 454 6.03 6,342 399 6.29
- ----------------------------------------------------------------------------- ------------------------
Total interest-bearing deposits 104,117 4,054 3.89 105,721 4,316 4.08
Federal funds purchased and securities
sold under repurchase agreements 30,046 1,452 4.83 33,121 1,676 5.06
Commercial paper 2,224 107 4.81 1,954 102 5.23
Other short-term borrowings 9,188 460 5.01 11,109 595 5.36
Long-term debt 28,738 1,626 5.66 16,268 1,022 6.28
- ----------------------------------------------------------------------------- ------------------------
Total interest-bearing liabilities 174,313 7,699 4.42 168,173 7,711 4.59
======================== ======================
Noninterest-bearing deposits 30,995 30,609
Other liabilities 9,079 7,553
Stockholders' equity (c) 15,932 15,878
- ---------------------------------------------------------------- -----------
Total liabilities and
stockholders' equity $ 230,319 $ 222,213
================================================================= ===========
Interest income and rate earned $ 15,269 7.64 % $ 15,105 $ 7.77 %
Interest expense and equivalent rate paid 7,699 3.85 7,711 3.96
- ------------------------------------------------------------------------------------------ ------------------------
Net interest income and margin (e) $ 7,570 3.79 % $ 7,394 $ 3.81 %
========================================================================================== ========================
</TABLE>
(a) Yields related to securities and loans exempt from federal and state income
taxes 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 applicable state tax rates. Lease financing amounts include related
deferred income taxes.
(b) The loan averages are stated net of unearned income, and the averages
include loans on which the accrual of interest has been discontinued.
(c) Certain prior year amounts have been reclassified to conform to the
presentation in 1999.
T-26
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED 1997 YEAR ENDED 1996 YEAR ENDED 1995
----------------------------------- ---------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE
INTEREST RATES INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCES EXPENSE PAID BALANCES EXPENSE PAID BALANCES EXPENSE PAID
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,184 182 5.68 % $ 2,298 130 5.67 % $ 2,439 150 6.15 %
7,219 399 5.51 7,104 377 5.32 3,231 179 5.55
5,174 341 6.59 4,811 320 6.64 2,294 158 6.90
20,844 1,423 6.83 21,869 1,449 6.62 14,690 948 6.45
2,478 179 7.22 3,497 241 6.89 10,470 688 6.58
1,085 105 9.67 1,370 132 9.64 2,050 202 9.83
------------------------ ----------------------- -----------------------
3,563 284 7.97 4,867 373 7.66 12,520 890 7.11
------------------------ ----------------------- -----------------------
43,118 3,464 8.03 40,089 3,285 8.20 38,493 3,265 8.48
3,295 293 8.89 3,562 302 8.48 3,077 315 10.24
13,619 1,180 8.67 14,230 1,283 9.02 15,246 1,483 9.73
4,199 423 10.09 3,124 264 8.44 2,453 209 8.52
3,349 215 6.43 2,144 136 6.33 1,453 102 7.05
------------------------ ----------------------- -----------------------
67,580 5,575 8.25 63,149 5,270 8.35 60,722 5,374 8.85
------------------------ ----------------------- -----------------------
31,241 2,426 7.77 32,856 2,514 7.65 29,426 2,190 7.44
7,005 1,058 15.11 6,478 922 14.24 6,366 902 14.17
28,691 2,773 9.66 26,637 2,521 9.47 24,731 2,386 9.65
------------------------ ----------------------- -----------------------
66,937 6,257 9.35 65,971 5,957 9.03 60,523 5,478 9.05
------------------------ ----------------------- -----------------------
134,517 11,832 8.80 129,120 11,227 8.70 121,245 10,852 8.95
------------------------ ----------------------- -----------------------
- - - - - - - - -
------------------------ ----------------------- -----------------------
174,501 14,461 8.29 170,069 13,876 8.16 156,419 13,177 8.42
====================== ===================== =====================
8,695 8,620 8,306
12,784 10,525 9,214
----------- ----------- -----------
$ 195,980 $ 189,214 $ 173,939
=========== =========== ===========
33,104 898 2.71 33,360 828 2.48 33,781 824 2.44
24,033 694 2.89 22,179 622 2.80 20,654 633 3.06
39,752 2,067 5.20 42,226 2,198 5.21 40,766 2,112 5.18
3,092 164 5.29 3,307 167 5.07 4,284 237 5.53
5,377 325 6.05 3,853 216 5.60 3,437 210 6.11
------------------------ ----------------------- -----------------------
105,358 4,148 3.94 104,925 4,031 3.84 102,922 4,016 3.90
22,759 1,147 5.04 22,815 1,133 4.97 14,599 831 5.69
1,948 112 5.76 1,865 98 5.27 2,104 123 5.83
5,680 338 5.96 4,228 234 5.53 3,376 202 6.00
12,596 823 6.53 10,443 655 6.27 8,334 560 6.72
------------------------ ----------------------- -----------------------
148,341 6,568 4.43 144,276 6,151 4.26 131,335 5,732 4.36
====================== ===================== =====================
27,489 26,351 24,822
5,823 4,753 4,669
14,327 13,834 13,113
----------- ----------- -----------
$ 195,980 $ 189,214 $ 173,939
=========== =========== ===========
$ 14,461 8.29 % $ 13,876 8.16 % $ 13,177 8.42 %
6,568 3.76 6,151 3.61 5,732 3.66
---------------------- --------------------- ---------------------
$ 7,893 4.53 % $ 7,725 4.55 % $ 7,445 4.76 %
====================== ===================== =====================
</TABLE>
(d) Tax-equivalent adjustments included in trading account assets, securities
available for sale, investment securities, commercial, financial and
agricultural loans, commercial real estate - mortgage loans, and lease financing
are (in millions): $9, $20, $24, $50, $0 and $15, respectively, in 1999; $9,
$18, $27, $49, $0 and $14, respectively, in 1998; and $5, $11, $38, $32, $8 and
$5, respectively, in 1997.
(e) The net interest margin includes 21 basis points, 12 basis points and 6
basis points for the years ended 1999, 1998 and 1997, respectively, related to
net interest income from off-balance sheet derivative transactions.
T-27
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
- --------------------------------------------------------------------------------
Management of First Union Corporation and its subsidiaries (the
"Corporation") is committed to the highest standards of quality customer service
and the enhancement of stockholder value. Management expects the Corporation's
employees to respect its customers and to assign the highest priority to
customer needs.
The accompanying consolidated financial statements were prepared in
conformity with generally accepted accounting principles and include, as
necessary, best estimates and judgments by management. Other financial
information contained in this annual report is presented on a basis consistent
with the consolidated financial statements unless otherwise indicated.
To ensure the integrity, objectivity and fairness of the information in
these consolidated financial statements, management of the Corporation has
established and maintains internal controls supplemented by a program of
internal audits. The internal controls are designed to provide reasonable
assurance that assets are safeguarded and transactions are executed, recorded
and reported in accordance with management's intentions and authorizations and
to comply with applicable laws and regulations. To enhance the reliability of
internal controls, management recruits and trains highly qualified personnel,
and maintains sound risk management practices.
The consolidated financial statements have been audited by KPMG LLP,
independent auditors, in accordance with generally accepted auditing standards.
KPMG LLP reviews the results of its audit with both management and the Audit
Committee of the Board of Directors of the Corporation. The Audit Committee,
composed entirely of outside directors, meets periodically with management,
internal auditors and KPMG LLP to determine that each is fulfilling its
responsibilities and to support actions to identify, measure and control risks
and augment internal controls.
Edward E. Crutchfield
Chairman and
Chief Executive Officer
Robert T. Atwood
Executive Vice President and
Chief Financial Officer
January 14, 2000
C-1
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
First Union Corporation
We have audited the consolidated balance sheets of First Union
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We have conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Union
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Charlotte, North Carolina
January 14, 2000
C-2
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
---------------------------
(In millions, except per share data) 1999 1998
- -------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 10,081 11,192
Interest-bearing bank balances 1,073 2,916
Federal funds sold and securities purchased under resale agreements 11,523 14,529
- -------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 22,677 28,637
- -------------------------------------------------------------------------------------------------------------
Trading account assets 14,946 9,759
Securities available for sale (amortized cost $52,708 in 1999; $36,798 in 1998) 51,277 37,434
Investment securities (market value $1,809 in 1999; $2,162 in 1998) 1,758 2,025
Loans, net of unearned income ($5,525 in 1999; $4,026 in 1998) 135,566 134,149
Allowance for loan losses (1,757) (1,826)
- -------------------------------------------------------------------------------------------------------------
Loans, net 133,809 132,323
- -------------------------------------------------------------------------------------------------------------
Premises and equipment 5,180 5,067
Due from customers on acceptances 995 1,268
Goodwill and other intangible assets 5,626 5,036
Other assets 16,756 15,538
- -------------------------------------------------------------------------------------------------------------
Total assets $ 253,024 237,087
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 31,375 35,614
Interest-bearing deposits 109,672 106,853
- -------------------------------------------------------------------------------------------------------------
Total deposits 141,047 142,467
Short-term borrowings 50,107 41,438
Bank acceptances outstanding 995 1,281
Other liabilities 12,191 12,055
Long-term debt 31,975 22,949
- -------------------------------------------------------------------------------------------------------------
Total liabilities 236,315 220,190
- -------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, Class A, 40 million shares, no par value; 10 million shares,
no par value; none issued - -
Common stock, $3.33-1/3 par value; authorized 2 billion shares, outstanding
988 million shares in 1999; 982 million shares in 1998 3,294 3,274
Paid-in capital 5,980 4,029
Retained earnings 8,365 9,187
Accumulated other comprehensive income, net (930) 407
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 16,709 16,897
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 253,024 237,087
=============================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-3
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
----------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 10,812 11,109 11,787
Interest and dividends on securities available for sale 2,969 2,304 1,412
Interest and dividends on investment securities 129 182 246
Trading account interest 600 546 336
Other interest income 641 847 581
- ----------------------------------------------------------------------------------------------------------
Total interest income 15,151 14,988 14,362
- ----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 4,054 4,316 4,148
Interest on short-term borrowings 2,019 2,373 1,597
Interest on long-term debt 1,626 1,022 823
- ----------------------------------------------------------------------------------------------------------
Total interest expense 7,699 7,711 6,568
- ----------------------------------------------------------------------------------------------------------
Net interest income 7,452 7,277 7,794
Provision for loan losses 692 691 1,103
- ----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 6,760 6,586 6,691
- ----------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
First Union Securities
Capital Markets
Trading account profits 346 124 237
Securities transactions - equity investments 133 100 3
Investment banking and other Capital Markets income 1,260 932 687
- ----------------------------------------------------------------------------------------------------------
Total Capital Markets 1,739 1,156 927
Capital Management 2,316 1,805 1,158
- ----------------------------------------------------------------------------------------------------------
Total First Union Securities 4,055 2,961 2,085
Residential mortgage 405 533 315
Service charges on deposit accounts 1,106 1,099 1,087
Fees for other banking services 356 364 336
Securities transactions - portfolio (62) 357 52
Securitization 417 248 58
Sundry 656 873 389
- ----------------------------------------------------------------------------------------------------------
Total fee and other income 6,933 6,435 4,322
- ----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 4,716 4,250 3,550
Occupancy 546 561 544
Equipment 793 723 649
Advertising 234 223 141
Communications and supplies 481 480 393
Professional and consulting fees 287 311 386
Goodwill and other intangible amortization 391 348 315
Merger-related and restructuring charges 404 1,212 284
Sundry expense 1,010 948 958
- ----------------------------------------------------------------------------------------------------------
Total noninterest expense 8,862 9,056 7,220
- ----------------------------------------------------------------------------------------------------------
Income before income taxes 4,831 3,965 3,793
Income taxes 1,608 1,074 1,084
- ----------------------------------------------------------------------------------------------------------
Net income $ 3,223 2,891 2,709
==========================================================================================================
PER SHARE DATA
Basic earnings $ 3.35 2.98 2.84
Diluted earnings 3.33 2.95 2.80
Cash dividends $ 1.88 1.58 1.22
AVERAGE SHARES (IN THOUSANDS)
Basic 959,390 969,131 955,241
Diluted 966,863 980,112 966,792
==========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-4
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
(Shares in thousands, Common Stock Other
dollars in millions) ---------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income, Net Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 988,594 $ 3,295 1,773 9,449 29 14,546
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income
Net income -- -- -- 2,709 -- 2,709
Net unrealized gain on debt and
equity securities -- -- -- -- 257 257
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 2,709 257 2,966
Purchases of common stock (51,675) (172) (1,369) (819) -- (2,360)
Common stock issued for
Stock options and restricted stock 14,923 50 709 -- -- 759
Dividend reinvestment plan 1,525 5 51 -- -- 56
Public offering 7,500 25 333 -- -- 358
Purchase accounting acquisitions 117 -- 3 -- -- 3
Deferred compensation, net -- -- (44) -- -- (44)
Cash dividends paid by
First Union Corporation
$1.22 per share -- -- -- (711) -- (711)
Acquired companies -- -- -- (430) -- (430)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 960,984 3,203 1,456 10,198 286 15,143
Comprehensive income
Net income -- -- -- 2,891 -- 2,891
Net unrealized gain on debt and
equity securities, net of
reclassification adjustment -- -- -- -- 121 121
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 2,891 121 3,012
Purchases of common stock (49,738) (165) (384) (2,507) -- (3,056)
Common stock issued for
Stock options and restricted stock 19,271 64 787 -- -- 851
Dividend reinvestment plan 1,476 4 77 -- -- 81
Acquisitions 50,230 168 2,243 129 -- 2,540
Deferred compensation, net -- -- (150) -- -- (150)
Cash dividends paid by
First Union Corporation
$1.58 per common share -- -- -- (1,423) -- (1,423)
Acquired companies -- -- -- (101) -- (101)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 982,223 3,274 4,029 9,187 407 16,897
Comprehensive income
Net income -- -- -- 3,223 -- 3,223
Net unrealized loss on debt and
equity securities, net of
reclassification adjustment -- -- -- -- (1,337) (1,337)
- ------------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 3,223 (1,337) 1,886
Purchases of common stock (35,508) (118) 533 (2,228) -- (1,813)
Common stock issued for
Stock options and restricted stock 8,644 29 379 -- -- 408
Dividend reinvestment plan 1,937 6 78 -- -- 84
Acquisitions 31,019 103 1,148 -- -- 1,251
Deferred compensation, net -- -- (187) -- -- (187)
Cash dividends paid, $1.88 per share -- -- -- (1,817) -- (1,817)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 988,315 $ 3,294 5,980 8,365 (930) 16,709
========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-5
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
--------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,223 2,891 2,709
Adjustments to reconcile net income to net cash provided (used) by operating activities
Accretion and amortization of securities discounts and premiums, net 281 249 40
Provision for loan losses 692 691 1,103
Securitization gains (417) (529) (154)
Gain on sale of mortgage servicing rights (44) (22) (1)
Securities available for sale transactions (71) (353) (52)
Investment securities transactions - (4) (3)
Depreciation, goodwill and other amortization 1,172 1,141 965
Deferred income taxes 1,079 624 553
Trading account assets, net (6,626) (380) (1,350)
Mortgage loans held for resale 1,677 (1,464) (964)
(Gain) loss on sales of premises and equipment (16) (11) 5
Other assets, net 439 (2,513) (609)
Other liabilities, net (1,508) 3,090 933
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (119) 3,410 3,175
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 17,525 28,698 9,243
Maturities of securities available for sale 4,104 5,201 2,278
Purchases of securities available for sale (27,954) (47,477) (15,374)
Calls and underdeliveries of investment securities - 387 4
Maturities of investment securities 523 1,480 1,500
Purchases of investment securities (263) (366) (840)
Origination of loans, net (10,346) (872) (960)
Sales of premises and equipment 280 475 160
Purchases of premises and equipment (957) (1,139) (648)
Goodwill and other intangible assets, net (101) (179) (44)
Purchase of bank-owned separate account life insurance (576) (359) (2,011)
Cash equivalents acquired, net of purchases of banking organizations 168 366 6
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (17,597) (13,785) (6,686)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Purchases (sales) of deposits, net (1,420) 5,139 620
Securities sold under repurchase agreements and other short-term borrowings, net 7,637 7,525 4,061
Issuances of long-term debt 17,612 11,493 3,676
Payments of long-term debt (8,586) (3,153) (1,797)
Sales of common stock 143 700 728
Purchases of common stock (1,813) (3,056) (2,360)
Cash dividends paid (1,817) (1,524) (1,141)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,756 17,124 3,787
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (5,960) 6,749 276
Cash and cash equivalents, beginning of year 28,637 21,888 21,612
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 22,677 28,637 21,888
- --------------------------------------------------------------------------------------------------------------------------------
CASH PAID FOR
Interest $ 7,568 7,566 7,250
Income taxes 30 152 502
NONCASH ITEMS
Increase in securities available for sale and a decrease in trading account assets 1,529 - -
Increase in securities available for sale and a decrease in loans 8,259 - -
Increase in trading account assets and a decrease in loans - 2,212 -
Increase in assets held for sale and a decrease in loans - 133 3,200
Increase in foreclosed properties and a decrease in loans 9 3 17
Issuance of common stock for purchase accounting acquisitions $ 1,251 2,540 3
===============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
C-6
<PAGE>
FIRST UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
First Union Corporation (the "Parent Company") is a bank holding
company whose principal wholly owned subsidiaries are First Union National Bank,
a national banking association; First Union Home Equity Bank, N.A., a national
banking association; First Union Securities, Inc., an investment banking firm;
First Union Mortgage Corporation, a mortgage banking firm; and First Union
Brokerage Services, Inc., a securities brokerage firm.
The accounting and reporting policies of First Union Corporation and
subsidiaries (the "Corporation") are in accordance with generally accepted
accounting principles, and they conform to general practices within the
applicable industries. The consolidated financial statements include the
accounts of the Parent Company and all its subsidiaries. In consolidation, all
significant intercompany accounts and transactions are eliminated.
The Corporation is a diversified financial services company whose
operations are principally domestic.
Management of the Corporation has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks,
interest-bearing bank balances and federal funds sold and securities purchased
under resale agreements. Generally, both cash and cash equivalents have
maturities of three months or less, and accordingly, the carrying amount of
these instruments is deemed to be a reasonable estimate of fair value.
SECURITIES PURCHASED AND SOLD AGREEMENTS
Securities purchased under resale agreements and securities sold under
repurchase agreements are generally accounted for as collateralized financing
transactions. They are recorded at the amount at which the securities were
acquired or sold plus accrued interest. It is the Corporation's policy to take
possession of securities purchased under resale agreements, which are primarily
U. S. Government and Government agency securities. The market value of these
securities is monitored, and additional securities are obtained when deemed
appropriate. The Corporation also monitors its exposure with respect to
securities sold under repurchase agreements, and a request for the return of
excess securities held by the lender is made when deemed appropriate.
SECURITIES
Securities are classified at the date of commitment or purchase as
trading account assets, securities available for sale or investment securities,
based on management's intention. Gains or losses on the sale of securities are
recognized on a specific identification, trade date basis.
Trading account assets, primarily debt securities, trading derivatives
and securities sold not owned, are recorded at fair value. Realized and
unrealized gains and losses are included in trading account profits. Interest on
trading account assets is recorded in interest income.
Securities available for sale generally are used as a part of the
Corporation's interest rate risk management strategy, and they may be sold in
response to changes in interest rates, changes in prepayment risk and other
factors. Securities available for sale are recorded at fair value with
unrealized gains and losses recorded net of tax as a component of other
comprehensive income. Equity securities classified as securities available for
sale for which there are no readily determinable fair values are recorded at
cost.
Interest income on asset-backed securities is recognized using the
level yield method. Current prepayment and loss assumptions are incorporated in
calculating the level yield.
Investment securities are stated at cost, net of the amortization of
premium and the accretion of discount. The Corporation has the intent and the
ability to hold these securities until maturity.
The fair value of trading account assets and securities is based on
quoted market prices or, if quoted market prices are not available, then the
fair value is estimated using quoted market prices for similar securities,
pricing models or discounted cash flow analysis.
Securities available for sale and investment securities on which there
is an unrealized loss that is deemed to be other-than-temporary are written down
to fair value with the write-down treated as a realized loss.
C-7
<PAGE>
DERIVATIVES USED FOR RISK MANAGEMENT
The Corporation uses interest rate swaps, futures, forwards, net
purchased options (including caps and floors) and combinations thereof to manage
interest rate risk by either altering the interest rate risk characteristics
(rate conversions) of assets or liabilities or hedging certain exposures to
risk.
To qualify for rate conversion accounting, a derivative must be
designated to specific assets, liabilities or pools of similar assets or
liabilities and must effectively alter the interest rate characteristics of the
designated assets or liabilities.
To qualify as a hedge of interest rate exposure, a derivative must
reduce overall interest rate risk, must be designated as a hedge of specific
assets, liabilities or pools of similar assets or liabilities, and the interest
rate indices on the derivative and the hedged item must be highly correlated at
inception and over the life of the derivative. Instruments that do not meet
these requirements at inception or fail to meet them thereafter are accounted
for as trading account assets from inception or the date that the criteria are
no longer met.
The net interest settlement on derivatives designated as rate
conversions or hedges is treated as an adjustment to the interest income or
expense on the designated assets or liabilities. Premiums paid and realized
gains or losses from the settlement or termination of the contracts are deferred
and amortized as a yield adjustment over the shorter of the remaining term of
the underlying assets or liabilities or the term of the derivative. Derivatives
designated as rate conversions or hedges of securities available for sale are
recorded at fair value with unrealized gains and losses recorded net of tax as a
component of other comprehensive income.
If rate converted or hedged assets or liabilities are sold or otherwise
disposed of, deferred gains or losses on the derivatives are included in the
calculation of the gain or loss on sale or disposal, and the derivative is
either terminated, accounted for as trading account assets or re-designated to
another asset, liability or pool of similar assets or liabilities.
LOANS
Loans are recorded at the principal balance outstanding net of deferred
loan fees and costs. Loans held for sale are recorded at the lower of aggregate
cost or market value by loan type as determined by quoted market prices,
outstanding commitments from investors or current investor yield requirements.
Loans held for sale are classified in Other Assets, and at December 31, 1999 and
1998, they amounted to $2.5 billion and $561 million, respectively.
Gains or losses resulting from sales of loans are recognized when the
proceeds are received.
A loan is considered to be impaired when based on current information,
it is probable the Corporation will not receive all amounts due in accordance
with the contractual terms of a loan agreement. Discounted cash flow analyses
using stated loan rates or the estimated fair value of collateral are used in
determining the fair value of impaired loans.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent any interest has been foregone, and
then they are recorded as recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a
troubled debt restructuring after January 1, 1995. For these accruing impaired
loans, cash receipts are typically applied to principal and interest in
accordance with the terms of the restructured loan agreement.
The accrual of interest is generally discontinued on all loans, except
consumer loans, that become 90 days past due as to principal or interest unless
collection of both principal and interest is assured by way of
collateralization, guarantees or other security. Generally, loans past due 180
days or more are placed on nonaccrual status regardless of security. Consumer
loans and bankcard products that become approximately 120 days and 180 days past
due, respectively, are generally charged to the allowance for loan losses. When
borrowers demonstrate over an extended period the ability to repay a loan in
accordance with the contractual terms of a loan the Corporation classified as
nonaccrual, the loan is returned to accrual status.
C-8
<PAGE>
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
The Corporation's methodology for determining the allowance for loan
losses establishes both an allocated and an unallocated component. The allocated
portion of the allowance represents the results of analyses of individual
commercial loans and pools of loans within the portfolio. The allocated portion
of the allowance for commercial loans is based principally on current loan
grades, historical loan loss rates adjusted to reflect current conditions, as
well as analyses of other factors that may have affected the collectibility of
loans in the portfolio. The Corporation analyzes all commercial loans with
principal balances in excess of $1 million that are being monitored as potential
credit problems to determine whether such loans are impaired, with impairment
measured by reference to the borrowers' collateral values and cash flows. The
allocated portion of the allowance for consumer loans is based principally on
loan payment status and historical loss rates adjusted to reflect current
conditions. The unallocated portion of the allowance for loan losses represents
the results of analyses that measure probable losses inherent in the portfolio
that are not adequately captured in the allocated allowance analyses. These
analyses include consideration of unidentified losses inherent in the portfolio
resulting from changing underwriting criteria, including acquired loan
portfolios, changes in the types and mix of loans originated, industry
concentrations and evaluations, allowance levels relative to selected overall
credit criteria and other economic indicators used to estimate probable incurred
losses.
Management believes the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's bank subsidiaries'
allowances for loan losses. These agencies may require such subsidiaries to
recognize changes to the allowance based on their judgments about information
available to them at the time of their examination.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill is amortized on a straight-line basis generally over periods
ranging from fifteen years to twenty-five years. Unamortized goodwill associated
with disposed assets is included in the calculation of gain or loss on sale.
Credit card premiums are amortized over the estimated period of benefit not to
exceed ten years using the sum-of-the-years' digits method. Deposit base
premiums are amortized principally over a ten-year period using accelerated
methods. When deposits are sold, any related unamortized deposit base intangible
is included in the determination of the gain on the sale of the deposits. The
Corporation's unamortized goodwill and other intangibles are periodically
reviewed to ensure that there have been no events or circumstances to indicate
that the recorded amount is not recoverable from projected undiscounted net
operating cash flows. If the projected undiscounted net operating cash flows are
less than the carrying amount, a loss is recognized to reduce the carrying
amount to fair value, and when appropriate, the amortization period is also
reduced.
OTHER ASSETS
Equity Method Investments
The Corporation recognizes gain or loss on transactions where a
subsidiary or an equity method investee issues common stock. Recognition of a
gain is subject to a determination that the gain is realizable and that there
are no plans to reacquire the shares.
Merchant Banking Investments
Merchant banking investments are recorded at market value with realized
and unrealized gains and losses included in Investment Banking and Other Capital
Markets Income in the consolidated statements of income. For publicly traded
securities, market value is based on quoted market prices, net of applicable
discounts for trading restrictions and liquidity. Investments in non-public
securities are recorded at management's estimate of market value which initially
is generally the cost basis or, if the investee has raised additional debt or
capital, the value implied by these financings adjusted for differences in the
terms of the securities.
C-9
<PAGE>
- --------------------------------------------------------------------------------
Servicing Assets
In connection with certain businesses in which the Corporation
securitizes and sells originated or purchased loans with servicing retained,
principally the mortgage banking business, servicing assets or liabilities are
recorded based on the relative fair value of the servicing rights on the date
the loans are sold. Servicing assets are amortized in proportion to and over the
period of estimated net servicing income. At December 31, 1999 and 1998,
servicing assets, which are included in Other Assets, were $703 million and $637
million, respectively. There were no servicing liabilities at December 31, 1999
and 1998.
Servicing assets are periodically evaluated for impairment based on the
fair value of those assets. If, by individual stratum, the carrying amount of
servicing assets exceeds fair value, a valuation reserve is established. The
valuation reserve is adjusted in subsequent periods as the fair value changes.
For purposes of impairment evaluation and measurement, the Corporation
stratifies servicing assets based on predominant risk characteristics of the
underlying loans, including loan type, amortization type, loan coupon rate, and
in certain circumstances, period of origination. The Corporation's servicing
assets consist primarily of residential mortgage loans and home equity loans.
The assumptions utilized in evaluating servicing assets for impairment include
the specific cumulative net loss and prepayment rate on the underlying loans,
and the discount rate. The range of assumptions for servicing assets on an
aggregate basis at December 31, 1999, is summarized as follows: cumulative net
losses, 0.6 percent to 16.9 percent; prepayment rate (annualized CPR), 5.6
percent to 35.7 percent; and discount rate, 9.5 percent to 13.0 percent.
RECLASSIFICATIONS
At December 31, 1999, deferred compensation amounts, which historically
were included in Other Assets and which relate to the unvested portion of
restricted stock awards, were reclassified as a reduction of Stockholders'
Equity. All prior periods reflect this reclassification.
In 1999, customer receivables from the Corporation's retail brokerage
business were reclassified from Loans to Other Assets and prior period amounts
included herein were reclassified to conform to the 1999 presentation.
C-10
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2: ACQUISITIONS AND MERGER-RELATED AND RESTRUCTURING CHARGES
ACQUISITIONS
On October 1, 1999, the Corporation acquired EVEREN Capital Corporation
("EVEREN"), which at June 30, 1999, had assets of $2.9 billion, for 31 million
shares of the Corporation's common stock, 13 million of which were repurchased
in the open market at a cost of $559 million by December 31, 1999. With respect
to this purchase accounting acquisition, the Corporation recorded approximately
$900 million of goodwill based on a purchase price of $1.1 billion. The goodwill
is being amortized over twenty years. The goodwill is a preliminary estimate
subject to change based on refinements to certain fair value adjustments and
other integration strategies.
