Exhibit (13)(c)
FIRST UNION CORPORATION AND SUBSIDIARIES
1995 SUPPLEMENTAL ANNUAL REPORT
(Restated to reflect the pooling of interests accounting acquisition of First
Fidelity Bancorporation on January 1, 1996.)
First Union Corporation and Subsidiaries
1995 Supplemental Annual Report
Table of Contents
Management's Analysis of Operations.......................................................................................... 1
Financial Tables............................................................................................................. T-1
Six-Year Net Interest Income Summary......................................................................................... T-21
Management's Statement of Financial Responsibility........................................................................... C-1
Independent Auditors' Report................................................................................................. C-1
Consolidated Balance Sheets.................................................................................................. C-2
Consolidated Statements of Income............................................................................................ C-3
Consolidated Statements of Changes in Stockholders' Equity................................................................... C-4
Consolidated Statements of Cash Flows........................................................................................ C-5
Notes to Consolidated Financial Statements................................................................................... C-6
MANAGEMENT'S ANALYSIS OF OPERATIONS
EARNINGS HIGHLIGHTS
THE FOLLOWING REVIEW IS A DISCUSSION OF THE PERFORMANCE AND FINANCIAL CONDITION
OF FIRST UNION CORPORATION AND FIRST FIDELITY BANCORPORATION ON A COMBINED
BASIS. ALL FIRST UNION HISTORICAL FINANCIAL DATA HAVE BEEN RESTATED FOR THE
POOLING OF INTERESTS ACQUISITION OF FIRST FIDELITY, WHICH WAS CONSUMMATED ON
JANUARY 1, 1996.
First Union's earnings in 1995, before merger-related restructuring charges,
increased to a record $1.48 billion, or $5.30 per common share. Including the
restructuring charges, earnings were $1.40 billion, or $5.04 per common share.
The merger-related restructuring charges in 1995 amounted to $73 million after
tax, or 26 cents per common share. These results compare with 1994 results of
$1.33 billion, or $4.72 per share, in net income applicable to common
stockholders before a preferred stock redemption premium. The 1995 merger-
related restructuring charges, principally existing severance contracts
associated with the First Fidelity stockholder vote approving the merger, are
part of the previously announced $270 million after-tax restructuring charges
related to the First Fidelity merger. The estimated $197 million balance of
after-tax restructuring charges will be incurred primarily in the first and
second quarters of 1996.
In the fourth quarter of 1995, earnings were $404 million before the
merger-related restructuring charges, or $1.45 per common share. After the
restructuring charges, the company earned $331 million, or $1.19 per common
share. These results compare with $335 million, or $1.17, in the fourth quarter
of 1994, before the preferred stock redemption premium.
Additional factors in our 1995 results compared with 1994 results included:
o Noninterest income growth of 18 percent, to $1.8 billion, excluding securities
transactions.
o Tax-equivalent net interest income growth of 4 percent, to $4.7 billion.
o Loan growth of 16 percent, to $90.6 billion.
Virtually every fee income category experienced growth in 1995, with key
contributions from the Capital Markets Group, including merchant banking, loan
syndication and asset securitization volume, and from the Capital Management
Group, including mutual funds, trust and brokerage services.
Net loans were $90.6 billion at December 31, 1995, compared with $77.8 billion
at year-end 1994. Net loans at year-end 1995 included $7.5 billion from purchase
acquisitions that closed during the year. Net loans do not include $2.0 billion
in credit card receivables that were securitized and sold in September 1995.
Loan growth was particularly strong in the consumer portfolio, largely
reflecting growth in direct consumer lending through the retail branch system,
home equity lending and through purchase accounting acquisitions. Residential
mortgage loans also increased primarily through purchase accounting
acquisitions.
Net charge-offs were .41 percent of average net loans in 1995, compared with .40
percent in 1994. Nonperforming assets were $826 million, or .91 percent of loans
and foreclosed properties, at December 31, 1995, compared with $887 million, or
1.14 percent, at December 31, 1994.
Domestic banking operations, including trust operations, located in Connecticut,
Delaware, Florida, Georgia, Maryland, New Jersey, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C., and
mortgage banking operations are our principal sources of revenues. Foreign
banking operations are immaterial.
OUTLOOK
First Union now serves 11 million customers in the Eastern United States from
Connecticut to Florida. We are well on the way to integrating First Fidelity's
operations with First Union's, a process we expect to complete by midyear 1996.
