FIRST UNION CORPORATION
AND SUBSIDIARIES
Second Quarter
Financial
Supplement
Six Months Ended
June 30, 1995
FIRST UNION CORPORATION
AND SUBSIDIARIES
SECOND QUARTER FINANCIAL SUPPLEMENT
SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
TABLE OF CONTENTS
Page
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 1
Management's Analysis of Operations. . . . . . . . . . . . . . . . 2
Consolidated Summaries of Income and Per Share Data. . . . . . . . T-1
Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . T-2
Noninterest Expense. . . . . . . . . . . . . . . . . . . . . . . . T-2
Internal Capital Growth and Dividend Payout Ratios . . . . . . . . T-3
Selected Quarterly Data. . . . . . . . . . . . . . . . . . . . . . T-4
Growth through Acquisitions. . . . . . . . . . . . . . . . . . . . T-5
Securities Available for Sale. . . . . . . . . . . . . . . . . . . T-6
Investment Securities. . . . . . . . . . . . . . . . . . . . . . . T-7
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T-8
Allowance for Loan Losses and Nonperforming Assets . . . . . . . . T-9
Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . T-10
Allowance for Foreclosed Properties. . . . . . . . . . . . . . . . T-10
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T-11
Time Deposits in Amounts of $100,000 or More . . . . . . . . . . . T-11
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . T-12
Changes in Stockholders' Equity. . . . . . . . . . . . . . . . . . T-13
Capital Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . T-14
Interest Rate Gap. . . . . . . . . . . . . . . . . . . . . . . . . T-15
Off-Balance Sheet Derivative Financial Instruments . . . . . . . . T-16
Off-Balance Sheet Derivatives-Expected Maturities. . . . . . . . . T-18
Off-Balance Sheet Derivatives Activity . . . . . . . . . . . . . . T-18
Net Interest Income Summaries
Five Quarters Ended June 30, 1995. . . . . . . . . . . . . . . . T-19
Year-to-date June 30, September 30, and December 31, 1994. . . . T-21
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . T-23
Consolidated Statements of Income
Five Quarters Ended June 30, 1995. . . . . . . . . . . . . . . . T-24
Year-to-date June 30, 1995 and 1994. . . . . . . . . . . . . . . T-25
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . T-26
SELECTED FINANCIAL DATA
Three Months Ended Six Months Ended
June 30, June 30,
Per Common Share Data 1995 1994 1995 1994
Net income applicable to common stockholders. . . . . . . . . $1.45 1.32 2.77 2.59
Cash dividends. . . . . . . . . . . . . . . .46 .40 .92 .80
Book value. . . . . . . . . . . . . . . . . 33.39 29.54 33.39 29.54
Quarter-end price . . . . . . . . . . . . . $45.25 46.125 45.25 46.125
Financial Ratios
Return on average assets (a)(b) . . . . . . 1.25% 1.28 1.24 1.28
Return on average common stockholders' equity (a)(c). . . . . . . . 17.71 17.53 17.22 17.53
Net interest margin(a). . . . . . . . . . . 4.62 4.78 4.61 4.78
Net charge-offs to average loans, net (a) . . . . . . .44 .27 .38 .27
Allowance for loan losses to:
Loans, net . . . . . . . . . . . . . . . 1.61 2.06 1.61 2.06
Nonaccrual and restructured loans. . . . . . . . . 222 192 222 192
Nonperforming assets . . . . . . . . . . 170 152 170 152
Nonperforming assets to loans, net and
foreclosed properties. . . . . . . . . . .95 1.35 .95 1.35
Stockholders' equity to assets. . . . . . . 6.90 7.42 6.90 7.42
Tier 1 capital to risk-weighted assets. . . . . . . . 6.86 9.30 6.86 9.30
Dividend payout ratio on common shares. . . . . . . . 31.72% 30.30 33.21 30.89
(a) Annualized.
(b) Based on net income.
(c) Based on net income applicable to common stockholders and average
common stockholders' equity excluding average net unrealized gains
and losses on debt and equity securities.
1
MANAGEMENT'S ANALYSIS OF OPERATIONS
EARNINGS HIGHLIGHTS
First Union's earnings applicable to common stockholders increased to
$479 million, or $2.77 per common share, in the first half of 1995,
compared with $440 million, or $2.59, in the first half of 1994.
Second quarter 1995 net income applicable to common stockholders
increased to $249 million, or $1.45 per common share, compared with $223
million, or $1.32, in the second quarter of 1994 and $230 million, or
$1.32, in the first quarter of 1995.
Key factors in first half 1995 results included:
(bullet) 7 percent growth in tax-equivalent net interest income, to $1.6
billion at June 30, 1995, compared with the six months ended June
30, 1994;
(bullet) 11 percent loan growth since
year-end 1994;
(bullet) A decline in nonperforming assets to
.95 percent of net loans and foreclosed properties; and
(bullet) 14 percent growth in noninterest income to $634 million
at June 30, 1995, compared with the six months ended June
30, 1994.
Net loans at June 30, 1995, were $60.0 billion, an increase of $6.0
billion since year-end 1994, including $2.6 billion from acquisitions
that closed during the first half of 1995. Loan growth was strong in all
categories, particularly in the consumer portfolio, which was led by
direct consumer lending through First Union's retail branch system,
credit cards and home equity lending. Residential mortgages also
increased through the acquisitions of First Florida Savings Bank, FSB,
and Virginia-based Ameribanc Savings Bank, FSB, which closed on April 1,
1995, and Coral Gables FedCorp., which closed on May 31, 1995.
Nonperforming assets were $569 million at June 30, 1995, compared with
$577 million at March 31, 1995, and $558 million at year-end 1994. They
were .95 percent of net loans and foreclosed properties, the lowest
percentage in nine years. Annualized net charge-offs for the first six
months of 1995 were .38 percent of average net loans.
Growth in noninterest income for the first six months of 1995 compared
with same period in 1994 was realized in virtually all categories,
including mortgage banking income, capital management income,
fee income from capital markets activity and service charges on deposits.
On June 19, 1995, First Union announced a 13 percent increase in its
common stock dividend to 52 cents per share, or $2.08 on an annualized
basis, representing the 18th consecutive year that First Union has
increased its dividend. First Union has increased its dividend four
times in the past three years. First Union, including its predecessor
Union National Bank, has paid a dividend every year since 1914. The
common stock dividend is payable on September 15, 1995, to stockholders
of record as of August 31, 1995.
Domestic banking operations, including trust operations, located in
North and South Carolina, Georgia, Florida, Maryland, Tennessee,
Virginia and Washington, D.C., and
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mortgage banking operations are our principal sources of revenues.
Foreign banking operations are immaterial.
The Net Interest Income section provides information about lost interest
income related to nonaccrual and restructured loans and the Asset
Quality section includes information about the loan loss provision.
Outlook
Our first half performance supports our belief that both our fundamental
trends and the investments in capital markets products and services,
commercial lending re-engineering, card products (including credit
cards), retail investment products, technology and other initiatives we
have undertaken to enhance revenues have helped to produce earnings
momentum.
On June 19, 1995, First Union announced the signing of an agreement to
acquire First Fidelity Bancorporation, a $35.4 billion asset banking
company based in Newark, N.J., and Philadelphia, Pa. This transaction is
estimated to be initially dilutive, but to be accretive to earnings in
1997 and beyond.
The First Fidelity merger agreement provides, among other things, for
(i) the merger of First Fidelity with and into a wholly-owned subsidiary
of First Union, (ii) the exchange of each outstanding share of First
Fidelity common stock for 1.35 shares of First Union common stock,
subject to possible adjustment in certain circumstances, and (iii) the
exchange of each share of the three outstanding series of First Fidelity
preferred stock for one share of one of three corresponding new series
of First Union's Class A Preferred Stock having substantially identical
terms as the relevant series of First Fidelity preferred stock, all
subject to the terms and conditions contained the First Fidelity merger
agreement.
In connection with the execution of the First Fidelity merger agreement,
First Fidelity granted an option to First Union to purchase, under
certain circumstances, up to 19.9 percent of the outstanding shares of
First Fidelity common stock at a per share exercise price equal to
$59.00, and First Union granted an option to First Fidelity to purchase,
under certain circumstances, up to 19.9 percent of the outstanding
shares of First Union common stock at a per share exercise price
equal to $45.625.
Also, in connection with the execution of the First Fidelity merger agreement,
Banco Santander, S.A., the owner of approximately 30 percent of the
outstanding shares of First Fidelity common stock, agreed, among other
things, to vote the First Fidelity shares held by it in favor of the
First Fidelity merger agreement. Following consummation of the First
Fidelity merger, Banco Santander is expected to own approximately 11.4
percent of the outstanding shares of First Union common stock.
The First Fidelity merger will be accounted for as a pooling of
interests. Consummation is expected by January 1, 1996, and is subject to
the receipt of regulatory approvals, First Fidelity and First Union
stockholder approvals and other conditions set forth in the First Fidelity
merger agreement.
Based on the $47.625 closing price of First Union common stock on the
New York Stock Exchange on June 16, 1995, the transaction would be
valued at approximately $5.4 billion and represent a purchase price of
$64.29 for each share of First Fidelity common stock.
Before consummation of the First Fidelity merger, First Fidelity and
First Union may purchase up to 5.5 million shares of First Fidelity
common stock or 7.4 million shares of First Union common stock, or some
combination of the two. Approximately 105 million shares of First Union
common stock are expected to be issued in the First Fidelity merger
(including outstanding First Fidelity employee stock options and
convertible preferred stock, and net of the expected purchase of First
Fidelity and First Union common stock referred to above). The
Stockholders' Equity section includes further information on the
purchase of First Union common stock. In addition, it is expected
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that after-tax restructuring charges of $140 million will be taken in
the fourth quarter of 1995 in connection with the First Fidelity merger.
Following consummation of the First Fidelity merger, the current
chairman and chief executive officer of First Fidelity, Anthony P.
Terracciano, will join Edward E. Crutchfield and John R. Georgius in an
"Office of the Chairman" of First Union. Mr. Crutchfield will continue
to serve as chairman and chief executive officer, Mr. Georgius will
serve as vice chairman and Mr. Terracciano will serve as president of
First Union. Additionally, six First Fidelity directors, including Mr.
Terracciano and a representative of Banco Santander, will join the First
Union Corporation Board of Directors.
Additional historical, pro forma and other information relating to the
First Fidelity merger is available in First Union Form 8-K documents
dated June 19, 1995, June 20, 1995, June 21, 1995, and June 30, 1995,
which have been filed with the Securities and Exchange Commission.
During the second quarter of 1995, we completed the purchase accounting
acquisitions of Florida-based Coral Gables Fedcorp, Inc.; Ameribanc
Investors Group, parent of Ameribanc Savings Bank, FSB, in Virginia, and
First Florida Savings Bank, FSB. These three acquisitions had combined
assets of $3.2 billion, net loans of $2.6 billion and deposits of $2.8
billion.
During the third quarter of 1995, we completed the purchase accounting
acquisitions of American Savings of Florida, FSB, and Home Federal
Savings Bank of Rome, Ga. In the second half of 1995, we expect to
consummate the purchase accounting acquisitions of United Financial
Corporation of South Carolina Inc. and Columbia First Bank, FSB, in
Virginia. During the first quarter of 1996, we expect to consummate the
pending purchase accounting acquisitions of RS Financial Corp., parent
company of Raleigh Federal Savings Bank, and Brentwood National Bank,
based in the Nashville suburb of Brentwood, Tenn. At June 30, 1995,
these six pending or completed purchase acquisitions had combined
assets, net loans and deposits of $8.0 billion, $5.6 billion and $5.3
billion, respectively.
We continue to be alert to opportunities to enhance stockholder value through
acquisitions. We are continually evaluating acquisition opportunities, and
teams of experienced bankers from all areas of the corporation frequently
conduct 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 may be expected. Acquisitions typically involve the
payment of a premium over book and market values. Some dilution of First
Union's book value and temporary dilution of net income per common share
may occur in connection with some future acquisitions.
The Accounting and Regulatory Matters section provides information about
various other legislative, accounting and regulatory matters that have
recently been adopted or proposed.
4
NET INTEREST INCOME
Tax-equivalent net interest income increased 7 percent compared with the
first half of 1994, to $1.6 billion in the first half of 1995.
Tax-equivalent net interest income increased 8 percent from the second
quarter of 1994 and 4 percent from the first quarter of 1995, to a
record $836 million in the second quarter of 1995. The increase in the
first half of 1995 reflected strong loan growth, the repricing of
variable rate assets and reduced premium amortization for the purchase
of options contracts to hedge against rising interest rates. During the
second half of 1995, we are optimistic about our ability to continue to
increase tax-equivalent net interest income.
Nonperforming loans reduced interest income because the contribution
from these loans is eliminated or sharply reduced. In the first half of
1995, $31 million in gross interest income would have been recorded if
all nonaccrual and restructured loans had been current in accordance
with their original terms and had been outstanding throughout the
period, or since origination if held for part of the period. The amount
of interest income related to these assets and included in income in the
first half of 1995 was $8 million.
Net Interest Margin
The net interest margin, which is the difference between the
tax-equivalent yield on earning assets and the rate paid on funds to
support those assets, was 4.62 percent in the second quarter of 1995,
compared with 4.57 percent in the first quarter of 1995 and 4.78 percent
in the second quarter of 1994. Loan repricing and a lag in deposit
repricing were factors in the margin increase from the first quarter of
1995. The margin declined from 4.78 percent in the first six months of
1994 to 4.61 percent in the first six months of 1995 primarily because
of the addition of acquired banks and thrifts with lower margins; the
addition of short-term securities; and increasingly competitive loan
pricing. While we continue to expect growth in net interest income and
loans, particularly in credit cards and direct consumer loans, we also
anticipate a modest contraction in the margin in future quarters as a
result of the impact of acquisitions and the generation of lower-spread
assets related to Capital Markets activity. We expect the margin to
benefit from the repricing of adjustable rate mortgages and run-off in
off-balance sheet positions that have had a negative impact on the
margin. It should be noted that the margin is not our primary management
focus or goal. Our goal is to continue increasing net interest income,
which has increased for 23 consecutive quarters.
The average rate earned on earning assets was 8.59 percent in the first
half of 1995, compared with 7.68 percent in the first half of 1994. The
average rate paid on interest-bearing liabilities was 4.60 percent in
the first half of 1995 and 3.41 percent in the first half of 1994.
We use securities and off-balance sheet transactions to manage interest
rate sensitivity. More information on these transactions is included in
the Interest Rate Risk Management section.