On June 30, 1998, the Corporation acquired The Money Store Inc.
("TMSI"), a consumer finance company, which at December 31, 1997, had assets of
$3.1 billion, for 38 million shares of the Corporation's common stock,
substantially all of which were repurchased in the open market at a cost of $2
billion. With respect to this purchase accounting acquisition, the Corporation
recorded $1.9 billion of goodwill and an intangible asset related to TMSI's
origination network of $304 million. This was based on TMSI's closing equity of
$489 million and fair value adjustments, net of tax effects, related to certain
interest-only and residual certificates related to asset-backed securities
issued by TMSI of $207 million, long-term debt of $47 million, professional fees
and other acquisition-related expenses of $23 million, deferred taxes related to
the origination network intangible of $120 million and other miscellaneous
adjustments amounting to $158 million. The amortization periods of the goodwill
and the network intangible are twenty-five years and fifteen years,
respectively.
On April 28, 1998, the Corporation acquired CoreStates Financial Corp
("CoreStates"), a multi-bank holding company based in Pennsylvania. The merger
was accounted for as a pooling of interests, and accordingly, all historical
financial information for the Corporation was restated to include CoreStates
historical financial information as if the combining companies had been
consolidated for all periods presented herein. At December 31, 1997, CoreStates
had assets of $48 billion, net loans of $35 billion, deposits of $34 billion,
stockholders' equity of $3 billion and net income of $813 million. Each of the
204 million shares of CoreStates' common stock was exchanged for 1.62 shares of
the Corporation's common stock.
In January 1998, the Corporation acquired Covenant Bancorp, Inc.
("Covenant"), which at December 31, 1997, had assets of $415 million, for 1.6
million shares of the Corporation's common stock, substantially all of which
were repurchased in the open market at a cost of $79 million. The Covenant
acquisition was accounted for as a purchase. Also in January 1998, the
Corporation acquired Wheat First Butcher Singer, Inc. ("Wheat First "), which at
December 31, 1997, had assets of $1 billion and stockholders' equity of $171
million, for 10.3 million shares of the Corporation's common stock. The Wheat
First acquisition was accounted for as a pooling of interests. Financial
information related to Wheat First was not considered material to the historical
results of the Corporation, and accordingly, the Corporation's financial
statements were not restated.
Certain pro forma financial information related to the Corporation and
CoreStates, and which does not include information related to EVEREN, Covenant,
Wheat First or TMSI, is presented below.
C-11
<PAGE>
- --------------------------------------------------------------------------------
FIRST UNION CORPORATION
CORESTATES FINANCIAL CORP YEAR ENDED
PROFORMA FINANCIAL INFORMATION DECEMBER 31,
- -------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997
- -------------------------------------------------------------------------------
(UNAUDITED)
Interest income $ 14,362
Interest expense 6,452
Provision for loan losses 1,103
Fee and other income 4,322
Noninterest expense 7,336
Income taxes 1,084
- -------------------------------------------------------------------------------
Net income $ 2,709
===============================================================================
Basic earnings per share $ 2.84
Diluted earnings per share $ 2.80
===============================================================================
CORPORATION AS ORIGINALLY REPORTED
Net interest income $ 5,677
Net income 1,896
Basic earnings per share 3.03
Diluted earnings per share $ 2.99
===============================================================================
On November 28, 1997, the Corporation acquired Signet Banking
Corporation ("Signet"), a bank holding company based in Virginia. The merger was
accounted for as a pooling of interests, and accordingly, all historical
financial information for the Corporation was restated to include Signet
historical information as if the combining companies had been consolidated for
all periods presented herein. At September 30, 1997, Signet had assets of $11
billion, net loans of $7 billion, deposits of $8 billion and net income
applicable to common stockholders of $73 million. In connection with the merger,
each of the 61 million net outstanding shares of Signet common stock was
converted into 1.10 shares of the Corporation's common stock.
MERGER-RELATED AND RESTRUCTURING CHARGES
Merger-related charges are those charges which are directly related to
mergers but which do not qualify for recognition until they are incurred.
Merger-related charges consist principally of transaction costs such as
investment banker fees; expenses related to combining operations and instituting
efficiencies such as systems conversions and integration costs; and in 1998,
they include a $100 million charitable contribution that was required under the
terms of the CoreStates merger agreement. Merger-related charges also include
other items similar to those classified as restructuring charges but which did
not qualify for accrual at the time the mergers were consummated.
In 1999, the Corporation incurred merger-related charges of $75 million
related to the CoreStates merger and $20 million related to the EVEREN
acquisition.
Over the past several years, the Corporation has experienced rapid
growth through numerous acquisitions. These acquisitions have enabled the
Corporation to expand into both new business markets and new geographic regions.
In the first quarter of 1999, it became apparent that the Corporation was not
realizing the full benefit of operational efficiencies envisioned in these
combinations. As a result, the Corporation evaluated all facets of its
operations, including such areas as current and projected staffing levels,
locations of bank and sales branches, and office space requirements, including
the impact that staff reductions would have on these requirements. A primary
objective of the restructuring was to reduce operating expenses in the
Corporation's non-core businesses and non-revenue producing functions. Based on
this evaluation, in March 1999, the Corporation announced a restructuring plan
that included reengineering numerous processes and functions throughout the
Corporation, closing or consolidating branches, service centers and corporate
office space, as well as exiting the indirect auto finance business.
C-12
<PAGE>
- --------------------------------------------------------------------------------
As a result of the restructuring plan, the Corporation displaced
employees and recorded charges for the resulting employee termination benefits
to be paid. In addition, the Corporation recorded occupancy-related charges that
included write-downs to fair value (less cost to sell) of owned premises that
were held for disposition as a result of the plan, and cancellation payments or
the present values of the remaining lease obligations for leased premises, or
portions thereof, that were associated with lease abandonments or
restructurings. Other assets, primarily computer hardware and software, the
value of which was considered to be impaired since they no longer would be used
as a result of the branch and operation center closings or the reduction in
workforce, were also written down to fair value (less cost to sell). Contract
cancellation costs were also recorded representing the cost to buy out the
remaining term or the present value of the remaining payments on contracts that
provided no future benefit to the Corporation as a result of the restructuring.
Employee termination benefits of $196 million included severance
payments, which may be paid in a lump sum or over a defined period, and related
benefits and outplacement services for 5,635 employees terminated in connection
with the restructuring. The Corporation notified substantially all of the
employees individually about their termination on or before March 31, 1999. Of
the terminated employees, approximately 40 percent were from corporate staff
units, 40 percent were from the Consumer segment and 10 percent were from the
branch network. The remaining 10 percent were from non-critical areas within the
Corporation's Capital Management and Capital Markets segments. Through December
31, 1999, $161 million in employee termination benefits had been paid, leaving
$35 million for future payments.
Occupancy charges of $54 million included $24 million related to the
write-down of owned property as well as leasehold improvements and furniture and
equipment. These write-downs resulted from excess space due to the reduction in
the workforce and from branch closings. The amount of the write-down represents
the difference between the carrying value of the property at the time that it
was expected to be taken out of service and the estimated net proceeds expected
to be received upon disposal. The fair value was estimated using customary
appraisal techniques such as evaluating the real estate market conditions in the
region and comparing market values to comparable properties. The other $30
million in occupancy charges represents the present value of future lease
obligations or lease cancellation penalties in connection with the closure of
approximately 104 branches and sales offices as well as certain other corporate
space.
Asset impairments, which were the direct result of the reduction in the
workforce and certain other restructuring activities, amounted to $69 million.
They consisted primarily of computer hardware write-offs of $64 million.
Depreciation was discontinued at the time the assets were determined to be held
for disposal.
Also included in the restructuring charge was $25 million related to
contract cancellations, $14 million of which related to the planned exit of the
Corporation's indirect auto finance business. The plan called for immediately
discontinuing the origination of indirect auto leases and the disposition of the
existing portfolio by either attrition or sale. Substantially all of the $14
million charge relates to the Corporation's obligation pursuant to a
pre-existing contract under which the Corporation transferred certain lease
receivables to a securitization trust. This obligation represents the estimated
amount the Corporation will be required to pay in lieu of delivering lease
receivables into the trust, and it is a direct result of exiting the indirect
auto finance business. The remaining $11 million charge represents costs to exit
numerous system and service-related contracts.
C-13
<PAGE>
- --------------------------------------------------------------------------------
The restructuring plan produced pre-tax cost savings of approximately
$400 million in 1999, as compared to originally projected expense levels. These
savings were achieved through reduced personnel expenses of $198 million as a
result of the reduction in the workforce, a reduction in depreciation expense of
$19 million as a result of asset dispositions, and lower expenses of $7 million
related to the cancellation of leases and contracts. The rest of the cost
savings was achieved through personnel costs that will not be incurred because
planned hirings were discontinued and through decreases in other operating
expenses related to the reductions in staffing levels (e.g., lower training and
travel costs) as well as through efficiencies gained from the reengineering of
associated processes and functions. The amounts in this paragraph are unaudited.
In the fourth quarter of 1999, a restructuring charge of $6 million
related to TMSI was recorded to recognize costs related to the consolidation of
certain operations. The costs primarily consist of employee termination benefits
and lease cancellations.
The restructuring charges of $353 million, as well as the
merger-related expenses of $95 million recorded in 1999, were reflected in
noninterest expense within the Treasury/Nonbank segment. If the Corporation were
to allocate the restructuring charge to the various segments affected, using
established segment allocation methodologies, $203 million and $57 million of
the charges would have been allocated to the Consumer and Commercial segments,
respectively. The rest of the charges would have been allocated to the
Treasury/Nonbank segment and to the other business segments.
In 1998, in connection with the acquisition of CoreStates, the
Corporation recorded a $753 million restructuring charge. From the date of the
acquisition through December 31, 1999, $661 million had been charged against the
initial accrual representing payments of employee termination benefits, costs to
close duplicate or excess facilities, write-offs of computer hardware and
software no longer in use, and contract cancellation costs. Based on revised
estimates, $46 million of the employee termination benefits accrual and $8
million of the investment banking accrual was reversed by a credit to the
restructuring charge in the statements of income, $30 million of which was
reversed in 1998 and $24 million of which was reversed in 1999. Employee
termination benefits were less than original estimates as a result of several
factors, including voluntary resignations and the termination of a higher
proportion of employees with fewer years of service. The remaining balance of
the accrual of $38 million at December 31, 1999, represents employee termination
benefits to be paid over future periods, at the election of the employees (3,665
employees received or are receiving termination benefits) as well as the
remaining payments due on property leases and service contracts that no longer
provided benefit to the Corporation as a result of the restructuring. These
accruals will continue to be assessed on a quarterly basis.
In November 1997, the Corporation recorded a $252 million restructuring
charge related to the acquisition of Signet Banking Corporation, of which $34
million remained in the restructuring accrual at December 31, 1999.
Substantially all of the remaining accrual represents amounts due to key
executives of Signet who were terminated as a result of the acquisition and
whose employment contracts called for termination benefits to be paid over a
specified period. In the fourth quarter of 1999, $18 million of the
restructuring accrual was reversed based on revised estimates related to
contract and lease cancellations and to disposals of fixed assets.
C-14
<PAGE>
- --------------------------------------------------------------------------------
Merger-related and restructuring charges for each of the years in the
three-year period ended December 31, 1999, are presented below.
<TABLE>
<CAPTION>
<S> <C>
Years Ended December 31,
---------------------------------------
(IN MILLIONS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
MERGER-RELATED CHARGES
Merger-related charges $ 95 599 17
Less gain on regulatory-mandated branch sales - (185) -
- -----------------------------------------------------------------------------------------------------------
Total 95 414 17
- -----------------------------------------------------------------------------------------------------------
RESTRUCTURING CHARGES
Employee termination benefits 200 310 121
Occupancy 55 242 25
Asset impairments 70 110 56
Contract cancellations 25 108 20
Other 3 58 30
- -----------------------------------------------------------------------------------------------------------
Total 353 828 252
Reversal of March 1999 restructuring charge, CoreStates and
Signet accruals related primarily to employee termination
benefits, occupancy and other (44) (30) -
- -----------------------------------------------------------------------------------------------------------
Net restructuring charges 309 798 252
- -----------------------------------------------------------------------------------------------------------
Merger-related and restructuring charges of acquired companies - - 15
- -----------------------------------------------------------------------------------------------------------
Total $ 404 1,212 284
===========================================================================================================
After-tax merger-related and restructuring charges $ 263 805 204
===========================================================================================================
</TABLE>
A reconciliation of the unpaid restructuring accruals for each of the
years in the three-year period ended December 31, 1999, is presented below.
<TABLE>
<CAPTION>
<S> <C>
MARCH 1999
RESTRUCTURING
(In millions) Charge CoreStates Signet Other Total
- ----------------------------------------------------------------------------------------------------------------------------
ACTIVITY IN THE RESTRUCTURING ACCRUALS
Balance, December 31, 1996 $ - - - 33 33
Restructuring charges - - 252 - 252
Cash payments - - (57) (25) (82)
Noncash write-downs - - (1) (3) (4)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 - - 194 5 199
Restructuring charges - 753 31 44 828
Cash payments - (158) (55) (26) (239)
Reversal of prior accruals related primarily to
employee termination benefits, occupancy and other - (30) - - (30)
Noncash write-downs - (279) (76) (5) (360)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - 286 94 18 398
Restructuring charges 347 - - 6 353
Cash payments (206) (167) (39) (22) (434)
Reversal of prior accruals related primarily to
employee termination benefits, occupancy and other (2) (24) (18) - (44)
Noncash write-downs (55) (57) (3) 4 (111)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 84 38 34 6 162
============================================================================================================================
</TABLE>
C-15
<PAGE>
- --------------------------------------------------------------------------------
NOTE 3: SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES
Information related to Securities Available for Sale and Investment
Securities for each of the years in the two-year period ended December 31, 1999,
is disclosed in Table 14 on pages T-18 and T-19, and in Table 15 on pages T-20
and T-21, respectively, which is incorporated herein by reference. Information
related to asset securitizations and interest-only and residual certificates can
be found in "Management's Analysis of Operations - Market Risk Management; Asset
Securitizations" on pages 26 and 27, which is incorporated herein by reference.
<PAGE>
- --------------------------------------------------------------------------------
NOTE 4: LOANS
DECEMBER 31,
--------------------------
(IN MILLIONS) 1999 1998
- -------------------------------------------------------------------------------
COMMERCIAL
Commercial, financial and agricultural $ 51,683 53,961
Real estate - construction and other 2,435 2,628
Real estate - mortgage 8,768 8,565
Lease financing 12,742 9,730
Foreign 4,991 4,805
- -------------------------------------------------------------------------------
Total commercial 80,619 79,689
- -------------------------------------------------------------------------------
RETAIL
Real estate - mortgage 29,296 21,729
Installment loans - Bankcard 1,879 2,779
Installment loans - other 24,814 27,816
Vehicle leasing 4,483 6,162
- -------------------------------------------------------------------------------
Total retail 60,472 58,486
- -------------------------------------------------------------------------------
Total loans $ 141,091 138,175
===============================================================================
Directors and executive officers of the Parent Company and their
related interests were indebted to the Corporation in the aggregate amounts of
$3.5 billion and $3.1 billion at December 31, 1999 and 1998, respectively. From
January 1, 1999, through December 31, 1999, directors and executive officers of
the Parent Company and their related interests borrowed $1.4 billion and repaid
$1.0 billion. In the opinion of management, these loans do not involve more than
the normal risk of collectibility, nor do they include other features
unfavorable to the Corporation.
At December 31, 1999 and 1998, nonaccrual and restructured loans
amounted to $970 million and $742 million, respectively. In 1999, 1998 and 1997,
$81 million, $67 million and $72 million, respectively, in gross interest income
would have been recorded if all nonaccrual and restructured loans had been
performing in accordance with their original terms and if they had been
outstanding throughout the entire period, or since origination if held for part
of the period. Interest collected on these loans and included in interest income
in 1999, 1998 and 1997 amounted to $23 million, $19 million and $36 million,
respectively.
At December 31, 1999 and 1998, impaired loans, which are included in
nonaccrual loans, amounted to $603 million and $424 million, respectively.
Included in the allowance for loan losses was $106 million related to $526
million of impaired loans at December 31, 1999, and $80 million related to $397
million of impaired loans at December 31, 1998. For the years ended December 31,
1999 and 1998, the average recorded investment in impaired loans was $518
million and $428 million, respectively; and $25 million and $29 million,
respectively, of interest income was recognized on loans while they were
impaired. At December 31, 1999 and 1998, there were no accruing impaired loans.
C-16
<PAGE>
- --------------------------------------------------------------------------------
NOTE 5: ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
--------------------------------------
(IN MILLIONS) 1999 1998 1997
- -------------------------------------------------------------------------------------------
Balance, beginning of year $ 1,826 1,847 2,212
Provision for loan losses 692 691 1,103
Allowance relating to loans acquired, transferred
to accelerated disposition or sold (73) (74) (596)
- -------------------------------------------------------------------------------------------
Total 2,445 2,464 2,719
- -------------------------------------------------------------------------------------------
Loan losses (828) (799) (1,074)
Loan recoveries 140 161 202
- -------------------------------------------------------------------------------------------
Loan losses, net (688) (638) (872)
- -------------------------------------------------------------------------------------------
Balance, end of year $ 1,757 1,826 1,847
===========================================================================================
</TABLE>
C-17
<PAGE>
NOTE 6: SHORT-TERM BORROWINGS
Short-term borrowings of the Corporation at December 31, 1999, 1998 and
1997, which include securities sold under repurchase agreements and accrued
interest thereon, and the related maximum amounts outstanding at the end of any
month during such periods are presented below.
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31, MAXIMUM OUTSTANDING
-------------------------- ---------------------------
(In millions) 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements $34,122 25,644 20,344 34,122 33,592 21,070
Federal funds purchased 1,909 2,267 3,418 4,611 7,965 3,865
Fixed and variable rate bank notes 435 4,262 1,114 3,671 4,768 2,076
Interest-bearing demand deposits issued to
the U. S. Treasury 4,569 389 649 4,569 950 793
Commercial paper 2,364 1,904 1,737 2,871 2,190 2,467
Other 6,708 6,972 4,419 7,987 10,328 4,765
- -------------------------------------------------------------------------
Total $50,107 41,438 31,681
=======================================================================================================
</TABLE>
At December 31, 1999, 1998 and 1997, the combined weighted average
interest rates related to federal funds purchased and securities sold under
repurchase agreements were 5.06 percent, 5.31 percent and 6.14 percent,
respectively. Maturities related to these instruments in each of the years in
the three-year period ended December 31, 1999, were not greater than 350 days.
At December 31, 1999, 1998 and 1997, the weighted average interest
rates for fixed and variable rate bank notes were 5.80 percent, 5.33 percent and
5.71 percent, respectively. Weighted average maturities related to these notes
in each of the years in the three-year period ended December 31, 1999, were 48
days, 70 days and 153 days, respectively.
At December 31, 1999, 1998 and 1997, the weighted average interest
rates for commercial paper were 4.10 percent, 4.42 percent and 5.59 percent,
respectively. Weighted average maturities related to commercial paper in each of
the years in the three-year period ended December 31, 1999, were 7 days, 10 days
and 4 days, respectively.
Included in Other are Federal Home Loan Bank borrowings and securities
sold short of $600 million and $4.5 billion, respectively, at December 31, 1999;
$700 million and $5.7 billion, respectively, at December 31, 1998; and $286
million and $3.5 billion, respectively, at December 31, 1997.
Substantially all short-term borrowings are due within 90 days, and
accordingly, their carrying amounts are deemed to be a reasonable estimate of
fair value.
C-18
<PAGE>
- --------------------------------------------------------------------------------
NOTE 7: LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(In millions) 1999 1998
- -------------------------------------------------------------------------------------------------------
NOTES AND DEBENTURES ISSUED BY THE PARENT COMPANY
Notes
6.60%, due 2000 (par value $250) (a) $ 250 250
6.625%, due 2004 (par value $400) (a) 398 -
7.10%, due 2004 (par value $350) (a) 348 -
6.95%, due 2004 (par value $600) (a) 596 -
Floating rate, due 2004 (a) 90 -
Floating rate extendible, due 2005 (b) 10 10
Subordinated notes
6.00% to 9.45%, due 2001 to 2009 (par value $150 to $300) (a) 2,661 2,908
7.18% to 8.00%, due 2009 to 2011 (par value $60 to $150) (c) 208 208
6.30%, Putable/Callable, due 2028 (par value $200) 200 200
8.77% - 149
Floating rate, due 2003 (par value $150) (a) 150 149
Subordinated debentures
6.55% to 7.57%, due 2026 to 2035 (par value $250 to $300) (d) 794 794
- -------------------------------------------------------------------------------------------------------
Total notes and debentures issued by the Parent Company 5,705 4,668
- -------------------------------------------------------------------------------------------------------
NOTES ISSUED BY SUBSIDIARIES
Notes, varying rates and terms to 2006 (e) 18,196 11,414
Subordinated notes
5-7/8 % to 9-5/8%, due 2001 to 2006 (par value $100 to $200) (a) (f) 1,074 1,324
Bank, varying rates and terms to 2036 1,200 1,200
6-5/8 % to 7.95%, due 2002 to 2007 (par value $100 to $150) (a) 400 400
Subordinated capital notes, 9-5/8% to 9-7/8% - 150
- -------------------------------------------------------------------------------------------------------
Total notes issued by subsidiaries 20,870 14,488
- -------------------------------------------------------------------------------------------------------
OTHER DEBT
Trust preferred securities 2,027 1,736
4.556% auto securitization financing, due September 30, 2008 (f) 945 1,023
Advances from the Federal Home Loan Bank 2,387 986
Capitalized leases, rates generally ranging from 7-1/2% to 15.20% 34 40
Mortgage notes and other debt of subsidiaries, varying rates and terms 7 8
- -------------------------------------------------------------------------------------------------------
Total other debt 5,400 3,793
- -------------------------------------------------------------------------------------------------------
Total $ 31,975 22,949
=======================================================================================================
</TABLE>
(a) Not redeemable prior to maturity.
(b) Redeemable in whole or in part at the option of the Parent Company only on
certain specified dates.
(c) Redeemable in whole and not in part at the option of the Parent Company only
on certain specified dates.
(d) Redeemable in whole and or in part at the option of the holders only on
certain specified dates, otherwise not redeemable prior to maturity.
(e) $561 million assumed by the Parent Company.
(f) Assumed by the Parent Company.
C-19
<PAGE>
- --------------------------------------------------------------------------------
The interest rate on the floating rate notes is 6.32 percent to January
18, 2000.
The interest rate on the floating rate extendible notes is 6.28 percent
to March 15, 2000.
The 6.30 percent putable/callable notes are subject to mandatory
redemption on April 15, 2008, and under certain specified conditions, they may
be put to the Parent Company by the trustee on or after this date.
The interest rate on the floating rate subordinated notes is 6.17
percent to April 22, 2000.
At December 31, 1999, bank notes of $16.6 billion had floating rates of
interest ranging from 4.14 percent to 6.65 percent, and $1.6 billion of the
notes had fixed rates of interest ranging from 5.25 percent to 10.00 percent.
At December 31, 1999 and 1998, three statutory business trusts (the
"Trusts") created by the Parent Company had outstanding with the Parent Company
trust preferred securities with an aggregate par value of $1.3 billion and $1.0
billion, respectively. The trust preferred securities have interest rates
ranging from 7.85 percent to 8.04 percent and maturities ranging from December
1, 2026, to November 15, 2029. The principal assets of the Trusts are $1.3
billion of the Parent Company's Junior Subordinated Deferrable Interest
Debentures (the "Subordinated Debentures") with identical rates of interest and
maturities as the trust preferred securities. Additionally, the Trusts have
issued $30 million of common securities to the Parent Company. The estimated
fair value of each of the trust preferred securities and the related
Subordinated Debentures at December 31, 1999 and 1998, was $1.4 billion and $1.1
billion, respectively.
The trust preferred securities, the assets of the Trusts and the common
securities issued by the Trusts are redeemable in whole or in part beginning on
or after December 1, 2006, or at any time in whole but not in part from the date
of issuance on the occurrence of certain events. The obligations of the Parent
Company with respect to the issuance of the trust preferred securities
constitute a full and unconditional guarantee by the Parent Company of the
Trusts' obligations with respect to the trust preferred securities. Subject to
certain exceptions and limitations, the Parent Company may elect from time to
time to defer subordinated debenture interest payments, which would result in a
deferral of distribution payments on the related trust preferred securities.
Additionally, a bank subsidiary has outstanding trust preferred
securities with a par value of $300 million and an 8 percent rate of interest,
and a par value of $450 million and a LIBOR-indexed floating rate of interest.
The related maturities range from December 15, 2026, to February 15, 2027. The
related junior subordinated deferrable interest rate debentures all have terms
substantially the same as the trust preferred securities and Subordinated
Debentures issued by the Parent Company. The aggregate estimated fair values of
these trust preferred securities at December 31, 1999 and 1998, were $762
million and $838 million, respectively.
At December 31, 1999, $450 million of senior or subordinated debt
securities or equity securities remained available for issuance under a shelf
registration statement filed with the Securities and Exchange Commission.
At December 31, 1999, First Union National Bank had $3 billion of
senior or subordinated notes available for issuance under a $20 billion global
note program, and no notes have been issued under an additional $25 billion
global note program.
The weighted average rate paid for long-term debt in 1999, 1998 and
1997 was 5.66 percent, 6.28 percent and 6.53 percent, respectively. See Note 14
for information on interest rate swaps entered into in connection with the
issuance of long-term debt.
Long-term debt maturing in each of the five years subsequent to
December 31, 1999, is as follows (in millions): 2000, $13,335; 2001, $3,860;
2002, $2,441; 2003, $1,354; and 2004, $3,342.
C-20
<PAGE>
- --------------------------------------------------------------------------------
NOTE 8: COMMON STOCK AND CAPITAL RATIOS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---------------------- ---------------------- ---------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
(Options in thousands) NUMBER PRICE (a) Number Price (a) Number Price (a)
- ----------------------------------------------------------------------------------------------------------------------------
STOCK OPTIONS
Options outstanding, beginning of year 25,549 $ 37.56 24,728 $ 25.75 26,309 $ 19.96
Granted 18,508 41.12 12,279 50.72 8,215 36.15
Exercised (4,270) 25.23 (10,017) 23.27 (9,207) 18.00
Cancelled (1,130) 51.90 (1,441) 49.68 (589) 32.20
- ----------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 38,657 $ 40.17 25,549 $ 37.56 24,728 $ 25.75
============================================================================================================================
Options exercisable, end of year 25,459 $ 23.12 18,001 $ 29.01 17,988 $ 21.48
============================================================================================================================
RESTRICTED STOCK
Unvested shares, beginning of year 7,451 $ 46.30 4,725 $ 32.58 3,879 $ 25.73
Granted 7,133 48.19 4,525 55.38 2,229 40.62
Exercised (2,664) 44.54 (1,485) 31.30 (1,175) 26.01
Cancelled (124) 48.40 (314) 41.67 (208) 28.05
- ----------------------------------------------------------------------------------------------------------------------------
Unvested shares, end of year 11,796 $ 47.86 7,451 $ 46.30 4,725 $ 32.58
============================================================================================================================
EMPLOYEE STOCK OPTIONS
Options outstanding, beginning of year 8,170 $ 50.31 2,537 $ 27.26 6,923 $ 27.26
Granted 34,372 46.75 8,735 50.31 - -
Exercised (503) 50.31 (3,007) 31.60 (4,210) 27.26
Cancelled (3,520) 48.22 (95) 27.26 (176) 27.26
- ----------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 38,519 $ 47.32 8,170 $ 50.31 2,537 $ 27.26
============================================================================================================================
Options exercisable, end of year 6,213 $ 50.31 8,170 $ 50.31 2,537 $ 27.26
============================================================================================================================
</TABLE>
(a) The weighted-average price for stock options and employee stock options is
the weighted-average exercise price of the options, and for restricted stock,
the weighted-average fair value of the stock at the date of grant.
STOCK PLANS
The Corporation has stock option plans under which incentive and
nonqualified stock options may be granted periodically to key employees. The
options are granted at an exercise price equal to the fair value of the shares
at the date of grant, they generally vest one year following the date of grant,
and they have a term of ten years.