In addition, we are enthusiastic about the steps we have taken to serve new
customers with new products in our recently acquired northeastern markets and to
continue serving customers in our southeastern markets. The strong fee income
growth in 1995 helps validate our expectations for renewed earnings momentum as
we begin to offer First Union's broader product selection, install expanded
sales
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support systems and integrate our two companies. In addition, we are seeing the
results of our investments in capital markets, capital management and other
businesses that expand our traditional banking base, and we are optimistic about
the future growth of these businesses.
On January 1, 1996, First Fidelity merged with and into a wholly owned
subsidiary of First Union; each outstanding share of First Fidelity common stock
and common stock equivalent was exchanged for 1.35 shares of First Union common
stock; and each share of the three outstanding series of First Fidelity
preferred stock was exchanged 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.
The STOCKHOLDERS' EQUITY section includes further information related to the
issuance of preferred and common stock in the First Fidelity merger and to First
Union's purchases in the open market of First Union common stock and First
Fidelity preferred and common stock.
In 1995 First Union completed eight bank and thrift purchase accounting
acquisitions. These acquired institutions had combined assets of $10.3 billion,
net loans of $7.5 billion and deposits of $7.3 billion. The acquired
institutions were primarily in Virginia and Florida, further enhancing our
customer base in those states.
In the first quarter of 1996, we completed two additional bank and thrift
purchase accounting acquisitions in North Carolina and Tennessee. We expect to
complete a third purchase accounting acquisition of a Florida thrift during the
second quarter of 1996. At year-end 1995, these three completed or pending
acquisitions had combined assets, net loans and deposits of $2.2 billion, $1.6
billion and $1.8 billion, respectively.
We continue to be alert to opportunities to enhance stockholder value through
acquisitions. With the completion of the First Fidelity acquisition, however,
our focus has shifted more to a strategy of internal growth and acquisitions to
expand existing lines of business. The significant investments we have made in
acquisitions, in technology and in expanded products and services helped
position us to serve our 11 million customers in a dynamic and diverse
geographic marketplace.
However, we continue to evaluate acquisition opportunities that will provide
access to customers and markets that we believe complement our long-term goals.
Acquisition discussions and in some cases negotiations also take place, and
future acquisitions involving cash, debt or equity securities may be expected.
Acquisitions typically involve the payment of a premium over book and market
values. Some dilution of First Union's book value and net income per common
share may occur in connection with some future acquisitions.
The ACCOUNTING AND REGULATORY MATTERS section provides information about
legislative, accounting and regulatory matters that have recently been adopted
or proposed.
INCOME STATEMENT REVIEW
NET INTEREST INCOME
Tax-equivalent net interest income increased 4 percent compared with 1994, to
$4.7 billion in 1995. The increase primarily reflected loan growth, the
repricing of variable rate assets, and purchase acquisitions. The increase was
tempered somewhat by reduced net yields.
Nonperforming loans reduce interest income because the contribution from these
loans is eliminated or sharply reduced. In 1995, $69 million in gross interest
income would have been recorded if all nonaccrual and restructured loans had
been current in accordance with their original terms and had been outstanding
throughout the period, or since origination if held for part of the period. The
amount of interest income related to these assets and included in income in 1995
was $17 million.
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
4.46 percent in 1995, compared with 4.75 percent in 1994. The margin decline in
1995 was primarily related to the addition of acquired banks and thrifts with
lower margins;
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the addition of short-term securities; and the competitiveness of loan pricing.
We also anticipate a further contraction in the margin in future periods as a
result of the $2.0 billion credit card securitization, the impact of
acquisitions and the generation of lower-spread assets related to capital
markets activities. It should be noted that the margin is not our primary
management focus or goal. Our goal is to continue increasing net interest
income.
The $2.0 billion credit card securitization is expected to have a minimal
financial impact on the results of operations. The securitization results in a
reclassification of net interest income to fee income. Securitization
transactions are used as a management tool to increase liquidity and to utilize
capital more effectively.
Average interest-earning assets increased by $10.5 billion, resulting in an
increase in tax-equivalent interest income of $1.4 billion.
The average rate earned on earning assets was 8.27 percent in 1995, compared
with 7.67 percent in 1994. The average rate paid on interest-bearing liabilities
was 4.43 percent in 1995 and 3.46 percent in 1994.
We use securities and off-balance sheet transactions to manage interest rate
sensitivity. More information on these transactions is included in the INTEREST
RATE RISK MANAGEMENT section.
NONINTEREST INCOME
We are meeting the challenges of increasing competition and changing customer
demands and demographics by making discretionary investments to enhance our
prospects for future fee income growth. We have significantly broadened our
product lines, particularly in the capital markets, capital management and card
products areas, to provide additional sources of fee income that complement our
longstanding banking products and services. These investments were reflected in
the 18 percent growth in noninterest income, excluding securities transactions,
to $1.8 billion in 1995, compared with $1.6 billion in 1994.