NONINTEREST INCOME
Virtually all categories of noninterest income grew in the first half of
1995, including capital management income, mortgage banking income and
service charges on deposit accounts, reflecting greater volume due to
acquisitions. Mortgage banking income more than doubled from the second
quarter of 1994. This increase reflected both the $3.8 billion growth in
the mortgage servicing portfolio to $37.3 billion at June 30, 1995, as a
result of acquisitions since the second quarter of 1994, as well as
increased
5
originations from the first quarter of 1995. Capital management income,
including personal and corporate trust, brokerage, mutual funds and
asset management income, increased 34 percent, to a record $68 million.
Mutual fund assets under management grew to $9.2 billion with the
acquisition by First Union's proprietary family of mutual funds of five
of the six Florida-based ABT family of mutual funds. Our proprietary
mutual fund family was renamed "The Evergreen Funds" on July 7, 1995.
Capital markets activity also was strong during the first half of 1995.
Trading Activities
Trading activities are undertaken to satisfy customers' risk management
and investment needs and for the corporation's own account. All trading
activities are conducted within risk limits established by the
corporation's Funds Management Committee, and all trading positions are
marked to market daily.
Trading activities include fixed income securities, money market
instruments, foreign exchange, options, futures, forward rate agreements
and swaps.
At June 30, 1995, trading account assets were $1.6 billion, compared
with $1.2 billion at year-end 1994.
NONINTEREST EXPENSE
Noninterest expense increased 8 percent in the first half of 1995
compared with the first half of 1994, largely reflecting growth in
personnel, advertising and other expenses related to card products,
financial planning, capital markets and other initiatives undertaken to
improve prospects for revenue growth, as well as expenses related to
acquisitions. Noninterest expense increased 4 percent compared with the
first quarter of 1995, largely as a result of acquisitions that closed
during the second quarter. Increases in other intangible assets from
$917 million at June 30, 1994, to $1.2 billion at year-end 1994 and $1.4
billion at June 30, 1995, and the related increase in amortization
expense, contributed to the increase in noninterest expense. Costs
related to environmental matters were not material.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are used as a part of the corporation's
interest rate risk management strategy and may be sold in response to
changes in interest rates, changes in prepayment risk, liquidity needs,
the need to increase regulatory capital ratios and other factors. During
the first half of 1995, we allowed securities to mature without material
reinvestment in order to fund loan growth and to avoid material exposure
to interest rate movements.
At June 30, 1995, we had securities available for sale with a market
value of $7.4 billion, compared with a market value of $7.8 billion at
year-end 1994. The market value of securities available for sale was $13
million above amortized cost at the end of the second quarter of 1995.
Despite the unrealized gain, an $8 million after-tax unrealized loss was
recorded as a reduction of stockholders' equity at June 30, 1995, as a
result of a transfer loss recorded when securities were moved to investment
securities in 1994. Table 7 provides information related to unrealized
gains and losses and realized gains and losses on these securities.
The average rate earned on securities available for sale in the first
half of 1995 was 6.37 percent, compared with 5.27 percent in the first
half of 1994. The average maturity of the portfolio was 3.32 years at
June 30, 1995.
6
INVESTMENT SECURITIES
First Union's investment securities amounted to $3.6 billion at June 30,
1995, compared with $3.7 billion at year-end 1994.
The average rate earned on investment securities in the first half of
1995 was 8.93 percent, compared with 9.03 percent in the first half of
1994. The average maturity of the portfolio was 5.09 years at June 30,
1995.
Table 8 provides information related to unrealized gains and losses and
realized gains and losses on these securities.
LOANS
Our lending strategy stresses quality growth, diversified by product,
geography and industry. A common credit underwriting structure is in
place throughout the company, and a special real estate credit group
reviews large commercial real estate loans before approval. Consistent
with our long-time standard, we generally look for two repayment sources
for commercial real estate loans: cash flows from the project and other
resources of the borrower.
Our commercial lenders focus principally on middle-market companies. A
majority of our commercial loans are for less than $10 million.
Our consumer lenders emphasize credit judgments that focus on a
customer's debt obligations, ability and willingness to repay, and
general economic trends.
Net loans at June 30, 1995, were $60.0 billion, compared with $54.0
billion at year-end 1994. Of this increase, $2.6 billion was related to
acquisitions that closed in the first six months of 1995, with the rest
coming from strong loan growth in all of our banking states and in
virtually all loan categories. Consumer loan growth led the increase,
largely reflecting strength in credit cards, direct lending and second
mortgages.
The loan portfolio at June 30, 1995, was composed of 45 percent in
commercial loans and 55 percent in consumer loans. The portfolio mix did
not change significantly from year-end 1994.
At June 30, 1995, unused loan commitments related to commercial and
consumer loans were $17.1 billion and $11.0 billion, respectively.
Commercial and standby letters of credit were $2.2 billion.
At June 30, 1995, loan participations sold to other lenders amounted to
$1.1 billion and were recorded as a reduction of gross loans.
The average rate earned on loans in the first half of 1995 was 9.05
percent, compared with 8.40 percent in the first half of 1994. The
average prime rate in the first half of 1995 was 8.91 percent, compared
with 6.46 percent in the first half of 1994. Factors affecting rates
between the first half of 1994 and the first half of 1995 included:
rapid increases in the prime rate throughout 1994; an increased portion
of the loan portfolio tied to rate indices other than the prime rate; a
larger portfolio of fixed and adjustable rate mortgages; and a rapidly
growing credit card portfolio, which reflected recent solicitations with
introductory rates that will reprice throughout 1995.
7
The Asset Quality section provides information about geographic exposure
in the loan portfolio.
Commercial Real Estate Loans
Commercial real estate loans amounted to 13 percent of the total
portfolio at June 30, 1995, and at December 31, 1994. This portfolio
included commercial real estate mortgage loans of $6.0 billion at June
30, 1995, and $5.4 billion at December 31, 1994.
ASSET QUALITY
Nonperforming Assets
At June 30, 1995, nonperforming assets were $569 million, or .95 percent
of net loans and foreclosed properties, compared with $577 million, or
1.03 percent, at March 31, 1995, and $558 million, or 1.03 percent, at
December 31, 1994.
Segregated assets, which are not included in nonperforming assets and
which relate to the acquisition of Southeast Banks in 1991, were $189
million at June 30, 1995, or $169 million net of a $20 million allowance
for losses on segregated assets. This compared with $187 million, or
$165 million net of a $22 million allowance, at December 31, 1994.
Under a loss-sharing arrangement, the FDIC reimburses First Union for 85
percent of any losses associated with the acquired Southeast Banks
commercial and consumer loan portfolio, except revolving consumer
credit, for which reimbursement declines five percent per year to 65
percent by 1996. Segregated assets are included in other assets.
Loans or properties of less than $5 million each made up 79 percent, or
$450 million, of nonperforming assets at June 30, 1995. Of the rest:
(diamond) Seven loans or properties between $5 million and $10 million each
accounted for $45 million; and
(diamond) Three loans or properties over $10 million each accounted for $74
million.
Sixty-three percent of nonperforming assets were collateralized by real
estate at June 30, 1995, compared with 72 percent at year-end 1994.
Past Due Loans
In addition to these nonperforming assets, at June 30, 1995, accruing
loans 90 days past due were $118 million, compared with $206 million at
March 31, 1995, and $140 million at December 31, 1994. Of these, $7
million were related to commercial and commercial real estate loans,
compared with $27 million at December 31, 1994.
Net Charge-offs
Annualized net charge-offs as a percentage of average net loans were .38
percent in the first half of 1995, compared with .27 percent in the
first half of 1995. Annualized net charge-offs were .44 percent in the
second quarter of 1995, .31 percent in the first quarter of 1995, and
.40 percent in the fourth quarter of 1994. As our credit card portfolios
have matured, annualized net charge-offs have increased. We expect a
moderate increase in the dollar level of charge-offs during the rest of
the year as the credit card portfolios continue to mature. Table 10
provides information on net charge-offs by category.
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Provision And Allowance For Loan Losses
The loan loss provision was $77 million in the first half of 1995,
compared with $50 million in the first half of 1994. The provision was
$44 million in the second quarter of 1995, compared with $25 million in
the second quarter of 1994. The increase in the loan loss provision was
based primarily on current economic conditions, on the maturity and
level of nonperforming assets, and on projected levels of charge-offs,
particularly in relation to the credit card portfolio.
We establish reserves based upon various other factors, including the
results of quantitative analyses of the quality of commercial loans and
commercial real estate loans. Reserves for commercial and commercial
real estate loans are based principally on loan grades, historical loss
rates, borrowers' creditworthiness, underlying cash flows from the
project and from borrowers, and analysis of other less quantifiable
factors that might influence the portfolio. Reserves for consumer loans
are based principally on delinquencies and historical loss rates. We
analyze all loans in excess of $500,000 that are being monitored as
potential credit problems to determine whether supplemental, specific
reserves are necessary.
Since December 31, 1994, the loan loss allowance as a percentage of net
loans, nonaccrual and restructured loans, and nonperforming assets has
declined, as indicated in Table 10. Since the third quarter of 1994, the
provision for loan losses has been less than net charge-offs.
At June 30, 1995, impaired loans, which are included in nonaccrual
loans, amounted to $342 million, compared with $330 million at March 31,
1995. Included in the allowance for loan losses is $25 million related
to $226 million of impaired loans at June 30, 1995. The rest of the
impaired loans are recorded at or below fair value. The Accounting and
Regulatory Matters section provides further information about impaired
loans.
Geographic Exposure
The loan portfolio in the South Atlantic region of the United States is
spread primarily across 61 metropolitan statistical areas with diverse
economies. Washington, D.C.; Charlotte, North Carolina; Atlanta,
Georgia; and Miami, Jacksonville, West Palm Beach and Tampa, Florida,
are our largest markets, but no individual metropolitan market contains
more than 8 percent of the commercial loan portfolio.
Substantially all of the $7.9 billion commercial real estate portfolio
at June 30, 1995, was located in our banking region.
LIQUIDITY AND FUNDING SOURCES
Liquidity planning and management are necessary to ensure we maintain
the ability to fund operations cost-effectively and to meet current and
future obligations. In this process, we focus on both assets and
liabilities and the manner in which they combine to provide adequate
liquidity to meet the corporation's needs.
Funding sources primarily include customer-based core deposits but also
include purchased funds and cash flows from operations. First Union is
one of the nation's largest core deposit-funded banking institutions.
Our large consumer deposit base, which is spread across the economically
strong South Atlantic region, creates considerable funding diversity and
stability. Further, our acquisitions of bank and thrift deposits have
enhanced liquidity.
9
Asset liquidity is maintained through maturity management and our
ability to liquidate assets, primarily assets held for sale. Another
significant source of asset liquidity is the potential to securitize
assets such as credit card receivables and auto, home equity and
mortgage loans. Off-balance sheet sources of liquidity exist as well,
such as a mortgage servicing portfolio for which the estimated fair
value exceeded book value by $182 million at June 30, 1995.
Cash Flows
Net cash provided from operations primarily results from net income
adjusted for the following noncash accounting items: the provisions for
loan losses and foreclosed properties; and depreciation and
amortization. These items amounted to $268 million in the first half of
1995, compared with $208 million in the first half of 1994. This cash
was available during the first half of 1995 to increase earning assets
and to reduce borrowings by $103 million, and to pay dividends of $165
million.
Core Deposits
Core deposits were $54.5 billion at June 30, 1995, compared with $53.2
billion at December 31, 1994. Core deposits include savings, negotiable
order of withdrawal (NOW), money market and noninterest-bearing
accounts, and other consumer time deposits.
In the first half of 1995 and 1994, average noninterest-bearing deposits
were 19 percent and 20 percent, respectively, of average core deposits.
The Net Interest Income Summaries provide additional information about
average core deposits.
The portion of core deposits in higher-rate, other consumer time
deposits was 37 percent at June 30, 1995, and 35 percent at year-end
1994. Other consumer time and other noncore deposits usually pay higher
rates than savings and transaction accounts, but they generally are not
available for immediate withdrawal and are less expensive to process.
Average core deposit balances in the first half of 1995 increased $3.0
billion from the first half of 1994. Average balances in savings and
NOW, other consumer time deposits and noninterest-bearing deposits were
higher when compared with the previous year, while money market deposits
were lower. Deposits were primarily affected by acquisitions and can
also be affected by branch closings or consolidations, seasonal factors
and the rates being offered for deposits compared to other investment
opportunities.
Purchased Funds
Purchased funds at June 30, 1995, were $14.7 billion, compared with
$13.3 billion at year-end 1994. Purchased funds are acquired primarily
through (i) our large branch network, consisting principally of $100,000
and over certificates of deposit, public funds and treasury deposits,
and (ii) national market sources, consisting of relatively short-term
funding sources such as federal funds, securities sold under repurchase
agreements, eurodollar time deposits, short-term bank notes and
commercial paper, and longer-term funding sources such as term bank
notes, Federal Home Loan Bank borrowings and corporate notes.
Average purchased funds in the first half of 1995 were $14.9 billion, an
increase of 27 percent from $11.8 billion in the first half of 1994. The
increase was used primarily to fund loan growth.
10
LONG-TERM DEBT
Long-term debt was 94 percent of total stockholders' equity at June 30,
1995, compared with 64 percent at December 31, 1994.
The increase in long-term debt since year-end 1994 was primarily related
to the issuance of $1.1 billion of bank notes with varying rates and
terms to mature in 1997. Additionally, in the first half of 1995, we
issued $300 million of three-year floating rate notes and $250 million
of 40-year, 7 1/2 percent subordinated debentures, which can be redeemed in
whole or in part at the option of the holders in 2005. On August 7,
1995, we issued $250 million of 10-year, 7.05 percent subordinated notes
that are not redeemable prior to maturity. Proceeds from these debt
issues have been used for general corporate purposes.
Under a shelf registration statement filed with the Securities and
Exchange Commission, we currently have available for issuance $200
million of senior or subordinated debt securities. The sale of any
additional debt securities will depend on future market conditions,
funding needs and other factors.
Debt Obligations
We have a $350 million, three-year committed back-up line of credit that
expires in June 1997. This credit facility contains financial covenants
that require First Union to maintain a minimum level of tangible net
worth, restrict double leverage ratios and require capital levels at
subsidiary banks to meet regulatory standards. First Union is currently
in compliance with these requirements and has not used this line of
credit.
In the second half of 1995, $263 million of long-term debt will mature.
Maturing in 1996 is $1.5 billion, which includes bank notes of $875
million at June 30, 1995.