Restricted stock may also be granted under the stock option plans. The
restricted stock generally vests over a five-year period, during which time the
holder receives dividends and has full voting rights. Compensation cost
recognized for restricted stock was $99 million, $57 million and $43 million in
1999, 1998 and 1997, respectively.
The range of exercise prices and the related number of options
outstanding at December 31, 1999, are as follows (shares in thousands):
$2.99-$9.95, 1,522 shares; $10.07-$19.98, 4,305 shares; $20.73-$29.64, 6,358
shares; $30.13-$38.03, 5,805 shares; $40.13-$49.83, 6,064 shares; and
$51.19-$62.13, 14,603 shares. The weighted average prices, remaining contractual
maturities and weighted average exercise price of options currently exercisable
for each exercise price range are as follows: $5.37, 5.1 years and $5.37;
$15.99, 5.0 years and $15.99; $26.38, 6.3 years and $26.38; $34.65, 9.4 years
and $33.70; $43.76, 7.6 years and $43.76; and $57.63, 8.9 years and $61.63,
respectively.
At December 31, 1999, the Corporation had 19.1 million additional
shares of common stock reserved for issuance under the stock option plans.
The Corporation also has employee stock plans. Under the terms of the
1999 plan, substantially all employees were granted options with an exercise
price equal to the fair value of the Corporation's common stock on the date of
grant of August 2, 1999. Twenty percent of the options vest on August 2, 2000.
An additional 20 percent of the options vest annually on each March 1 from 2001
through 2004 if certain annual return on stockholders' equity goals are met. If
the annual goal is not met in any one year, the options for the applicable 20
percent portion remain unvested until an annual goal is met at which time they
vest. On April 30, 2004, any unvested options will automatically vest, and if
they are not exercised by September 30, 2004, they will expire.
C-21
<PAGE>
- --------------------------------------------------------------------------------
Under the terms of the 1998 plan, substantially all employees were
granted options with the number of options granted based on compensation. The
options vested upon grant and have a two-year term. During the two-year term,
the exercise price is equal to 85 percent of the fair value of the Corporation's
common stock on the date of grant (an exercise price of $50.31 per share). At
the end of the two-year period (the "Final Purchase Date"), the exercise price
will be the lesser of 85 percent of the fair value on the date of grant or 85
percent of the fair value on the Final Purchase Date on June 30, 2000.
As of December 31, 1999, the Corporation had 6.7 million additional
shares of common stock reserved for issuance under the 1999 employee plan.
The Corporation accounts for stock options using the intrinsic value
method, and accordingly, no expense is recognized for options where the option
price equals fair value of the shares on the date of grant. Pro forma net income
and earnings per share information for each of the years in the three-year
period ended December 31, 1999, calculated as if the Corporation had accounted
for stock options at their respective fair values at the date of grant, are as
follows: pro forma net income, $3.121 billion, $2.741 billion and $2.669
billion, respectively; and pro forma diluted earnings per share, $3.23, $2.80
and $2.76, respectively. The weighted average grant date fair values of the
stock options were $10.24, $10.63 and $7.24 in 1999, 1998 and 1997,
respectively. The weighted average grant date fair values of the employee stock
plans were $7.90 and$11.10 in 1999 and 1998, respectively. There were no shares
granted in 1997 under an employee stock plan. The Black-Scholes option pricing
model was used to estimate the fair value of stock options. Option pricing
models require the use of highly subjective assumptions, including expected
stock price volatility, which when changed can materially affect fair value
estimates. Accordingly, the model does not necessarily provide a reliable single
measure of the fair value of the Corporation's stock options. The more
significant assumptions used in estimating the fair value of stock options in
1999 and 1998 include risk-free interest rates of 4.63 percent to 6.12 percent
and 5.34 percent to 6.72 percent, respectively; dividend yields of 4.22 percent
and 3.26 percent, respectively; weighted average expected lives of the stock
options of 4.7 years and 2.9 years, respectively; and volatility of the
Corporation's common stock of 19 percent in both 1999 and 1998.
Under the terms of the Dividend Reinvestment Plan, a participating
stockholder's cash dividends and optional cash payments may be used to purchase
the Corporation's common stock. Common stock issued under the Dividend
Reinvestment Plan was (in thousands): 1,937 shares, 1,476 shares and 2,225
shares for the years ended December 31, 1999, 1998 and 1997, respectively. As of
December 31, 1999, the Corporation had 3 million additional shares of common
stock reserved for issuance under the Dividend Reinvestment Plan.
TRANSACTIONS BY THE CORPORATION IN ITS COMMON STOCK
The Corporation uses stock buybacks as a tool to manage leverage and
return on equity to stockholders. In connection with a 50 million share buyback
program announced in November 1998, the Corporation repurchased 10 million
shares of the Corporation's common stock at a cost of $617 million by year-end
1998, and the Corporation repurchased an additional 39 million shares at a cost
of $2.1 billion in 1999. In addition, in the second quarter of 1999, the Board
of Directors of the Corporation authorized an additional 50 million share
buyback program, which has not been utilized. Shares repurchased in connection
with purchase accounting acquisitions disclosed in Note 2 are incremental to the
buyback programs.
In February 1999, the Board of Directors of the Corporation authorized
the use of forward equity sales transactions ("equity forwards") in connection
with the 1999 buyback program. The use of equity forwards is intended to provide
the Corporation with the ability to purchase shares under the buyback program in
the market and then to issue shares in private transactions to a counterparty in
the amounts necessary to maintain targeted capital ratios. In 1999, the
Corporation entered into equity forwards involving a total of 17 million shares.
In addition to the equity forwards, the Corporation also entered into a forward
contract involving 11 million shares that matures in July 2000. These
transactions are being accounted for as equity transactions.
Under the terms of the equity forwards, the Corporation issued shares
of common stock to an investment banking firm (the "counterparty") at a
specified price that approximated market value. Simultaneously, the Corporation
entered into a forward contract with the same counterparty to repurchase the
shares at the same price plus a premium (the "forward price").
C-22
<PAGE>
- --------------------------------------------------------------------------------
From the dates the shares were issued to the counterparty, until such
time as the Corporation repurchases the shares, the counterparty has all of the
legal rights attendant to ownership of the underlying shares, including the
right to vote the shares and the right to sell or pledge the shares at the
counterparty's discretion. The counterparty will receive all dividends to which
stockholders of record during the time covered by the term of the equity
forwards are entitled. For purposes of the Corporation's earnings per share
calculation, the shares are considered outstanding until repurchased.
Under the terms of the equity forwards, the Corporation has the sole
option of determining the method of settlement when the equity forwards mature
from among the following options: gross physical settlement, net share
settlement and net cash settlement. Net share settlement and net cash settlement
could result in the sale of all underlying shares (and in certain circumstances
additional shares) to third parties by the counterparty in public or private
sales.
The equity forwards mature at various times in 2000. The equity
forwards can be extended by mutual consent of the parties. If the contracts are
extended, the premium continues to accrue until the equity forward is settled.
The Corporation can elect to terminate the equity forwards, in whole or in part,
before their maturity by giving adequate notice to the counterparty and by
paying a termination fee. In these circumstances, the Corporation retains the
ability to select the settlement method from among the three methods outlined
above.
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
In accordance with a Shareholder Protection Rights Agreement dated
December 18, 1990, as amended, the Corporation issued a dividend of one right
for each share of the Corporation's common stock outstanding as of such date,
and they continue to attach to all common stock issued thereafter. The rights
will become exercisable if any person or group commences a tender or exchange
offer that would result in their becoming the beneficial owner of 15 percent or
more of the Corporation's common stock or that would result in any person being
determined by the Federal Reserve Board to control the Corporation within the
meaning of the Bank Holding Company Act of 1956, as amended.
The rights will also become exercisable if a person or group acquires
beneficial ownership of 15 percent or more of the Corporation's common stock.
Each right (other than rights owned by such person or group) will entitle its
holder to purchase, for an exercise price of $105.00, a number of shares of the
Corporation's common stock (or at the option of the Board of Directors, shares
of junior participating class A preferred stock) having a market value of twice
the exercise price. If any person or group acquires beneficial ownership of
between 15 percent and 50 percent of the Corporation's common stock, the Board
of Directors may, at its option, exchange for each outstanding right (other than
rights owned by such person or group) either two shares of common stock or two
one-hundredths of a share of junior participating class A preferred stock having
economic and voting terms similar to two shares of common stock. The rights are
subject to adjustment if certain events occur, and they will expire on December
28, 2000, if not redeemed or terminated sooner.
CAPITAL RATIOS
Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4 percent and a minimum ratio of total
capital to risk-weighted assets of 8 percent. The minimum leverage ratio of tier
1 capital to adjusted average quarterly assets is from 3 percent to 4 percent.
At December 31, 1999, the Corporation's tier 1 capital ratio, total
capital ratio and leverage ratio were 7.08 percent, 10.87 percent and 5.97
percent, respectively. At December 31, 1998, the Corporation's tier 1 capital
ratio, total capital ratio and leverage ratio were 6.81 percent, 10.99 percent
and 5.91 percent, respectively. The Corporation does not anticipate or foresee
any conditions that would reduce these ratios to levels at or below minimum or
that would cause its deposit-taking banking affiliates to be less than well
capitalized.
Additional information related to the consolidated capital ratios of
the Corporation for each of the years in the two-year period ended December 31,
1999, can be found in "Management's Analysis of Operations - Stockholders'
Equity; Regulatory Capital" on pages 23 and 24, which is incorporated herein by
reference.
C-23
<PAGE>
- --------------------------------------------------------------------------------
Note 9: BUSINESS SEGMENTS
The Corporation has five operating segments ("business segments") all
of which, by virtue of exceeding certain quantitative thresholds, are reportable
segments. They include Capital Markets, Capital Management, Consumer, Commercial
and Treasury/Nonbank. Each of these reportable segments offers a different array
of products and services. The Capital Markets and Capital Management businesses
are positioned under one name, First Union Securities.
The accounting policies of these reportable segments are the same as
those of the Corporation as disclosed in Note 1, except as noted below. There
are no significant intersegment transactions, and there are no significant
reconciling items between the reportable segments and consolidated amounts.
Certain amounts are not allocated to reportable segments, and as a result, they
are included in the Treasury/Nonbank segment as discussed below. Substantially
all of the Corporation's revenues are earned from customers in the United
States, and no single customer accounts for a significant amount of any
reportable segment's revenues.
The Corporation's management reporting model is used to measure
business segment results. Because of the complexity of the Corporation, various
estimates and allocation methodologies are used in preparing business segment
financial information. The management reporting model isolates the net income
contribution and measures the return on capital for each business segment by
allocating equity, funding credit and expense, and certain corporate charges to
each segment. A risk-based methodology is used to allocate equity based on the
credit, market and operational risks associated with each business segment. A
provision for loan losses is allocated to each business segment based on net
charge-offs, and any excess is included in the Treasury /Nonbank segment. Income
tax expense or benefit is allocated to each business segment at the statutory
rate, and any difference between the total for all business segments and the
consolidated amount is included in the Treasury/Nonbank segment.
Exposure to market risk is managed centrally within the
Treasury/Nonbank segment. In order to remove interest rate risk from each
business segment, the management reporting model employs a funds transfer
pricing ("FTP") system. The FTP system matches the duration of the funding used
by each segment to the duration of the assets and liabilities contained in each
segment. Matching the duration, or the effective term until an instrument can be
repriced, allocates interest income and/or interest expense to each segment so
its resulting net interest income is insulated from interest rate risk.
The Treasury/Nonbank segment retains all unallocated equity and most of
the interest rate risk resulting from the mismatch in the duration of assets and
liabilities held by the other business segments. The Treasury/Nonbank segment
also holds the Corporation's investment portfolio and off-balance sheet
portfolio. Additionally, noninterest expense retained in the Treasury/Nonbank
segment reflects the costs of portfolio management activities, goodwill
amortization and certain other corporate charges, including merger-related and
restructuring charges.
In early 1999, significant refinements were made to certain of the
allocation methodologies, and as a result, prior year information has been
restated to conform to the information presented in 1999. These refinements
include the allocation of certain nonearning assets and liabilities and the
related funding cost from Treasury/Nonbank to other business segments;
elimination of the tax-equivalization of net interest income such that the tax
effect is now included in income tax expense; and adjustments to certain capital
attribution formulas. These refinements increased net income in Treasury/Nonbank
and reduced net income in the other segments.
The following items not separately presented in the consolidated
statements of income exceeded one percent of the sum of interest income and fee
and other income. In 1999, 1998 and 1997, Investment Banking and Other Capital
Markets income included investment banking amounts of $1.0 billion, $554 million
and $306 million, respectively. In 1999, Capital Management fee and other income
included retail brokerage and insurance services, trust services and mutual
funds amounts of $1.1 billion, $678 million and $460 million, respectively; in
1998, $777 million, $609 million and $411 million, respectively; and in 1997,
$316 million, $556 million and $266 million, respectively.
C-24
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(In millions) MARKETS MGT. SECURITIES (a) CONSUMER COMMERCIAL NONBANK TOTAL
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 1,327 526 1,853 3,356 1,615 628 7,452
Provision for loan losses 225 -- 225 325 95 47 692
Trading account profits 346 -- 346 -- -- 5 351
Fee and other income 1,393 2,316 3,709 1,746 551 576 6,582
Noninterest expense 1,349 1,898 3,247 3,535 1,207 873 8,862
Income tax expense 448 360 808 476 304 20 1,608
- -----------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 1,044 584 1,628 766 560 269 3,223
After-tax merger-related and
restructuring charges -- -- -- -- -- 263 263
- -----------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 1,044 584 1,628 766 560 532 3,486
- -----------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.93 % 49.32 27.38 19.55 20.08 16.26 21.60
Average loans, net $36,807 3,785 40,592 43,157 33,487 15,138 132,374
Average deposits 11,436 19,979 31,415 70,956 25,996 6,745 135,112
Average attributed
stockholders' equity (b) $ 4,766 1,181 5,947 3,926 2,788 3,271 15,932
=======================================================================================================================
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(In millions) MARKETS MGT. SECURITIES (a) CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 1,092 412 1,504 3,429 1,737 607 7,277
Provision for loan losses 130 5 135 351 91 114 691
Trading account profits 124 -- 124 -- -- (1) 123
Fee and other income 1,032 1,805 2,837 1,945 515 1,015 6,312
Noninterest expense 1,142 1,520 2,662 3,291 1,214 1,889 9,056
Income tax expense 289 266 555 662 343 (486) 1,074
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 687 426 1,113 1,070 604 104 2,891
After-tax merger-related and
restructuring charges -- -- -- -- -- 805 805
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 687 426 1,113 1,070 604 909 3,696
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.36 % 44.87 22.70 29.16 20.78 20.66 22.70
Average loans, net $32,740 3,685 36,425 50,487 36,134 9,014 132,060
Average deposits 11,446 16,714 28,160 77,996 25,904 4,270 136,330
Average attributed
stockholders' equity (b) $ 3,949 954 4,903 3,665 2,910 4,400 15,878
====================================================================================================================================
</TABLE>
C-25
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION CONSUMER COMMERCIAL TREASURY/
(In millions) MARKETS MGT. SECURITIES (a) BANK BANK NONBANK TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
Income statement data
Net interest income $ 1,007 342 1,349 3,866 1,843 736 7,794
Provision for loan losses 32 4 36 626 92 349 1,103
Trading account profits 237 -- 237 -- -- 15 252
Fee and other income 690 1,158 1,848 1,452 477 293 4,070
Noninterest expense 929 977 1,906 3,118 1,314 882 7,220
Income tax expense 331 198 529 603 343 (391) 1,084
- ---------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 642 321 963 971 571 204 2,709
After-tax merger-related and
restructuring charges -- -- -- -- -- 204 204
- ---------------------------------------------------------------------------------------------------------------------------------
Net incomes before
merger-related and
restructuring charges $ 642 321 963 971 571 408 2,913
- ---------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.83% 46.40 26.54 28.99 19.19 9.33 20.29
Average loans, net $26,438 3,071 29,509 53,086 38,273 13,649 134,517
Average deposits 6,661 14,750 21,411 80,336 24,247 6,853 132,847
Average attributed
stockholders' equity (b) $ 2,943 686 3,629 3,354 2,973 4,371 14,327
=================================================================================================================================
</TABLE>
(a) Capital Markets and Capital Management amounts are combined under the
heading "First Union Securities."
(b) Average attributed stockholders' equity excludes each respective year's
merger-related and restructuring charges.
C-26
<PAGE>
- --------------------------------------------------------------------------------
NOTE 10: PERSONNEL EXPENSE AND RETIREMENT BENEFITS
The Corporation has a savings plan under which eligible employees are
permitted to make basic contributions to the plan of up to six percent of base
compensation and supplemental contributions of up to nine percent of base
compensation. Annually, on approval of the Board of Directors, employee basic
contributions may be matched up to six percent of the employee's base
compensation. A six percent matching level was approved for each of the periods
presented. Beginning in 1999, the first one percent of the Corporation's
matching contribution is made in the Corporation's common stock. Savings plan
expense in 1999, 1998 and 1997 was $102 million, $121 million and $87 million,
respectively.
Group insurance expense for active employees in 1999, 1998 and 1997 was
$201 million, $160 million and $157 million, respectively.
The Corporation has noncontributory, tax-qualified defined benefit
pension plans (the "Qualified Pension") covering substantially all employees
with one year of service. The Qualified Pension benefit expense is determined by
an actuarial valuation, and it is based on assumptions that are evaluated
annually. Contributions are made each year to a trust in an amount that is
determined by the actuary to meet the minimum requirements of ERISA and to fall
at or below the maximum amount that can be deducted on the Corporation's tax
return. Amounts related to prior years are determined using the projected unit
credit valuation method. The difference between the pension expense included in
noninterest expense and the funded amount is included in Other Assets or Other
Liabilities, as appropriate.
At December 31, 1999, Qualified Pension assets included U.S. Government
and Government agency securities, equity securities and other investments. Also
included are 4.5 million shares of the Corporation's common stock. All Qualified
Pension assets are held by First Union National Bank (the "Bank") in a
Bank-administered trust fund.
The Corporation has noncontributory, nonqualified pension plans (the
"Nonqualified Pension") covering certain employees. The Nonqualified Pension
benefit expense is determined annually by an actuarial valuation, and it is
included in noninterest expense.
The Corporation also provides certain health care and life insurance
benefits for retired employees (the "Other Postretirement Benefits").
Substantially all of the Corporation's employees may become eligible for Other
Postretirement Benefits if they reach retirement age while working for the
Corporation. Life insurance benefits, medical and other benefits are provided
through a tax-exempt trust formed by the Corporation.
The change in benefit obligation and the change in fair value of plan
assets related to each of the Qualified Pension, the Nonqualified Pension and
the Other Postretirement Benefits using a September 30 measurement date for each
of the years in the two-year period ended December 31, 1999, follows. In 1998,
the curtailment gain resulted from employee terminations in connection with the
CoreStates merger.
C-27
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
QUALIFIED PENSION NONQUALIFIED PENSION BENEFITS
-------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS) 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, October 1 $ 2,333 2,020 250 182 390 350
Service cost 108 89 5 4 9 8
Interest cost 153 140 16 14 25 24
Retiree contributions -- -- -- -- 7 6
Plan amendments -- 22 -- 32 4 (4)
Benefit payments (212) (143) (51) (12) (31) (29)
Business combinations -- -- -- -- 16 --
Curtailment (gain) loss -- (39) -- -- -- 1
Special and/or contractual termination benefits -- 3 -- -- 3 --
Actuarial (gains) losses (327) 241 (18) 30 (19) 34
- ------------------------------------------------------------------------------------------------------------------------
Benefit obligation, September 30 2,055 2,333 202 250 404 390
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN FAIR VALUE OF
PLAN ASSETS
Fair value of plan assets, October 1 2,360 2,446 -- -- 70 67
Actual return on plan assets 257 57 -- -- 4 3
Employer contributions 67 -- 51 12 24 23
Retiree contributions -- -- -- -- 7 6
Benefit payments (212) (143) (51) (12) (30) (29)
- ------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets, September 30 2,472 2,360 -- -- 75 70
- ------------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF FUNDED STATUS
Funded status of plans 417 27 (202) (250) (329) (320)
Unrecognized net transition obligation (13) (21) -- 1 51 55
Unrecognized prior service costs 47 54 39 64 (16) (22)
Unrecognized net (gains) losses (34) 324 27 59 (73) (54)
Employer contributions in the fourth quarter 104 67 -- -- (7) 10
- ------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit expense at
December 31, $ 521 451 (136) (126) (374) (331)
========================================================================================================================
ASSUMPTIONS
Discount rate, September 30 7.75% 6.75 7.75 6.75 7.75 6.75
Expected return on plan assets 9.75 9.50 -- -- 6.00 6.00
Weighted average rate of increase in
future compensation levels 4.25% 4.00 4.25 4.00 4.25 4.00
========================================================================================================================
</TABLE>
The components of the retirement benefits cost for each of the years in
the three-year period ended December 31, 1999, are presented below.
<TABLE>
<CAPTION>
QUALIFIED PENSION NONQUALIFIED PENSION
------------------------- --------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS) 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
RETIREMENT BENEFITS COST
Service cost $ 108 89 80 5 4 4
Interest cost 153 140 136 16 14 12
Expected return on plan assets (230) (203) (180) -- -- --
Amortization of transition (gains) losses (9) (9) (11) 1 1 1
Amortization of prior service cost 7 6 5 11 9 6
Actuarial gains 5 3 1 5 1 1
Curtailment (gain) loss -- (35) 2 -- 1 1
Special and/or contractual termination benefits -- 3 3 -- -- --
- ------------------------------------------------------------------------------------------------------
Net retirement benefits cost $ 34 (6) 36 38 30 25
======================================================================================================
</TABLE>
C-28
<PAGE>
- --------------------------------------------------------------------------------
OTHER POSTRETIREMENT BENEFITS
----------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------
(IN MILLIONS) 1999 1998 1997
- --------------------------------------------------------------------------------
RETIREMENT BENEFITS COST
Service cost $ 9 8 7
Interest cost 25 24 26
Expected return on plan assets (4) (4) (3)
Amortization of transition gains 4 4 4
Amortization of prior service cost (1) (2) (2)
Actuarial losses (1) (4) (3)
Curtailment (gain) loss -- (12) 3
Special termination benefit cost 2 -- --
- --------------------------------------------------------------------------------
Net retirement benefits cost $ 34 14 32
================================================================================
Medical trend rates assumed with respect to Other Postretirement
Benefits at the beginning and at the end of 1999 were 6.00 percent (pre-65 years
of age) and 5.00 percent (post-65 years of age). Medical trend rates assumed
with respect to Other Postretirement Benefits at the beginning of 1998 ranged
from 5.50 percent to 6.00 percent (pre-65 years of age) and 5.00 percent to 8.75
percent (post-65 years of age) grading to 5.00 percent to 5.50 percent; and at
the end of 1998, 6.00 percent (pre-65 years of age) and 5.00 percent (post-65
years of age).
At December 31, 1999, the effect of a one percentage point increase or
decrease in the assumed health care cost trend rate on service and interest
costs is a $1 million increase and a $1 million decrease, respectively, and on
the accumulated postretirement benefit obligation, a $13 million increase and a
$12 million decrease, respectively.
C-29
<PAGE>
- --------------------------------------------------------------------------------
NOTE 11: INCOME TAXES
The provision for income taxes for each of the years in the three-year
period ended December 31, 1999, is presented below.
YEARS ENDED DECEMBER 31,
------------------------------------------
(In millions) 1999 1998 1997
- --------------------------------------------------------------------------------
CURRENT INCOME TAX EXPENSE
Federal $ 451 395 480
State 63 40 39
- --------------------------------------------------------------------------------
Total 514 435 519
Foreign 15 15 12
- --------------------------------------------------------------------------------
Total 529 450 531
- --------------------------------------------------------------------------------
DEFERRED INCOME TAX EXPENSE
Federal 1,090 598 526
State (11) 26 27
- --------------------------------------------------------------------------------
Total 1,079 624 553
- --------------------------------------------------------------------------------
Total $ 1,608 1,074 1,084
================================================================================
The reconciliation of federal income tax rates and amounts to the
effective income tax rates and amounts for each of the years in the three-year
period ended December 31, 1999, is presented below.
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
PRE-TAX PRE-TAX PRE-TAX
(In millions) AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 4,831 $ 3,965 $ 3,793
---------- --------- ----------
Tax at federal income tax rate $ 1,691 35.0% $ 1,388 35.0% $ 1,327 35.0 %
Reasons for difference in federal income
tax rate and effective tax rate
Tax-exempt interest, net of cost to carry (45) (0.9) (50) (1.3) (53) (1.4)
Non-taxable distributions from
corporate reorganizations -- -- (270) (6.8) (264) (7.0)
State income taxes, net of federal tax
benefit 34 0.7 43 1.1 43 1.1
Goodwill amortization 86 1.8 67 1.7 50 1.3
Tax credits, net of related basis
adjustments (85) (1.8) (54) (1.4) (31) (0.8)
Change in the beginning-of-the-year
deferred tax assets valuation allowance (1) -- -- -- (11) (0.3)
Other items, net (72) (1.5) (50) (1.2) 23 0.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 1,608 33.3 % $ 1,074 27.1% $ 1,084 28.5 %
==================================================================================================================================
</TABLE>
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
C-30
<PAGE>
- --------------------------------------------------------------------------------
The sources and tax effects of temporary differences that give rise to
significant portions of deferred income tax assets and liabilities for each of
the years in the three-year period ended December 31, 1999, are presented below.
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
------------------------------------------
(In millions) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAX ASSETS
Provision for loan losses, net $ 674 695 857
Accrued expenses, deductible when paid 681 711 524
Foreclosed properties 12 26 7
Sale and leaseback transactions - - 15
Deferred income - - 18
Unrealized loss on debt and equity securities 507 - -
Purchase accounting adjustments (primarily loans and securities) 67 104 79
Net operating loss carryforwards 178 324 71
Tax credit carryforwards 392 207 54
Other 117 112 108
- ---------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 2,628 2,179 1,733
- ---------------------------------------------------------------------------------------------------------------
Deferred tax assets valuation allowance 23 24 24
- ---------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAX LIABILITIES
Depreciation 114 174 303
Deferred income 34 - -
Unrealized gain on debt and equity securities - 224 154
Intangible assets 112 166 115
Leasing activities 3,822 3,019 2,082
Loan products 101 99 46
Prepaid pension assets 199 175 128
Loan loss reserve recapture 13 28 30
Securitizations 101 33 -
Other 259 143 126
- ---------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 4,755 4,061 2,984
- ---------------------------------------------------------------------------------------------------------------
Net deferred income tax liabilities $ 2,150 1,906 1,275
===============================================================================================================
</TABLE>
A portion of the current year change in the net deferred tax liability
relates to unrealized gains and losses on securities available for sale. The
related 1999, 1998 and 1997 deferred tax expense (benefit) of $(731) million,
$70 million and $139 million, respectively, have been recorded directly to
stockholders' equity. Purchase acquisitions also increased (decreased) the net
deferred tax liability by $(104) million, $(63) million and $44 million in 1999,
1998 and 1997, respectively.
The realization of deferred tax assets may be based on the utilization
of carrybacks to prior taxable periods, the anticipation of future taxable
income in certain periods and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the deferred tax
assets can be supported by carrybacks to federal taxable income in the two-year
federal carryback period and by expected future taxable income that will exceed
amounts necessary to fully realize remaining deferred tax assets resulting from
net operating loss carryforwards and from the scheduling of temporary
differences. The valuation allowance primarily relates to certain state
temporary differences and to federal and state net operating loss carryforwards.
C-31
<PAGE>
- --------------------------------------------------------------------------------
At December 31, 1999, the Corporation had net operating loss
carryforwards of $61 million that are available to offset future federal taxable
income through 2017, subject to annual limitations. The Corporation also had net
operating loss carryforwards of approximately $7.8 billion that are available to
offset future state taxable income through 2014.
Income tax expense related to securities available for sale
transactions was $63 million, $137 million and $11 million in 1999, 1998 and
1997, respectively. Income tax expense related to investment security
transactions was $2 million and $1 million in 1998 and 1997, respectively.
Amounts in 1999 were not significant.