Virtually all categories of noninterest income increased in 1995. Key
contributions came from capital markets activities, including merchant banking,
loan syndications and asset securitizations. Noninterest income related to
capital markets activities was an unrestated $265 million in 1995, compared with
$176 million in 1994. Additionally, capital management fee income, including
mutual funds, personal and corporate trust and brokerage services, increased 20
percent in 1995 to $397 million from $330 million in 1994. Assets under
management, which include mutual funds and trust services, increased in 1995 to
$45.5 billion from an unrestated $23.2 billion in 1994. The growth in assets
under management was primarily the result of internal and external marketing and
distribution strategies. The First Union-advised Evergreen and First Fidelity
family of mutual funds increased to $13.2 billion in assets under management at
December 31, 1995, from an unrestated $7.0 billion in 1994. We anticipate
continued growth in fee income as capital markets and capital management
products and services are marketed to a larger customer base.
Mortgage banking operations added $150 million to noninterest income in 1995
compared with $88 million in 1994. The increase was primarily driven by an
increase in the servicing portfolio as a result of the purchase accounting
acquisitions. The mortgage loan servicing portfolio increased to $51.5 billion
in 1995, compared with $34.2 billion in 1994. As a result of an industrywide
contraction of nearly 15 percent and a strategic decision to exit certain loan
origination facilities, total originations were $3.8 billion in 1995, compared
with $4.9 billion in 1994. Mortgage banking has traditionally been a cyclical,
interest rate sensitive business. The ability to generate substantial fee and
other income in the future is somewhat dependent on the level and direction of
interest rates. We carefully monitor sensitivity to cyclical changes in mortgage
banking operations.
Securities gains were $49 million in 1995, compared with $10 million in 1994.
Other significant sources of noninterest income included service charges on
deposit accounts, which increased 6 percent in 1995. Insurance commissions and
fees for other banking services also increased in 1995 compared with 1994.
TRADING ACTIVITIES
Our Capital Markets Group also made a key contribution to noninterest income
through trading profits. Trading
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profits increased in 1995 to $69 million, compared with $52 million in 1994. The
increase was the result of general market conditions and expanded trading
volume. Trading activities are undertaken to satisfy customers' risk management
and investment needs and for the corporation's own proprietary account. All
trading activities are conducted within risk limits established by the
corporation's 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. With the Federal Reserve Board's approval of expanded powers for
First Union Capital Markets Corp., our activities also include the trading and
underwriting of corporate debt securities. Trading account assets were $1.9
billion at year-end 1995, compared with $1.3 billion at year-end 1994.
NONINTEREST EXPENSE
Noninterest expense increased in 1995 to $4.1 billion, compared with $3.7
billion in 1994. Our overhead efficiency ratio in 1995 was 62 percent, compared
with 61 percent in 1994. The overhead efficiency ratio was adversely affected by
merger-related charges, which were discussed earlier, of $94 million in 1995 and
intangibles amortization expense of $229 million and $163 million in 1995 and
1994, respectively. Without the merger-related charges and intangibles
amortization expense, our overhead efficiency ratio would have been 57 percent
in 1995, compared with 58 percent in 1994. The overhead efficiency ratio was
affected somewhat by the significant investments and initiatives under way in
capital markets, capital management and other areas. These investments and
initiatives are designed to enhance noninterest income in future periods.
The FDIC significantly reduced the insurance premiums it charges on federally
insured bank deposits in the third quarter of 1995, and in the fourth quarter of
1995, reduced the premiums again, including a reduction to the statutory minimum
of $2,000.00 for "well capitalized" banks, effective January 1, 1996. Premiums
related to savings and loan association deposits held by banks will continue to
be assessed at the rate of 23 cents to 31 cents per $100.00 until legislation
pending before Congress to merge the Bank Insurance Fund and the Savings
Association Insurance Fund (SAIF) is enacted. The pending legislation also
includes a provision to recapitalize SAIF through a one-time assessment. At
December 31, 1995, we had $19.8 billion in SAIF deposits that were subject to
the potential one-time assessment. Based on the pending legislation, the
one-time assessment could be as high as $87 million after tax. The FDIC premium
expense decreased from $184 million in 1994 to $120 million in 1995. The expense
savings in 1995 were largely offset by discretionary investments in areas such
as the company's retail delivery channels, capital markets and capital
management. We currently expect to invest the expected savings that result from
the FDIC premium reduction in 1996 in various current and future discretionary
investments, business initiatives and technology programs. The ACCOUNTING AND
REGULATORY MATTERS section includes more information on the reduced FDIC
insurance premiums.