STOCKHOLDERS' EQUITY
At June 30, 1995, common stockholders' equity was $5.74 billion,
compared with $5.40 billion at December 31, 1994. Between year-end 1994
and August 7, 1995, we have paid $606 million for the repurchase of 13.2
million shares of First Union common stock related to the acquisition of
American Savings of Florida and the pending acquisitions of United
Financial, Columbia First, RS Financial and First Fidelity. These shares
have been retired. As of August 7, 1995, we also have purchased 2.7 million
shares of First Fidelity common stock for $170 million and 250,000
shares of First Fidelity convertible preferred stock for $12 million in
connection with the pending First Fidelity acquisition. In
April 1995, the board of directors renewed its authorization for the
purchase from time to time of up to 15 million shares of First Union
common stock. As of August 7, 1995, 6.3 million shares can be purchased
pursuant to such authorization, in addition to up to 7.4 million shares
in connection with the First Fidelity acquisition, or up to 5.5 million
shares of First Fidelity common stock, or some combination thereof.
We paid $165 million in dividends to preferred and common stockholders
in the first half of 1995.
At June 30, 1995, stockholders' equity included an $8 million unrealized
after-tax loss related to debt and equity securities. The Securities
Available for Sale section provides additional information about debt
and equity securities.
11
Subsidiary Dividends
Our banking subsidiaries are the largest source of parent company
dividends. Capital requirements established by regulators limit
dividends that these and certain other of our subsidiaries can pay. The
Office of the Comptroller of the Currency (OCC) generally limits a
national bank's dividends in two principal ways: first, dividends cannot
exceed the bank's undivided profits, less statutory bad debt in excess
of a bank's allowance for loan losses; and second, in any year dividends
may not exceed a bank's net profits for that year, plus its retained
earnings from the preceding two years, less any required transfers to
surplus.
Under these and other limitations, our subsidiaries had $153 million
available for dividends at June 30, 1995. Our subsidiaries paid $394
million in dividends to the corporation in the first half of 1995.
Risk-Based Capital
The minimum requirement for the ratio of total capital to risk-weighted
assets (including certain off-balance-sheet financial instruments, such
as standby letters of credit and interest rate swaps) is currently 8
percent. At least half of the total capital is to be composed of common
equity, retained earnings and a limited amount of qualifying preferred
stock, less certain intangible assets (tier 1 capital). The rest may
consist of a limited amount of subordinated debt, nonqualifying
preferred stock and a limited amount of the loan loss allowance
(together with tier 1 capital, total capital).
At June 30, 1995, the corporation's tier 1 and total capital ratios were
6.86 percent and 11.58 percent, respectively, compared with 9.30 percent
and 14.68 percent at June 30, 1994. These ratios have declined primarily
as a result of our First Union common stock repurchase program, our
preferred stock redemption, and because we have increased total assets
and intangible assets during the past year. These ratios remain above
regulatory minimums.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements
provide for a minimum leverage ratio of tier 1 capital to adjusted
average quarterly assets equal to 3 percent for bank holding companies
that meet specified criteria, including having the highest regulatory
rating. All other bank holding companies will generally be required to
maintain a leverage ratio of at least 4 to 5 percent. The corporation's
leverage ratio at June 30, 1995, was 5.74 percent.
The requirements also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. The Federal
Reserve Board also 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 adopted
by the OCC. Each subsidiary bank listed in Table 17 had a leverage ratio
in excess of 5.14 percent at June 30, 1995. None of our subsidiary banks
has been advised of any specific minimum capital ratios applicable to
it.
The regulatory agencies also have adopted regulations establishing
capital tiers for banks. Banks in the highest capital tier, or "well
capitalized," must have a leverage
12
ratio of 5 percent, a tier 1 capital ratio of 6 percent and a total
capital ratio of 10 percent.
At June 30, 1995, the deposit-taking subsidiary banks listed in Table 17
met the capital and leverage ratio requirements for "well capitalized"
banks. We expect to maintain these banks' ratios at the required levels
by the retention of earnings and, if necessary, the issuance of
additional capital. First Union Home Equity Bank is not a deposit-taking
bank.
Failure to meet certain capital ratio or leverage ratio requirements
could subject a bank to a variety of enforcement remedies, including
termination of deposit insurance by the FDIC.
The Accounting and Regulatory Matters section provides more information
about proposed changes in risk-based capital standards.
INTEREST RATE RISK MANAGEMENT
Managing interest rate risk is fundamental to banking. Banking
institutions manage the inherently different maturity and repricing
characteristics of the lending and deposit-taking lines of business to
achieve a desired interest rate sensitivity position and to limit
exposure to interest rate risk. The inherent maturity and repricing
characteristics of our 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 Financial Management Committee of the corporation's board of
directors reviews overall interest rate risk management activity. The
corporation's Funds Management Committee, which includes the
corporation's chief executive officer and president, and senior
executives from our Capital Markets Group, credit and finance areas,
oversees the interest rate risk management process and approves policy
guidelines. Balance sheet management personnel monitor the day-to-day
exposure to changes in interest rates in response to loan and deposit
flows and make adjustments within established policy guidelines.
We measure interest rate sensitivity by estimating the amount of
earnings per share at risk based on the modeling of future changes in
interest rates. Our model captures all assets and liabilities and
off-balance sheet financial instruments, and combines various
assumptions affecting rate sensitivity and changes in balance sheet mix
into an earnings outlook that incorporates our view of the interest rate
environment most likely over the next 24 months. Balance sheet
management and finance personnel review and update continuously the
underlying assumptions included in the earnings simulation model. The
results of the model are reviewed by the Funds Management Committee. The
model is updated at least monthly and more often as appropriate.
Our interest rate sensitivity analysis is based on multiple interest
rate scenarios, projected changes in growth in balance sheet categories
and other assumptions. Changes in management's outlook related to
interest rates and their effect on our balance sheet mix of assets and
liabilities and other market factors may cause actual results to differ
from our current simulated outlook.
13
We believe our earnings simulation model is a more relevant depiction of
interest rate risk than traditional gap tables because it captures
multiple effects excluded in less sophisticated presentations, and it
includes significant variables that we identify as being affected by
interest rates. For example, our model captures rate of change
differentials, such as federal funds rates versus savings account rates;
maturity effects, such as calls on securities; and rate barrier effects,
such as caps and floors on loans. It also captures changing balance
sheet levels, such as commercial and consumer loans, both floating and
fixed rate, noninterest-bearing deposits and investment securities. In
addition, it considers leads and lags that occur in long-term rates as
short-term rates move away from current levels; the elasticity in the
repricing characteristics of savings and money market deposits; and the
effects of prepayment volatility on various fixed rate assets such as
residential mortgages, mortgage-backed securities and consumer loans.
These and certain other effects are evaluated in developing the
scenarios from which sensitivity of earnings to changes in interest
rates is determined.
We use three standard scenarios in analyzing interest rate sensitivity
for policy measurement. The base-line scenario is our estimated most
likely path for future short-term interest rates over the next 24
months. The "high rate" and "low rate" scenarios assume 100 basis point
shifts from the base-line scenario in the federal funds rate by the
fourth succeeding month and that rates remain 100 basis points higher or
lower through the rest of the 24-month period. Our estimate in July 1995
of the most likely path for future short-term interest rates was that
the federal funds rate would decline to 5.60 percent by June 1996,
followed by a gradual increase to 6.00 percent by May 1997.
We determine interest rate sensitivity by the change in earnings per
share between the three scenarios over a 12-month policy measurement
period. The earnings per share as calculated by the earnings simulation
model under the base-line scenario becomes the standard. The measurement
of interest rate sensitivity is the percentage change in earnings per
share calculated by the model under high rate versus base-line and under
low rate versus base-line. The policy measurement period begins with the
fourth month forward and ends with the 15th month (i.e., the 12-month
period).
Our policy limit for the maximum negative impact on earnings per share
resulting from either the high rate or low rate scenario is 5 percent.
Based on the July 1995 outlook, if interest rates were to decline to
follow the low rate scenario, which means a full 100 basis point
decrease under the base-line, then earnings during the policy
measurement period would be negatively affected by 3.3 percent. Our
model indicates that earnings would be positively affected in our high
rate scenario.
In addition to the three standard scenarios used to analyze rate
sensitivity over the policy measurement period, we also analyze the
potential impact of other interest rate scenarios on corporate earnings
in managing and monitoring our interest rate sensitivity. These
alternate scenarios may include interest rate paths both higher, lower
and more volatile than those used for policy measurement.
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 resulting not only from the
standard scenarios over which policy period sensitivity is measured, but
also from alternate scenarios.
We regularly analyze strategies to mitigate the negative effect on
earnings of adverse changes in interest rates beyond the rate changes
set forth by our policy measurement criteria. As new monthly forecast
results become available, management will continue
14
to formulate strategies to protect earnings from the potential negative
effects of changing assumptions and interest rates.
Off-Balance Sheet Derivatives For Interest Rate Risk Management
As part of our overall interest rate risk management strategy, for many
years we have used off-balance sheet derivatives as a cost- and
capital-efficient way to modify the repricing or maturity
characteristics of on-balance sheet assets and liabilities. Our
off-balance sheet derivative transactions used for interest rate
sensitivity management include interest rate swaps, futures and options
with indices that relate to the pricing of specific core assets and
liabilities of the corporation. We believe we have appropriately
controlled the risk so that the derivatives used for rate sensitivity
management will not have any significant unintended effect on corporate
earnings.
As a result of interest rate fluctuations, off-balance sheet
transactions (and securities) will from time to time develop unrealized
appreciation or depreciation in market values when compared with their
cost. The impact on net interest income attributable to off-balance
sheet transactions, all of which are linked to specific assets and
liabilities as part of our overall interest rate risk management
strategy, will generally be offset by net interest income of on-balance
sheet assets and liabilities.
Our asset sensitivity arises naturally, primarily because the repricing
characteristics of our large core deposit base have a positive effect on
net interest income in a rising rate environment and a negative effect
on net interest income in a declining or low-rate environment.
Conversely, our fixed-rate securities and off-balance sheet instruments
have the opposite effect when rates go up or down. We mitigate our
natural asset sensitivity by holding fixed-rate debt instruments in the
available-for-sale securities portfolio or by holding off-balance sheet
"asset proxies." These asset proxies consist of interest rate swaps that
convert floating rate assets (primarily variable rate loans) to fixed
rate assets. The unrealized appreciation and depreciation of these asset
proxies generally offset the appreciation and depreciation of core
deposits. The combination of securities and interest rate swaps enables
us to achieve a desired level of interest rate sensitivity.
Another common application of off-balance sheet instruments is the use
of interest rate swaps to convert fixed rate debt into floating rate
debt. This is accomplished by entering into interest rate swap contracts
to receive a fixed rate of interest to the contractual maturity of the
debt issued and to pay a variable rate, usually six-month LIBOR. These
"liability swaps," all of which are linked to specific debt issuances,
leave rate sensitivity unchanged, whereas the fixed-rate debt issuance
alone would have increased asset sensitivity or reduced liability
sensitivity. The combination of the liability swaps and debt produces
the desired LIBOR-based floating rate funding regardless of changes in
overall rates.
Our overall goal is to manage the corporation's rate sensitivity in ways
that the earnings momentum is not adversely affected materially whether
rates go up or down.
The important consideration is not the shifting of unrealized
appreciation or depreciation between and among on- and off-balance sheet
instruments, but the prudent management of interest rate sensitivity so
that corporate earnings are not at risk as interest rates move up or
down.
The fair value appreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $78 million
at June 30, 1995, compared with fair value depreciation of $422 million
at December 31, 1994.
15
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses related to terminated
positions. The amount of deferred gains and losses from off-balance sheet
instruments used to manage interest rate risk was $10 million and $21 million,
respectively, as of June 30, 1995. These net losses will reduce net interest
income by $9 million in 1995 and $2 million in 1996. The increased
contribution to net interest income in a higher interest rate environment from
on-balance sheet assets and liabilities is expected to substantially
offset the potential reduced contribution to net interest income
reflected by the decline in market value of off-balance sheet derivative
financial instruments.
Although off-balance sheet derivative financial instruments do not
expose the corporation to credit risk equal to the notional amount, we
are exposed to credit risk equal to the extent of the fair value gain in
an off-balance sheet derivative financial instrument if the counterparty
fails to perform. We minimize the credit risk in these instruments by
dealing only with high quality counterparties. Each transaction is
specifically approved for applicable credit exposure.
In addition, our policy is to require all swaps and options be governed
by an International Swaps and Derivatives Association Master Agreement.
Bilateral collateral arrangements are in place for substantially all
dealer counterparties.
Collateral for dealer transactions and derivatives used in our trading
activities is delivered by either party when the credit risk associated
with a particular transaction, or group of transactions to the extent
netting exists, exceeds acceptable thresholds of credit risk. Thresholds
are determined based on the strength of the individual counterparty and
are bilateral. As of June 30, 1995, the total credit risk in excess of
thresholds was $148 million. The fair value of collateral held was 100
percent of the total credit risk in excess of thresholds. For nondealer
transactions, the need for collateral is evaluated on an individual
transaction basis and is primarily dependent on the financial strength
of the counterparty.
ACCOUNTING AND REGULATORY MATTERS
The Financial Accounting Standards Board (FASB) has issued Standard No.
114, "Accounting by Creditors for Impairment of a Loan," which requires
that all creditors value all specifically reviewed loans for which it is
probable that the creditor will be unable to collect all amounts due
according to the terms of the loan agreement at the present value of
expected cash flows, market price of the loan, if available, or value of
the underlying collateral. Expected cash flows are required to be
discounted at the loan's effective interest rate. This Standard is
required for fiscal years beginning after December 15, 1994. The FASB
also has issued Standard No. 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures," that amends
FASB Standard No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income
related to impaired loans. This Standard is to be implemented
concurrently with Standard No. 114. On January 1, 1995, we adopted the
provisions of Standards No. 114 and 118. The adoption of the Standards
required no increase to the allowance for loan losses and had no impact
on net income in the first half of 1995. The impact to historical and
current amounts related to in-substance foreclosures was not material,
and accordingly, historical amounts will not be restated. The Asset
Quality section includes information about impaired loans.
16
The FASB has also issued FASB Interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts," which defines right of set-off
and sets forth the conditions under which that right may be applied.
Specific guidance with respect to certain financial instruments such as
forward, interest rate swap, currency swap, option and other conditional
or exchange contracts and clarification of the circumstances in which it
is appropriate to offset amounts recognized for those contracts in the
statement of financial position is also included in this Interpretation.