The Internal Revenue Service (the "IRS") is currently examining the
Corporation's federal income tax returns for the years 1994 through 1996 and
federal income tax returns for certain acquired subsidiaries for periods prior
to acquisition. In 1999, the IRS examination of the Corporation's federal income
tax returns for the years 1991 through 1993 was settled with no significant
impact on the Corporation's financial position or results of operations. In
1999, 1998 and 1997, tax liabilities for certain acquired subsidiaries for
periods prior to their acquisition by the Corporation were settled with the IRS
with no significant impact on the Corporation's financial position or results of
operations.
<PAGE>
- --------------------------------------------------------------------------------
NOTE 12: BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share is computed by dividing adjusted net income by
the weighted average number of shares of common stock outstanding for the
period. Diluted earnings per share is computed by dividing income available to
common stockholders by the sum of the weighted average number of shares and the
number of shares that would have been outstanding if potentially dilutive shares
had been issued. The reconciliation between basic and diluted earnings per share
for each of the years in the three-year period ended December 31, 1999, is
presented below.
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
-----------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ------------------------------------------------------------------------------------------
Net income $ 3,223 2,891 2,709
Less imputed interest on the Corporation's
transactions in its common stock (6) -- --
- ------------------------------------------------------------------------------------------
Income available to common stockholders 3,217 2,891 2,709
==========================================================================================
Basic earnings per share $ 3.35 2.98 2.84
==========================================================================================
Diluted earnings per share $ 3.33 2.95 2.80
==========================================================================================
Average shares - basic (IN THOUSANDS) 959,390 969,131 955,241
Options and unvested restricted stock (IN THOUSANDS) 7,473 10,981 11,551
- ------------------------------------------------------------------------------------------
Average shares - diluted (IN THOUSANDS) 966,863 980,112 966,792
==========================================================================================
</TABLE>
C-32
<PAGE>
- --------------------------------------------------------------------------------
NOTE 13: ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Comprehensive income is defined as the change in equity from all
transactions other than those with stockholders, and it includes net income and
other comprehensive income. The Corporation's only significant item of other
comprehensive income is net unrealized gains or losses on certain debt and
equity securities and the reclassification adjustments related thereto.
Reclassification adjustments include the gains or losses realized in the current
period on certain debt and equity securities that were included in accumulated
other comprehensive income at the beginning of the period. Disclosure of
reclassification adjustments for periods prior to January 1, 1998, is not
required. Accumulated other comprehensive income, net, for each of the years in
the three-year period ended December 31, 1999, is presented below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
INCOME TAX
PRE-TAX (EXPENSE) AFTER-TAX
(In millions) AMOUNT BENEFIT AMOUNT
- --------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET
Accumulated other comprehensive income, net, December 31, 1996 $ 48 (19) 29
Unrealized net holding gain arising in 1997 396 (139) 257
- --------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income, net, December 31, 1997 444 (158) 286
Unrealized net holding gain arising in 1998 469 (168) 301
Reclassification adjustment for gains and losses realized in net income (277) 97 (180)
- --------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income, net, December 31, 1998 636 (229) 407
Unrealized net holding loss arising in 1999 (1,820) 644 (1,176)
Reclassification adjustment for gains and losses realized in net income (247) 86 (161)
- --------------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income, net, December 31, 1999 $ (1,431) 501 (930)
====================================================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTE 14: OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers, to reduce its own exposure to fluctuations in interest rates and to
conduct lending activities. These financial instruments include commitments to
extend credit, standby and commercial letters of credit, derivatives, and
commitments to purchase and sell securities. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of amounts
recognized in the consolidated financial statements.
The Corporation's exposure to credit loss in the event of
nonperformance by the counterparty for commitments to extend credit and standby
and commercial letters of credit is represented by the contract amount of those
instruments. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Corporation holds various assets as collateral to support those commitments
for which collateral is deemed necessary. The Corporation uses the same credit
policies in entering into commitments and conditional obligations as it does for
on-balance sheet instruments. For derivatives, the contract or notional amounts
do not represent the exposure to credit loss. The Corporation controls the
credit risk of its derivatives through collateral arrangements, credit
approvals, limits and monitoring procedures.
The Corporation's policy requires all swaps and options to be governed
by an International Swaps and Derivatives Association Master Agreement.
Bilateral collateral agreements are in place for substantially all dealer
counterparties. Collateral for dealer transactions is delivered by either party
when the credit risk associated with a particular transaction, or group of
transactions to the extent netting exists, exceeds defined thresholds of credit
risk. Thresholds are determined based on the strength of the individual
counterparty. As of December 31, 1999, the total credit risk in excess of
thresholds was $759 million. The fair value of collateral held approximated the
total credit risk in excess of the thresholds.
C-33
<PAGE>
- --------------------------------------------------------------------------------
For non-dealer transactions, the need for collateral is evaluated on an
individual transaction basis, and it is primarily dependent on the financial
strength of the counterparty.
Additional information related to derivatives used for the
Corporation's interest rate risk management purposes as of December 31, 1999 and
1998, can be found in Table 16 through Table 18 on pages T-22 through T-24,
which are incorporated herein by reference.
Additional information related to other off-balance sheet financial
instruments as of December 31, 1999 and 1998, is presented below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------------ ---------------------------------------
CONTRACT CONTRACT
ESTIMATED OR ESTIMATED OR
CARRYING FAIR NOTIONAL CARRYING FAIR NOTIONAL
(IN MILLIONS) AMOUNT VALUE AMOUNT AMOUNT VALUE AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WHOSE
CONTRACT AMOUNTS REPRESENT
CREDIT RISK
Commitments to extend credit $ - 172 141,176 - 189 131,483
Standby and commercial letters of credit - 25 11,512 - 27 10,782
FINANCIAL INSTRUMENTS WHOSE
CONTRACT OR NOTIONAL
AMOUNTS EXCEED THE AMOUNT
OF CREDIT RISK
Trading and dealer activities
Forward and futures contracts 748 748 108,177 83 83 87,038
Interest rate swap agreements (385) (385) 121,394 (213) (213) 72,698
Purchased options, interest rate
caps, floors, collars and swaptions 724 724 88,896 368 368 44,485
Written options, interest rate caps,
floors, collars and swaptions (682) (682) 63,406 (299) (299) 18,218
Foreign currency and exchange
rate swap commitments (26) (26) 2,794 6 6 5,293
Commodity and equity swaps $ 1 1 28 10 10 69
================================================================================================================================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses,
and they may require payment of a fee by the counterparty. Since many of the
commitments are expected to expire without being drawn, the total commitment
amounts do not necessarily represent future cash requirements.
Standby and commercial letters of credit are conditional commitments
issued by the Corporation to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing and similar
transactions. Except for short-term guarantees of $7 billion, guarantees extend
for more than one year, and they expire in varying amounts primarily through
2033.
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Generally, for fixed rate loan commitments, fair value also
considers the difference between the current level of interest rates and the
committed rates. The fair value of commitments and letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
C-34
<PAGE>
Forward and futures contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery of a specified instrument at a specified future date, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation enters into a variety of derivatives including interest
rate swaps, options, caps, floors and swaptions in its trading activities and in
managing its interest rate exposure. As a writer of options, the Corporation
receives a premium at the outset and bears the risk of an unfavorable change in
the price of the financial instrument underlying the contract.
Interest rate swap transactions generally involve the exchange of fixed
and floating rate interest payment obligations without the exchange of the
underlying notional amounts. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contracts but also the interest rate risk associated with
unmatched positions. Notional amounts often are used to express the volume of
these transactions, but the amounts potentially subject to credit risk are much
smaller.
Generally, futures contracts are exchange traded, and all other
off-balance sheet instruments are transacted in the over-the-counter markets.
In the normal course of business, the Corporation enters into
underwriting commitments. Transactions relating to these underwriting
commitments that were open at December 31, 1999, and that were subsequently
settled, had no material impact on the Corporation's consolidated financial
position.
In the normal course of business, the Corporation has entered into
certain transactions that have recourse options. These recourse options, if
acted on, would not have a material impact on the Corporation's financial
position.
Substantially all time drafts accepted by December 31, 1999, met the
requirements for discount with Federal Reserve Banks. Average daily Federal
Reserve Bank balance requirements for the year ended December 31, 1999, amounted
to $367 million.
Minimum operating lease payments due in each of the five years
subsequent to December 31, 1999, are as follows (in millions): 2000, $250; 2001,
$245; 2002, $221; 2003, $194; 2004, $171; and subsequent years, $931 million.
Rental expense for all operating leases for the three years ended December 31,
1999, was $319 million, 1999; $326 million, 1998; and $316 million, 1997.
The Corporation and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities and as specifically described below, in which damages in various
amounts are claimed. Although the amount of any ultimate liability with respect
to such matters cannot be determined, in the opinion of management, any such
liability will not have a material impact on the Corporation's consolidated
financial condition.
A number of purported class actions were filed in June through August
1999 against the Corporation in the United States District Courts for the
Western District of North Carolina and for the Eastern District of Pennsylvania.
These actions name the Corporation and certain of its executive officers as
defendants and are purported to be on behalf of persons who purchased shares of
the Corporation's common stock from August 14, 1998 through May 24, 1999. These
complaints allege various violations of federal securities law, including
violations of Section 10(b) of the Securities Exchange Act of 1934, and that the
defendants made materially misleading statements and/or material omissions which
artificially inflated prices for the Corporation's common stock. Plaintiffs seek
a judgment awarding damages and other relief. The Corporation believes the
allegations contained in these actions are without merit and will vigorously
defend them.
C-35
<PAGE>
- --------------------------------------------------------------------------------
NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS
Information about the fair value of on-balance sheet financial instruments at
December 31, 1999 and 1998, is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------------- ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Cash and cash equivalents $ 22,677 22,677 28,637 28,637
Trading account assets 14,946 14,946 9,759 9,759
Securities available for sale 51,277 51,277 37,434 37,434
Investment securities 1,758 1,809 2,025 2,162
Loans, net of unearned income and
allowance for loan losses 133,809 133,763 132,323 134,728
Other assets $ 14,259 14,259 12,698 12,698
===============================================================================================
FINANCIAL LIABILITIES
Deposits 141,047 141,477 142,467 142,936
Short-term borrowings 50,107 50,107 41,438 41,438
Other liabilities 9,084 9,084 8,099 8,099
Long-term debt $ 31,975 31,807 22,949 23,517
===============================================================================================
</TABLE>
The fair values of performing loans for all portfolios are calculated
by discounting estimated cash flows through expected maturity dates using
estimated market yields that reflect the credit and interest rate risks inherent
in each category of loans. These market yields also include a component for the
estimated cost of servicing the portfolio. A prepayment assumption is used as an
estimate of the number of loans that will be repaid prior to their contractual
maturity. Estimated fair values for the commercial loan portfolio were based on
weighted average discount rates ranging from 6.88 percent to 8.08 percent and
5.52 percent to 7.64 percent at December 31, 1999 and 1998, respectively, and
for the retail portfolio from 8.21 percent to 12.94 percent and 7.08 percent to
12.94 percent, respectively. For performing residential mortgage loans, fair
values are estimated using a discounted cash flow analysis utilizing yields for
comparable mortgage-backed securities.The fair value of nonperforming loans is
calculated by estimating the timing and amount of cash flows. These cash flows
are discounted using estimated market yields commensurate with the risk
associated with such cash flows.
The fair value of noninterest-bearing deposits, savings and NOW
accounts, and money market accounts was the amount payable on demand at December
31, 1999 and 1998. The fair value of fixed-maturity certificates of deposit is
estimated based on the discounted value of contractual cash flows using the
rates currently offered for deposits of similar remaining maturities. The fair
value estimates do not include the benefit that results from the low-cost
funding provided by deposit liabilities compared to the cost of borrowing funds
in the market.
The fair value of long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Corporation for debt with similar terms.
Fair value estimates are based on existing financial instruments, as
defined, without estimating the value of certain ongoing businesses, the value
of anticipated future business and the value of assets and liabilities that are
not considered financial instruments. In the opinion of management, these add
significant value to the Corporation. Significant items that are not included
are long-term relationships with customers through the deposit base, the
mortgage banking operation and the brokerage network. The fair value of
off-balance sheet derivative financial instruments has not been considered in
determining on-balance sheet fair value estimates.
C-36
<PAGE>
- --------------------------------------------------------------------------------
NOTE 16: FIRST UNION CORPORATION (PARENT COMPANY)
The Parent Company serves as the primary source of funding for the
activities of its nonbank subsidiaries. The Parent Company has available a $175
million, four-year line of credit that expires in July 2002 and a $175 million,
364-day line of credit which expires in June 2000. Annual facility fees related
to the four-year line of credit and the 364-day line of credit range from 7.00
basis points to 17.50 basis points and 5.00 basis points to 15.00 basis points,
respectively. The annual facility fee is based on both the commitment amount,
and on the senior, unsecured debt ratings of the Parent Company. Generally,
interest rates will be determined when the credit line is used, and they will
vary based on the type of loan extended to the Parent Company. Additionally,
each line of credit contains financial covenants related to tangible net worth
and double leverage ratios, and each requires that the Parent Company's banking
affiliates maintain certain capital levels. At December 31, 1999, the Parent
Company was in compliance with these covenants and requirements.
Certain regulatory and other requirements restrict the lending of funds
by the bank subsidiaries to the Parent Company and to the Parent Company's
nonbank subsidiaries and restrict the amount of dividends that can be paid to
the Parent Company by the bank subsidiaries and certain of the Parent Company's
other subsidiaries. On December 31, 1999, the Parent Company was indebted to
subsidiary banks in the amount of $1.1 billion that, under the terms of
revolving credit agreements, was collateralized by certain interest-bearing
balances, securities available for sale, loans, premises and equipment, and it
was payable on demand. On December 31, 1999, a subsidiary bank had loans
outstanding to Parent Company nonbank subsidiaries in the amount of $579 million
that, under the terms of a revolving credit agreement, were collateralized by
securities available for sale and certain loans, and they were payable on
demand. The Parent Company has guaranteed certain borrowings of its subsidiaries
that at December 31, 1999, amounted to $395 million.
Industry regulators limit dividends that can be paid by the
Corporation's subsidiaries. National banks are limited in their ability to pay
dividends in two principal ways. First, dividends cannot exceed the bank's
undivided profits, less statutory bad debt in excess of the bank's allowance for
loan losses; and second, in any year, dividends may not exceed a bank's net
profits for that year, plus its retained earnings from the preceding two years,
less any required transfers to surplus. At December 31, 1999, the Parent
Company's subsidiaries, including its bank subsidiaries, had available retained
earnings of $1.5 billion for the payment of dividends to the Parent Company
without regulatory or other restrictions. Dividends from subsidiaries include
$1.5 billion in equity transfers to the Parent Company related to internal bank
consolidations in 1998. Subsidiary net assets of $17 billion were restricted
from being transferred to the Parent Company at December 31, 1999, under
regulatory or other restrictions.
The operating results of the Parent Company and its eligible
subsidiaries are included in a consolidated federal income tax return. Each
subsidiary pays its allocation of federal income taxes to the Parent Company or
receives payment from the Parent Company to the extent tax benefits are
realized. Where state income tax laws do not permit consolidated income tax
returns, applicable state income tax returns are filed.
At December 31, 1999 and 1998, the estimated fair value of the Parent
Company's loans was $4.7 billion and $3.9 billion, respectively. See Note 7 for
information related to the Parent Company's junior subordinated deferrable
interest debentures.
The Parent Company's condensed balance sheets as of December 31, 1999
and 1998, and the related condensed statements of income and cash flows for each
of the years in the three-year period ended December 31, 1999, are presented
below.
C-37
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31,
-------------------------
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 5 -
Interest-bearing balances with bank subsidiary 3,013 3,568
Securities purchased under resale agreements 1,648 1,912
- ---------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 4,666 5,480
- ---------------------------------------------------------------------------------------------------------
Trading account assets 33 9
Securities available for sale (amortized cost $1,171 in 1999; $610 in 1998) 1,198 618
Loans, net 58 14
Loans due from subsidiaries
Banks 2,066 2,300
Other subsidiaries 2,623 1,549
Investments in wholly owned subsidiaries
Banks 17,362 18,913
Other subsidiaries 2,284 1,311
- ---------------------------------------------------------------------------------------------------------
Total 19,646 20,224
Arising from purchase acquisitions 1,041 262
- ---------------------------------------------------------------------------------------------------------
Total investments in wholly owned subsidiaries 20,687 20,486
- ---------------------------------------------------------------------------------------------------------
Other assets 196 547
- ---------------------------------------------------------------------------------------------------------
Total $ 31,527 31,003
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Commercial paper 2,028 1,629
Other short-term borrowings with affiliates 2,546 2,533
Other liabilities 628 456
Long-term debt 8,285 8,457
Junior subordinated deferrable interest debentures 1,331 1,031
- ---------------------------------------------------------------------------------------------------------
Total liabilities 14,818 14,106
Stockholders' equity 16,709 16,897
- ---------------------------------------------------------------------------------------------------------
Total $ 31,527 31,003
=========================================================================================================
</TABLE>
C-38
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
--------------------------------------
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 264 303 177
Interest and dividends on securities available for sale 49 35 29
Interest and dividends on investment securities - 1 3
Other interest income from subsidiaries 157 195 172
- ----------------------------------------------------------------------------------------------------------
Total interest income 470 534 381
- ----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on short-term borrowings 134 129 95
Interest on long-term debt 576 596 434
- ----------------------------------------------------------------------------------------------------------
Total interest expense 710 725 529
- ----------------------------------------------------------------------------------------------------------
Net interest income (240) (191) (148)
Provision for loan losses - - (1)
- ----------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses (240) (191) (147)
- ----------------------------------------------------------------------------------------------------------
FEE AND OTHER INCOME
Dividends from subsidiaries
Banks 3,150 1,766 2,226
Bank holding companies - - 452
Other subsidiaries 40 5 116
Trading account profit (loss) (1) 2 15
Securities transactions 4 5 9
Sundry income 1,127 845 708
- ----------------------------------------------------------------------------------------------------------
Total fee and other income 4,320 2,623 3,526
- ----------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE 898 733 650
- ----------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed
net income of subsidiaries 3,182 1,699 2,729
Income taxes 2 9 13
- ----------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income of subsidiaries 3,180 1,690 2,716
Equity in undistributed net income of subsidiaries 43 1,201 (7)
- ----------------------------------------------------------------------------------------------------------
Net income $ 3,223 2,891 2,709
==========================================================================================================
</TABLE>
C-39
<PAGE>
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
YEARS ENDED DECEMBER 31,
--------------------------------------
(In millions) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,223 2,891 2,709
Adjustments to reconcile net income to net cash provided (used) by
operating activities
Equity in undistributed net income of subsidiaries (43) (1,201) 7
Accretion and revaluation losses on securities 9 4 2
Provision for loan losses - - (1)
Securities transactions (4) (5) (9)
Depreciation, goodwill and other amortization 202 136 56
Deferred income taxes (benefits) 13 36 (46)
Trading account assets, net (24) (9) -
Other assets, net 275 (44) (35)
Other liabilities, net 162 (448) 828
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,813 1,360 3,511
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales and maturities of securities available for sale 352 389 161
Purchases of securities available for sale (918) (556) (335)
Calls and underdeliveries of investment securities - 29 153
Purchases of investment securities - - (96)
Advances to subsidiaries, net (840) (1,232) 402
Investments in subsidiaries (253) (549) 196
Longer-term loans originated or acquired (84) (155) (382)
Principal repaid on longer-term loans 40 295 336
Purchases of premises and equipment, net 27 (68) (18)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (1,676) (1,847) 417
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Deposits - (1) 1
Commercial paper 399 758 (150)
Other short-term borrowings, net 13 1,419 104
Issuance of junior subordinated deferrable interest debentures 300 - 511
Issuances of long-term debt 1,378 4,018 525
Payments of long-term debt (1,554) (943) (17)
Sales of common stock 143 700 728
Purchases of common stock (1,813) (3,056) (2,360)
Cash dividends paid (1,817) (1,524) (1,141)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (2,951) 1,371 (1,799)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (814) 884 2,129
Cash and cash equivalents, beginning of year 5,480 4,596 2,467
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 4,666 5,480 4,596
=============================================================================================================================
CASH PAID FOR
Interest $ 705 706 464
Income taxes 115 85 200
NONCASH ITEM
Increase in investments in subsidiaries as a result of acquisitions of institutions
for common stock $ 1,251 2,540 3
=============================================================================================================================
</TABLE>
C-40
<PAGE>
STOCKHOLDER INFORMATION
FINANCIAL INFORMATION
Analysts, stockholders and other investors seeking financial information about
First Union should contact Alice Lehman, managing director of Corporate
Relations, at 704-374-2137. News media and others seeking general information
should contact Ginny Mackin, senior vice president, Corporate Relations, at
704-374-2138.
Print. Printed financial materials, including our 1999 Annual Report on Form
10-K, may be obtained from Investor Relations by calling 704-374-6782.
Internet. First Union's annual report and quarterly financial releases, as well
as other company news releases, can be accessed through our website on the
Internet at www.firstunion.com.
Fax-On-Demand. Call 1-800-283-6214 for the latest news announcements through
FAX-On-Demand.
STOCKHOLDER ASSISTANCE
General information, including information about our dividend reinvestment
program and direct deposit of dividends, may be obtained by calling Investor
Relations at 704-374-6782.
If you have questions concerning your stockholder account, please call our
transfer agent, First Union National Bank, at 1-800-347-1246. This is the place
to call if you require a change of address, records or information about lost
certificates, dividend checks or dividend reinvestment.
CUSTOMER INQUIRIES
Mail. If you need to contact our Corporate Headquarters, write First Union
Corporation, 301 South College Street, Suite 4000, Charlotte, North Carolina
28288-0001, or call 704-374-6161.
Internet. Customers nationwide who wish to manage their checking, bill payment
and brokerage activities through the convenience of a single access code may do
so at www.firstunion.com. Open a checking, savings or brokerage account online.
Apply and, if qualified, receive online approval for mortgage loan, home equity
loan or a credit card within minutes. Our e-mail address is comments@
firstunion.com.
Phone. Customers nationwide also may conduct their banking transactions by
calling toll-free at 1-800-413-7898.
ANNUAL MEETING
The annual meeting of stockholders will be at 9:30 a.m. on Tuesday, April 18,
2000, in the 12th floor auditorium of Two First Union Center, 301 South Tryon
Street, Charlotte, North Carolina.
DUPLICATE COPIES
The Annual Report to Stockholders is an important disclosure document that
securities laws require us to provide. However, we are looking for ways to
reduce the expense associated with mailing financial reports. If you receive
duplicate copies of the same report, it may be that you have more than one
stockholder account whose registration is identical or two or more differently
registered accounts receiving information at the same address. We can eliminate
duplicate mailings only if we receive written authorization from each registered
stockholder named on the account to mail only one report per address. Please
send written authorization signed by each stockholder listed on the stockholder
account to First Union National Bank Shareholder Services, 1525 West W.T. Harris
Boulevard 3C3, Charlotte, North Carolina 28288-1153. Please include name,
address, phone number, Social Security number or account number.
EQUAL OPPORTUNITY EMPLOYER
First Union Corporation is an equal opportunity employer. All matters regarding
recruiting, hiring, training, compensation, benefits, promotions, transfers and
all other personnel policies will continue to be free from discriminatory
practices.
SECURITIES AND DEBT RATINGS
First Union Corporation's senior long-term debt is rated A by Standard & Poor's;
A1 by Moody's; AA- by Thomson BankWatch; and A+ by Duff & Phelps and Fitch IBCA.
Subordinated debt is rated A- by S&P; A2 by Moody's; A+ by Thomson BankWatch;
and A by Duff & Phelps. Commercial paper is rated A-1 by S&P; P-1 by Moody's;
TBW-1 by Thomson BankWatch; and D-1 by Duff & Phelps.
First Union National Bank ratings for long-term letters of credit and
certificates of deposit are A+ by S&P; Aa3 by Moody's; and AA- by Duff & Phelps
and by Fitch IBCA. Short-term letters of credit and certificates of deposit are
rated A-1, P-1, TBW-1, D-1+ and F-1+ by S&P, Moody's, Thomson BankWatch, Duff &
Phelps and Fitch IBCA, respectively.
<PAGE>
(Photo of First Union building appears here)
Annual Report Impact Survey
The annual report is an important document of disclosure that we are required to
provide. Our goal is to share this information in an efficient yet thorough
manner.
If you are receiving duplicate copies of this report, please contact Shareholder
Services at 1-800-347-1246. If you hold First Union Corporation stock through a
brokerage account, please contact your brokerage firm.
We are pleased to note that over the past decade, we have reduced the cost of
producing our annual report by more than 50 percent per book. Material is
printed on recycled paper whenever feasible.
To help us communicate as effectively as possible about First Union's
performance, progress and strategic priorities, we would appreciate your
feedback on the 1999 Annual Report. Please take a moment to fill out the
attached card and drop it in the mail. No postage is required.
Again, thank you for your investment in First Union.
On a scale of 1 to 5 (one being the least favorable and five being the most
favorable), please rate the following:
<TABLE>
<S> <C>
How clearly did the 1999 Annual Report tell you what you wanted to know about
First Union? 1 2 3 4 5
How well did the Annual Report help you understand First Union's corporate
strategy? 1 2 3 4 5
Overall, how well did this Annual Report meet your needs as an investor? 1 2 3 4 5
</TABLE>
General comments about the Annual Report
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
- -----------------------------------------------------
Thank you for your time and interest. Please complete the following:
( ) I am an individual investor. ( ) I am an institutional investor.
( ) I am a stock analyst.
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST-CLASS MAIL PERMIT NO. 1273 CHARLOTTE, NC
POSTAGE WILL BE PAID BY THE ADDRESSEE
FIRST UNION CORPORATION
INVESTOR RELATIONS NC0206
301 S. COLLEGE STREET
CHARLOTTE, NC 28254-0040
<PAGE>
BOARD OF DIRECTORS
Edward E. Barr
Chairman
Sun Chemical Corporation
Fort Lee, New Jersey
G. Alex Bernhardt, Sr.
Chairman and Chief
Executive Officer
Bernhardt Furniture
Company
Lenoir, North Carolina
Erskine B. Bowles
General Partner
Forstmann, Little and Co.
New York, New York
W. Waldo Bradley
Chairman
Bradley Plywood
Corporation
Savannah, Georgia
Robert J. Brown
Chairman and Chief
Executive Officer
B&C Associates, Inc.
High Point, North Carolina
Edward E. Crutchfield
Chairman and Chief
Executive Officer
First Union Corporation
Charlotte, North Carolina
A. Dano Davis
Chairman
Winn-Dixie Stores, Inc.
Jacksonville, Florida
Norwood H. Davis, Jr.
Chairman
Trigon Healthcare, Inc.
Richmond, Virginia
R. Stuart Dickson*
Chairman of
Executive Committee
Ruddick Corporation
Charlotte, North Carolina
B.F. Dolan
Investor
Charlotte, North Carolina
Roddey Dowd, Sr.
Chairman of
Executive Committee
Charlotte Pipe and
Foundry Company
Charlotte, North Carolina
Arthur M. Goldberg*
President and Chief
Executive Officer
Park Place Entertainment
Corporation
Chatham, New Jersey
William H. Goodwin, Jr.
Chairman
CCA Industries, Inc.
Richmond, Virginia
Frank M. Henry
Chairman
Frank Martz Coach
Company
Wilkes-Barre, Pennsylvania
James E.S. Hynes
Chairman
Hynes, Inc.
Charlotte, North Carolina
Ernest E. Jones
President and Chief
Executive Officer
Philadelphia Workforce
Development Corporation
Philadelphia, Pennsylvania
Herbert Lotman
Chairman and Chief
Executive Officer
Keystone Foods Holding
Company, Inc.
Bala Cynwyd, Pennsylvania
Radford D. Lovett
Chairman
Commodores Point
Terminal Corporation
Jacksonville, Florida
Mackey J. McDonald
Chairman, President and
Chief Executive Officer
VF Corporation
Greensboro, North Carolina
Patricia A. McFate
Senior Scientist of the
Strategies Group
Science Applications
International Corporation
Santa Fe, New Mexico
Joseph Neubauer
Chairman and Chief
Executive Officer
ARAMARK Corporation
Philadelphia, Pennsylvania
Randolph N. Reynolds*
Vice Chairman
Reynolds Metals Company
Richmond, Virginia
James M. Seabrook
Chairman and Chief
Executive Officer
Seabrook Brothers
and Sons, Inc.
Seabrook, New Jersey
Ruth G. Shaw
Executive Vice President
and Chief Administrative
Officer
Duke Energy Corporation
Charlotte, North Carolina
Lanty L. Smith
Chairman
Soles Brower Smith & Co.