Amortization of intangibles represents the amortization of goodwill and other
identifiable intangibles, primarily related to purchase accounting acquisitions.
These intangibles are amortized over periods ranging from six to 25 years.
Amortization is a noncash charge to income, and therefore liquidity and funds
management activities are not affected. At December 31, 1995, we had $2.4
billion in other intangible assets, compared with $1.9 billion at December 31,
1994. Other intangible assets include primarily goodwill and core deposit
intangibles.
Costs related to environmental matters were not material.
INCOME TAXES
Income taxes were $788 million in 1995, compared with $711 million in 1994. The
increase resulted primarily from increased income before income taxes.
BALANCE SHEET REVIEW
EARNING ASSETS
In banking the primary types of earning assets are securities and loans. The
earnings from these assets are subject to two principal kinds of risks, interest
rate risk and credit risk. Interest rate risk could result if rate indices
related to sources and uses of funds were mismatched. Our Funds Management
Committee manages
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interest rate risk, as well as credit risks associated with securities, under
specific policy standards, which are discussed in more detail in the INTEREST
RATE RISK MANAGEMENT section. In addition to certain securities, off- balance
sheet transactions such as interest rate swaps have been used to maintain
interest rate risk at acceptable levels in accordance with our policy standards.
The loan portfolio carries the potential credit risk of past due, nonperforming
or, ultimately, charged-off loans. We manage this risk primarily through credit
approval standards, which are discussed in the LOANS section.
Average earning assets in 1995 were $106.3 billion, an 11 percent increase from
$95.8 billion in 1994.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are used as a part of the corporation's interest
rate risk management strategy. They may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity needs, the need to
increase regulatory capital ratios and other factors. These securities are
carried at estimated fair value. Unrealized changes in fair value are recognized
as a separate component of stockholders' equity, net of tax. Realized gains and
losses are recognized in income at the time the securities are sold. The
available for sale portfolio consists of U.S. Treasury, municipal and
mortgage-backed and asset-backed securities as well as collateralized mortgage
obligations, corporate, foreign and equity securities.
At December 31, 1995, we had securities available for sale with a market value
of $18.2 billion, compared with $11.5 billion at year-end 1994. The market value
of securities available for sale was $201 million above amortized cost at the
end of 1995. A $111 million after-tax unrealized gain was included in
stockholders' equity at December 31, 1995. In 1995 we took advantage of market
conditions to add $7.3 billion of securities to the available for sale
portfolio, which we believe will enhance earnings and reduce the exposure to
falling interest rates indicated by our current outlook for 1996. We also took
advantage of a one-time exemption in the accounting rules and transferred $5.9
billion of investment securities to the available for sale portfolio. We believe
the transfer will provide us with a greater degree of flexibility in managing
our overall balance sheet. Table 9 provides information related to unrealized
gains and losses and to realized gains and losses on these securities.
The average rate earned on securities available for sale in 1995 was 6.41
percent, compared with 5.54 percent in 1994. The average maturity of the
portfolio was 3.03 years at December 31, 1995.
INVESTMENT SECURITIES
Investment securities are those securities that we intend to hold to maturity.
Sales of these securities are rare. These securities are carried at amortized
cost. The portfolio consists of U.S. Government agency, corporate, municipal and
mortgage-backed securities, and collateralized mortgage obligations. First
Union's investment securities amounted to $3.1 billion at December 31, 1995,
compared with $7.9 billion at year-end 1994. As part of the strategy to reduce
exposure to falling interest rates, we added $3.6 billion to the investment
securities portfolio. Additionally, $5.9 billion of investment securities was
transferred to the available for sale portfolio.
The average rate earned on investment securities in 1995 was 7.54 percent,
compared with 7.23 percent in 1994. The average maturity of the portfolio was
5.15 years at December 31, 1995.
Table 10 provides information related to unrealized gains and losses and to
realized gains and losses on these securities.
LOANS
The loan portfolio represents our largest asset balance, and is a significant
source of interest and fee income. The loan portfolio is subject to both credit
and interest rate risk. Our lending strategy stresses quality growth,
diversified by product, geography and industry. A common credit underwriting
structure is in place throughout the company.