In addition, it permits offsetting of fair value amounts recognized for
multiple forward, swap, option and other conditional or exchange
contracts executed with the same counterparty under a master netting
arrangement. This Interpretation is effective for financial statements
issued for periods beginning after December 15, 1993. The FASB has also
issued FASB Interpretation No. 41, "Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements," which modifies
FASB Interpretation No. 39 to permit offsetting in the statement of
financial position of payables and receivables that represent repurchase
agreements and reverse repurchase agreements, respectively, which have
the same settlement date, are executed with the same counterparty in
accordance with a master netting arrangement, involve securities that
exist in "book entry" form, and settle on securities transfer systems
that have the same key operating characteristics as the Federal
Securities Transfer System. This Interpretation is effective for
financial statements issued for periods ending after December 31, 1994.
The effect of the corporation's adoption of the provisions of these
Interpretations currently has been immaterial.
The FASB also has issued Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An estimate of the future
cash flows expected to result from the use of the asset and its eventual
disposition should be performed during a review for recoverability. An
impairment loss (based on the fair value of the asset) is recognized if
the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset.
Additionally, Standard No. 121 requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell, except for
certain assets. These assets will continue to be reported at the lower
of carrying amount or net realizable value. The periodic effect on net
income, if any, has not been determined. This Standard is required for
fiscal years beginning after December 15, 1995.
The FASB also has issued Standard No. 122, "Accounting for Certain
Mortgage Banking Activities," which requires that a mortgage banking
enterprise recognize as separate assets the rights to service mortgage
loans for others, however those servicing rights are acquired. A
mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells
or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing
rights and the loans (without the mortgage servicing rights) based on
their relative fair values if it is practicable to estimate those fair
values. If it is not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the mortgage
servicing rights), the entire cost of purchasing or originating the
loans should be allocated only to the mortgage loans without the
mortgage servicing rights. Additionally, this Standard requires that a
mortgage banking enterprise periodically assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
The corporation
17
adopted this Standard on a prospective basis only, beginning on July 1,
1995, and the periodic effect on net income will not be material to the
results of operations.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), among other provisions, imposes liability on a bank insured by
the FDIC for certain obligations to the FDIC incurred in connection with
other insured banks under common control.
The Federal Deposit Insurance Corporation Improvement Act, among other
things, requires a revision of risk-based capital standards. The new
standards are required to incorporate interest rate risk, concentration
of credit risk and the risks of nontraditional activities and to reflect
the actual performance and expected risk of loss of multifamily
mortgages. The Risk-Based Capital section provides information on risk
assessment classifications.
In addition, the FDIC has announced a reduction in the rate that banks
pay to insure domestic deposits beginning with the Bank Insurance Fund
(BIF) premium on September 30, 1995. With respect to First Union's
subsidiary banks, the rate is expected to be reduced from 23 cents to 4
cents per $100 of BIF deposits. The FDIC also will refund, with
interest, the assessments collected at the old rate from the time the
BIF reached its designated reserve ratio of 1.25 percent, which the FDIC
estimated to be sometime in the second quarter of 1995. Deposits that
are subject to assessment by the Savings Association Insurance Fund
(SAIF) continue to be assessed at a rate of 23 cents per $100 of
deposits. At March 31, 1995, First Union had a BIF deposit assessment
base of $40.5 billion and a SAIF deposit assessment base of $14.7
billion. Various legislative proposals have been made, but not enacted,
that also would affect the BIF and SAIF premium assessments, including a
one-time special assessment for SAIF deposits that could have a
significant impact. It is uncertain at this time whether or when this or
any other related proposals might be adopted.
Legislation has been enacted providing that deposits and certain claims
for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general
unsecured claims against such an institution, including federal funds
and letters of credit, in the "liquidation or other resolution" of such
an institution by any receiver.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(IBBEA) authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning September 27, 1995. In
addition, beginning June 1, 1997, a bank may merge with a bank in
another state as long as neither of the states opt out of interstate
branching between the date of enactment of IBBEA and May 31, 1997. IBBEA
further provides that a state may enact laws permitting interstate
merger transactions before June 1, 1997.
The Riegle Community Development and Regulatory Improvement Act of 1994
includes a list of regulatory relief items. The regulatory relief
sections eliminate or modify many regulatory requirements under existing
law.
Various other legislative proposals concerning the banking industry are
pending in Congress. Given the uncertainty of the legislative process,
we cannot assess the impact of any such legislation on our financial
condition or results of operations.
18
TABLE 1
CONSOLIDATED SUMMARIES OF INCOME AND PER SHARE DATA
Twelve
Months 1995 1994
Ended
June 30, SECOND First Fourth Third Second
(In thousands except per share data) 1995 QUARTER Quarter Quarter Quarter Quarter
CONSOLIDATED SUMMARIES
OF INCOME
Interest income* $ 5,786,782 1,574,711 1,469,997 1,411,877 1,330,197 1,258,918
Interest expense 2,547,577 738,338 668,209 610,172 530,858 483,913
Net interest income* 3,239,205 836,373 801,788 801,705 799,339 775,005
Provision for loan losses 126,500 44,000 32,500 25,000 25,000 25,000
Net interest income after
provision for loan losses* 3,112,705 792,373 769,288 776,705 774,339 750,005
Securities available for sale
transactions (7,994) 1,243 3,635 (9,926) (2,946) (2,935)
Investment security transactions 4,147 1,233 217 411 2,286 694
Noninterest income 1,242,720 326,503 301,539 311,419 303,259 276,011
Noninterest expense 2,785,608 714,739 684,702 703,948 682,219 651,220
Income before income taxes* 1,565,970 406,613 389,977 374,661 394,719 372,555
Income taxes 517,106 135,291 130,963 120,705 130,147 119,223
Tax-equivalent adjustment 89,518 22,186 22,105 22,407 22,820 23,712
Net income 959,346 249,136 236,909 231,549 241,752 229,620
Dividends on preferred stock 20,455 - 7,029 6,831 6,595 6,201
Net income applicable to common
stockholders before redemption premium 938,891 249,136 229,880 224,718 235,157 223,419
Redemption premium on preferred stock 41,355 - - 41,355 - -
Net income applicable to
stockholders after redemption premium $ 897,536 249,136 229,880 183,363 235,157 223,419
PER COMMON SHARE DATA
Net income before redemption premium $ 5.40 1.45 1.32 1.28 1.35 1.32
Net income after redemption premium $ 5.16 1.45 1.32 1.04 1.35 1.32
Average common shares - 171,561,676 173,928,984 176,378,717 174,417,288 169,063,689
Average common
stockholders' equity**
Quarter-to-date $ - 5,642,420 5,579,362 5,601,222 5,396,497 5,112,116
Year-to-date - 5,611,065 5,579,362 5,282,412 5,174,974 5,062,377
Common stock price
High 49 3/4 49 3/4 45 1/8 45 1/4 47 1/4 47 5/8
Low 39 3/8 42 7/8 41 3/8 39 3/8 43 1/4 41 1/4
Period-end $ 45 1/4 45 1/4 43 3/8 41 3/8 43 1/4 46 1/8
To earnings ratio*** 8.38 X 8.38 8.23 7.93 8.55 9.55
To book value 136 % 136 136 135 142 156
Cash dividends $ 1.84 .46 .46 .46 .46 .40
Book value $ 33.39 33.39 31.91 30.66 30.37 29.54
*Tax-equivalent.
**Quarter-to-date and year-to-date average common stockholders' equity
excludes average net unrealized gains or losses on debt and equity
securities.
***Based on net income applicable to common stockholders before redemption
premium.
T-1
TABLE 2
NONINTEREST INCOME
Twelve
Months 1995 1994
Ended
June 30, SECOND First Fourth Third Second
(In thousands) 1995 QUARTER Quarter Quarter Quarter Quarter
Trading account profits $ 35,814 10,265 1,536 13,107 10,906 10,247
Service charges on deposit accounts 447,859 117,625 110,127 110,782 109,325 107,083
Mortgage banking income 91,275 25,415 23,586 20,873 21,401 12,239
Capital management income 258,363 67,754 67,413 59,727 63,469 50,380
Securities available for sale transactions (7,994) 1,243 3,635 (9,926) (2,946) (2,935)
Investment security transactions 4,147 1,233 217 411 2,286 694
Fees for other banking services 83,557 24,093 21,928 20,703 16,833 17,959
Merchant discounts 67,604 17,775 16,633 16,939 16,257 15,283
Insurance commissions 46,377 10,511 11,490 11,870 12,506 10,705
Sundry income 211,871 53,065 48,826 57,418 52,562 52,115
Total $ 1,238,873 328,979 305,391 301,904 302,599 273,770
TABLE 3
NONINTEREST EXPENSE
Twelve
Months 1995 1994
Ended
June 30, SECOND First Fourth Third Second
(In thousands) 1995 QUARTER Quarter Quarter Quarter Quarter
Personnel expense
Salaries $ 1,107,692 288,542 273,862 283,101 262,187 250,157
Other benefits 250,486 62,969 67,797 55,845 63,875 62,561
Total 1,358,178 351,511 341,659 338,946 326,062 312,718
Occupancy 237,694 57,433 59,401 62,006 58,854 56,877
Equipment rentals, depreciation
and maintenance 248,441 63,292 65,917 63,245 55,987 52,440
Advertising 42,845 12,690 10,852 10,221 9,082 10,659
Telephone 59,884 15,509 14,727 15,769 13,879 14,005
Travel 60,399 17,978 13,467 16,157 12,797 12,491
Postage 55,136 11,252 18,128 13,147 12,609 11,210
Printing and office supplies 57,215 15,115 13,309 16,899 11,892 12,700
FDIC insurance 120,711 30,935 30,162 30,293 29,321 30,155
Other insurance 16,125 4,777 4,954 2,956 3,438 4,774
Professional fees 77,705 16,503 17,263 27,637 16,302 12,031
Data processing 27,434 7,018 5,735 9,493 5,188 4,582
Owned real estate expense 17,236 1,926 3,220 3,305 8,785 4,908
Mortgage servicing amortization 20,368 5,298 4,824 5,266 4,980 4,953
Other amortization 145,345 40,889 38,827 34,488 31,141 27,402
Sundry 240,892 62,613 42,257 54,120 81,902 79,315
Total $ 2,785,608 714,739 684,702 703,948 682,219 651,220
T-2
TABLE 4
INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
Six Months Ended
June 30, 1995 1994
SECOND First Fourth Third Second
1995 1994 QUARTER Quarter Quarter Quarter Quarter
INTERNAL CAPITAL GROWTH*
Assets to stockholders' equity (a) 14.06X 13.30 14.22 13.89 12.92 12.85 13.31
X
Return on assets 1.24% 1.28 1.25 1.24 1.22 1.31 1.28
Return on total stockholders' equity (a) 17.47% 17.05 17.71 17.22 15.74 16.88 17.07
X
Earnings retained 65.96% 67.38 68.28 63.41 61.61 64.04 67.96
Internal capital growth (a) 11.52% 11.49 12.09 10.92 9.70 10.81 11.60
DIVIDEND PAYOUT RATIO ON
Common shares 33.21% 30.89 31.72 34.85 44.23 34.16 30.30
Preferred and common shares 34.04% 32.62 31.72 36.59 38.39 35.96 32.04
Return on common stockholders' equity
before redemption premium** (a) 17.22 17.53 17.71 16.71 15.92 17.29 17.53
Return on common stockholders' equity
after redemption premium** (a) 17.22% 17.53 17.71 16.71 12.99 17.29 17.53
(a) The determination of these ratios exclude average net unrealized gains or
losses on debt and equity securities.
* Based on average balances and net income.
** Based on average balances and net income applicable to common
stockholders.
T-3
TABLE 5
SELECTED QUARTERLY DATA
1995 1994
SECOND First Fourth Third Second
(Dollars in thousands) QUARTER Quarter Quarter Quarter Quarter
MORTGAGE LOAN PORTFOLIO
PERMANENT LOAN ORIGINATIONS
Residential
Direct $ 550,022 400,998 605,034 656,986 1,028,783
Wholesale 46,193 64,097 98,624 132,828 277,302
Total 596,215 465,095 703,658 789,814 1,306,085
Income property 91,800 44,050 190,266 123,291 78,353
Total $ 688,015 509,145 893,924 913,105 1,384,438
VOLUME OF LOANS SERVICED
Residential $ 35,664,000 32,668,000 32,677,000 31,661,000 31,779,000
Income property 1,610,000 1,532,000 1,537,000 1,603,000 1,744,000
Total $ 37,274,000 34,200,000 34,214,000 33,264,000 33,523,000
NUMBER OF OFFICES
Banking
North Carolina 254 273 276 280 284
South Carolina 63 62 66 66 67
Georgia 145 149 154 157 159
Florida 559 521 552 545 491
Washington, D.C. 24 25 33 28 30
Maryland 23 26 26 31 32
Tennessee 55 55 54 55 65
Virginia 178 174 177 186 186
Foreign 3 2 2 2 2
Total banking offices 1,304 1,287 1,340 1,350 1,316
First Union Home Equity Bank 154 154 184 183 173
Mortgage banking 18 17 18 23 24
Other 21 21 20 18 18
Total offices 1,497 1,479 1,562 1,574 1,531
OTHER DATA
ATMs 1,227 1,247 1,242 1,185 1,186
Employees 32,004 31,844 31,858 32,019 31,581
T-4
TABLE 6
GROWTH THROUGH ACQUISITIONS
Loans,
(In thousands) Assets net Deposits
December 31, 1989, as reported $ 45,506,847 31,600,776 31,531,770
1990 acquisition 7,946,973 4,174,478 5,727,330
Growth in operations 1,134,590 275,465 935,168
December 31, 1990, as reported 54,588,410 36,050,719 38,194,268
1991 acquisitions 12,322,456 7,025,621 9,921,421
Reduction in operations (7,637,689) (1,692,760) (939,466)
December 31, 1991, as reported 59,273,177 41,383,580 47,176,223
1992 acquisitions 3,739,039 1,773,797 3,645,316
Growth (reduction) in operations 815,815 (1,233,610) (1,670,574)
December 31, 1992, as reported 63,828,031 41,923,767 49,150,965
1993 acquisitions 7,785,479 4,380,362 6,302,873
Growth (reduction) in operations (826,541) 572,048 (1,711,427)
December 31, 1993, as reported 70,786,969 46,876,177 53,742,411
1994 acquisitions 4,595,762 1,238,703 4,026,375
Growth in operations 1,930,774 5,914,872 1,189,487
December 31, 1994, as reported 77,313,505 54,029,752 58,958,273
1995 acquisitions 3,203,831 2,644,832 2,787,396
Growth (reduction) in operations 2,584,276 3,345,923 (2,903,645)
June 30, 1995, as reported $ 83,101,612 60,020,507 58,842,024
Acquisitions (those greater than $3.0 billion in acquired assets and/or
deposits) include the purchase acquisitions of Florida National Banks of
Florida, Inc. in 1990 and the Southeast Banks transaction in 1991; the pooling
of interests acquisition of Dominion Bankshares Corporation in 1993; and the
Georgia Federal Savings Bank, FSB and First American Metro Corp. purchase
acquisitions in 1993.