Greensboro, North Carolina
G. Kennedy Thompson
President
First Union Corporation
Charlotte, North Carolina
EXECUTIVE
OFFICERS
Edward E. Crutchfield
Chairman and
Chief Executive Officer
G. Kennedy Thompson
President
Benjamin P. Jenkins, III
Vice Chairman
Donald A. McMullen, Jr.
Vice Chairman
B.J. Walker
Vice Chairman
Robert T. Atwood
Executive Vice President
and Chief Financial Officer
Mark C. Treanor
Executive Vice President,
Secretary and
General Counsel
COMMITTEES OF THE
CORPORATE BOARD
OF DIRECTORS
Executive Committee
B.F. Dolan, Chairman
Edward E. Crutchfield
R. Stuart Dickson
Arthur M. Goldberg
William H. Goodwin, Jr.
Radford D. Lovett
Mackey J. McDonald
Joseph Neubauer
Lanty L. Smith
Robert T. Atwood (Staff)
Audit Committee
Joseph Neubauer, Chairman
Norwood H. Davis, Jr., Vice Chairman
Edward E. Barr
Ernest E. Jones
Patricia A. McFate
Lanty L. Smith
Robert T. Atwood (Staff)
James H. Hatch (Staff)
Peter J. Schild (Staff)
Nominating Committee
B.F. Dolan, Chairman
G. Alex Bernhardt, Sr., Vice Chairman
Edward E. Crutchfield
R. Stuart Dickson
William H. Goodwin, Jr.
Radford D. Lovett
Mackey J. McDonald
Human Resources Committee
R. Stuart Dickson, Chairman
Robert J. Brown
Frank M. Henry
James E.S. Hynes
Herbert Lotman
Randolph N. Reynolds
Donald R. Johnson (Staff)
Credit/Risk Management Committee
Mackey J. McDonald, Chairman
A. Dano Davis, Vice Chairman
G. Alex Bernhardt, Sr.
W. Waldo Bradley
B.F. Dolan
William H. Goodwin, Jr.
Malcolm T. Murray (Staff)
Brian E. Simpson (Staff)
Financial Services Committee
Roddey Dowd, Sr., Chairman
Ruth G. Shaw, Vice Chairman
Erskine B. Bowles
Arthur M. Goldberg
Radford D. Lovett
James M. Seabrook
Benjamin P. Jenkins, III (Staff)
Donald A. McMullen, Jr. (Staff)
* Retiring in 2000.
<PAGE>
(recycle logo appears here) THIS PUBLICATION IS PRINTED ON RECYCLED PAPER.
FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NC 28288-0570
EXHIBIT (21)
FIRST UNION CORPORATION
LIST OF SUBSIDIARIES AS OF 2/1/00(1)
<TABLE>
<S><C>
ABCA, INC. (3) (JACKSONVILLE, FL)
-1005 CORP. (CHARLOTTE, NC)
-CITRUS COUNTY LAND CORP. (3) (JACKSONVILLE, FL)
-CITRUS COUNTY SERVICE CORP. (3) (JACKSONVILLE, FL)
-MELBOURNE ATLANTIC VENTURE PARTNERS (20%-NV) (JACKSONVILLE, FL)
CAPITOL FINANCE GROUP, INC. (CHARLOTTE, NC)
CORESTATES COMMUNITY DEVELOPMENT CORPORATION, INC. (PHILADELPHIA, PA) (51%)*
-PARTNERSHIP HOMES (PHILADELPHIA, PA) (50%)*
CORESTATES HOLDINGS, INCORPORATED (WILMINGTON, DE)
-BENCHMARK CABLE ACQUISITION FUND VII, L. P. (15%-NV) (STERLING, VA)
-BRADFORD EQUITIES FUND, L.P. (11.02%-NV) (13) (NEW YORK, NY)
-BRAND EQUITY VENTURES I, L.P. (5.30%-NV) (GREENWICH, CT)
-FIRST COMMERCIAL BANK OF PHILADELPHIA (24.90%) (PHILADELPHIA, PA)
-FOUNDERS COURT FUND II, L.P. (40%-NV) (PENNINGTON, NJ)
-MEREDIAN VENTURE PARTNERS (45.72%-NV) (RADNOR, PA)
-NEPA VENTURE FUND, L.P. (7.34%-NV) (BETHLEHEM, PA)
-RADNOR VENTURE PARTNERS, L.P. (7.65%%-NV) (WAYNE, PA) (4)
-RFE CAPITAL PARTNERS, L.P. (6.67%-NV) (NEW CANAAN, CT) (5)
-UNITED BANCSHARES, INC. (6.02%-V; 9.40%-NV) (PHILADELPHIA, PA) (7)
--UNITED BANK OF PHILADELPHIA (PHILADELPHIA, PA)
-ZERO STAGE CAPITAL II, L.P. (5.37%-NV) (CAMBRIDGE, MA)
EDUCATION FINANCING SERVICES, LLC (19.318%) (WINSTON-SALEM, NC)
EVEREN CAPITAL CORPORATION (CHICAGO, IL)
-BRADFORD EQUITIES FUND, LP (7.87%-NV) (13) (NEW YORK, NY)
-CEDAR CREEK PARTNERS (6.53%-NV) (MILWAUKEE, WI)
-EVEREN SECURITIES HOLDINGS, INC. (CHICAGO, IL)
--BATEMAN EICHLER, HILL RICHARDS, INC. (NEVER ACTIVE) (CHICAGO, IL)
--BATEMAN EICHLER, HILL RICHARDS REALTY SERVICES, INC. (CHICAGO, IL)
---BATEMAN EICHLER, HILL RICHARDS HOUSING INVESTORS, INC. (CHICAGO, IL)
--BATEMAN EICHLER, HILL RICHARDS REALTY CO., INCORPORATED (CHICAGO, IL)
---BEHR HOUSING INVESTORS 1980-1, L.P. (1%-NV)(CHICAGO, IL)
---BEHR HOUSING INVESTORS 1981-1, L.P. (1%-NV)(CHICAGO, IL)
--BLUNT, ELLIS & LOEWI, INC. (NEVER ACTIVE) (CHICAGO, IL)
--BNY CLEARING SERVICES LLC (20%) (MILWAUKEE, WI)
--BOETTCHER & COMPANY, INC. (NEVER ACTIVE) (CHICAGO, IL)
--BPL HOLDINGS, INC. (CHICAGO, IL)
---BOETTCHER PROPERTIES, LTD. (CHICAGO, IL)
----THE BOETTCHER 1981-2 DRILLING PROGRAM, LTD. (11%-NV) (CHICAGO, IL)
--GATEWAY MORTGAGE ACCEPTANCE CORPORATION (CHICAGO, IL)
--FIRST UNION SECURITIES, INC. (CHARLOTTE, NC)
---CIIT HOLDINGS, LLC (NV) (CHARLOTTE, NC)
---MICROINVESTORS, LLC (20%-NV) (CHARLOTTE, NC)
---TRG HOLDINGS, LLC (24.99%-NV) (CHARLOTTE, NC)
----TECH RESOURCES GROUP, INC. (22%) (RALEIGH, NC)
---WHEAT FIRST BUTCHER SINGER PRIVATE EQUITY FUND, LIMITED PARTNERSHIP
(1%-NV)(RICHMOND, VA)
--ESI INSURANCE AGENCY, INC. OF OKLAHOMA (0%*) (TULSA, OK)
1
<PAGE>
--ESI INSURANCE AGENCY, INC. OF TEXAS (0%*) (HOUSTON, TX)
--KSI INSURANCE AGENCY, INC. OF OHIO (0%*) (CHICAGO, IL)
--LOVETT UNDERWOOD NEUHAUS & WEBB, INC. (NEVER ACTIVE) (CHICAGO, IL)
--MENTOR INVESTMENT GROUP, LLC (45%) (RICHMOND, VA (12)
--PFS GENERAL AGENCY, INC. (0%*) (PHOENIX, AZ)
--PFS GENERAL AGENCY OF TEXAS, INC. (0%*) (DALLAS, TX)
--PFS GENERAL INSURANCE AGENCY, INC. OF NEW MEXICO (0%*) (SANTA FE, NM)
--PRESCOTT, BALL & TURBEN, INC. (NEVER ACTIVE) (CHICAGO, IL)
--PRESCOTT REALTY SERVICES, INC. (INACTIVE) (CHICAGO, IL)
-MENTOR INVESTMENT ADVISORS, LLC (RICHMOND, VA)(1%) (14)
-MENTOR INVESTMENT GROUP, LLC (55%) (RICHMOND, VA) (12)
--MENTOR INVESTMENT ADVISORS, LLC (RICHMOND, VA) (99%) (14)
--MENTOR PERPETUAL ADVISORS, LLC (50%) (RICHMOND, VA)
--MENTOR SERVICES COMPANY, LLC (RICHMOND, VA)
FAIRFIELD PROPERTIES, INC. (STAMFORD, CT)
FCC-PR, INC. (3) (PHILADELPHIA, PA)
FIDELCOR BUSINESS CREDIT CORPORATION (NEW YORK, NY)
-COMWEST CAPITAL CORPORATION (3) (LOS ANGELES, CA)
FIRST AMERICAN SERVICE CORPORATION (ROANOKE, VA)
-LONG, TRAVERS & FASC (40%-NV) (SPRINGFIELD, VA)
-NEW RIVERS TOWERS LIMITED PARTNERSHIP (NV) (INACTIVE) (ANNANDALE, VA)
-WOODLAWN JOINT VENTURE (INACTIVE) (40%-NV) (15) (WOODBRIDGE, VA)
FIRST CLEARING CORPORATION (GLEN ALLEN, VA)
FIRST UNION BANK OF DELAWARE (WILMINGTON, DE)
-DELAWARE TRUST CAPITAL MANAGEMENT, INC. (WILMINGTON, DE)
--GRIFFIN CORPORATE SERVICES, INC. (WILMINGTON, DE)
-FIRST FIDELITY INSURANCE SERVICES OF DELAWARE, INC. (WILMINGTON, DE)
--BUTCHER & SINGER FINANCIAL SERVICES AGENCY OF OHIO, INC. (YOUNGSTOWN, OHIO)
--ESI INSURANCE AGENCY, INC. OF COLORADO (DENVER, CO)
--ESI INSURANCE AGENCY, INC. OF HAWAII (HONOLULU, HI)
--ESI INSURANCE AGENCY OF NEVADA (LAS VEGAS, NV)
--ESI INSURANCE AGENCY, INC. OF UTAH (SALT LAKE CITY, UT)
--ESI INSURANCE AGENCY, INC. OF WYOMING (CHICAGO, IL)
--ESI (MA) INSURANCE AGENCY, INC. (HYANNIS, MA)
--TAYLOR & CLARK INSURANCE SERVICES, INCORPORATED (FAIRFAX, VA)
--WHEAT INSURANCE SERVICES, INC. (RICHMOND, VA)
---WHEAT INSURANCE SERVICES OF ALABAMA, INC. (RICHMOND, VA)
---WHEAT INSURANCE AGENCY OF MASSACHUSETTS, INC. (BOSTON, MA)
FIRST UNION CAPITAL I (WILMINGTON, DE)
FIRST UNION CAPITAL II (WILMINGTON, DE) (NEVER ACTIVE)
FIRST UNION CAPITAL III (WILMINGTON, DE) (NEVER ACTIVE)
FIRST UNION COMMERCIAL CORPORATION (0.9696%) (9) (CHARLOTTE, NC)
FIRST UNION COMMUNITY DEVELOPMENT CORPORATION (CHARLOTTE, NC)
-CIMARRON ESTATES, LTD. (99.99%-NV) (AUSTIN, TX)
-CRESTMORE VILLAGE APARTMENTS LIMITED PARTNERSHIP (99.99%-NV)(LAS VEGAS, NV)
-HEADHOUSE RETAIL ASSOCIATES, L.P. (99.99%-NV) (PHILADELPHIA, PA)
2
<PAGE>
-HOUSING EQUITY FUND OF VIRGINIA I, L.P. (6.945%-NV) (RICHMOND, VA)
-PARKCHESTER LIMITED PARTNERSHIP (99%-NV) (ROANOKE, VA)
-RIHC PARTNERS, L.P. (99.99%-NV) (RESTON, VA)
-ROANOKE COMMUNITY DEVELOPMENT CORPORATION (27.778%) (INACTIVE) (ROANOKE, VA) (6)
FIRST UNION DEVELOPMENT CORPORATION (CHARLOTTE, NC)
-343 SOUTH DEARBORN II, LLC (99.99%-NV) (PALATINE, IL)
-425 SOUTH TRYON STREET, LLC (CHARLOTTE, NC)
-1024 DODGE STREET LIMITED PARTNERSHIP (99.99%-NV) (OMAHA, NE)
-APPOMATTOX GOVERNOR'S SCHOOL L.L.C. (99.99%-NV) (RICHMOND, VA)
-BLACK DIAMONDS LLC (99.99%-NV) (NEW YORK, NY)
-FIRST UNION FREMONT, LLC (CHARLOTTE, NC)
--CAMPUS 1000 FREMONT, LLC (45%) (LOS ANGELES, CA)
-FU/WD ATLANTA, LLC (CHARLOTTE, NC)
-FU/WD OPA LOCKA, LLC (CHARLOTTE, NC)
-HANOVER/FUDC MASTER LIMITED PARTNERSHIP (80%) (HOUSTON, TX)
--LODGE AT WARNER RANCH, LP (HOUSTON, TX)
--VILLAGES AT WARNER RANCH PUD, LP (HOUSTON, TX)
-LAKE STREET LOFTS, L.L.C. ((99%-NV) (CHICAGO, IL)
-LODGE AT SHAVANO PARK, LP (HOUSTON, TX) (57%)
-MOUNTAIN VENTURES, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ATLANTA HAMPTON GREEN I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ATLANTA NORTHBROOK I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ATLANTA NORTHMEADOW, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ATLANTA SUGARLOAF I, LLC CHARLOTTE, NC)
--MOUNTAIN VENTURES CLEVELAND PARK 82 I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES COLUMBUS GROVEPORT I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES INDIANAPOLIS LEBANON I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES INDIANAPOLIS PLAINFIELD I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES INDIANAPOLIS WOODLAND CORPORATE I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES MINNEAPOLIS APOLLO II, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES MINNEAPOLIS CROSSTOWN I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES MINNEAPOLIS NORMAN CENTER I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES NASHVILLE METROCENTER I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ORLANDO CELEBRATION I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES RALEIGH SUMMIT I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ST. LOUIS MARYVILLE I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES ST. LOUIS RIVERPORT I, LLC (CHARLOTTE, NC)
--MOUNTAIN VENTURES TAMPA FAIRFIELD I, LLC (CHARLOTTE, NC)
-OILWELL SUPPLY, L.P. (99.90%-NV) (DALLAS, TX)
-ROCKETTS VIEW L.P. (99.99%-NV) (RICHMOND, VA)
-THE FIRST SERVICE CORPORATION OF SOUTH CAROLINA (GREENVILLE, SC)
--ARROWWOOD ASSOCIATES (50%) (COLUMBIA, SC)
-TRIBUNE TOWER INVESTORS, L.P. (99.99%-NV) (OAKLAND, CA)
-UF-RALEIGH LLC (50%) (CHARLOTTE, NC)
-WILLOWS, LLC (70%-NV) (NASHVILLE, TN)
FIRST UNION EXPORT TRADING COMPANY (INACTIVE) (CHARLOTTE, NC)
FIRST UNION FPS, INC. (CHARLOTTE, NC)
-FIRST UNION PRIVATE EQUITY FUND, L.P. (1%-NV**) (CHARLOTTE, NC) (16)
-FIRST UNION PRIVATE EQUITY FUND II, L. P. (1%-NV**) (CHARLOTTE, NC)
-FIRST UNION PRIVATE INVESTMENT FUNDS HEDGED EQUITIES SUPER ACCREDITED, L. P. (0.89%-NV**)
(CHARLOTTE, NC) (17)
-FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY ACCREDITED, L. P. (2.14%-NV**) (CHARLOTTE, NC) (18)
-FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY SUPER ACCREDITED, L. P. (0.93%-NV**)
(CHARLOTTE, NC) (19)
-ULQ, LP (0.81%-NV**) (CHARLOTTE, NC)
FIRST UNION FUTURES CORPORATION (CHARLOTTE, NC)
FIRST UNION HOME EQUITY BANK, N. A. (CHARLOTTE, NC)
3
<PAGE>
FIRST UNION INSTITUTIONAL CAPITAL I (WILMINGTON, DE)
FIRST UNION INSTITUTIONAL CAPITAL II (WILMINGTON, DE)
FIRST UNION INSTITUTIONAL DEBT MANAGEMENT, INC. (CHARLOTTE, NC)
FIRST UNION INVESTORS, INC. (CHARLOTTE, NC)
-ARCAP INVESTORS, L.L.C. (5%-V; 6%-NV) (DALLAS, TX)
-ARENA CAPITAL INVESTMENT FUND, L.P. (4.99%-V; .6749%-NV) (NEW YORK, NY)
-ARLINGTON CAPITAL PARTNERS, L.P. (4.99%-V; 1.43%-NV) (WASHINGTON, DC)
-ATLANTIC VENTURE PARTNERS II, L.P. (5.44%-NV) (ROANOKE, VA)
-BCI GROWTH V, L.P. (6.96%-NV) (TEANECK, NJ)
-BLACK ENTERPRISE/GREENWICH STREET CORPORATE GROWTH PARTNERS, L.P. (5.79%: 5%-V, .79%-NV) (NEW YORK, NY)
-BLUE WATER VENTURE FUND II, LLC (5%-V; 5%-NV) (MCLEAN, VA)
-BROADVIEW CAPITAL PARTNERS, L.P. (5%-V; 11.21%-NV) (FOSTER CITY, CA)
-BRYNWOOD PARTNERS I, L. P. (7.14%-NV) (GREENWICH, CT)
-BRYNWOOD PARTNERS IV, L. P. (4.99%-V; 4.90%-NV) (GREENWICH, CT)
-CANAAN VENTURES II L. P. (19.60%-NV) (ROWAYTON, CT)
-CAPITAL ACROSS AMERICA (8.06%-NV) (NASHVILLE, TN)
-CARLYLE HIGH YIELD PARTNERS, L.P. (4.99%-V; 1.11%-NV) (WASHINGTON, DC)
-CATALYST EQUITY FUND, L.P. (20.36%-NV) (CHICAGO, IL)
-CAROUSEL CAPITAL PARTNERS, L. P. (15.3374%-NV) (CHARLOTTE, NC)
-CENTURY CAPITAL PARTNERS II, L.P. (6.1%-NV) (BOSTON, MA)
-CHARTWELL CAPITAL INVESTORS, L. P. (16.03%-NV) (JACKSONVILLE, FL)
-CHARTWELL INVESTMENTS II, L.P. (19.4%: 5%-V, 14.4%-NV) (NEW YORK, NY)
-CHISHOLM PARTNERS III, L. P. (11.06%-NV) (PROVIDENCE, RI)
-COLEMAN SWENSON HOFFMAN & BOOTH IV, LP (6.71%-NV) (FRANKLIN, TN)
-COMMONWEALTH INVESTORS II, L. P. (5.59%-NV) (RICHMOND, VA)
-CREST COMMUNICATION PARTNERS, L.P. (13.60%-NV) (NEW YORK, NY)
-DELITE OUTDOOR ADVERTISING, LLC (1.30%-V; 5.90%-NV) (EAGAN, MN)
-DEMUTH, FOLGER & WETHERILL II, L. P. (7.5%-NV) (TEANECK, NJ)
-DIMAC CORPORATION (5%-V; 0.60%-NV) (ATLANTA, GA)
-DJ ORTHOPEDICS, LLC (8.20-V; 0.80%-NV) (VISTA, CA)
-EDISON VENTURE FUND IV, L.P. (15.2%-NV) (LAWRENCEVILLE, NJ)
-ENERVEST ENERGY, L.P. (9.90%-NV) (HOUSTON, TX)
-EUREKA I, L.P. (4.99%-V; 1.61%-NV) (BALA CYNWYD, PA)
-FIRST UNION PRIVATE EQUITY FUND, L. P. (3.9%-NV) (CHARLOTTE, NC) (16)
-FIRST UNION PRIVATE INVESTMENT FUNDS HEDGED EQUITIES SUPER ACCREDITED, L. P. (11.20%-NV)
(CHARLOTTE, NC) (17)
-FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY ACCREDITED, L.P. (16.29%-NV) (CHARLOTTE, NC) (18)
-FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY SUPER ACCREDITED, L. P. (11.23%-NV)
(CHARLOTTE, NC) (19)
-GLOBAL PRIVATE EQUITY III L.P. (5.18%-NV) (BOSTON, MA)
-GREENWICH STREET CAPITAL PARTNERS II, L.P. (5.1%-NV) (NEW YORK, NY)
-HARBINGER/AURORA QP VENTURE FUND, LLC (4.99%-V; 7.43%-NV) (BIRMINGHAM, AL)
-HIGH RIDGE CAPITAL, LLC (24.99%-NV) (STAMFORD, CT)
-HOB ENTERTAINMENT, INC. (1.30%-V; 4.60%-NV) (HOLLYWOOD, CA)
-HOUSTON VENTURE PARTNERS, LTD. (5.69%-NV) (HOUSTON, TX)
-HRC GENERAL PARTNERS LIMITED PARTNERSHIP (15%-NV) (STAMFORD, CT)
-KNIGHTSBRIDGE CAPITAL FUND I, L. P. (10.76%-NV) (NEW YORK, NY)
-LEEDS EQUITY PARTNERS, L.P. (4.99%-V; 4.18%-NV) (NEW YORK, NY)
-LONGLEAF VENTURE FUND, LLC (4.99%-V;11.7276%-NV) (RESEARCH TRIANGLE PARK, NC)
-MARATHON FUND LIMITED PARTNERSHIP IV, L.P. (9.97%-NV)(MINNEAPOLIS, MN)
-MIDMARK EQUITY PARTNERS II, L.P. (4.99%-V; 4.94%-NV) (CHATHAM, NJ)
-MCCOWN DE LEEUW & CO. IV, L.P. (7.1182%-NV) (MENLO PARK, CA)
-MD SASS CORPORATE RESURGENCE PARTNERS, L. P. (8.00%-NV) (NEW YORK, NY)
-MEDIA/COMMUNICATIONS PARTNERS II, L.P. (5.71%-NV) (BOSTON, MA)
-NAVIANT TECHNOLOGY SOLUTIONS, INC. (1.80%-V; 10.70%-NV) (NEWTOWN SQUARE, PA)
-NORTH CAROLINA BIOSCIENCE INVESTMENT FUND, LLC (4.90%-V; 4.95%-NV) (DURHAM, NC)
-PACIFIC VENTURE GROUP, L. P. (5.24%-NV) (IRVINE, CA)
-PACIFIC VENTURE GROUP II, L. P. (8.4%-NV) (IRVINE, CA)
-PEGASUS PARTNERS II, L.P. (4.99%-V; 4.2979%-NV) (COS COB, CT)
-PHILLIPS-SMITH SPECIALTY RETAIL GROUP III, L. P. (7.14%-NV) (DALLAS, TX)
-RADNOR VENTURE PARTNERS, L. P. (7.39%-NV) (WAYNE, PA) (4)
4
<PAGE>
-RFE CAPITAL PARTNERS, L.P. (6.67%-NV) (NEW CANAAN, CT) (5)
-SHAWMUT EQUITY PARTNERS, L. P. (9.27%-NV) (BOSTON, MA)
-SIMONDS INDUSTRIES, INC. (4.4%-V; 9.9%-NV) (FITCHBURG, MA)
-SKM EQUITY FUND III, L. P. (4.99%-V; 1.97%-NV) (STAMFORD, CT)
-SPECIAL VALUE BOND FUND, LLC (4.99%-V; 4.27%-NV) (LOS ANGELES, CA)
-TDH II LIMITED (5.72%-NV) (ROSEMONT, PA)
-TECHAMP INTERNATIONAL, L.P. (4.99%-V; 4.73%-NV) (DURHAM, NC)
-TRANSTAR METALS, LLC (6.80%-V; 7.93%-NV (NEW ORLEANS, LA)
-TRITON CELLULAR PARTNERS, LP (4.9%-V; 3.9%-NV) (MALVERN, PA)
-TRIVEST FURNITURE PARTNERS, LTD. (WINSLOWE) (4.99%-V; 2.71%-NV) (MIAMI, FL)
-VIRGINIA BASEBALL CLUB, L.P. (9.25%-NV) (ALEXANDRIA, VA)
-VS&A COMMUNICATIONS PARTNERS III, L.P. (6.48%-NV) (NEW YORK, NY)
-WIND POINT PARTNERS IV, L.P. (4.99%-V; 0.7243%-NV) (SOUTHPOINT, MI)
FIRST UNION LIFE INSURANCE COMPANY (CHARLOTTE, NC)
FIRST UNION MORTGAGE CORPORATION (CHARLOTTE, NC)
-ARGO PARTNERSHIP, L. P. (8%-NV) (NEW YORK, NY)
-FARMINGTON, INCORPORATED (CHARLOTTE, NC)
--GHENT-FARMINGTON ASSOCIATES (50%) (NORFOLK, VA)
-FIRST UNION TITLE CORPORATION (ATLANTA, GA)
-R.B.C. CORPORATION (CHARLOTTE, NC)
-SLATE STONE HILLS, INCORPORATED (CHARLOTTE, NC)
-THE FAIRFAX CORPORATION (CHARLOTTE, NC)
--INTERCHANGE PARTNERS (50%-NV) (CHARLOTTE, NC)
--REAL ESTATE CONSULTANTS OF THE SOUTH, INC. (CHARLOTTE, NC)
-WATER STREET INSURANCE AGENCY, INC. (JACKSONVILLE, FL)
FIRST UNION NATIONAL BANK (CHARLOTTE, NC)
-349-59 LENOX LLC (99.99%-NV) (MOUNT VERNON, NY)
-ACB SERVICES, INC. (INACTIVE) (NASHVILLE, TN)
-ANDALUSIA SENIOR HOUSING, L. P. (99%-NV) (LEVITTOWN, PA)
-ARBOR GLENN L.P. (99%-NV) (ROANOKE, VA)
-ARBOR VILLAGE, L.P. (99%-NV) (WINTER PARK, FL)
-ASHTON OF RICHMOND HILL, L. P. (99%-NV) (GAINESVILLE, FL)
-BACON HOUSING, L.P. (99%-NV) (RICHMOND, VA)
-BARRETT PLACE LIMITED PARTNERSHIP (99%-NV) (WAKE FOREST, NC)
-BARRETT PLACE II LIMITED PARTNERSHIP (99.99%-NV) (RALEIGH, NC)
-BART, INC. (JACKSONVILLE, FL)
-BEAUMONT AVENUE APARTMENTS, L. P. (99%-NV) (NEW YORK, NY)
-BEECHRIDGE LIMITED PARTNERSHIP (99%-NV) (RALEIGH, NC)
-BGMCO PA, INC. (3) (PHILADELPHIA, PA)
-BOB TITLE HOLDINGS, INC. (3) (BALTIMORE, MD)
--BOB TITLE XXX, INC. (3) (BALTIMORE ,MD)
-BOWLER HOUSING L.P. (99%-NV) (RICHMOND, VA)
-BR LIMITED PARTNERSHIP (99%-NV) (WASHINGTON, DC)
-BUILDERS ACCEPTANCE CORPORATION (RALEIGH, NC)
-BUSINESS DEVELOPMENT CORPORATION OF SOUTH CAROLINA (8.7%) (COLUMBIA, SC)
-CALLOWHILL CONSUMER DISCOUNT COMPANY (INACTIVE) (READING, PA)
-CAMELLIA COURT APARTMENTS LIMITED PARTNERSHIP (99.99%-NV) (BEAUFORT, NC)
-CENTER CREDIT CORPORATION (WATERBURY, CT)
-CENTER FUNDING COMPANY (WATERBURY, CT)
-CFF FINANCIAL CORPORATION (ROANOKE, VA)
-CITY AFFORDABLE HOUSING LLC (99.99%-NV) (CHARLOTTE, NC)
-CONGRESS FINANCIAL CORPORATION (NEW YORK, NY)
--CONGRESS CREDIT CORPORATION (HATO REY, PUERTO RICO)
--CONGRESS FINANCIAL CORP. (SOUTHWEST) (DALLAS, TX)
--CONGRESS FINANCIAL CORPORATION (CENTRAL) (CHICAGO, IL)
--CONGRESS FINANCIAL CORPORATION (FLORIDA) (MIAMI, FL)
--CONGRESS FINANCIAL CORPORATION (NEW ENGLAND) (BOSTON, MA)
--CONGRESS FINANCIAL CORPORATION (NORTHWEST) (PORTLAND, OR)
5
<PAGE>
--CONGRESS FINANCIAL CORPORATION (SOUTHERN) (ATLANTA, GA)
--CONGRESS FINANCIAL CORPORATION (WESTERN) (PASADENA, CA)
---LAUNDRY, INC. (INACTIVE) (PASADENA, CA)
--CONGRESS FINANCIAL INVESTMENT CORP. (WILMINGTON, DE)
-CORESTATES CAPITAL I (PHILADELPHIA, PA)
-CORESTATES CAPITAL II (PHILADELPHIA, PA)
-CORESTATES CAPITAL III (PHILADELPHIA, PA)
-CORESTATES DEALER SERVICES CORP. (HORSHAM, PA)
-CRANFORD AVENUE APARTMENTS, L.P. (99%-NV) (NEW YORK, NY)
-CT I LIMITED PARTNERSHIP (99%-NV) (RALEIGH, NC)
-CTB REALTY VENTURES XXI, INC. (3) (NEW HAVEN, CT)
-DANVILLE COMMUNITY DEVELOPMENT CORPORATION (13%) ((DANVILLE, VA)
-DF SOUTHEASTERN MORTGAGE, INC. (ATLANTA, GA)
-EVERGREEN INVESTMENT COMPANY, INC. (CHARLOTTE, NC)
--EVERGREEN INVESTMENT MANAGEMENT COMPANY (BOSTON, MA)
---EVERGREEN ASSET MANAGEMENT CORP. (CHARLOTTE, NC)
---EVERGREEN INVESTMENT SERVICES, INC. (CHARLOTTE, NC)
---EVERGREEN SERVICE COMPANY (BOSTON, MA)
---LIEBER I CORP. (CHARLOTTE, NC)
---LIEBER & COMPANY (99%-NV) (PURCHASE, NY)
---LIEBER II CORP. (CHARLOTTE, NC)
---LIEBER & COMPANY (1%-NV) (PURCHASE, NY)
---POLARIS INTERNATIONAL SECURITIES INVESTMENT TRUST CO., LTD. (13.5%)(TAIPEI, TAIWAN)
-EQUITABLE REALTY ASSOCIATES, L. P. (99%-NV) (YONKERS, NY)
-FAIRFAX COUNTY REDEVELOPMENT AND HOUSING AUTHORITY/HCDC ONE L.P. (99%-NV) (FAIRFAX, VA)
-FFBIC, INC. (NEWARK, DE)
-FFBIC NEW YORK, INC. (SPRING VALLEY, NY)
-FFBIC NEW YORK II, INC. (SPRING VALLEY, NY)
-FFL SERVICES CORPORATION (NEWARK, NJ)
-FIFTH AND MARKET CORPORATION (PHILADELPHIA, PA)
-FINANCIAL WORLD FUNDING CORP. (CHARLOTTE, NC)
-FIRST FIDELITY BUILDING CORPORATION (PHILADELPHIA, PA)
-FIRST FIDELITY INSURANCE SERVICES, INC. (NEWARK, NJ)
-FIRST FIDELITY INTERNATIONAL BANK (CHARLOTTE, NC)
--FIRST INTERNATIONAL ADVISORS, LTD. (LONDON, ENGLAND)
--FIRST UNION I, INC. (ST. THOMAS, US VIRGIN ISLANDS)
--MATTHEW INTERNATIONAL SALES, INC. (ST. THOMAS, US VIRGIN ISLANDS)
-FIRST FIDELITY URBAN INVESTMENT CORPORATION (NEWARK, NJ)
--ALLENTOWN DEVELOPMENT COMPANY, INC. (24%) (TRENTON, NJ)
-FIRST PENCO REALTY, INC. (PHILADELPHIA, PA)
-FIRST UNION AFFORDABLE HOUSING COMMUNITY DEVELOPMENT CORPORATION (CHARLOTTE, NC)
--2-4 POTTER PLACE URBAN RENEWAL, L.P. (99%-NV) (WEEHAWKEN, NJ)
--110 MONASTERY ASSOCIATES, LIMITED PARTNERSHIP (99.99%-NV)( BRAINTREE, MA)
--1700 ASSOCIATES (89%-NV) (PLYMOUTH MEETING, PA)
--3716 THIRD AVENUE LLC (99.99%-NV) (LARCHMONT, NY)
--ANACUITAS MANOR, LTD. (99%-NV) (AUSTIN, TX)
--ANNVILLE HOUSING LIMITED PARTNERSHIP (99.99%-NV) (LEBANON, PA)
--ANTIOCH SENIOR HOUSING LIMITED PARTNERSHIP (99.99%-NV) (HEMPSTEAD, NY)
--ASHTON LANDING, L.P. (99.99%-NV) (VALDOSTA, GA)
--ASHTON POINTE, LLLP (99%-NV) (VALDOSTA, GA)
--ATHENS RENTAL HOUSING, L.P. (99%-NV) (CORDELE, GA)
--BEECHRIDGE II, LLC (99.99%-NV) (RALEIGH, NC)
--BENSALEM SENIOR APARTMENTS, L.P. (99.99%-NV) (LAFAYETTE HILL, PA)
--BLANTON GREEN ASSOCIATES LIMITED PARTNERSHIP (96%-NV) (FAYETTEVILLE, NC)
--BRITTANY ASSOCIATES, LTD. (99.99%-NV) (FORT MYERS, FL)
--BULL RUN CREEK ASSOCIATES, LLC (99.99%-NV) (NASHVILLE, TN)
--CAPITAL.COM, INC. (14.99%) (BETHESDA, MD)
--CANNON/HEARTHWOOD LIMITED PARTNERSHIP (99%-NV) (CULPEPER, VA)
--CANTON MILL, LLC (99%-NV) (ATLANTA, GA)
--CANTEBURY OF HILLIARD, LTD. (99%-NV) (GAINESVILLE, FL)
--CEDAR FOREST LIMITED PARTNERSHIP (95%-NV) (BOSTON, MA)
--CHAMBERS BRIDGE URBAN RENEWAL HOUSING, L. P. (99%-NV) (YARDVILLE, NJ)
--CHEROKEE HILLS ASSOCIATES LLC (99%-NV) (NASHVILLE, TN)
--CHURCH STREET SENIOR HOUSING, L. P. (99.99%-NV) (KEANSBURG, NJ)
6
<PAGE>
--COLUMBIA GARDENS, L. P. (99.99%-NV) (ATLANTA, GA)
--COLUMBIA VILLAGE, L.P. (99.99%-NV) (ATLANTA, GA)
--CREATIVE CHOICE HOMES IX, LTD. (99%-NV) (PALM BEACH GARDENS, FL)
--CREATIVE CHOICE HOMES X, LTD. (99%-NV) (PALM BEACH GARDENS, FL)
--CREEKSIDE AT BELLEMEADE LIMITED PARTNERSHIP (99.99%-NV) (PANAMA CITY, FL)
--CROSSWINDS GREEN ASSOCIATES LIMITED PARTNERSHIP (99.99%-NV) (FAYETTEVILLE, NC)
--DAVENPORT ALLEY, L.P. (99.98%-NV) (RICHMOND, VA)
--ELLENTON HOUSING ASSOCIATES, LTD. (99%-NV) (CORAL GABLES, FL)
--ELM LAKE APARTMENTS, LTD. (99%-NV) (BRADENTON, FL)
--EVERGREEN APARTMENTS, L.P. (99.99%-NV) (CORDELE, GA)
--FAIRBROOKE APARTMENTS LIMITED PARTNERSHIP (99%-NV) (BALTIMORE, MD)
--FAIRFAX COUNTY REDEVELOPMENT AND HOUSING AUTHORITY/HCDC TWO L.P. (99%-NV) (FAIRFAX, VA)
--FLORAL OAKS APARTMENTS, LTD. ( 99%-NV)(GAINESVILLE, FL)
--FOUNTAIN PLACE ASSOCIATES LIMITED PARTNERSHIP (99%-NV) (ANNAPOLIS, MD)
--FRANKLIN RIDGE, LLC (99.99%-NV) (RALEIGH, NC)
--GENESIS GARDENS, L.P. (99.99%-NV) (PALMETTO, GA)
--GLENBURN ASSOCIATES LIMITED PARTNERSHIP (99.99%-NV) (ANNAPOLIS, MD)
--GOLD RUSH I APARTMENTS LIMITED PARTNERSHIP (99%-NV) (PHOENIX, AZ)
--GOLD RUSH II APARTMENTS LIMITED PARTNERSHIP (99%-NV) (PHOENIX, AZ)
--GREEN GABLES APARTMENTS, LTD. (99%-NV) (GAINESVILLE, FL)
--GREENLEAF VILLAGE OF GROVELAND, LTD. (89%-NV) (GAINESVILLE, FL)
--GREYSTONE OF MCDONOUGH L.P. (99.99%) (DOUGLAS, GA)
--HAVERHILL AFFORDABLE HOUSING, LTD. (99.99%-NV) (ORLANDO, FL)
--HEATHERWOOD APARTMENTS LIMITED PARTNERSHIP (99%-NV) (COLUMBIA, SC)
--HICKORY HOLLOW SENIOR APARTMENTS LIMITED PARTNERSHIP (99.90%-NV) (ALTAMONTE SPRINGS, FL)
--HOMES FOR FREDERICKSBURG LIMITED PARTNERSHIP (99%-NV) (STERLING, VA)
--HUB BUILDING LIMITED PARTNERSHIP (99.9%-NV) (CHICAGO, IL)
--HUNTINGTON PARK APARTMENTS LIMITED PARTNERSHIP (99.90%-NV) (ALTAMONTE SPRINGS, FL)
--INDIAN RUN LIMITED PARTNERSHIP (86%-NV) (BOSTON, MA)
--JACKSONVILLE AFFORDABLE HOUSING, LTD. (98%-NV) (PANAMA CITY, FL)
--KENSINGTON OF KISSIMMEE, LTD. (99.99%-NV) (GAINESVILLE, FL)
--KINDER MORGAN, INC. (5.60%) (HOUSTON, TX)
--KNOX HOMES, L. P. (99.99%-NV) (BROOKLYN, NY)
--L & M HOE ASSOCIATES LLC (99.99%-NV) (LARCHMONT, NY)
--LAKE WESTON APARTMENTS (ORLANDO) LIMITED PARTNERSHIP (99.99%-NV) (ALTAMONTE SPRINGS, FL)
--LOEWEN DEVELOPMENT OF WAPPINGERS FALLS, L.P. (99.99%-NV) (NEW ROCHELLE, NY)
--MAGNOLIA WALK APARTMENTS, LTD. (99%-NV) (OCALA, FL)
--MEADOW RIDGE SENIOR APARTMENTS LIMITED PARTNERSHIP (99.99%-NV)(ALTAMONTE SPRINGS, FL)
--MEREDIAN POINT SENIOR APARTMENTS LIMITED PARTNERSHIP (99.90%-NV) (UNIONTOWN, PA)
--MONTGOMERY HOMES L. P. IX (99%-NV) (KENSINGTON, MD)
--MONTGOMERY HOMES LIMITED PARTNERSHIP X (99%-NV) (KENSINGTON, MD)
--MONARCH PLACE APTS. LP (99%-NV) (COLUMBIA, SC)
--MORAVIAN HOUSE III, LP (99.99%-NV) (BETHLEHEM, PA)
--OAK CREST APARTMENTS OF KANNAPOLIS, LTD. (99%-NV) (PANAMA CITY, FL)
--ODC SELBORNE HOUSE LIMITED PARTNERSHIP (99.99%-NV) (ELLICOTT CITY, MD)
--OLDBRIDGE URBAN RENEWAL, L.P. (99%-NV) (CHERRY HILL, NJ)
--ONE PLEASANT GREEN PLACE, LTD. (99.90%-NV) (AUSTIN, TX)
--ONE SOUTH PLACE, L.P. (99%-NV) (KNOXVILLE, TN)
--PACIFIC PARK, L.P. (99.99%-NV) (FORT VALLEY, GA)
--PARKVIEW HEIGHTS, L.P. (99.99%-NV) (ATLANTA, GA)
--PENDLETON PINES ASSOCIATES, LLC (99%-NV) (NASHVILLE, TN)
--PEPPERMILL PARTNERS, L. P. (99%-NV) (ATLANTA, GA)
--RAILROAD Y L.P. (99.98%-NV)(RICHMOND, VA)
--RELATED CLUB WEST HOUSING ASSOCIATES, LTD. (99.50%-NV) (MIAMI, FL)
--RESERVOIR HILL LIMITED PARTNERSHIP (99.99%-NV) (BALTIMORE, MD)
--RESERVOIR HILL LIMITED PARTNERSHIP XI (99%-NV) (BALTIMORE, MD)
--RESERVOIR HILL LIMITED PARTNERSHIP IX (99%-NV) (BALTIMORE, MD)
--RICHMOND GREEN LIMITED PARTNERSHIP (99.99%-NV) (NASHVILLE, TN)
--RIDGETOP REALTY ASSOCIATES LLC (99%-NV) (NASHVILLE, TN)
--ROANOKE HIGHER EDUCATION ASSOCIATES, L. P. (99.98%-NV) (ROANOKE, VA)
--ROBINS LANDING, L. P. (99.99%-NV)(ALTAMONTE SPRINGS, FL)
--ROME RENTAL HOUSING, L. P. (99%-NV) (CORDELE, GA)
--ROSEMONT MANOR LTD. (99%-NV) (GAINESVILLE, FL)
--SABLE POINT APARTMENTS LIMITED PARTNERSHIP (99%-NV) (ALTAMONTE SPRINGS, FL)
7
<PAGE>
--SABLE POINT II APARTMENTS LIMITED PARTNERSHIP (99%-NV) (MARTINSBURG, WV)
--SAN BENITO HOUSING, LTD. (99%-NV) (ALTAMONTE SPRINGS, FL)
--SANDLEWOOD TERRACE OF LUDOWICI L.P. (99%-NV) (GAINESVILLE, FL)
--SARANOR APARTMENTS LIMITED PARTNERSHIP (99.99%-NV) (MILFORD, CT)
--S.H.E. URBAN RENEWAL ASSOCIATES, L. P. (99%-NV) (NEWARK, NJ)
--SHENANDOAH STATION, L.P. (99.99%-NV) (RICHMOND, VA)
--SK 55 WALL LLC (99.99%-NV) (NEW YORK, NY)
--SOUTHSIDE PLAZA 455 LTD., L.L.P. (99.99%-NV) (LEWISVILLE, TX)
--SPRING GATE MANOR LIMITED (99%-NV) (GAINESVILLE, FL)
--ST. CHARLES PLACE, L. P. (99.99%-NV)(FORT VALLEY, GA)
--STEEPLECHASE APARTMENTS, LTD. (99%-NV) (GAINESVILLE, FL)
--STEEPLECHASE APARTMENTS II, LTD. (99%-NV) (GAINSVILLE, FL)
--STONECREEK APARTMENTS OF MOORESVILLE, LTD. (99%-NV) (PANAMA CITY, FL)
--STONEYBROOKE HEIGHTS ASSOCIATES LLC (99.99%-NV) (NASHVILLE, TN)
--STUDEBAKER LIMITED PARTNERSHIP (99.99%-NV) (BROOKLYN, NY)
--SUGAR MILL ASSOCIATES, LTD. (95%-NV) (MIAMI, FL)
--SUNDIAL APARTMENTS, L.P. (99.99%-NV) (CORDELE, GA)
--THE MAPLES LIMITED PARTNERSHIP (99.99%-NV) (DENTON, MD)
--TIMBERLAKE APTS, LP (99.99%-NV) (AYNOR, SC)
--TIMBERLEAF ESTATES LIMITED PARTNERSHIP (99%-NV) (MARTINSBURG, WV)
--TOBACCO ROW PHASE II ASSOCIATES, L.P. (99%-NV) (RICHMOND, VA)
--TWC EIGHTY-FOUR, LTD. (95%-NV) (TAMPA, FL)
--TWC EIGHTY-SEVEN, LTD. (99%-NV) (TAMPA, FL)
--TWC EIGHTY-THREE, LTD. (97%-NV) (TAMPA, FL)
--TWC NINETY-EIGHT, LTD. (99%-NV) (TAMPA, FL)
--TWC NINETY-FIVE, LTD. (99%-NV) (TAMPA, FL)
--TWC NINETY-FOUR, LTD. (98%-NV) (TAMPA, FL)
--TWC NINETY-ONE, LTD. (99%-NV) (TAMPA, FL)
--TWC NINETY-NINE, LTD. (99.99%-NV) (TAMPA, FL)
--TWC NINETY-SEVEN, LTD. (99%-NV) (TAMPA, FL)
--TWC NINETY-TWO, LTD. (99%-NV) (TAMPA, FL)
--TWC SEVENTY-EIGHT, LTD. (99.99%-NV) (TAMPA, FL)
--TWC SEVENTY-THREE, LTD. (99.99%-NV) (TAMPA, FL)
--TWC SEVENTY-TWO, LTD. (99.99%-NV) (TAMPA, FL)
--VCP-SB ASSOCIATES, LTD. (99%-NV) (JACKSONVILLE, FL)
--VESTCOR FUND XIV, LTD. (99.99%-NV) (JACKSONVILLE, FL)
--VESTCOR-WR ASSOCIATES, LTD. (99%-NV) (JACKSONVILLE, FL)
--VILLA BISCAYNE OF SOUTH DADE, LTD. (99%-NV) (PANAMA CITY, FL)
--VIRGINIA CENTER ASSOCIATES, L. P. (99.99%-NV) (MIDLOTHIAN, VA)
--VISTA POINT APARTMENTS LIMITED PARTNERSHIP (99%-NV) (LAS VEGAS, NV)
--WATERFORD MANOR, L. P. (99%-NV) (WINTER PARK, FL)
--WATERFORD MANOR II, L.P. (99%-NV) (ALTAMONTE SPRINGS, FL)
--WEST 152 STREET ASSOCIATES LLC (99.99%-NV) (LARCHMONT, NY)
--WEST BRICKELL APARTMENTS, LTD. (99%-NV) (MIAMI, FL)
--WEST HANOVER URBAN RENEWAL, L.P. (99.99%-NV) (YARDVILLE, NJ)
--WESTVILLE, LTD. (99%-NV) (GAINESVILLE, FL)
--WHITNEY HOTEL LIMITED PARTNERSHIP (99.99%-NV) (METAIRIE, LA)
--WILLIAMS LANDING LIMITED PARTNERSHIP (95%-NV) (BOSTON, MA)
--WILLOW KEY APARTMENTS LIMITED PARTNERSHIP (99.50%-NV) (ALTAMONTE SPRINGS, FL)
--WILLOW RIDGE APARTMENTS OF GREENSBORO LIMITED PARTNERSHIP (99.99%-NV) (PANAMA CITY, FL)
--WILLOW RIDGE ASSOCIATES (99.99%-NV) (LANCASTER, PA)
-FIRST UNION AFFORDABLE HOUSING CORP. (CHARLOTTE, NC)
--AHG TAX CREDIT FUND I, L.L.C. (0.1%) (CHARLOTTE, NC)
---FLAGSHIP PARTNERS, L. P. (99%-NV) (KNOXVILLE, TN)
---SALEM RUN ASSOCIATES, L. P. (99%-NV) (MIDLOTHIAN, VA)
---SALEM RUN II ASSOCIATES, L. P. (99%-NV) (FREDERICKSBURG, VA)
---SALISBURY SENIOR HOUSING LIMITED PARTNERSHIP (99.99%-NV) (ANNAPOLIS, MD)
--AHG TAX CREDIT FUND II, L.L.C. (0.1%) (CHARLOTTE, NC)
----TWC EIGHTY-EIGHT, LTD. (99%-NV) (TAMPA, FL)
-FIRST UNION ATM SOLUTIONS, INC. (CHARLOTTE, NC)
-FIRST UNION AUTO LOAN SECURITIZATION, INC. (CHARLOTTE, NC)
-FIRST UNION BANK AND TRUST COMPANY (CAYMAN) LTD. (GEORGE TOWN, CAYMAN ISLANDS)
-FIRST UNION BANK INTERNATIONAL (PHILADELPHIA, PA)
--PHILADELPHIA INTERNATIONAL FINANCE CO. HONG KONG (VICTORIA, HONG KONG)
8
<PAGE>
---PHILADELPHIA NATIONAL LIMITED (10) (14.30%) (LONDON, ENGLAND)
-FIRST UNION BROKERAGE SERVICES, INC. (CHARLOTTE, NC)
-FIRST UNION CAPITAL PARTNERS, INC. (CHARLOTTE, NC)
--ADVANCED TELCOM GROUP, INC. (7.40%) (LOS ALTOS, CA)
--AMERICAN CELLULAR CORPORATION (6.60%) (PALO ALTO, CA)
--AMERICAN INFORMATION CO., INC. (18%) (SAN FRANCISCO, CA)
--ARCON HEALTHCARE, INC. (6.90%) (NASHVILLE, TN)
--BEACON INDUSTRIAL GROUP LLC (66.30%) (TULSA, OK)
--BLOOMINGTON BROADCASTING ACQUISITION CORP. (27.70%) (BLOOMINGTON, IL)
--CORILLIAN CORPORATION (6%) (BEAVERTON, OR)
--CYBERGENICS HOLDING, INC. (30.9%) (NEW YORK, NY)
--DIGITAL ACCESS, INC. (11%) (BALA CYNWYD, PA)
--DURO COMMUNICATIONS, INC. (8.60%) (CASSELBERRY, FL)
--EBIZ.NET, INC. (9%-V; 10.90%-NV) (MARINA DEL RAY, CA)
--GRAPEVINE BROADCASTING OF ANCHORAGE, LLC (23%) (ANCHORAGE, AK)
--GRAPEVINE BROADCASTING OF AUSTIN, LLC (23%) (AUSTIN, MN)
--GRAPEVINE BROADCASTING OF HUNTSVILLE, LLC (23%) (HUNTSVILLE, AL)
--GRAPEVINE BROADCASTING OF JOPLIN, LLC (23%) (JOPLIN, MO)
--GRAPEVINE BROADCASTING OF SAVANNAH, LLC (23.2%) (SAVANNAH, GA)
--GRAPEVINE BROADCASTING OF WYOMING, LLC (23%) (CASPER, WO)
--HEARTLAND PORK ENTERPRISES, INC. (18.40%) (ALDEN, IO)
--INFLOW, INC. (34.48%) (DENVER, CO)
--INSIGHT TECHNOLOGY PARTNERS, INC. (26.3%)(FT. LAUDERDALE, FL)
--KELMSCOTT COMMUNICATIONS, L.L.C. (18.10%)(SAN RAFAEL, CA)
--LAKELAND HOLDINGS LLC (59.20%) (CHARLOTTESVILLE, VA)
--MEIGHER COMMUNICATIONS, L. P. (12.2%-NV) (NEW YORK, NY)
--METAMOR INFORMATION TECHNOLOGY SERVICES, INC. (27.30%) (HOUSTON, TX)
--METAMOR SOFTWARE SOLUTIONS, INC. (16.50%) (PITTSFORD, NY)
--NEWSOUTH HOLDINGS, INC. (18.30%) (GREENVILLE, SC)
--OUTSOURCING SOLUTIONS, INC. (2.82%-V; 3.49%-NV) (CHESTERFIELD, MO)
--PACKAGING INVESTMENTS, LLC (74.30%) (CHARLOTTE, NC)
--PROMETHEUS LABORATORIES, INC. (15%) (SAN DIEGO, CA)
--QUALITOR, INC. (8.50%) (SMITHFIELD, MI)
--PHYSICIAN PARTNERS, INC. (17.50%) (PORTLAND, OR)
--REIMAN HOLDING COMPANY, LLC (5.4%) (GREENDALE, WI)
--STATE COMMUNICATIONS, INC. (10.10%) (GREENVILLE, SC)
--STERLING NETWORK GROUP, INC. (50.10%) (QUINCY, MA)
--TEXOIL, INC. (5.72%) (HOUSTON, TX)
--TRITON PCS, INC. (6.80%) (MALVERN, PA)
--TSO HOLDING CORP. (8.60%) (BROOKLYN, NY)
--ULTRAPRISE CORPORATION (7.30%) (DULIES, VA)
--UNIVERSAL COMPRESSION HOLDINGS, INC. (8.60%) (NEW ORLEANS, LA)
--US SALT HOLDINGS, LLC (47.5%) (JACKSONVILLE, FL)
-FIRST UNION COMMERCIAL CORPORATION (98.0250%) (9)(CHARLOTTE, NC)
--FIRST UNION COMMERCIAL LEASING GROUP, L.L.C. (1%) (11) (CHARLOTTE, NC)
--FIRST UNION COMMERCIAL SHARED RESOURCES, LLC (CHARLOTTE, NC)
--FIRST UNION INSTITUTIONAL MORTGAGE SERVICES, LLC (CHARLOTTE, NC)
---FIRST UNION/MAHER PARTNERS (50%) (WAYNE, PA)
--FIRST UNION OVERSEAS INVESTMENT CORPORATION (CHARLOTTE, NC)
---BESSO HOLDINGS LIMITED (6.55%) (LONDON, ENGLAND)
---UNION HAMILTON ASSURANCE, LTD. (HAMILTON, BERMUDA)
--FIRST UNION RAIL CORPORATION (CHARLOTTE, NC)
---IRONBRAND CAPITAL LLC (1%)(8) (CHARLOTTE, NC)
---TRANSPORTATION EQUIPMENT ADVISORS, INC. (ARLINGTON HEIGHTS, ILL)
--IRONBRAND CAPITAL LLC (99%) (8) (CHARLOTTE, NC)
---INTEGRION FINANCIAL NETWORK, L.L.C. (5.26%-NV) (HERNDON, GA)
---JV MORTGAGE CAPITAL, INC. (50%) (PROSPECT HEIGHTS, IL)
---JV MORTGAGE CAPITAL, L.P. (49.5%-NV) (PROSPECT HEIGHTS, IL)
---NATIONAL AUTO FINANCE COMPANY, L..P. (10%-NV) (BOCA RATON, FL)
--SPECTRUM EBP, LLC (33 1/3%) (RIDGEWOOD, NJ)
-FIRST UNION COMMERCIAL LEASING GROUP, L.L.C. (99%) (11) (CHARLOTTE, NC)
-FIRST UNION COMMERCIAL MORTGAGE SECURITIES, INC. (CHARLOTTE, NC)
-FIRST UNION COMMERCIAL MORTGAGE LOAN WAREHOUSE CORP. (CHARLOTTE, NC)
-FIRST UNION DIRECT BANK, N. A. (AUGUSTA, GA)
9
<PAGE>
--FIRST UNION REAL ESTATE ASSET COMPANY OF CONNECTICUT (STAMFORD, CT)
---FIRST UNION REAL ESTATE INVESTMENT COMPANY OF CONNECTICUT (STAMFORD, CT)
-FIRST UNION HOLDINGS, INC. (NASHVILLE, TN)
--FIRST UNION FINANCIAL INVESTMENTS, INC. (NASHVILLE, TN)
---FIRST UNION COMMERCIAL CORPORATION (0.8881%) (9)(CHARLOTTE, NC)
-FIRST UNION INSURANCE AGENCY OF FL, INC. (REDINGTON, FL)
-FIRST UNION INSURANCE AGENCY OF NC, INC. (CHARLOTTE, NC)
--UNION COMMERCE TITLE COMPANY, LLC (50%) (CHARLOTTE, NC)
-FIRST UNION INTERNATIONAL BANKING CORPORATION (CHARLOTTE, NC)
--BURDALE FINANCIAL HOLDINGS LIMITED (80%) (LONDON, ENGLAND)
---BURDALE FINANCIAL LIMITED (LONDON, ENGLAND)
--CONGRESS FINANCIAL CORPORATION (CANADA) (TORONTO, CANADA)
--EVERGREEN MANAGEMENT , S. A. (LUXEMBOURG)
--EVERGREEN WORLDWIDE DISTRIBUTORS, LTD. (HAMILTON, BERMUDA)
--FIRST UNION COMMERCIAL MORTGAGE SERVICES, INC. (TORONTO, CANADA)
--FIRST UNION INTERNATIONAL CAPITAL MARKETS LIMITED (LONDON, ENGLAND)
-FIRST UNION INVESTMENT CORPORATION (3) (CHARLOTTE, NC)
-FIRST UNION NOVA HOLDINGS OF NC, INC. (CHARLOTTE, NC)
-FIRST UNION REAL ESTATE ASSET COMPANY OF GEORGIA (ATLANTA, GA)
-FIRST UNION REAL ESTATE ASSET COMPANY OF NEW JERSEY (AVONDALE, PA)
-FIRST UNION REAL ESTATE ASSET COMPANY OF NORTH CAROLINA (CHARLOTTE, NC)
-FIRST UNION RESIDENTIAL SECURITIZATION TRANSACTIONS, INC. (CHARLOTTE, NC)
-FIRST UNION SHARED RESOURCES, LLC (CHARLOTTE, NC)
-FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION (WILMINGTON, DE)
--WNB CORPORATION (3) (ROANOKE, VA)
---LONE STONE, L. C. (43.946%-NV) (3) (ALBANY, NY)
-FNB PROPERTIES, INC. (3) (JACKSONVILLE, FL)
-FOIL, INC. (3) (PHILADELPHIA, PA)
-FOX HAVEN LIMITED PARTNERSHIP (99%-NV) (RALEIGH, NC)
-GAINSBOROUGH CORPORATION (3) (CHARLOTTE, NC)