T-5
TABLE 7
SECURITIES AVAILABLE FOR SALE
June 30, 1995
Average
1 Year 1-5 5-10 After 10 Gross Unrealized Amortized Maturity
(In thousands) or Less Years Years Years Total Gains Losses Cost in Years
MARKET VALUE
U.S. Treasury $ 1,170,409 1,048,720 - - 2,219,129 (4,468) 24,246 2,238,907 1.79
U.S. Government agencies 184,382 1,102,832 1,528,109 598 2,815,921 (10,444) 24,537 2,830,014 4.82
CMOs 60,044 909,226 134,713 - 1,103,983 (5,629) 5,467 1,103,821 3.07
Other 119,959 755,041 32,466 307,427 1,214,893 (66,261) 19,649 1,168,281 2.72
Total $ 1,534,794 3,815,819 1,695,288 308,025 7,353,926 (86,802) 73,899 7,341,023 3.32
MARKET VALUE
Debt securities $ 1,534,794 3,815,819 1,695,288 32,309 7,078,210 (25,324) 71,072 7,123,958
Sundry securities - - - 275,716 275,716 (61,478) 2,827 217,065
Total $ 1,534,794 3,815,819 1,695,288 308,025 7,353,926 (86,802) 73,899 7,341,023
AMORTIZED COST
Debt securities $ 1,533,189 3,845,996 1,711,784 32,989 7,123,958
Sundry securities - - - 217,065 217,065
Total $ 1,533,189 3,845,996 1,711,784 250,054 7,341,023
WEIGHTED AVERAGE YIELD
U.S. Treasury 6.79% 5.45 - - 6.15
U.S. Government agencies 7.31 7.18 6.65 7.26 6.90
CMOs 7.60 6.42 6.97 - 6.55
Other 6.78 6.50 3.98 3.36 5.79
Consolidated 6.89% 6.38 6.62 3.37 6.44
Included in "Other" at June 30, 1995, are $767,370,000 of securities that
are denominated in currencies other than the U.S. dollar. The currency exchange
rates were hedged utilizing both on and off-balance sheet instruments to
minimize the exposure to currency revaluation risks. At June 30, 1995, these
securities had a weighted average maturity of 2.28 years and a weighted average
yield of 6.29 percent. The weighted average U.S. equivalent yield for
comparative purposes of these securities was 4.91 percent based on a weighted
average funding cost differential of (1.38) percent.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. The aging of mortgage-backed securities is based on
their weighted average maturities at June 30, 1995. Average maturity in years
excludes preferred and common stocks and money market funds.
Weighted average yields are based on amortized cost. Yields related to
securities exempt from both federal and state income taxes, federal income taxes
only or state income taxes only are stated on a fully tax-equivalent basis.
They are reduced by the nondeductible portion of interest expense, assuming a
federal tax rate of 35 percent; a North Carolina state tax rate of 7.75 percent;
a Georgia and Tennessee state tax rate of 6 percent; a South Carolina state tax
rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a Maryland state
tax rate of 7 percent; and a Washington, D.C. tax rate of 9.975 percent,
respectively.
There were commitments to purchase securities at a cost of $291,051,000
that had a market value of $293,161,000 at June 30, 1995. There were no
commitments to sell securities at June 30, 1995. Gross gains and losses from
sales are accounted for on a trade date basis. Gross gains and losses realized
on the sale of securites in the first six months of 1995 were $21,672,000 and
$21,551,000, respectively. Gross gains realized on sundry securities were
$4,757,000.
T-6
TABLE 8
INVESTMENT SECURITIES
June 30, 1995
Average
1 Year 1-5 5-10 After 10 Gross Unrealized Market Maturity
(In thousands) or Less Years Years Years Total Gains Losses Value in Years
CARRYING VALUE
U.S. Government
agencies $ 15,148 894,243 401,134 - 1,310,525 19,871 (2,811) 1,327,585 4.43
CMOs 55,904 896,280 - - 952,184 16,825 (588) 968,421 3.05
State, county and
municipal 331,912 203,866 126,588 419,360 1,081,726 104,911 (2,227) 1,184,410 7.28
Other 1,519 52,000 4,165 181,787 239,471 7,090 (1,402) 245,159 8.75
Total $ 404,483 2,046,389 531,887 601,147 3,583,906 148,697 (7,028) 3,725,575 5.09
CARRYING VALUE
Debt securities $ 404,483 2,046,389 531,887 484,898 3,467,657 148,697 (7,028) 3,609,326
Sundry securities - - - 116,249 116,249 - - 116,249
Total $ 404,483 2,046,389 531,887 601,147 3,583,906 148,697 (7,028) 3,725,575
MARKET VALUE
Debt securities $ 411,056 2,089,892 550,685 557,693 3,609,326
Sundry securities - - - 116,249 116,249
Total $ 411,056 2,089,892 550,685 673,942 3,725,575
WEIGHTED AVERAGE YIELD
U.S. Government agencies 6.66% 8.66 8.00 - 8.44
CMOs 7.28 7.30 - - 7.30
State, county and municipal 11.17 10.56 11.66 12.31 11.55
Other 5.70 7.62 7.63 7.62 7.61
Consolidated 10.44% 8.23 8.87 10.89 9.02
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. The aging of mortgage-backed securities is based on
their weighted average maturities at June 30, 1995.
Yields related to securities exempt from both federal and state income
taxes, federal income taxes only or state income taxes only are stated on a
fully tax-equivalent basis. They are reduced by the nondeductible portion of
interest expense, assuming a federal tax rate of 35 percent; a North Carolina
state tax rate of 7.75 percent; a Georgia and Tennessee state tax rate of 6
percent; a South Carolina state tax rate of 4.5 percent; a Florida state tax
rate of 5.5 percent; a Maryland state tax rate of 7 percent; and a Washington,
D.C. tax rate of 9.975 percent, respectively.
There were commitments to purchase investment securities at a cost
of $49,961,000 that had a market value of $49,920,000 at June 30, 1995.
There were no commitments to sell investment securities at June 30, 1995.
Gross gains and losses realized on the repurchase agreement underdeliveries
and calls of investment securities in the first six months of 1995 were
$1,887,000 and $437,000, respectively.
T-7
TABLE 9
LOANS
1995 1994
SECOND First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
FIRST UNION CORPORATION
COMMERCIAL
Commercial, financial and agricultural
Taxable $ 16,228,226 15,849,852 15,198,651 13,765,745 13,460,873
Nontaxable 766,843 658,502 709,092 688,238 658,190
Total commercial, financial
and agricultural 16,995,069 16,508,354 15,907,743 14,453,983 14,119,063
Real estate - construction and other 1,925,310 1,842,099 1,734,095 1,674,297 1,504,546
Real estate - mortgage 5,985,057 5,664,837 5,437,496 5,932,374 5,730,311
Lease financing 2,247,931 1,940,681 1,613,763 1,334,570 931,297
Foreign 441,927 426,907 415,857 509,030 437,967
Total commercial 27,595,294 26,382,878 25,108,954 23,904,254 22,723,184
RETAIL
Real estate - mortgage 16,572,033 14,292,795 15,014,775 14,682,624 13,813,215
Installment loans - Bankcard 4,506,927 4,098,790 3,959,657 3,299,675 2,785,470
Installment loans - other 12,315,693 11,795,465 10,618,696 10,288,391 9,930,333
Total retail 33,394,653 30,187,050 29,593,128 28,270,690 26,529,018
Total loans 60,989,947 56,569,928 54,702,082 52,174,944 49,252,202
UNEARNED INCOME
Loans 152,463 148,584 145,691 142,587 136,352
Lease financing 816,977 653,626 526,639 399,323 190,355
Total unearned income 969,440 802,210 672,330 541,910 326,707
Loans, net $ 60,020,507 55,767,718 54,029,752 51,633,034 48,925,495
T-8
TABLE 10
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS*
1995 1994
SECOND First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of quarter $ 968,828 978,795 1,004,298 1,007,839 1,014,001
Provision for loan losses 44,000 32,500 25,000 25,000 25,000
Allowance of acquired loans 20,486 - 2,296 18,615 609
Loan losses, net (64,192) (42,467) (52,799) (47,156) (31,771)
Balance, end of quarter $ 969,122 968,828 978,795 1,004,298 1,007,839
(as % of loans, net) 1.61 % 1.74 1.81 1.95 2.06
(as % of nonaccrual and restructured loans) 222 % 224 245 203 192
(as % of nonperforming assets) 170 % 168 175 154 152
LOAN LOSSES
Commercial, financial and agricultural $ 9,596 6,321 16,357 20,898 16,373
Real estate - construction and other 725 41 1,270 2,974 1,711
Real estate - mortgage 16,106 3,457 20,228 17,773 7,574
Installment loans - Bankcard 47,515 38,096 19,970 15,492 15,399
Installment loans - other 14,915 14,047 14,398 14,983 13,459
Total 88,857 61,962 72,223 72,120 54,516
LOAN RECOVERIES
Commercial, financial and agricultural 13,723 9,097 11,125 12,965 8,388
Real estate - construction and other 1,579 907 884 424 1,095
Real estate - mortgage 1,987 2,466 1,530 4,657 5,076
Installment loans - Bankcard 2,822 2,572 2,455 2,234 2,710
Installment loans - other 4,554 4,453 3,430 4,684 5,476
Total 24,665 19,495 19,424 24,964 22,745
Loan losses, net $ 64,192 42,467 52,799 47,156 31,771
(as % of average loans, net)** .44 % .31 .40 .38 .27
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 210,464 200,915 155,752 154,861 159,858
Real estate loans 225,802 231,183 241,886 339,881 363,433
Total nonaccrual loans 436,266 432,098 397,638 494,742 523,291
Restructured loans 630 670 1,872 674 2,730
Foreclosed properties 132,204 144,188 158,464 158,234 136,408
Total nonperforming assets $ 569,100 576,956 557,974 653,650 662,429
(as % of loans, net and foreclosed
properties) .95 % 1.03 1.03 1.26 1.35
Accruing loans past due 90 days $ 117,874 205,654 140,081 115,903 85,948
*Any loans classified by regulatory examiners as loss, doubtful, substandard
or special mention that have not been disclosed hereunder or under the "Loans"
or "Asset Quality" narrative discussions do not (i) represent or result from
trends or uncertainties that management expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material
credits about which management is aware of any information that causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
**Annualized.
T-9
TABLE 11
INTANGIBLE ASSETS
1995 1994
SECOND First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
MORTGAGE SERVICING RIGHTS $ 101,024 80,266 84,898 89,666 79,826
CREDIT CARD PREMIUM $ 51,005 54,703 58,494 62,463 67,524
OTHER INTANGIBLE ASSETS
Goodwill $ 945,295 742,435 754,417 763,832 682,570
Deposit base premium 443,830 422,827 437,025 319,522 224,918
Other 6,243 6,844 7,465 8,134 9,118
Total $ 1,395,368 1,172,106 1,198,907 1,091,488 916,606
TABLE 12
ALLOWANCE FOR FORECLOSED PROPERTIES*
1995 1994
SECOND First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
Foreclosed properties $ 162,860 178,416 193,290 197,261 177,274
Allowance for foreclosed properties, beginning of quarter 34,228 34,826 39,027 40,866 47,884
Provision for foreclosed properties (2,696) 715 1,913 (2,114) 1,910
Transfer from (to) allowance for segregated assets 40 (48) 1,177 302 (52)
Dispositions, net (916) (1,265) (7,291) (27) (8,876)
Allowance for foreclosed properties, end of quarter 30,656 34,228 34,826 39,027 40,866
Foreclosed properties, net $ 132,204 144,188 158,464 158,234 136,408
* Excluding Southeast Banks segregated assets.