-GENERAL HOMES CORP. (9.205%) (3) (HOUSTON, TX)
-GJA R/E CORP. (3) (NEW YORK, NY)
-GLEN ROYALL MILL LIMITED PARTNERSHIP (99%-NV) (WAKE FOREST, NC)
-GOLFVIEW ASSOCIATES LIMITED PARTNERSHIP (99%-NV) (FAYETTEVILLE, NC)
-GREEN RIDGE ASSOCIATES, LLC (99%-NV) (NASHVILLE, TN)
-HAMILTON MANOR LIMITED PARTNERSHIP (99%-NV) (STROUDSBURG, PA)
-HARLINGEN COMMUNITY DEVELOPMENT CORPORATION 1, LP (99%-NV) (ALTAMONTE SPRINGS, FL)
-HHS PROPERTY CORPORATION (3) (ATLANTA, GA)
-HORACE BUSHNELL LIMITED PARTNERSHIP (99.99%-NV) (HARTFORD, CT)
-HORIZON APPRAISAL SERVICES, INC. (JACKSONVILLE, FL)
-HOUSING EQUITY FUND OF VIRGINIA II, L.P. (38.5%-NV) (RICHMOND, VA)
-INDUSTRIAL VALLEY REAL ESTATE CO. (JENKINTOWN, PA)
-INTERNATIONAL PROGRESS, INC. (50%) (WINCHESTER, VA)
--MOUNTAIN FALLS PARK, INC. (WINCHESTER, VA)
-JERSEY CENTER/FIDOREO, INC. (3) (NEWARK, NJ)
-JPSD, INC. (3) (CHARLOTTE, NC)
-KAUFMAN, ALSBERG & CO., INC. (INACTIVE) (JACKSONVILLE, FL)
-KKM, INC. (3) (READING, PA)
-KOGEL ISLAND/FIDOREO, INC. (3) (NEW YORK, NY)
-LAFAYETTE FAMILY L.P. (99%-NV) (ROANOKE, VA)
-LANTANA ASSOCIATES, LTD. (99%-NV) (CORAL GABLES, FL)
-LAUREL POINTE OF SALISBURY LIMITED PARTNERSHIP (99%-NV) (PANAMA CITY, FL)
-MANOR RIDGE LIMITED PARTNERSHIP (99.99%-NV) (RALEIGH, NC)
-MARTIN'S LANDING LIMITED PARTNERSHIP (99%-NV) (WINTER PARK, FL)
-MARTIN'S LANDING II LIMITED PARTNERSHIP (99%-NV) (WINTER PARK, FL)
-MARYLAND HOUSING EQUITY FUND III LIMITED PARTNERSHIP (7.7647%-NV) (COLUMBIA, MD)
-MERIDIAN MORTGAGE CORPORATION (PERKASIE, PA)
-MERIDIAN PROPERTIES, INC. (READING, PA)
-NFPS, INC. (3) (CHARLOTTE, NC)
-NNI BELL STREET LIMITED PARTNERSHIP (99%-NV) ((STAMFORD, CT)
-OLD YORK AGENCY, INC. (AVONDALE, PA)
-O.R.E.O., INC. (3) (JACKSONVILLE, FL)
-ORIANNA STREET LIMITED PARTNERSHIP (99%-NV) (PHILADELPHIA, PA)
-PAROG, INC. (3) (PHILADELPHIA, PA)
10
<PAGE>
-PHILADELPHIA INTERNATIONAL INVESTMENT CORP. (PHILADELPHIA, PA)
--JOH. BERENBERG, GOSSLER & CO. (15%) (HAMBURG, GERMANY)
--NEW WORLD DEVELOPMENT CORPORATION, LTD. (NASSAU, BAHAMAS)
---PHILADELPHIA NATIONAL LIMITED (65.10%) (10) (LONDON, ENGLAND)
----NEW WORLD GROUP HOLDINGS, LTD. (42.60%) (NEW BRUNSWICK, CANADA)
----THE HERITABLE AND GENERAL INVESTMENT BANK LIMITED (14.35%) (LONDON, ENGLAND)
-----ALBEMARIE & BOND HOLDINGS PLC (6.60%) (BRISTOL, ENGLAND)
-----BEESON GREGORY HOLDINGS LIMITED (10.20%) (LONDON, ENGLAND)
--PHILADELPHIA INTERNATIONAL EQUITIES, INC. (WILMINGTON, DE)
---ACCEL GROUP LLC (21.10%) (PRAGUE, CZECH REPUBLIC)
---BANCO INTERNACIONAL DE PANAMA, S.A. (20%)(PANAMA CITY, PANAMA)
---CENTRO INTERNATIONALE HANDELSBANK AKTRINGESEELSCHAFT (10%) (VIENNA, AUSTRIA)
---CORESTATES FUND MANAGEMENT (IRELAND) LTD. (DUBLIN, IRELAND)
---CORESTATES FUNDING LIMITED (GEORGETOWN, CAYMAN ISLANDS)
---CROSBY FINANCIAL HOLDINGS LIMITED (8.61%) (TORTOLA, BRITISH VIRGIN ISLANDS)
---CSB INFORMATION SERVICES PTE LTD. (SINGAPORE)
---CS OUTSOURCING HOLDINGS LIMITED (20%) (NASSAU, BAHAMAS)
---EMPRESA MINERA DE MANTOS BLANCOS, S.A. (1.1%)(SANTIAGO, CHILE)
---ESTABLISHED HOLDINGS LIMITED (LONDON, ENGLAND)
----PHILADELPHIA NATIONAL LIMITED (10) (20.60%) (LONDON, ENGLAND)
---MEDICAL EQUIPMENT CREDIT PTE LTD. (20%) (SINGAPORE)
---MSF HOLDING, LTD. (26.25%) (NASSAU, BAHAMAS)
---MULTI-CREDIT CORPORATION OF THAILAND PCL ((7.50%) (BANGKOK, THAILAND)
---MULTI-RISK CONSULTANTS (THAILAND) LTD. (10%) (BANGKOK, THAILAND)
---SCM CHINA GROWTH FUND LDC (8.88%)(GEORGETOWN, CAYMAN ISLANDS)
---SURINVEST INTERNATIONAL LIMITED (13.76%)(GEORGETOWN, CAYMAN ISLANDS)
---THE HERITABLE AND GENERAL INVESTMENT BANK LIMITED (55.16%) (LONDON, ENGLAND)
---TI REMNACO, INC. (39.80%)(TORONTO, CANADA)
---VECTODIVISAS CASA DE CAMBIA S.A. DE C.V. (20%)(MONTERREY, MEXICO)
-QUESTPOINT L. P., INC. (PHILADELPHIA, PA)
-RAVENWOOD OF KISSIMMEE, LTD. (99%-NV) (GAINESVILLE, FL)
-RESIDENTIAL ASSET FUNDING CORPORATION (CHARLOTTE, NC)
-RICHMOND COMMUNITY DEVELOPMENT CORPORATION (19%-NV) (RICHMOND, VA)
-RIVER REACH OF ORANGE COUNTY, LTD. (99%-NV) (PANAMA CITY, FL)
-ROANOKE COMMUNITY DEVELOPMENT CORPORATION (11.11%) (INACTIVE) (ROANOKE, VA) (6)
-SAVINGS ASSOCIATIONS FINANCIAL ENTERPRISES, INC. (48.15%) (WASHINGTON, DC)
-SECOND ELEUTHERAN INVESTMENT COMPANY, LTD. (INACTIVE) (NASSAU, BAHAMAS)
-SENIOR COTTAGES OF SHIPPENSBURG, LTD. (99%-NV) (ST. LOUIS PARK, MN)
-SHENANDOAH VALLEY PROPERTIES L.P. (99%-NV) (FISHERVILLE, VA)
--CRAIGMONT II, L.P. (99%-NV) (FISHERVILLE, VA)
--ELKMONT PARTNERS, L.P. (99%-NV) (FISHERVILLE, VA)
--GROTTOES PARTNERS L.P. (99%-NV) (FISHERVILLE, VA)
--WILLOW LAKE PARTNERS, L.P. (99%-NV) (FISHERVILLE, VA)
-SIGNET EQUIPMENT COMPANY (BALTIMORE, MD)
-SKYHAWK AGENCY, INC. (HAWTHORNE, NY)
-SOUTHWOODS LIMITED PARTNERSHIP (99%-NV) (GREENSBORO, NC)
-SPINNAKER REACH APARTMENTS OF DUVAL, LTD. (99%-NV) (PANAMA CITY, FL)
-ST. JOSEPH'S AFFORDABLE HOUSING LIMITED PARTNERSHIP (74.25%-NV) (WAYNE, PA)
-ST. PAUL REALTY, INC. (INACTIVE) (BALTIMORE, MD)
-STATESBORO RENTAL HOUSING, L. P. (99%-NV) (CORDELE, GA)
-SUGAR MILL APARTMENTS, L. P. (99%-NV) (CORDELE, GA)
-SURREY DOWNS/FIDOREO, INC. (3) (NEWARK, NJ)
--SPRING RIDGE HOLDINGS, INC. (3) (READING, PA)
-SYCAMORE ROW, LLC (99%-NV) (BRONX, NY)
-TATTERSALL ADVISORY GROUP, INC. (CHARLOTTE, NC)
-TAYLORR LAKES/FIDOREO, INC. (3) (NEWARK, NJ)
-THE EXCHANGE BUILDING LIMITED PARTNERSHIP (99%-NV) (PORTLAND, ME)
-THE HOWARD MORTGAGE GROUP, INC. (NEWARK, NJ)
-THE MONEY STORE, INC. (UNION, NJ)
--CLASSNOTES, INC. (SACRAMENTO, CA)
---EDUCAID STUDENT HOLDINGS, INC. (SACRAMENTO, CA) (INACTIVE)
---TMS STUDENT HOLDINGS, INC. (UNION, NJ)
--THE MONEY STORE COMMERCIAL MORTGAGE INC. (WEST SACRAMENTO, CA)
--THE MONEY STORE INVESTMENT CORPORATION (WEST SACRAMENTO, CA)
11
<PAGE>
---THE MONEY STORE OF NEW YORK, INC. (WEST SACRAMENTO, CA)
---TMS SBA HOLDINGS, INC. (UNION, NJ)
--THE MONEY STORE/SERVICE CORP. (WEST SACRAMENTO, CA)
---FIRST MONEY STORE SECURITIES, INC. (UNION, NJ) (INACTIVE)
---FIRST UNION MONEY STORE HOME EQUITY LOAN WAREHOUSE CORP. (CHARLOTTE, NC)
---THE MONEY STORE HELOC HOLDING, INC. (UNION, NJ) (INACTIVE)
---THE MONEY STORE INSURANCE SERVICES CORP. (UNION, NJ)
---THE MONEY STORE REALTY, INC. (UNION, NJ)
---TMS AUTO HOLDINGS, INC. (UNION, NJ)
---TMS SPECIAL HOLDINGS, INC. (UNION, NJ)
---TMS SPV, INC. (UNION, NJ)
--TMS MORTGAGE INC. (UNION, NJ)
---DYNA-MARK, INC. (UNION,NJ)
---EQUITY INSURANCE AGENCY, INC. (UNION, NJ)
---FIRST UNION COMMERCIAL CORPORATION (0.1173%) (9)(CHARLOTTE, NC)
---INTEGRATED CAPITAL GROUP, INC. (WEST SACRAMENTO, CA)
---MAJOR BROKERAGE CO., INC. (UNION, NJ) (INACTIVE)
---PRINCETON RECONVEYANCE SERVICES INC. (FOUNTAIN VALLEY, CA)
---THE MONEY STORE AUTO FINANCE INC. (SACRAMENTO, CA)
---THE MONEY STORE/D.C. INC. (UNION, NJ)
---THE MONEY STORE HOME EQUITY CORP. (UNION, NJ)
---THE MONEY STORE/KENTUCKY INC. (UNION, NJ)
---THE MONEY STORE/MINNESOTA INC. (UNION, NJ)
---TMS HOME HOLDINGS, INC. (UNION, NJ)
---TMS VENTURE HOLDINGS, INC. (INACTIVE) (UNION, NJ)
----AE MORTGAGE SERVICES L.L.C. (50%-NV) (INACTIVE) (WEST SACRAMENTO, CA)
-THE MORTGAGE CORNER, INC. (WATERBURY, CT)
-TOWSON SERVICE CORPORATION (3) (TOWSEN, MD)
--ASHLAND JOINT VENTURE (50%-NV) (BALTIMORE, MD)
--SILVER SPRING STATION JOINT VENTURE (50%-NV) (BALTIMORE, MD)
-TWC NINETY-SIX, LTD. (99%-NV) (TAMPA, FL)
-TWO APN PLAZA, INC. (89%) (PHILADELPHIA, PA)
-VCP-ALDERMAN PARK PARTNERS, LTD. (99%-NV) (JACKSONVILLE, FL)
-VENICE SERVICE CORP. (3) (JACKSONVILLE, FL)
-WASHINGTON APARTMENTS ASSOCIATES, LIMITED PARTNERSHIP (99%-NV) (EMMAUS, PA)
-WATERVIEW/FIDOREO, INC. (3) (NEWARK, NJ)
-WHEAT BENEFIT SERVICES, LLC (61.446%) (RICHMOND, VA)
-WILLIAM BYRD HOTEL ASSOCIATES, L. P. (99%-NV) (RICHMOND, VA)
-WOODLAWN JOINT VENTURE (30%-NV) (INACTIVE) (15) (WOODBRIDGE, VA)
-YORKTOWN ARMS DEVELOPMENT LIMITED PARTNERSHIP (99%-NV) (PHILADELPHIA, PA)
FIRST UNION PRIVATE CAPITAL, INC. (PHILADELPHIA, PA)
FIRST UNION RISK MANAGEMENT, INC. (CHARLOTTE, NC)
FIRST UNION SERVICES, INC. (CHARLOTTE, NC)
FRANKLIN CAPITAL ASSOCIATES III, L. P. (6.60%-NV) (FRANKLIN, TN)
GF TITLE CORPORATION (INACTIVE) (ATLANTA, GA)
HOME INVESTORS MORTGAGE CORPORATION (INACTIVE) (NEW BRUNSWICK, NJ)
HORIZON TELECOM INTERNATIONAL, LLC (19.90%-V; 40.9%-NV) (BOSTON, MA)
MCGLINN CAPITAL MANAGEMENT, INC. (READING, PA)
MERIDIAN ACCEPTANCE CORPORATION (INACTIVE) (READING, PA)
MERIDIAN ASSET MANAGEMENT, INC. (VALLEY FORGE, PA)
-FIRST UNION TRUST COMPANY OF CALIFORNIA (SAN FRANCISCO, CA)
-MERIDIAN INVESTMENT COMPANY (MALVERN, PA)
12
<PAGE>
MERIDIAN SECURITIES, INC. (INACTIVE) (READING, PA)
SIGNAL FINANCIAL CORPORATION (INACTIVE) (PITTSBURGH, PA)
SIGNET INSURANCE SERVICES, INC. (RICHMOND, VA)
SIGNET REALTY, INC. (INACTIVE) (BALTIMORE, MD)
SIGNET STRATEGIC CAPITAL CORPORATION (RICHMOND, VA)
SIGNET STUDENT LOAN CORPORATION (RICHMOND, VA)
STAR SYSTEMS, INC. (10.04%) (MAITLAND, FL)
THE MONEY STORE HOLDINGS LIMITED (LONDON, ENGLAND)
-THE MONEY STORE ADVERTISING SERVICES LIMITED (LONDON, ENGLAND)
-THE MONEY STORE LIMITED (LONDON, ENGLAND)
TRSTE, INC. (CHARLOTTE, NC)
TRSTE II, INC. (NASHVILLE, TN)
TRYON MANAGEMENT, INC. (CHARLOTTE, NC)
UNITED BANCSHARES, INC. (100%-NV) (PHILADELPHIA, PA) (7)
-UNITED BANK OF PHILADELPHIA (PHILADELPHIA, PA)
VERDUGT HOLDINGS, LLC (28.32%: 15%-V, 12.62%-NV) (JACKSONVILLE, FL)
WALLER HOUSE CORPORATION (PHILADELPHIA, PA)
-NATIONAL TEMPLE LIMITED PARTNERSHIP-II (98.99%-NV) (PHILADELPHIA, PA)
WFS REAL ESTATE INVESTMENT CORPORATION (RICHMOND, VA)
-HUGUENOT PROFESSIONAL CENTER LIMITED PARTNERSHIP, LP (6.482%) (RICHMOND, VA)
WHEAT SERVICE & EQUIPMENT CORPORATION (RICHMOND, VA)
-ENERGY SEARCH LP (INACTIVE) (7.7%-NV)
-WBP ASSOCIATES (INACTIVE) (33%-NV)
WOMEN'S GROWTH CAPITAL FUND I, L.L.L.P. (10%-NV) (WASHINGTON,DC)
- -----------------------------------------
* CONTROLLED BY MANAGEMENT CONTRACT - NO EQUITY OWNED.
** MANAGING INTEREST
(1) 100% OF VOTING SECURITIES OWNED UNLESS OTHERWISE INDICATED. NV INDICATES NON-VOTING EQUITY. DOES NOT
INCLUDE COMPANIES IN WHICH THE OWNERSHIP INTEREST IS 5% OR LESS OF VOTING EQUITY NOR COMPANIES WHERE THE SOLE OWNERSHIP
IS THROUGH NON-VOTING EQUITY (EXCEPT FOR BANKS AND BANK HOLDING COMPANIES). ALL PARTNERSHIP INTERESTS IN EXCESS OF 5%
ARE SHOWN; INTERESTS OF LESS THAN 5% WHERE THE PARTNERSHIPS ARE CONTROLLED ARE SHOWN.
(2) VOTES AS ON A CONVERTED BASIS.
(3) INTEREST ACQUIRED OR SUBSIDIARY FORMED IN CONNECTION WITH DEBTS PREVIOUSLY
CONTRACTED (DPC).
(4) COMBINED OWNERSHIP OF RADNOR VENTURE PARTNERS, L. P. BY ALL FIRST UNION ENTITIES IS 15.04%-NV (FIRST UNION
INVESTORS, INC. - 7.39%, CORESTATES HOLDINGS, INCORPORATED - 7.65%).
13
<PAGE>
(5) COMBINED OWNERSHIP OF RFE CAPITAL PARTNERS, L.P. BY ALL FIRST UNION ENTITIES IS 13.34%-NV (FIRST UNION
INVESTORS, INC. - 6.67%, CORESTATES HOLDINGS, INCORPORATED - 6.67%).
(6) COMBINED OWNERSHIP OF ROANOKE COMMUNITY DEVELOPMENT CORPORATION BY ALL FIRST
UNION ENTITIES IS 38.888% (FIRST UNION NATIONAL BANK - 11.11%, FIRST UNION
COMMUNITY DEVELOPMENT CORPORATION - 27.778%).
(7) COMBINED OWNERSHIP OF UNITED BANCSHARES, INC. BY ALL FIRST UNION ENTITIES IS
6.02% OF VOTING COMMON STOCK BY CORESTATES HOLDINGS, INCORPORATED, 9.40% OF
NON-VOTING PREFERRED STOCK BY CORESTATES HOLDINGS, INCORPORATED, AND 100% OF
NON-VOTING CLASS B COMMON STOCK BY FIRST UNION CORPORATION.
(8) COMBINED OWNERSHIP OF IRONBRAND CAPITAL LLC BY ALL FIRST UNION ENTITIES IS
100% (FIRST UNION COMMERCIAL CORPORATION - 99%, FIRST UNION RAIL CORPORATION -
1%).
(9) COMBINED OWNERSHIP OF FIRST UNION COMMERCIAL CORPORATION BY ALL FIRST UNION ENTITIES IS 100% (FIRST UNION
NATIONAL BANK - 98.0250%, FIRST UNION CORPORATION - 0.9696%, FIRST UNION FINANCIAL INVESTMENTS, INC. - 0.8881%,
AND TMS MORTGAGE, INC. - 0.1173 %).
(10) COMBINED OWNERSHIP OF PHILADELPHIA NATIONAL LIMITED BY ALL FIRST UNION ENTITIES IS 100% (NEW WORLD
DEVELOPMENT CORPORATION, LTD. - 65.10%, ESTABLISHED HOLDINGS LIMITED - 20.60%, AND PHILADELPHIA INTERNATIONAL
FINANCE CO. HONG KONG - 14.30%).
(11) COMBINED OWNERSHIP OF FIRST UNION COMMERCIAL LEASING GROUP L.L.C. BY ALL FIRST UNION ENTITIES IS 100%
(FIRST UNION NATIONAL BANK - 99%, FIRST UNION COMMERCIAL CORPORATION - 1%).
(12) COMBINED OWNERSHIP OF MENTOR INVESTMENT GROUP, LLC BY ALL FIRST UNION
ENTITIES IS 100% (EVEREN CAPITAL CORPORATION, 55%, EVEREN SECURITIES HOLDINGS,
INC. - 45%).
(13) COMBINED OWNERSHIP OF BRADFORD EQUITIES FUND, L.P. BY ALL FIRST UNION
ENTITIES IS 18.89% (CORESTATES HOLDINGS, INCORPORATED - 11.02%, EVEREN CAPITAL
CORPORATION - 7.87%).
(14) COMBINED OWNERSHIP OF MENTOR INVESTMENT ADVISORS, LLC BY ALL FIRST UNION
ENTITIES IS 100% (MENTOR INVESTMENT GROUP LLC - 99%, EVEREN CAPITAL CORPORATION
- - 1%).
(15) COMBINED OWNERSHIP OF WOODLAWN JOINT VENTURE BY ALL FIRST UNION ENTITIES IS 70% (FIRST AMERICAN SERVICE
CORPORATION - 40%, FIRST UNION NATIONAL BANK - 30%).
(16) COMBINED OWNERSHIP OF FIRST UNION PRIVATE EQUITY FUND, L. P. IS 1%-NV** BY FIRST UNION FPS, INC. AND
3.9%-NV BY FIRST UNION INVESTORS, INC.
(17) COMBINED OWNERSHIP OF FIRST UNION PRIVATE INVESTMENT FUNDS HEDGED EQUITIES SUPER ACCREDITED, L.P. IS
0.89%-NV** BY FIRST UNION FPS,INC. AND 11.20%-NV BY FIRST UNION INVESTORS, INC.
(18) COMBINED OWNERSHIP OF FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY ACCREDITED, L. P. IS 2.14%-NV**
BY FIRST UNION FPS, INC. AND 16.29%-NV BY FIRST UNION INVESTORS, INC.
(19) COMBINED OWNERSHIP OF FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY SUPER ACCREDITED, L. P. IS
0.93%-NV** BY FIRST UNION FPS, INC. AND 11.23%-NV BY FIRST UNION INVESTORS, INC.
2/1/00
</TABLE>
14
<PAGE>
EXHIBIT (23)
CONSENT OF KPMG LLP
- --------------------------------------------------------------------------------
Board of Directors
First Union Corporation
We consent to the incorporation by reference in the Registration Statements of
(i) First Union Corporation on:
<TABLE>
<CAPTION>
REGISTRATION REGISTRATION
STATEMENT STATEMENT
FORM NUMBER FORM NUMBER
----------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C>
S-3 33-50103 S-4 333-19039-01
S-8 33-51964 S-4 333-20611
S-8 33-54148 S-3 333-34151
S-8 33-54274 S-3 333-35363
S-3 33-56927 S-8 333-36839
S-8 33-60835 S-8 333-37709
S-8 33-60913 S-8 333-44015
S-8 33-62307 S-8 333-50589
S-8 33-63387 S-3 333-50999
S-8 33-65501 S-8 333-53549
S-8 333-2551 S-3 333-58299
S-8 333-10179 S-8 333-59789
S-8 333-10211 S-3 333-70489
S-8 333-11613 S-8 333-83969
S-8 333-14469 S-8 333-89299
S-3 333-15743 S-3 333-90593
S-3 333-17599
</TABLE>
(ii) First Union Capital I on Form S-3 (No. 333-15743-01); (iii) First Union
Capital II on Form S-3 (No. 333-15743-02); (iv) First Union Capital III on Form
S-3 (No. 333-15743-03); (v) First Union Institutional Capital I on Form S-4 (No.
333-19039); (vi) First Union Institutional Capital II on Form S-4 (No.
333-20611-01); (vii) First Union Capital I on Form S-3 (No. 333-90593-01);
(viii) First Union Capital II on Form S-3 (No. 333-90593-02); and (ix) First
Union Capital III on Form S-3 (No. 333-90593-03) of First Union Corporation of
our report dated January 13, 2000, relating to the consolidated balance sheets
of First Union Corporation and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999, which report appears in the 1999 Annual Report to
Stockholders which is incorporated by reference in First Union Corporation's
1999 Form 10-K.
KPMG LLP
Charlotte, North Carolina
March 15, 2000
EXHIBIT (24)
FIRST UNION CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of
FIRST UNION CORPORATION (the "Corporation") hereby constitute and appoint Mark
C. Treanor and Kent S. Hathaway, and each of them severally, the true and lawful
agents and attorneys-in-fact of the undersigned with full power and authority in
said agents and the attorneys-in-fact, and in any one of them, to sign for the
undersigned and in their respective names as directors and officers of the
Corporation, the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1999, to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, and to sign any and all
amendments to such Annual Report.
SIGNATURE CAPACITY
--------- --------
/s/ EDWARD E. CRUTCHFIELD Chairman and Chief Executive
------------------------- Officer and Director
EDWARD E. CRUTCHFIELD
/s/ ROBERT T. ATWOOD Executive Vice President and
-------------------- Chief Financial Officer
ROBERT T. ATWOOD
/s/ JAMES H. HATCH Senior Vice President and Controller
------------------ (Principal Accounting Officer)
JAMES H. HATCH
/s/ EDWARD E. BARR Director
------------------
EDWARD E. BARR
/s/ G. ALEX BERNHARDT Director
---------------------
G. ALEX BERNHARDT
/S/ERSKINE B. BOWLES Director
---------------------
ERSKINE B. BOWLES
/s/ W. WALDO BRADLEY Director
--------------------
W. WALDO BRADLEY
/s/ ROBERT J. BROWN Director
-------------------
ROBERT J. BROWN
Director
/S/ A. DANO DAVIS
- -------------------
A. DANO DAVIS
/s/ NORWOOD H. DAVIS, JR. Director
-------------------------
NORWOOD H. DAVIS, JR.
/s/ R. STUART DICKSON Director
---------------------
R. STUART DICKSON
Director
/S/ B.F. DOLAN
--------------
B. F. DOLAN
/s/ RODDEY DOWD, SR. Director
--------------------
RODDEY DOWD, SR.
1
<PAGE>
SIGNATURE CAPACITY
- --------------------------- Director
ARTHUR M. GOLDBERG
/s/ WILLIAM H. GOODWIN, JR. Director
- ---------------------------
WILLIAM H. GOODWIN, JR.
/s/ FRANK M. HENRY Director
- ---------------------------
FRANK M. HENRY
/s/ ERNEST E. JONES Director
- ---------------------------
ERNEST E. JONES
/s/ HERBERT LOTMAN Director
- ---------------------------
HERBERT LOTMAN
/S/ RADFORD D. LOVETT Director
- --------------------------
RADFORD D. LOVETT
/s/ MACKEY J. MCDONALD Director
- ---------------------------
MACKEY J. MCDONALD
/s/ PATRICIA A. MCFATE Director
- ---------------------------
PATRICIA A. MCFATE
- --------------------------- Director
JOSEPH NEUBAUER
/s/ RANDOLPH N. REYNOLDS Director
- ---------------------------
RANDOLPH N. REYNOLDS
/s/ JAMES M. SEABROOK Director
- ---------------------------
JAMES M. SEABROOK
- --------------------------- Director
RUTH G. SHAW
/s/ LANTY L. SMITH Director
- ---------------------------
LANTY L. SMITH
/S/ G. KENNEDY THOMPSON Director
- ---------------------------
G. KENNEDY THOMPSON
Dated: December 14, 1999
2
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,081
<INT-BEARING-DEPOSITS> 1,073
<FED-FUNDS-SOLD> 11,523
<TRADING-ASSETS> 14,946
<INVESTMENTS-HELD-FOR-SALE> 51,277
<INVESTMENTS-CARRYING> 1,758
<INVESTMENTS-MARKET> 1,809
<LOANS> 141,091
<ALLOWANCE> (1,757)
<TOTAL-ASSETS> 253,024
<DEPOSITS> 141,047
<SHORT-TERM> 50,107
<LIABILITIES-OTHER> 12,191
<LONG-TERM> 31,975
0
0
<COMMON> 3,294
<OTHER-SE> 13,415
<TOTAL-LIABILITIES-AND-EQUITY> 253,024
<INTEREST-LOAN> 10,812
<INTEREST-INVEST> 3,098
<INTEREST-OTHER> 641
<INTEREST-TOTAL> 15,151
<INTEREST-DEPOSIT> 4,054
<INTEREST-EXPENSE> 7,699
<INTEREST-INCOME-NET> 7,452
<LOAN-LOSSES> 692
<SECURITIES-GAINS> 71
<EXPENSE-OTHER> 8,862
<INCOME-PRETAX> 4,831
<INCOME-PRE-EXTRAORDINARY> 4,831
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,223
<EPS-BASIC> 3.35
<EPS-DILUTED> 3.33
<YIELD-ACTUAL> 3.79
<LOANS-NON> 968
<LOANS-PAST> 188
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,826
<CHARGE-OFFS> 828
<RECOVERIES> 140
<ALLOWANCE-CLOSE> 1,757
<ALLOWANCE-DOMESTIC> 1,230
<ALLOWANCE-FOREIGN> 19
<ALLOWANCE-UNALLOCATED> 508
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT (99)
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 33 19 199 62 35 - 348
Provision for loan losses - - 61 1 - - 62
Trading account profits 95 - - - - - 95
Fee and other income 327 41 8 41 51 (71) 397
Noninterest expense 208 34 50 29 55 - 376
Income tax expense 94 7 37 23 13 (71) 103
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 153 19 59 50 18 - 299
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 44.99 % 45.34 7.94 80.19 13.55 - 22.22
Average loans, net $ 3,883 2,026 22,459 5,335 4,921 - 38,624
Average deposits 3,212 831 2,820 21 4,415 - 11,299
Average attributed stockholders'
equity (b) $ 1,330 166 3,019 249 601 - 5,365
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 39 12 (2) 61 44 - 154
Provision for loan losses - - - - - - -
Fee and other income 451 185 124 34 4 (25) 773
Noninterest expense 400 111 50 36 26 - 623
Income tax expense 33 34 27 22 7 (11) 112
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 57 52 45 37 15 (14) 192
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 35.56 % 87.06 87.50 73.94 19.06 - 51.26
Average loans, net $ 1 123 - - 3,773 - 3,897
Average deposits - 2,682 - 14,245 3,181 - 20,108
Average attributed stockholders'
equity (b) $ 612 247 169 200 269 (34) 1,463
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 14 143 44 635 836
Provision for loan losses 1 22 35 22 80
Fee and other income 46 29 84 200 359
Noninterest expense 53 188 61 633 935
Income tax expense 2 (14) 12 69 69
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4 (24) 20 111 111
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 16.41 % (7.18) 17.08 21.47 11.61
Average loans, net $ 1,076 13,414 1,689 23,483 39,662
Average deposits 900 243 15 67,076 68,234
Average attributed stockholders'
equity (b) $ 65 1,232 452 2,066 3,815
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 20 94 43 243 400
Provision for loan losses 1 18 6 - 25
Fee and other income - - - 140 140
Noninterest expense 12 74 17 202 305
Income tax expense 3 (4) 9 69 77
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4 6 11 112 133
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 9.53 % 1.61 10.24 58.11 19.71
Average loans, net $ 2,756 21,646 8,741 - 33,143
Average deposits - - - 25,920 25,920
Average attributed stockholders'
equity (b) $ 183 1,230 535 760 2,708
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 348 154 502 836 400 207 1,945
Provision for loan losses 62 - 62 80 25 6 173
Trading account profits 95 - 95 - - 4 99
Fee and other income 397 773 1,170 359 140 69 1,738
Noninterest expense 376 623 999 935 305 121 2,360
Income tax expense 103 112 215 69 77 46 407
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 299 192 491 111 133 107 842
After-tax merger-related and
restructuring charges - - - - - 4 4
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 299 192 491 111 133 111 846
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 22.22 % 51.26 28.53 11.61 19.71 13.20 19.78
Average loans, net $ 38,624 3,897 42,521 39,662 33,143 18,073 133,399
Average deposits 11,299 20,108 31,407 68,234 25,920 11,419 136,980
Average attributed stockholders'
equity (b) $ 5,365 1,463 6,828 3,815 2,708 3,335 16,686
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
2
<PAGE>
BUSINESS SEGMENTS (A)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 32 21 172 61 29 - 315
Provision for loan losses 4 - 58 1 - - 63
Trading account profits 36 - - - - - 36
Fee and other income 275 19 (3) 43 53 (22) 365
Noninterest expense 174 28 41 26 50 - 319
Income tax expense 63 4 26 23 12 (22) 106
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 102 8 44 54 20 - 228
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 41.32 % 15.14 6.31 88.29 13.89 - 19.15
Average loans, net $ 3,737 2,028 20,889 5,105 4,842 - 36,601
Average deposits 2,712 825 2,995 21 3,805 - 10,358
Average attributed stockholders'
equity (b) $ 982 205 2,689 242 572 - 4,690
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 20 13 - 53 43 - 129
Provision for loan losses - - - - - - -
Fee and other income 229 168 118 30 4 (25) 524
Noninterest expense 199 97 54 31 24 - 405
Income tax expense 20 32 25 20 9 (9) 97
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 30 52 39 32 14 (16) 151
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 38.45 % 87.12 74.75 74.50 22.09 - 54.65
Average loans, net $ - 104 - - 3,661 - 3,765
Average deposits - 2,623 - 14,302 3,076 - 20,001
Average attributed stockholders'
equity (b) $ 325 233 163 168 254 (32) 1,111
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 18 146 53 629 846
Provision for loan losses - 20 35 26 81
Fee and other income 43 (31) 99 208 319
Noninterest expense 55 144 53 568 820
Income tax expense 2 (19) 24 93 100
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4 (30) 40 150 164
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 20.40 % (8.78) 34.35 29.31 16.39
Average loans, net $ 1,449 12,683 2,115 23,280 39,527
Average deposits 1,214 295 9 68,424 69,942
Average attributed stockholders'
equity (b) $ 78 1,370 449 2,021 3,918
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 21 91 46 239 397
Provision for loan losses 1 13 5 - 19
Fee and other income - - - 139 139
Noninterest expense 10 69 15 191 285
Income tax expense 4 (2) 10 71 83
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6 11 16 116 149
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 14.33 % 3.67 11.66 63.65 22.09
Average loans, net $ 2,792 21,718 8,629 - 33,139
Average deposits - - - 25,507 25,507
Average attributed stockholders'
equity (b) $ 187 1,241 535 719 2,682
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 315 129 444 846 397 195 1,882
Provision for loan losses 63 - 63 81 19 12 175
Trading account profits 36 - 36 - - (1) 35
Fee and other income 365 524 889 319 139 58 1,405
Noninterest expense 319 405 724 820 285 111 1,940
Income tax expense 106 97 203 100 83 19 405
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 228 151 379 164 149 110 802
After-tax merger-related and
restructuring charges - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 228 151 379 164 149 110 802
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 19.15 % 54.65 25.92 16.39 22.09 15.06 20.47
Average loans, net $ 36,601 3,765 40,366 39,527 33,139 16,886 129,918
Average deposits 10,358 20,001 30,359 69,942 25,507 7,616 133,424
Average attributed stockholders'
equity (b) $ 4,690 1,111 5,801 3,918 2,682 2,898 15,299
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 46 24 168 65 46 - 349
Provision for loan losses 1 - 47 3 - - 51
Trading account profits 70 33 - - - - 103
Fee and other income 164 17 17 39 50 (27) 260
Noninterest expense 159 28 47 27 51 - 312
Income tax expense 43 17 35 23 17 (27) 108
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 77 29 56 51 28 - 241
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 35.87 % 49.38 8.64 98.55 18.65 - 21.34
Average loans, net $ 3,181 2,352 20,957 5,040 4,525 - 36,055
Average deposits 2,740 770 3,475 22 4,539 - 11,546
Average attributed stockholders'
equity (b) $ 873 237 2,639 207 604 - 4,560
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 20 11 1 46 44 - 122
Provision for loan losses - - - - (1) - (1)
Fee and other income 234 164 111 29 4 (22) 520
Noninterest expense 209 108 68 32 21 - 438
Income tax expense 17 25 17 17 11 (8) 79
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 28 42 27 26 17 (14) 126
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 33.38 % 71.57 40.95 71.83 27.88 - 46.28
Average loans, net $ - 155 - - 3,602 - 3,757
Average deposits - 2,566 - 14,096 3,178 - 19,840
Average attributed stockholders'
equity (b) $ 334 230 159 149 252 (29) 1,095
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 21 145 62 617 845
Provision for loan losses - 17 40 24 81
Fee and other income 111 113 108 200 532
Noninterest expense 66 150 65 601 882
Income tax expense 26 35 25 74 160
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 40 56 40 118 254
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 127.84 % 16.57 36.49 24.15 26.35
Average loans, net $ 1,618 12,284 2,564 28,844 45,310
Average deposits 1,332 66 9 70,637 72,044
Average attributed stockholders'
equity (b) $ 129 1,358 444 1,975 3,906
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 23 94 47 236 400
Provision for loan losses 1 24 7 - 32
Fee and other income - - - 139 139
Noninterest expense 10 85 17 196 308
Income tax expense 4 (14) 8 69 67
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 8 (1) 15 110 132
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 15.29 % (0.32) 10.00 63.24 19.21
Average loans, net $ 2,751 22,252 8,529 - 33,532
Average deposits - - - 25,637 25,637
Average attributed stockholders'
equity (b) $ 186 1,291 550 704 2,731
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 349 122 471 845 400 129 1,845
Provision for loan losses 51 (1) 50 81 32 17 180
Trading account profits 103 - 103 - - 1 104
Fee and other income 260 520 780 532 139 151 1,602
Noninterest expense 312 438 750 882 308 113 2,053
Income tax expense 108 79 187 160 67 31 445
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 241 126 367 254 132 120 873
After-tax merger-related and
restructuring charges - - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 241 126 367 254 132 120 873
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.34 % 46.28 26.03 26.35 19.21 14.12 21.94
Average loans, net $ 36,055 3,757 39,812 45,310 33,532 15,145 133,799
Average deposits 11,546 19,840 31,386 72,044 25,637 4,725 133,792
Average attributed stockholders'
equity (b) $ 4,560 1,095 5,655 3,906 2,731 3,409 15,701
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 30 13 163 63 46 - 315
Provision for loan losses 2 - 47 - - - 49
Trading account profits 85 27 - - - - 112
Fee and other income 269 18 18 44 50 (28) 371
Noninterest expense 174 33 53 27 55 - 342
Income tax expense 79 9 31 25 15 (28) 131
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 129 16 50 55 26 - 276
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 58.34 % 27.22 7.99 117.44 17.22 - 25.13
Average loans, net $ 2,954 2,002 21,033 5,035 4,924 - 35,948
Average deposits 2,677 709 3,633 22 5,502 - 12,543
Average attributed stockholders'
equity (b) $ 901 238 2,526 191 597 - 4,453
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 17 15 1 45 43 - 121
Provision for loan losses - - - - 1 - 1
Fee and other income 222 161 107 26 5 (22) 499
Noninterest expense 201 115 60 31 25 - 432
Income tax expense 15 23 18 15 9 (8) 72
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 23 38 30 25 13 (14) 115
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 30.43 % 64.74 51.01 68.43 23.25 - 43.88
Average loans, net $ - 179 - - 3,543 - 3,722
Average deposits - 2,760 - 14,161 3,046 - 19,967
Average attributed stockholders'
equity (b) $ 314 236 152 144 247 (29) 1,064
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 23 124 60 622 829
Provision for loan losses - 10 46 27 83
Fee and other income 117 84 57 278 536
Noninterest expense 79 157 64 598 898
Income tax expense 23 16 3 105 147
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 38 25 4 170 237
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 83.59 % 7.60 4.28 32.83 23.68
Average loans, net $ 2,026 12,164 2,598 31,343 48,131
Average deposits 1,340 2 10 72,253 73,605
Average attributed stockholders'
equity (b) $ 183 1,337 446 2,098 4,064
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 21 97 48 252 418
Provision for loan losses 1 12 6 - 19
Fee and other income - - - 133 133
Noninterest expense 9 76 19 205 309
Income tax expense 4 (4) 8 69 77
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 13 15 111 146
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 14.63 % 3.65 9.64 58.28 19.43
Average loans, net $ 2,696 23,053 8,387 - 34,136
Average deposits - - - 26,922 26,922
Average attributed stockholders'
equity (b) $ 177 1,500 575 776 3,028
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 315 121 436 829 418 97 1,780
Provision for loan losses 49 1 50 83 19 12 164
Trading account profits 112 - 112 - - 1 113
Fee and other income 371 499 870 536 133 298 1,837
Noninterest expense 342 432 774 898 309 528 2,509
Income tax expense 131 72 203 147 77 (76) 351
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 276 115 391 237 146 (68) 706
After-tax merger-related and
restructuring charges - - - - - 259 259
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 276 115 391 237 146 191 965
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 25.13 % 43.88 28.74 23.68 19.43 22.57 24.32
Average loans, net $ 35,948 3,722 39,670 48,131 34,136 10,459 132,396
Average deposits 12,543 19,967 32,510 73,605 26,922 3,225 136,262
Average attributed stockholders'
equity (b) $ 4,453 1,064 5,517 4,064 3,028 3,432 16,041
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 50 19 158 31 57 - 315
Provision for loan losses (5) 1 26 2 10 - 34
Trading account profits 59 34 - - - - 93
Fee and other income 134 22 16 48 46 (17) 249
Noninterest expense 168 41 49 28 49 - 335
Income tax expense 30 9 37 14 17 (17) 90
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 50 24 62 35 27 - 198
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.67 % 29.82 10.04 93.35 17.33 - 17.74
Average loans, net $ 2,957 2,017 20,361 4,743 5,166 - 35,244
Average deposits 2,743 734 3,993 22 5,913 - 13,405
Average attributed stockholders'
equity (b) $ 911 306 2,411 153 641 - 4,422
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 8 14 - 43 42 - 107
Provision for loan losses - - - - 1 - 1
Fee and other income 201 159 108 22 5 (21) 474
Noninterest expense 185 105 55 29 23 - 397
Income tax expense 9 26 21 14 8 (7) 71
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 15 42 32 22 15 (14) 112
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 22.03 % 75.76 67.24 70.61 20.97 - 45.44
Average loans, net $ - 107 - - 3,701 - 3,808
Average deposits - 2,406 - 13,123 2,971 - 18,500
Average attributed stockholders'
equity (b) $ 270 221 152 126 256 (27) 998
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 26 119 56 654 855
Provision for loan losses 1 3 59 30 93
Fee and other income 125 27 90 301 543
Noninterest expense 84 171 68 625 948
Income tax expense 26 (11) 8 114 137
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 40 (17) 11 186 220
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 88.34 % (5.47) 10.43 33.35 20.96
Average loans, net $ 2,511 9,202 2,636 35,316 49,665
Average deposits 1,407 65 9 73,723 75,204
Average attributed stockholders'
equity (b) $ 184 1,327 439 2,200 4,150
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 22 100 50 261 433
Provision for loan losses 1 19 6 - 26
Fee and other income - - - 129 129
Noninterest expense 10 79 18 211 318
Income tax expense 3 (6) 10 68 75
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 8 8 16 111 143
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 13.63 % 2.39 10.38 59.15 19.38
Average loans, net $ 2,658 22,953 8,651 - 34,262
Average deposits - - - 27,760 27,760
Average attributed stockholders'
equity (b) $ 172 1,366 606 746 2,890
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 315 107 422 855 433 88 1,798
Provision for loan losses 34 1 35 93 26 13 167
Trading account profits 93 - 93 - - (16) 77
Fee and other income 249 474 723 543 129 270 1,665
Noninterest expense 335 397 732 948 318 489 2,487
Income tax expense 90 71 161 137 75 (344) 29
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 198 112 310 220 143 184 857
After-tax merger-related and
restructuring charges - - - - - 136 136
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 198 112 310 220 143 320 993
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.74 % 45.44 22.69 20.96 19.38 29.17 22.49
Average loans, net $ 35,244 3,808 39,052 49,665 34,262 10,014 132,993
Average deposits 13,405 18,500 31,905 75,204 27,760 2,591 137,460
Average attributed stockholders'
equity (b) $ 4,422 998 5,420 4,150 2,890 4,353 16,813
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 20 17 154 35 51 - 277
Provision for loan losses - (1) 62 - - - 61
Trading account profit (loss) 83 (156) - - - - (73)
Fee and other income 84 35 36 45 60 (35) 225
Noninterest expense 107 22 38 24 40 - 231
Income tax expense 27 (40) 34 13 27 (35) 26
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 53 (85) 56 43 44 - 111
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 27.41 % (113.16) 10.12 113.73 29.99 - 11.03
Average loans, net $ 3,006 1,553 19,191 4,647 4,909 - 33,306
Average deposits 3,003 643 3,827 22 4,796 - 12,291
Average attributed stockholders'
equity (b) $ 767 298 2,196 150 582 - 3,993
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 8 13 1 38 42 - 102
Provision for loan losses - - - - 1 - 1
Fee and other income 196 150 105 19 5 (21) 454
Noninterest expense 180 93 50 27 18 - 368
Income tax expense 10 27 21 12 11 (8) 73
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 14 43 35 18 17 (13) 114
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 22.75 % 82.70 71.23 71.47 26.55 - 48.15
Average loans, net $ - 118 - - 3,706 - 3,824
Average deposits - 2,334 - 11,534 2,800 - 16,668
Average attributed stockholders'
equity (b) $ 267 208 147 103 257 (28) 954
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 24 112 95 683 914
Provision for loan losses - 3 42 41 86
Fee and other income 68 178 161 208 615
Noninterest expense 79 174 71 545 869
Income tax expense 5 43 54 117 219
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 8 70 89 188 355
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 21.80 % 18.71 76.76 33.91 32.83
Average loans, net $ 2,173 9,873 3,648 37,015 52,709
Average deposits 1,413 159 11 76,366 77,949
Average attributed stockholders'
equity (b) $ 143 1,472 454 2,211 4,280
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 22 113 54 250 439
Provision for loan losses 1 18 6 - 25
Fee and other income - - - 129 129
Noninterest expense 9 70 13 186 278
Income tax expense 5 4 14 74 97
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 7 21 21 119 168
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 17.67 % 6.34 13.76 66.44 23.50
Average loans, net $ 2,648 24,213 9,048 - 35,909
Average deposits - - - 26,666 26,666
Average attributed stockholders'
equity (b) $ 171 1,366 634 713 2,884
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 277 102 379 914 439 111 1,843
Provision for loan losses 61 1 62 86 25 66 239
Trading account profit (loss) (73) - (73) - - 18 (55)
Fee and other income 225 454 679 615 129 445 1,868
Noninterest expense 231 368 599 869 278 176 1,922
Income tax expense 26 73 99 219 97 85 500
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 111 114 225 355 168 247 995
After-tax merger-related and
restructuring charges - - - - - 16 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 111 114 225 355 168 263 1,011
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 11.03 % 48.15 18.04 32.83 23.50 24.08 23.42
Average loans, net $ 33,306 3,824 37,130 52,709 35,909 7,938 133,686
Average deposits 12,291 16,668 28,959 77,949 26,666 2,640 136,214
Average attributed stockholders'
equity (b) $ 3,993 954 4,947 4,280 2,884 4,333 16,444
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 16 14 151 31 38 - 250
Provision for loan losses 5 - 18 3 1 - 27
Trading account profits 38 31 - - - - 69
Fee and other income 205 13 18 45 47 (17) 311
Noninterest expense 163 26 48 22 54 - 313
Income tax expense 34 10 39 15 11 (17) 92
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 57 22 64 36 19 - 198
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 30.82 % 38.20 13.32 94.38 13.81 - 22.05
Average loans, net $ 2,426 1,754 18,194 4,594 5,088 - 32,056
Average deposits 2,048 658 3,551 21 4,484 - 10,762
Average attributed stockholders'
equity (b) $ 748 231 1,927 153 552 - 3,611
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 10 13 1 39 40 - 103
Provision for loan losses - - - - 2 - 2
Fee and other income 193 154 102 18 4 (23) 448
Noninterest expense 168 109 56 26 20 - 379
Income tax expense 13 22 18 12 9 (9) 65
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 22 36 29 19 13 (14) 105
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 32.28 % 66.56 51.85 71.97 22.78 - 44.46
Average loans, net $ 1 100 - - 3,508 - 3,609
Average deposits - 2,167 - 11,150 2,620 - 15,937
Average attributed stockholders'
equity (b) $ 267 216 145 105 242 (30) 945
- ------------------------------------------------------------------------------------------------------------------------------------
HOME
EQUITY &
FIRST THE RETAIL
UNION MONEY CREDIT BRANCH
(In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 24 41 83 691 839
Provision for loan losses - 3 57 26 86
Fee and other income 101 9 74 249 433
Noninterest expense 78 26 61 582 747
Income tax expense 17 8 15 127 167
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 30 13 24 205 272
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 65.06 % 22.46 22.19 35.77 34.45
Average loans, net $ 2,230 6,082 3,676 37,795 49,783
Average deposits 1,428 105 13 78,368 79,914
Average attributed stockholders'
equity (b) $ 174 238 450 2,300 3,162
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 21 127 52 237 437
Provision for loan losses 1 15 5 - 21
Fee and other income - - - 128 128
Noninterest expense 10 77 15 206 308
Income tax expense 4 10 12 61 87
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6 25 20 98 149
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 15.75 % 6.83 12.82 58.58 20.47
Average loans, net $ 2,571 25,903 8,850 - 37,324
Average deposits - - - 24,888 24,888
Average attributed stockholders'
equity (b) $ 167 1,471 618 671 2,927
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 250 103 353 839 437 176 1,805
Provision for loan losses 27 2 29 86 21 14 150
Trading account profit (loss) 69 - 69 - - (94) (25)
Fee and other income 311 448 759 433 128 236 1,556
Noninterest expense 313 379 692 747 308 1,062 2,809
Income tax expense 92 65 157 167 87 (283) 128
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 198 105 303 272 149 (475) 249
After-tax merger-related and
restructuring charges - - - - - 634 634
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 198 105 303 272 149 159 883
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 22.05 % 44.46 26.68 34.45 20.47 16.02 23.89
Average loans, net $ 32,056 3,609 35,665 49,783 37,324 8,264 131,036
Average deposits 10,762 15,937 26,699 79,914 24,888 5,540 137,041
Average attributed stockholders'
equity (b) $ 3,611 945 4,556 3,162 2,927 3,980 14,625
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------------------------------
REAL COMMERCIAL
INVESTMENT ESTATE TRADITIONAL LEASING &
(In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL MARKETS
Income statement data
Net interest income $ 27 16 161 19 27 - 250
Provision for loan losses - - 6 1 1 - 8
Trading account profits 35 - - - - - 35
Fee and other income 131 16 8 50 59 (17) 247
Noninterest expense 113 24 46 34 46 - 263
Income tax expense 27 1 45 10 15 (17) 81
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 53 7 72 24 24 - 180
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 22.15 % 14.27 14.97 64.89 19.43 - 19.36
Average loans, net $ 2,207 1,829 17,907 4,244 4,168 - 30,355
Average deposits 1,586 590 3,573 21 3,560 - 9,330
Average attributed stockholders'
equity (b) $ 970 199 1,951 150 501 - 3,771
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL
BROKERAGE & PRIVATE
INSURANCE TRUST MUTUAL CAP CLIENT
(In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MANAGEMENT
Income statement data
Net interest income $ 12 15 - 35 38 - 100
Provision for loan losses - - - - 1 - 1
Fee and other income 187 146 96 17 3 (20) 429
Noninterest expense 167 109 54 25 21 - 376
Income tax expense 12 20 16 10 7 (8) 57
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 20 32 26 17 12 (12) 95
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 29.94 % 59.78 48.01 70.84 20.88 - 41.13
Average loans, net $ - 127 - - 3,375 - 3,502
Average deposits - 2,356 - 10,879 2,517 - 15,752
Average attributed stockholders'
equity (b) $ 264 216 135 97 232 (27) 917
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST RETAIL
UNION HOME CREDIT BRANCH
(In millions) MORTGAGE EQUITY CARDS PRODUCTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER
Income statement data
Net interest income $ 19 38 94 670 821
Provision for loan losses 1 2 53 30 86
Fee and other income 52 9 69 224 354
Noninterest expense 70 27 59 571 727
Income tax expense - 7 20 112 139
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ - 11 31 181 223
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity - % 25.54 28.89 31.60 29.59
Average loans, net $ 1,901 5,057 3,884 38,952 49,794
Average deposits 1,109 - 15 77,794 78,918
Average attributed stockholders'
equity (b) $ 125 184 444 2,316 3,069
- ------------------------------------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
BUSINESS SEGMENTS (a)
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998
-------------------------------------------------------------------------------------------------
SMALL REAL CASH MGT. &
BUSINESS ESTATE DEPOSIT
(In millions) BANKING LENDING BANKING SERVICES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Income statement data
Net interest income $ 21 123 55 229 428
Provision for loan losses 1 16 2 - 19
Fee and other income - - - 129 129
Noninterest expense 10 83 16 201 310
Income tax expense 4 6 14 60 84
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 6 18 23 97 144
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 16.29 % 4.76 14.33 58.59 19.76
Average loans, net $ 2,532 24,980 9,530 - 37,042
Average deposits - - - 24,301 24,301
Average attributed stockholders'
equity (b) $ 162 1,453 658 667 2,940
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL CAPITAL FIRST UNION TREASURY/
(IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED (C)
Income statement data
Net interest income $ 250 100 350 821 428 232 1,831
Provision for loan losses 8 1 9 86 19 21 135
Trading account profits 35 - 35 - - 91 126
Fee and other income 247 429 676 354 129 64 1,223
Noninterest expense 263 376 639 727 310 162 1,838
Income tax expense 81 57 138 139 84 56 417
- ------------------------------------------------------------------------------------------------------------------------------------
Net income after
merger-related and
restructuring charges 180 95 275 223 144 148 790
After-tax merger-related and
restructuring charges - - - - - 19 19
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before
merger-related and
restructuring charges $ 180 95 275 223 144 167 809
- ------------------------------------------------------------------------------------------------------------------------------------
Performance and other data
Return on average attributed
stockholders' equity 19.36 % 41.13 23.79 29.59 19.76 13.78 21.01
Average loans, net $ 30,355 3,502 33,857 49,794 37,042 9,786 130,479
Average deposits 9,330 15,752 25,082 78,918 24,301 6,273 134,574
Average attributed stockholders'
equity (b) $ 3,771 917 4,688 3,069 2,940 4,915 15,612
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Business Segment information reflects the April 1998 pooling of interests
merger with CoreStates. The information also reflects the 1998 divestiture of
$3.4 billion of deposits, $2.2 billion of which related to the CoreStates
merger. Information related to the purchase accounting acquisitions of The Money
Store and EVEREN on June 30, 1998, and October 1, 1999, respectively, is
included from the date the acquisitions occurred.
(b) Average attributed stockholders' equity excludes merger-related and
restructuring charges. The return on average attributed stockholders' equity for
the Capital Management Mutual Funds unit is net of the amount included in Other.
(c) In the consolidated data, First Union Securities represents the total of
Capital Markets and Capital Management.
16