T-10
TABLE 13
DEPOSITS
1995 1994
SECOND First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
CORE DEPOSITS
Noninterest-bearing $ 10,854,459 10,412,883 10,523,538 10,295,616 10,207,807
Savings and NOW accounts 14,114,289 14,065,617 13,991,987 12,677,630 12,085,198
Money market accounts 9,127,362 9,122,752 10,118,963 10,316,481 10,490,933
Other consumer time 20,392,737 18,667,810 18,544,324 17,361,310 16,486,243
Total core deposits 54,488,847 52,269,062 53,178,812 50,651,037 49,270,181
Foreign 2,296,483 2,582,452 4,069,587 1,328,032 2,852,926
Other time 2,056,694 1,951,391 1,709,874 1,707,982 1,649,153
Total deposits $ 58,842,024 56,802,905 58,958,273 53,687,051 53,772,260
TABLE 14
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
June 30, 1995
Time Other
(In thousands) Certificates Time
MATURITY OF
3 months or less $ 2,426,480 76,972
Over 3 months through 6 months 1,157,723 -
Over 6 months through 12 months 1,030,236 -
Over 12 months 987,582 -
Total $ 5,602,021 76,972
T-11
TABLE 15
LONG-TERM DEBT
1995 1994
SECOND First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
DEBENTURES AND NOTES
7-1/2% debentures due 2002 $ 15,619 15,619 15,619 15,619 15,619
Floating rate extendible notes due 2005 10,100 100,000 100,000 100,000 100,000
11% notes due 1996 18,360 18,360 18,360 18,360 18,360
Floating rate notes due 1996 150,000 150,000 150,000 150,000 150,000
5.95% notes due 1995 150,000 149,960 149,921 149,881 149,842
6-3/4% notes due 1998 248,756 248,634 248,511 248,389 248,267
Floating rate notes due 1998 299,766 299,744 - - -
Fixed rate medium-term senior notes, varying
rates and terms to 1996 200 200 32,700 61,700 61,700
Fixed rate medium-term subordinated notes,
varying
rates and terms to 2001 54,000 54,000 54,000 54,000 54,000
Floating rate subordinated notes due 2003 149,153 149,127 149,101 149,074 149,048
11% subordinated and variable rate notes due
1996 17,951 17,951 17,951 17,954 17,954
8-1/8% subordinated notes due 1996 100,000 100,000 100,000 100,000 100,000
9.45% subordinated notes due 1999 250,000 250,000 250,000 250,000 250,000
9.45% subordinated notes due 2001 147,721 147,628 147,535 147,442 147,349
8-1/8% subordinated notes due 2002 248,577 248,526 248,475 248,424 248,373
8% subordinated notes due 2002 223,161 223,099 223,037 222,972 222,910
7-1/4% subordinated notes due 2003 148,811 148,772 148,733 148,694 148,655
6-5/8% subordinated notes due 2005 248,094 248,046 247,999 247,935 247,888
6% subordinated notes due 2008 197,135 197,081 197,028 196,974 196,920
6-3/8% subordinated notes due 2009 147,581 147,538 147,495 147,449 147,405
8% subordinated notes due 2009 148,607 148,583 148,559 148,535 -
8.77% subordinated notes due 2004 148,510 148,470 148,430 - -
9-7/8% subordinated notes due 1999 74,473 74,439 74,404 74,370 74,334
7-1/2% subordinated notes due 2035 246,095 - - - -
Debentures and notes of subsidiaries
9-5/8% subordinated capital notes due 1999 74,951 74,948 74,945 74,942 74,937
10-1/2% collateralized mortgage obligations due
2014 54,070 56,919 60,010 65,927 69,950
Bank notes with varying rates and
terms to 1997 1,175,000 225,000 100,000 - -
Debentures and notes with varying rates and
terms to 2002 7,275 7,275 7,275 7,275 7,400
9-1/2% mortgage backed bonds 3,500 - - - -
Total 4,757,466 3,649,919 3,260,088 3,045,916 2,900,911
MORTGAGES AND OTHER DEBT
Notes payable to FDIC due 1996 92,355 99,887 117,271 171,614 193,258
Advances from the Federal Home Loan Bank 482,846 4,846 4,696 4,603 4,603
Mortgage notes and other debt 38,590 41,578 41,153 41,814 24,623
Capitalized leases 5,026 5,196 5,306 5,416 6,049
Total long-term debt $ 5,376,283 3,801,426 3,428,514 3,269,363 3,129,444
T-12
TABLE 16
CHANGES IN STOCKHOLDERS' EQUITY
Twelve
Months 1995 1994
Ended
June 30, SECOND First Fourth Third Second
(In thousands) 1995 QUARTER Quarter Quarter Quarter Quarter
Balance, beginning of period $ 5,388,581 5,490,734 5,397,517 5,622,631 5,388,581 5,276,060
Stockholders' equity of pooled banks
not restated prior to 1994 12,519 - - 12,535 (16) 51,832
Net income 959,346 249,136 236,909 231,549 241,752 229,620
Redemption of preferred stock (325,396) - - (325,396) - -
Purchase of common stock (374,050) (56,707) (197,371) (37,580) (82,392) (51,525)
Common stock issued for stock
options exercised 80,321 37,337 6,168 15,386 21,430 29,060
Common stock issued through
dividend reinvestment plan 40,666 6,471 16,952 10,628 6,615 8,938
Common stock for purchase
accounting acquisition 161,073 - - (6) 161,079 -
Converted debentures 19,760 - - - 19,760 -
Cash dividends paid
Series 1990 preferred stock (20,455) - (7,029) (6,831) (6,595) (6,201)
Common stock (320,800) (78,758) (79,660) (82,052) (80,330) (67,364)
Unrealized gain (loss) on debt and
equity securities 115,282 88,634 117,248 (43,347) (47,253) (81,839)
Balance, end of period $ 5,736,847 5,736,847 5,490,734 5,397,517 5,622,631 5,388,581
T-13
TABLE 17
CAPITAL RATIOS
1995 1994
Second First Fourth Third Second
(In thousands) QUARTER Quarter Quarter Quarter Quarter
CONSOLIDATED CAPITAL RATIOS*
Qualifying capital
Tier 1 capital $ 4,429,775 4,489,955 4,466,670 4,763,409 4,664,358
Total capital 7,484,114 7,512,040 7,450,602 7,654,430 7,361,013
Adjusted risk-based assets 64,609,109 59,651,481 57,593,799 53,904,132 50,155,408
Adjusted leverage ratio assets $ 77,237,551 74,633,796 73,011,243 70,315,199 69,971,938
Ratios
Tier 1 capital 6.86 % 7.53 7.76 8.84 9.30
Total capital 11.58 12.59 12.94 14.20 14.68
Leverage 5.74 6.02 6.12 6.77 6.67
Stockholders' equity to assets
Quarter-end 6.90 7.05 6.98 7.57 7.42
Average 6.96 % 7.01 7.49 7.62 7.39
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank of
North Carolina 6.65 % 7.13 7.32 7.14 7.70
South Carolina 7.86 8.24 7.88 8.21 8.54
Georgia 8.72 8.61 8.26 8.28 8.74
Florida 6.55 7.94 7.95 8.79 9.63
Washington, D.C. 17.46 16.55 16.75 17.31 16.30
Maryland 20.14 20.78 20.53 19.01 17.75
Tennessee 11.62 12.34 12.76 13.08 13.36
Virginia 6.81 8.97 9.21 10.88 10.57
First Union Home Equity Bank 5.28 6.49 7.60 7.16 -
Total capital
First Union National Bank of
North Carolina 10.32 10.32 10.69 9.62 10.51
South Carolina 11.79 12.40 12.15 12.53 12.96
Georgia 11.52 11.46 11.18 11.22 11.70
Florida 10.01 10.70 10.76 10.35 11.31
Washington, D.C. 18.74 17.83 18.03 18.60 17.60
Maryland 21.42 22.07 21.81 20.30 19.04
Tennessee 12.88 13.60 14.02 14.34 14.62
Virginia 10.39 12.80 13.11 13.17 12.90
First Union Home Equity Bank 8.28 10.34 12.10 11.54 -
Leverage
First Union National Bank of
North Carolina 5.81 6.25 6.10 5.74 5.65
South Carolina 5.94 5.75 5.77 6.06 6.03
Georgia 6.40 6.06 5.69 5.96 6.07
Florida 5.15 5.75 5.91 6.30 6.53
Washington, D.C. 7.70 7.11 8.33 7.88 7.11
Maryland 13.08 13.44 12.82 11.53 10.62
Tennessee 7.71 7.88 8.47 8.54 8.41
Virginia 5.28 6.95 7.10 8.26 7.70
First Union Home Equity Bank 5.53 % 6.22 7.22 6.24 -
*Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4.00 percent and a minimum ratio of total
capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio of
tier 1 capital to adjusted average quarterly assets is from 3.00 to 5.00
percent.
T-14
TABLE 18
INTEREST RATE GAP
June 30, 1995
Interest Sensitivity in Days Non-Sensitive
One to Two to and Sensitive
(In thousands) 1-90 91-180 181-365 Total two years five years Over five years Total
EARNING ASSETS
Interest-bearing bank balances $ 446,612 100 446,712 - - - 446,712
Federal funds sold and securities
purchased under resale
agreements 2,042,624 9,612 - 2,052,236 - - - 2,052,236
Trading account assets 1,559,021 - - 1,559,021 - - - 1,559,021
Securities available for sale 423,820 253,408 1,674,050 2,351,278 1,022,596 3,112,408 854,741 7,341,023
Investment securities 336,679 192,659 335,998 865,336 464,384 1,204,230 1,049,956 3,583,906
Loans* 32,072,986 3,031,263 4,988,165 40,092,414 4,825,840 6,938,178 8,164,075 60,020,507
Total
earnings assets 36,881,742 3,487,042 6,998,213 47,366,997 6,312,820 11,254,816 10,068,772 75,003,405
INTEREST-BEARING LIABILITIES
Interest-bearing deposits 18,713,868 4,592,453 4,942,333 28,248,654 2,597,855 3,821,571 13,319,485 47,987,565
Short-term borrowings 11,009,707 3,008 - 11,012,715 - - - 11,012,715
Long-term debt 763,467 7,284 817,218 1,587,969 1,350,470 400,298 2,037,546 5,376,283
Total
interest-bearing
liabilities 30,487,042 4,602,745 5,759,551 40,849,338 3,948,325 4,221,869 15,357,031 64,376,563
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS (10,722,359)12,987,000 503,094 2,767,735 998,122 (1,690,857) (2,075,000) -
Total
interest-bearing
liabilities and off-balance
sheet financial
instruments 19,764,683 17,589,745 6,262,645 43,617,073 4,946,447 2,531,012 13,282,031 64,376,563
Interest rate gap $17,117,059 (14,102,703) 735,568 3,749,924 1,366,373 8,723,804
Cumulative gap $17,117,059 3,014,356 3,749,924 3,749,924 5,116,297 13,840,101
Ratio of cumulative gap to total
earnings assets 22.82% 4.02 5.00 5.00 6.82 18.45
The information included herein should be read in conjunction with the
discussion appearing under "Interest Rate Risk Management" and with Tables 19-
21. This interest rate gap table has inherent limitations on its ability to
accurately portray interest rate sensitivity and, therefore, it is only provided
in conjunction with common banking industry practice. The amounts presented
herein are based on contractual maturities or repricing terms, as appropriate,
and internally-prepared prepayment assumptions related to certain mortgage
products, and do not reflect deposit run-off or other assumptions.
Additionally, in conjunction with such practices, savings and NOW accounts are
included in the non-sensitive and sensitive over five years classification.
Money market accounts are included in the 1-90 day classification.
*Loans are stated net of unearned income.
T-15
TABLE 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted
Average Rate Estimated
June 30, 1995 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
ASSET RATE CONVERSIONS Converts floating rate commercial loans
Interest rate swaps $ 5,762,963 5.98% 6.15% 1.23 to fixed rate. Adds to liability
Carrying amount $ 14,211 sensitivity. Similar characteristics
Unrealized gross gain 14,599 to a fixed income security funded with
Unrealized gross loss (58,854) variable rate liabilities. Includes
Total (30,044) $1.6 billion of indexed amortizing
swaps, all of which mature within three
and one half years.
Forward interest rate swaps 1,120,000 8.05 - 1.33
Carrying amount -
Unrealized gross gain 23,287 Converts floating rates on commercial
Unrealized gross loss - loans to fixed rates at higher than
Total 23,287 current yields in future periods. $63
million effective March 1996 and $57
Total asset rate conversions $ 6,882,963 6.32% 6.15% 1.25 $ (6,757) million effective March 1997. $1.0
billion effective September 1995 with
LIABILITY RATE CONVERSIONS put options on forward swaps referenced
Interest rate swaps $ 2,772,000 7.28% 6.05% 7.36 under "Rate Sensitivity Hedges" linked
Carrying amount $ 25,520 to this item.
Unrealized gross gain 95,178
Unrealized gross loss (28,210)
Total 92,488
Converts long-term fixed rate debt to
Other financial instruments 185,000 - - 6.65 floating rate by matching maturity of
Carrying amount (2,677) the swap to the debt issue. Rate
Unrealized gross gain - sensitivity remains unchanged due to the
Unrealized gross loss (811) simultaneous, direct linkage of the
Total (3,488) swap to the debt issue.
Total liability rate
conversions $ 2,957,000 7.28% 6.05% 7.32 $ 89,000 Miscellaneous purchased option-based
products for liability management
purposes include $10 million of options
on swaps, $25 million of eurodollar caps
and $150 million of eurodollar floors.
(Continued)
T-16
TABLE 19
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted
Average Rate Estimated
June 30, 1995 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
RATE SENSITIVITY HEDGES Paid a premium for the right to lock in
Put options on eurodollar the 3 month LIBOR reset rates on pay
futures $ 19,422,000 - % 8.09% .39 variable rate swaps and short-term
Carrying amount $ 5,772 liabilities. $13.0 billion effective
Unrealized gross gain - September 1995; $2.1 billion effective
Unrealized gross loss (4,796) December 1995; $2.4 billion effective
Total 976 March 1996; $1.9 billion effective June
1996.
Put options on forward swaps 1,000,000 - 8.08 .22
Carrying amount 1,135 Paid a premium for the right to
Unrealized gross gain - terminate $1.0 billion of forward
Unrealized gross loss (1,145) interest rate swaps based on interest
Total (10) rates in effect in September 1995.
Reduces liability sensitivity.
Interest rate cap 67,200 - - .93
Carrying amount 239 Purchased cap to convert floating rate
Unrealized gross gain 32 liabilities to fixed rate if short-term
Unrealized gross loss (203) rates rise above 8.00 percent.
Total 68
Locks in the funding on German mark
Short euromark futures 362,188 - 5.80 .35 denominated securities from September
Carrying amount - 1995 through March 1996.
Unrealized gross gain -
Unrealized gross loss (1,099) Locks in the funding on U.S. Treasury
Total (1,099) securities and the three month LIBOR
reset rates on pay variable rate swaps.
Short eurodollar futures 10,293,000 - 5.83 .48 $4.1 billion effective September 1995;
Carrying amount - $3.1 billion effective December 1995;
Unrealized gross gain 3,429 $1.8 billion effective March 1996;
Unrealized gross loss (7,387) $1.2 billion effective June 1996; $64
Total (3,958) million effective September 1996.
Total rate sensitivity Consists of $800 million of interest
hedges $ 31,144,388 -% 7.31% .41 $ (4,023) rate floors, of which $400 million were
purchased and offset by $400 million
OFFSETTING POSITIONS sold, locking in gains to be amortized
Interest rate floors $ 800,000 6.28% 6.28% .96 over the remaining life of the
Carrying amount $ (1,100) contracts.
Unrealized gross gain 4,524
Unrealized gross loss (3,424) In December 1994, the corporation
Total - offset an existing federal funds cap
(purchased) and a prime rate cap
Prime/federal funds cap 4,000,000 6.10 6.10 .78 (written) position by simultaneously
Carrying amount 1,272 purchasing a prime rate cap and writing
Unrealized gross gain 1,866 a federal funds cap at strikes of 6.00
Unrealized gross loss (3,138) percent and 3.25 percent, respectively.
Total - The notional amount of each cap is $1.0
billion. Locks in losses to be
Total offsetting positions $ 4,800,000 6.13% 6.13% .81 $ - amortized over the remaining life of the
contracts.
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
Prime Rate - The base rate on corporate loans posted by at least 75
percent of the nation's 30 largest banks as defined in The Wall Street
Journal.
London Interbank Offered Rates (LIBOR) - The average of interbank
offered rates on dollar deposits in the London market, based on
quotations at five major banks.
Weighted average pay rates are generally based upon one to six month
LIBOR. Pay rates related to forward interest rate swaps are set on the
future effective date. Pay rates reset at predetermined reset dates
over the life of the contract. Rates shown are the rates in effect as
of June 30, 1995. Weighted average receive rates are fixed rates at the
time the contract was transacted.
Carrying amount includes accrued interest receivable/payable and
unamortized premiums paid/received.
T-17
TABLE 20
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES*
June 30, 1995 1 Year 1 -2 2 -5 5 -10 After 10
(In thousands) or Less Years Years Years Years Total
ASSET RATE CONVERSIONS
Notional amount $ 3,700,428 2,016,678 1,165,857 - - 6,882,963
Weighted average receive rate 6.03 % 7.33 5.48 - - 6.32
Estimated fair value $ (13,996) 32,552 (25,313) - - (6,757)
LIABILITY RATE CONVERSIONS
Notional amount $ 190,000 110,000 582,000 1,325,000 750,000 2,957,000
Weighted average receive rate 8.86 % 8.04 6.49 7.78 6.67 7.28
Estimated fair value $ 771 3,341 4,795 100,666 (20,573) 89,000
RATE SENSITIVITY HEDGES
Notional amount $ 31,063,188 81,200 - - - 31,144,388
Weighted average receive rate - % - - - - -
Estimated fair value $ (4,098) 75 - - - (4,023)
OFFSETTING POSITIONS
Notional amount $ 4,800,000 - - - - 4,800,000
Weighted average receive rate 6.13 % - - - - 6.13
Estimated fair value $ - - - - - -
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
Pay rates are generally based upon one to six month LIBOR and reset
at predetermined reset dates. Current pay rates are not necessarily
indicative of future pay rates and therefore have been excluded from the
above table. Weighted average pay rates are indicated in Table 19.
TABLE 21
OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
Asset Rate Liability Rate Asset Rate Sensitivity Offsetting
(In thousands) Conversions Conversions Hedge Hedges Positions Total
Balance, December 31, 1994 $ 8,222,116 2,762,500 1,200,000 28,256,000 4,800,000 45,240,616
Additions 120,000 592,000 - 32,356,631 - 33,068,631
Maturities/Amortizations (1,459,153) (397,500) (200,000) (28,468,243) - (30,524,896)
Terminations - - (1,000,000) (1,000,000) - (2,000,000)
Balance, June 30, 1995 $ 6,882,963 2,957,000 - 31,144,388 4,800,000 45,784,351
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
T-18
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
SECOND QUARTER 1995 FIRST QUARTER 1995
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ RATES Average Income/ Rates
(In thousands) BALANCES EXPENSE EARNED/PAID Balances Expense Earned/Paid
ASSETS
Interest-bearing bank balances $ 533,228 6,326 4.76% $ 689,482 10,147 5.97%
Federal funds sold and securities
purchased under resale agreements 1,867,479 27,678 5.94 1,855,472 26,274 5.74
Trading account assets (a) 1,106,447 16,617 6.02 1,310,294 21,360 6.61
Securities available for sale (a) 7,582,334 121,194 6.40 7,993,897 126,046 6.33
Investment securities (a)
U.S. Government and other 2,459,190 49,084 7.98 2,474,530 46,902 7.58
State, county and municipal 1,119,586 31,917 11.40 1,190,113 33,761 11.34
Total investment securities 3,578,776 81,001 9.05 3,664,643 80,663 8.80
Loans (a) (b)
Commercial
Commercial, financial and
agricultural 16,696,776 342,321 8.22 16,126,010 323,169 8.13
Real estate - construction and
other 1,901,095 44,023 9.29 1,795,504 41,579 9.39
Real estate - mortgage 5,932,344 130,056 8.79 5,435,291 119,344 8.90
Lease financing 1,105,363 27,237 9.86 908,580 22,259 9.80
Foreign 503,888 8,734 6.95 426,788 7,089 6.74
Total commercial 26,139,466 552,371 8.47 24,692,173 513,440 8.34
Retail
Real estate - mortgage 15,464,047 298,827 7.73 14,193,098 268,320 7.56
Installment loans - Bankcard 4,314,121 163,271 15.14 3,993,532 138,477 13.87
Installment loans - other 11,955,712 307,426 10.31 11,536,143 285,270 10.01
Total retail 31,733,880 769,524 9.71 29,722,773 692,067 9.36
Total loans 57,873,346 1,321,895 9.15 54,414,946 1,205,507 8.90
Total earning assets 72,541,610 1,574,711 8.70 69,928,734 1,469,997 8.44
Cash and due from banks 3,154,820 3,261,626
Other assets 4,558,615 4,302,719
Total assets $80,255,045 $77,493,079
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 14,145,903 99,246 2.81 14,015,277 98,540 2.85
Money market accounts 9,158,122 64,932 2.84 9,504,775 66,326 2.83
Other consumer time 19,430,344 262,518 5.42 18,502,556 226,494 4.96
Foreign 2,596,487 41,933 6.48 3,319,697 45,566 5.57
Other time 2,066,530 33,427 6.49 1,951,836 29,812 6.19
Total interest-bearing deposits 47,397,386 502,056 4.25 47,294,141 466,738 4.00
Federal funds purchased and securities
sold under repurchase agreements 7,568,559 113,463 6.01 7,268,262 101,498 5.66
Commercial paper 1,033,078 15,372 5.97 669,792 9,551 5.78
Other short-term borrowings 1,723,886 24,662 5.74 1,655,853 27,205 6.66
Long-term debt 4,945,394 82,785 6.70 3,576,802 63,217 7.07
Total interest-bearing
liabilities 62,668,303 738,338 4.72 60,464,850 668,209 4.48
Noninterest-bearing deposits 10,256,782 9,978,428
Other liabilities 1,741,524 1,614,095
Stockholders' equity 5,588,436 5,435,706
Total liabilities and
stockholders' equity $80,255,045 $77,493,079
Interest income and rate earned $1,574,711 8.70% $1,469,997 8.44%
Interest expense and rate paid 738,338 4.08 668,209 3.87
Net interest income and margin $ 836,373 4.62% $ 801,788 4.57%
(a) Yields related to securities and loans exempt from both federal and
state income taxes, federal income taxes only or state income taxes only are
stated on a fully tax-equivalent basis. They are reduced by the nondeductible
portion of interest expense, assuming a federal income tax rate of 35 percent; a
North Carolina state tax rate of 7.75 percent in 1995 and 7.8275 percent in
1994; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina
state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a
Maryland state tax rate of 7 percent; and a Washington, D.C. tax rate of 9.975
percent in 1995 and 10.25 percent in 1994, respectively.
T-19
FOURTH QUARTER 1994 THIRD QUARTER 1994 SECOND QUARTER 1994
INTEREST AVERAGE Interest Average Interest Average
AVERAGE INCOME/ RATES Average Income/ Rates Average Income/ Rates
BALANCES EXPENSE EARNED/PAID Balances Expense Earned/Paid Balances Expense Earned/Paid
$ 879,330 12,342 5.57% $ 675,188 8,552 5.03% $ 786,723 9,915 5.06%
1,507,490 19,473 5.12 1,469,486 16,354 4.42 1,595,394 13,575 3.41
1,187,382 19,776 6.61 1,062,744 15,641 5.84 904,729 14,010 6.21
8,199,014 121,948 5.93 9,777,730 139,512 5.69 11,480,968 152,237 5.31
2,435,018 46,625 7.66 1,715,051 32,076 7.48 1,575,796 27,310 6.93
1,233,949 35,554 11.53 1,248,484 35,694 11.44 1,282,173 37,116 11.58
3,668,967 82,179 8.96 2,963,535 67,770 9.15 2,857,969 64,426 9.02
14,662,782 288,875 7.82 14,001,417 291,147 8.25 13,375,599 281,454 8.44
1,722,032 39,020 8.99 1,588,419 33,731 8.42 1,515,456 28,710 7.60
5,764,302 125,431 8.63 5,964,848 121,637 8.09 5,743,998 110,471 7.71
807,143 19,641 9.73 665,678 15,983 9.60 582,340 13,761 9.45
520,581 8,397 6.40 434,532 5,844 5.34 424,662 4,739 4.48
23,476,840 481,364 8.14 22,654,894 468,342 8.20 21,642,055 439,135 8.14
14,228,831 271,675 7.64 14,239,519 260,489 7.32 13,600,744 247,665 7.28
3,633,266 124,530 13.71 3,088,541 106,859 13.84 2,351,062 85,594 14.56
11,244,806 278,590 9.87 10,029,803 246,678 9.80 9,727,881 232,361 9.57
29,106,903 674,795 9.26 27,357,863 614,026 8.96 25,679,687 565,620 8.82
52,583,743 1,156,159 8.76 50,012,757 1,082,368 8.62 47,321,742 1,004,755 8.51
68,025,926 1,411,877 8.27 65,961,440 1,330,197 8.03 64,947,525 1,258,918 7.76
3,265,432 3,017,964 2,857,885
4,142,050 4,040,685 4,020,590
$75,433,408 $73,020,089 $71,826,000
13,259,937 86,455 2.59 12,449,336 71,848 2.29 12,120,552 64,856 2.15
10,132,757 67,193 2.63 10,483,003 65,849 2.49 10,791,758 62,199 2.31
17,690,805 210,568 4.72 17,042,759 187,185 4.36 16,462,456 171,773 4.19
2,361,927 32,459 5.45 1,958,291 21,840 4.42 1,327,343 14,088 4.26
1,669,113 24,289 5.77 1,674,511 21,696 5.14 1,567,754 20,266 5.19
45,114,539 420,964 3.70 43,607,900 368,418 3.35 42,269,863 333,182 3.16
7,490,396 95,168 5.04 6,970,468 78,962 4.49 7,511,271 77,201 4.12
615,930 7,684 4.95 998,167 11,115 4.42 702,645 7,089 4.05
1,601,779 25,238 6.25 1,422,176 20,617 5.75 1,486,748 18,739 5.05
3,366,685 61,118 7.26 3,198,320 51,746 6.47 3,138,257 47,702 6.08
58,189,329 610,172 4.16 56,197,031 530,858 3.75 55,108,784 483,913 3.52
9,997,860 9,927,448 10,067,077
1,593,558 1,331,994 1,344,882
5,652,661 5,563,616 5,305,257
$75,433,408 $73,020,089 $71,826,000
$1,411,877 8.27% $1,330,197 8.03% $1,258,918 7.76%
610,172 3.56 530,858 3.19 483,913 2.98
$ 801,705 4.71% $ 799,339 4.84% $ 775,005 4.78%
(b) The loan average include loans on which the accrul of interest has been
discontiued and are stated net of unearned income.
T-20
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
SIX MONTHS 1995 SIX MONTHS 1994
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ RATES Average Income/ Rates
(In thousands) BALANCES EXPENSE EARNED/PAID Balances Expense Earned/Paid
ASSETS
Interest-bearing bank balances $ 610,923 16,473 5.44% $ 737,293 18,656 5.10 %
Federal funds sold and securities
purchased under resale agreements 1,861,508 53,952 5.84 1,241,844 19,902 3.23
Trading account assets (a) 1,207,807 37,977 6.34 916,586 25,200 5.54
Securities available for sale (a) 7,786,979 247,240 6.37 11,567,892 304,022 5.27
Investment securities (a)
U.S. Government and other 2,466,818 95,986 7.78 1,399,821 46,884 6.70
State, county and municipal 1,154,655 65,678 11.37 1,294,916 74,749 11.54
Total investment securities 3,621,473 161,664 8.93 2,694,737 121,633 9.03
Loans (a) (b)
Commercial
Commercial, financial and
agricultural 16,412,970 665,490 8.18 13,265,962 543,310 8.26
Real estate - construction and
other 1,848,591 85,602 9.34 1,560,175 56,422 7.29
Real estate - mortgage 5,685,190 249,400 8.84 5,791,515 215,875 7.51
Lease financing 1,007,515 49,496 9.83 579,854 27,004 9.31
Foreign 465,551 15,823 6.85 379,081 8,257 4.39
Total commercial 25,419,817 1,065,811 8.45 21,576,587 850,868 7.95
Retail
Real estate - mortgage 14,832,083 567,147 7.65 13,378,825 487,791 7.29
Installment loans - Bankcard (c) 4,154,712 301,748 14.53 2,180,345 160,213 14.70
Installment loans - other 11,747,087 592,696 10.16 9,639,246 457,045 9.52
Total retail 30,733,882 1,461,591 9.54 25,198,416 1,105,049 8.79
Total loans 56,153,699 2,527,402 9.05 46,775,003 1,955,917 8.40
Total earning assets 71,242,389 3,044,708 8.59 63,933,355 2,445,330 7.68
Cash and due from banks 3,207,928 2,947,527
Other assets 4,431,375 4,207,967
Total assets $78,881,692 $71,088,849
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 14,080,951 197,786 2.83 12,042,894 126,849 2.12
Money market accounts 9,330,491 131,258 2.84 10,848,760 121,821 2.26
Other consumer time 18,969,013 489,012 5.20 16,562,666 344,628 4.20
Foreign 2,956,094 87,499 5.97 1,082,182 21,657 4.04
Other time 2,009,500 63,239 6.35 1,541,684 36,911 4.83
Total interest-bearing deposits 47,346,049 968,794 4.13 42,078,186 651,866 3.12
Federal funds purchased and securities
sold under repurchase agreements 7,419,240 214,961 5.84 7,311,705 143,096 3.95
Commercial paper 852,438 24,923 5.90 513,189 9,366 3.68
Other short-term borrowings 1,690,058 51,867 6.19 1,325,443 29,671 4.51
Long-term debt 4,264,879 146,002 6.85 3,143,570 85,917 5.47
Total interest-bearing
liabilities 61,572,664 1,406,547 4.60 54,372,093 919,916 3.41
Noninterest-bearing deposits 10,118,374 10,069,557
Other liabilities 1,678,161 1,323,129
Stockholders' equity 5,512,493 5,324,070
Total liabilities and
stockholders' equity $78,881,692 $71,088,849
Interest income and rate earned $3,044,708 8.59% $2,445,330 7.68%
Interest expense and rate paid 1,406,547 3.98 919,916 2.90
Net interest income and margin 1,638,161 4.61% $1,525,414 4.78%
(a) Yields related to securities and loans exempt from both federal and
state income taxes, federal income taxes only or state income taxes only are
stated on a fully tax-equivalent basis. They are reduced by the nondeductible
portion of interest expense, assuming a federal income tax rate of 35 percent; a
North Carolina state tax rate of 7.75 percent in 1995 and 7.8275 percent in
1994; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina
state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a
Maryland state tax rate of 7 percent; and a Washington, D.C. tax rate of 9.975
percent in 1995 and 10.25 percent in 1994, respectively.
T-21
YEAR ENDED 1994 NINE MONTHS 1994
INTEREST AVERAGE Interest Average
AVERAGE INCOME/ RATES Average Income/ Rates
BALANCES EXPENSE EARNED/PAID Balances Expense Earned/Paid
$ 757,440 39,550 5.22 % $ 716,364 27,208 5.08 %
1,366,180 55,729 4.08 1,318,559 36,256 3.68
1,021,681 60,617 5.93 965,841 40,840 5.65
10,267,532 565,482 5.51 10,964,614 443,534 5.40
1,740,203 125,585 7.22 1,506,052 78,960 6.99
1,267,845 145,997 11.52 1,279,269 110,443 11.51
3,008,048 271,582 9.03 2,785,321 189,403 9.07
13,803,412 1,123,333 8.14 13,513,807 834,458 8.26
1,608,090 129,173 8.03 1,569,693 90,153 7.68
5,828,345 462,942 7.94 5,849,927 337,512 7.71
658,776 62,628 9.51 608,777 42,987 9.41
428,724 22,498 5.25 397,768 14,101 4.74
22,327,347 1,800,574 8.06 21,939,972 1,319,211 8.04
13,810,015 1,019,955 7.39 13,668,875 748,280 7.30
2,775,476 391,603 14.11 2,486,403 267,072 14.32
10,142,377 982,312 9.69 9,770,863 703,723 9.62
26,727,868 2,393,870 8.96 25,926,141 1,719,075 8.85
49,055,215 4,194,444 8.55 47,866,113 3,038,286 8.48
65,476,096 5,187,404 7.92 64,616,812 3,775,527 7.80
3,045,410 2,971,264
4,149,188 4,151,594
$ 72,670,694 $ 71,739,670
12,452,101 285,151 2.29 12,179,863 198,697 2.18
10,576,097 254,863 2.41 10,725,502 187,670 2.34
16,968,029 742,381 4.38 16,724,456 531,813 4.25
1,625,575 75,956 4.67 1,377,427 43,497 4.22
1,607,283 82,897 5.16 1,586,446 58,607 4.94
43,229,085 1,441,248 3.33 42,593,694 1,020,284 3.20
7,270,734 317,225 4.36 7,196,709 222,058 4.13
661,327 28,166 4.26 676,625 20,481 4.05
1,419,477 75,526 5.32 1,358,042 50,288 4.95
3,213,607 198,781 6.19 3,162,021 137,663 5.80
55,794,230 2,060,946 3.69 54,987,091 1,450,774 3.53
10,015,666 10,021,667
1,393,526 1,326,116
5,467,272 5,404,796
$72,670,694 $71,739,670
$ 5,187,404 7.92% $ 3,775,527 7.80%
2,060,946 3.15 1,450,774 3.00
$ 3,126,458 4.77 % $ 2,324,753 4.80 %
(b) The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
T-22
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
1995 1994
SECOND First Fourth Third Second
(In thousands except per share data) QUARTER Quarter Quarter Quarter Quarter
ASSETS
Cash and due from banks $ 3,191,431 3,157,119 3,740,691 3,212,888 2,809,958
Interest-bearing bank balances 446,712 722,062 945,126 632,206 1,387,532
Federal funds sold and securities
purchased under resale agreements 2,052,236 1,488,462 1,371,025 1,771,643 1,909,486
Total cash and cash equivalents 5,690,379 5,367,643 6,056,842 5,616,737 6,106,976
Trading account assets 1,559,021 1,453,038 1,206,675 1,303,453 933,011
Securities available for sale 7,353,926 7,298,853 7,752,479 8,226,530 9,709,341
Investment securities 3,583,906 3,634,798 3,729,869 3,179,763 2,995,102
Loans, net of unearned income 60,020,507 55,767,718 54,029,752 51,633,034 48,925,495
Allowance for loan losses (969,122) (968,828) (978,795) (1,004,298) (1,007,839)
Loans, net 59,051,385 54,798,890 53,050,957 50,628,736 47,917,656
Premises and equipment 1,881,947 1,771,052 1,756,297 1,617,933 1,518,171
Due from customers on acceptances 383,289 302,248 218,849 133,928 94,535
Mortgage servicing rights 101,024 80,266 84,898 89,666 79,826
Credit card premium 51,005 54,703 58,494 62,463 67,524
Other intangible assets 1,395,368 1,172,106 1,198,907 1,091,488 916,606
Other assets 2,050,362 1,921,011 2,199,238 2,292,421 2,265,653
Total assets $ 83,101,612 77,854,608 77,313,505 74,243,118 72,604,401
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits 10,854,459 10,412,883 10,523,538 10,295,616 10,207,807
Interest-bearing deposits 47,987,565 46,390,022 48,434,735 43,391,435 43,564,453
Total deposits 58,842,024 56,802,905 58,958,273 53,687,051 53,772,260
Short-term borrowings 11,012,715 9,681,076 7,532,343 9,988,596 8,959,378
Bank acceptances outstanding 383,289 302,248 218,849 133,928 94,535
Other liabilities 1,750,454 1,876,219 1,778,009 1,541,549 1,260,203
Long-term debt 5,376,283 3,701,426 3,428,514 3,269,363 3,129,444
Total liabilities 77,364,765 72,363,874 71,915,988 68,620,487 67,215,820
STOCKHOLDERS' EQUITY
Preferred stock
Class A, authorized 40,000,000 shares
Series A, 11% cumulative perpetual;
$25.00 stated and liquidation value - - - - -
Series A, $2.50 cumulative convertible;
no-par value; $25.00 stated and
liquidation value - - - - -
Series B, none issued - - - - -
Series 1990 cumulative perpetual
adjustable rate, no par value;
$5.00 liquidation value;
authorized 10,000,000 shares - - - 31,592 31,592
Common stock, $3.33-1/3 par value;
authorized 750,000,000 shares 572,790 573,564 586,779 585,948 575,989
Paid-in capital 1,260,261 1,272,386 1,433,422 1,693,389 1,576,872
Retained earnings 3,912,179 3,741,801 3,591,581 3,482,620 3,327,793
Unrealized loss on debt and equity securities (8,383) (97,017) (214,265) (170,918) (123,665)
Total stockholders' equity 5,736,847 5,490,734 5,397,517 5,622,631 5,388,581
Total liabilities and
stockholders' equity $ 83,101,612 77,854,608 77,313,505 74,243,118 72,604,401
MEMORANDA
Securities available for sale-amortized cost $ 7,341,023 7,421,417 8,054,592 8,489,477 9,907,974
Investment securities-market value 3,725,575 3,730,577 3,742,534 3,269,641 3,104,804
Common stockholders' equity, net of unrealized loss
on debt and equity securities $ 5,736,847 5,490,734 5,397,517 5,338,590 5,104,540
Preferred shares outstanding - - - 6,318,350 6,318,350
Common shares outstanding 171,837,122 172,069,353 176,033,912 175,784,527 172,796,786
T-23
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
1995 1994
SECOND First Fourth Third Second
(In thousands except per share data) QUARTER Quarter Quarter Quarter Quarter
INTEREST INCOME
Interest and fees on loans $ 1,315,702 1,199,923 1,150,493 1,077,083 999,611
Interest and dividends on securities
available for sale 117,747 123,000 119,062 135,621 147,755
Interest and dividends on investment securities
Taxable income 48,457 46,313 46,029 31,478 26,632
Nontaxable income 21,156 22,321 23,394 23,490 24,341
Trading account interest 15,459 19,914 18,677 14,799 13,377
Other interest income 34,004 36,421 31,815 24,906 23,490
Total interest income 1,552,525 1,447,892 1,389,470 1,307,377 1,235,206
INTEREST EXPENSE
Interest on deposits 502,056 466,738 420,964 368,418 333,182
Interest on short-term borrowings 153,497 138,254 128,090 110,694 103,029
Interest on long-term debt 82,785 63,217 61,118 51,746 47,702
Total interest expense 738,338 668,209 610,172 530,858 483,913
Net interest income 814,187 779,683 779,298 776,519 751,293
Provision for loan losses 44,000 32,500 25,000 25,000 25,000
Net interest income after
provision for loan losses 770,187 747,183 754,298 751,519 726,293
NONINTEREST INCOME
Trading account profits 10,265 1,536 13,107 10,906 10,247
Service charges on deposit accounts 117,625 110,127 110,782 109,325 107,083
Mortgage banking income 25,415 23,586 20,873 21,401 12,239
Capital management income 67,754 67,413 59,727 63,469 50,380
Securities available for sale transactions 1,243 3,635 (9,926) (2,946) (2,935)
Investment security transactions 1,233 217 411 2,286 694
Fees for other banking services 24,093 21,928 20,703 16,833 17,959
Merchant discounts 17,775 16,633 16,939 16,257 15,283
Insurance commissions 10,511 11,490 11,870 12,506 10,705
Sundry income 53,065 48,826 57,418 52,562 52,115
Total noninterest income 328,979 305,391 301,904 302,599 273,770
NONINTEREST EXPENSE
Personnel expense 351,511 341,659 338,946 326,062 312,718
Occupancy 57,433 59,401 62,006 58,854 56,881
Equipment rentals, depreciation
and maintenance 63,292 65,917 63,245 55,987 52,436
Postage, printing and supplies 26,367 31,437 30,046 24,501 23,910
FDIC insurance 30,935 30,162 30,293 29,321 30,155
Professional fees 16,503 17,263 27,637 16,302 12,031
Owned real estate expense 1,926 3,220 3,305 8,785 4,908
Amortization 46,187 43,651 39,754 36,121 32,355
Sundry 120,585 91,992 108,716 126,286 125,826
Total noninterest expense 714,739 684,702 703,948 682,219 651,220
Income before income taxes 384,427 367,872 352,254 371,899 348,843
Income taxes 135,291 130,963 120,705 130,147 119,223
Net income 249,136 236,909 231,549 241,752 229,620
Dividends on preferred stock - 7,029 6,831 6,595 6,201
Net income applicable to common
stockholders before
redemption premium 249,136 229,880 224,718 235,157 223,419
Redemption premium on preferred stock - - 41,355 - -
Net income applicable to common
stockholders after
redemption premium $ 249,136 229,880 183,363 235,157 223,419
PER COMMON SHARE DATA
Net income before redemption premium $ 1.45 1.32 1.28 1.35 1.32
Net income after redemption premium 1.45 1.32 1.04 1.35 1.32
Cash dividends $ .46 .46 .46 .46 .40
Average common shares 171,561,676 173,928,984 176,378,717 174,417,288 169,779,057
T-24
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
June 30,
(In thousands except per share data) 1995 1994
INTEREST INCOME
Interestand fees on loans 2,515,625 1,945,762
Interest and dividends on securities
available for sale 240,747 295,313
Interest and dividends on investment securities:
Taxable income 94,770 45,461
Non-taxable income 43,477 48,951
Trading account interest 35,373 23,769
Other interest income 70,425 38,558
Total interest income 3,000,417 2,397,814
INTEREST EXPENSE
Interest on deposits 968,794 651,866
Interest on short-term borrowings 291,751 182,133
Interest on long-term debt 146,002 85,917
Total interest expense 1,406,547 919,916
Net interest income 1,593,870 1,477,898
Provision for loan losses 76,500 50,000
Net interest income after
provision for loan losses 1,517,370 1,427,898
NONINTEREST INCOME
Trading account profits 11,801 17,570
Service charges on deposit accounts 227,752 215,105
Mortgage banking income 49,001 31,660
Capital management income 135,167 101,329
Securities available for sale transactions 4,878 1,365
Investment security transactions 1,450 1,309
Fees for other banking services 46,021 31,716
Merchant discounts 34,408 29,644
Insurance commissions 22,001 20,695
Sundry income 101,891 104,073
Total noninterest income 634,370 554,466
NONINTEREST EXPENSE
Personnel expense 693,170 622,358
Occupancy 116,834 117,268
Equipment rentals, depreciation
and maintenance 129,209 109,140
Postage, printing and supplies 57,804 49,192
FDIC insurance 61,097 60,094
Professional fees 33,766 22,939
Owned real estate expense 5,146 10,204
Amortization 89,838 68,733
Sundry 212,577 231,133
Total noninterest expense 1,399,441 1,291,061
Income before income taxes 752,299 691,303
Income taxes 266,254 239,224
Net income 486,045 452,079
Dividends on preferred stock 7,029 11,927
Net income applicable to common
stockholders 479,016 440,152
PER COMMON SHARE DATA
Net income before redemption premium 2.77 2.59
Net income after redemption premium 2.77 2.59
Cash dividends .92 .80
Average common shares 172,745,330 169,688,932
T-25
FIRST UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(In thousands) 1995 1994
OPERATING ACTIVITIES
Net income $ 486,045 452,079
Adjustments to reconcile net income to net cash provided
(used)
by operating activities
Accretion and amortization of securities
discounts and premiums, net (22,306) 18,576
Provision for loan losses 76,500 50,000
Provision for foreclosed properties (1,981) 4,704
Securities available for sale transactions (4,878) (1,365)
Investment security transactions (1,450) (1,309)
Depreciation and amortization 193,700 153,466
Trading account assets, net (352,346) (280,541)
Mortgage loans held for resale (27,348) 736,076
Loss on sales of premises and equipment 6,650 71
Gain on sale of First American segregated
assets (14,730) (34,999)
Other assets, net 115,273 378,157
Other liabilities, net (78,388) (17,591)
Net cash provided by operating
activities 374,741 1,457,324
INVESTING ACTIVITIES
Increase (decrease) in cash realized from
Sales of securities available for sale 3,635,942 7,388,888
Maturities of securities available for sale 453,842 1,927,771
Purchases of securities available for sale (2,620,389) (7,478,317)
Underdeliveries and calls of investment
securities 21,465 16,500
Maturities of investment securities 237,248 304,877
Purchases of investment securities (115,813) (639,652)
Origination of loans, net (3,436,486) (2,651,142)
Sales of premises and equipment 27,290 71,045
Purchases of premises and equipment (213,359) (141,627)
Purchases of mortgage servicing rights (5,918) (5,755)
Other intangible assets, net (268,688) 17,900
Purchase of banking organizations, net of
acquired
cash equivalents (262,635) 100,853
Net cash used by investing
activities (2,547,501) (1,088,659)
FINANCING ACTIVITIES
Increase (decrease) in cash realized from
Sales of deposits, net (2,903,645) (238,843)
Securities sold under repurchase agreements
and other short-term borrowings, net 3,121,397 1,699,301
Issuances of long-term debt 2,191,514 143,882
Payments of long-term debt (250,372) (82,609)
Sales of common stock 66,928 45,739
Purchases of common stock (254,078) (97,582)
Cash dividends paid (165,447) (147,447)
Net cash provided by financing
activities 1,806,297 1,322,441
Increase (decrease) in cash and
cash equivalents (366,463) 1,691,106
Cash and cash equivalents,
beginning of period 6,056,842 4,415,870
Cash and cash equivalents, end of
period $ 5,690,379 6,106,976
NONCASH ITEMS
Increase in foreclosed properties and decrease
in loans $ 11,253 10,815
Effect on stockholders' equity of an
unrealized gain (loss)
on debt and equity securities included
in Securities available for sale 315,016 (198,633)
Other assets (deferred income taxes) $ (109,134) 74,968
T-26