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The loan portfolio at December 31, 1995, was composed of 44 percent in
commercial loans and 56 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1994. The commercial loan portfolio includes
general commercial loans, both secured and unsecured, and commercial real estate
loans. General commercial loans are typically working capital loans to finance
the inventory, receivables and other working capital needs of commercial
borrowers, and term loans to finance fixed assets or acquisitions. Commercial
real estate loans typically finance the construction or purchase of commercial
real estate. Consumer loans include mortgage, credit card and installment loans.
Consumer mortgage lending includes both first and second mortgage loans.
Consistent with our longtime standard, we generally look for two repayment
sources for commercial real estate loans: cash flows from the project and other
resources of the borrower. Our commercial lenders focus principally on
middle-market companies, which we believe reduces the risk of credit loss from
any single borrower or group of borrowers. A majority of our commercial loans
are for less than $10 million. 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 December 31, 1995, were $90.6 billion, compared with $77.8 billion
at year-end 1994. Of this increase, $7.5 billion was related to purchase
acquisitions, with the rest coming from loan growth in all of our banking states
and in virtually all loan categories. Consumer loan growth was particularly
strong in 1995, primarily in direct lending and home equity lending. Net loans
do not include the $2.0 billion in credit card receivables that were securitized
and sold in September 1995. The financial impact of the credit card
securitization on the results of operations is expected to be minimal, as
discussed above.
At December 31, 1995, unused loan commitments related to commercial and consumer
loans were $22.4 billion and $16.1 billion, respectively. Commercial and standby
letters of credit were $3.6 billion. At December 31, 1995, loan participations
sold to other lenders amounted to $1.5 billion and were recorded as a reduction
of gross loans.
The average rate earned on loans in 1995 was 8.71 percent, compared with 8.28
percent in 1994. The average prime rate in 1995 was 8.44 percent, compared with
6.81 percent in 1994. Factors affecting loan rates between 1994 and 1995
included several increases in the prime rate throughout 1994; an increased
portion of the loan portfolio tied to rate indices other than the prime rate; a
larger portfolio of fixed and adjustable rate mortgages; and the repricing of
credit card portfolio introductory rates.
The ASSET QUALITY section provides information about geographic exposure in the
loan portfolio.
COMMERCIAL REAL ESTATE LOANS
Commercial real estate loans amounted to 14 percent of the total portfolio at
December 31, 1995, compared with 15 percent at December 31, 1994. This portfolio
included commercial real estate mortgage loans of $10.0 billion at December 31
1995, and $9.5 billion at December 31, 1994.
ASSET QUALITY
NONPERFORMING ASSETS
Most of our assets are interest-bearing loans and securities. The credit quality
of these assets is crucial to the profitability of the corporation.
Nonperforming assets are those assets that are not paying principal and/or
interest as contractually required. These assets reduce our income through lower
amounts of interest income and higher provisions for losses. Asset quality is
typically measured by the levels of nonperforming and past due assets; the
amount of charge-offs and provisions; and certain credit-related ratios such as
charge-offs to net loans; and nonperforming assets to net loans and foreclosed
properties.
At December 31, 1995, nonperforming assets were $826 million, or .91 percent of
net loans and foreclosed properties, compared with $887 million, or 1.14
percent, at December 31, 1994. The reduction in nonperforming assets was
primarily due to continued collection efforts and prudent management of the
nonperforming assets portfolio.
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Segregated assets, which are not included in nonperforming assets and which
relate to the acquisition of the Southeast Banks in 1991 and Howard shared loans
acquired in the First Fidelity merger, were $165 million at December 31, 1995,
or $151 million net of a $14 million allowance for losses on segregated assets.
This compared with $259 million, or $233 million net of a $26 million allowance,
at December 31, 1994. Under loss-sharing arrangements, FDIC reimbursements
substantially minimize any losses associated with these loan portfolios.
Segregated assets are included in other assets.
Loans or properties of less than $5 million each made up 73 percent, or $601
million, of nonperforming assets at December 31, 1995. Of the rest:
o Six loans or properties between $5 million and $10 million each accounted for
$46 million; and o Eight loans or properties over $10 million each accounted for
$179 million.
Fifty-nine percent of nonperforming assets were collateralized primarily by real
estate at year-end 1995, compared with 66 percent at year-end 1994.
PAST DUE LOANS
In addition to these nonperforming assets, at December 31, 1995, accruing loans
90 days past due were $290 million, compared with $272 million at December 31,
1994. Of these, $15 million were related to commercial and commercial real
estate loans, compared with $30 million at December 31, 1994. At December 31,
1995, we were closely monitoring certain loans for which borrowers were
experiencing increased levels of financial stress. None of these loans were
included in nonperforming assets or in accruing loans past due 90 days, and the
aggregate amount of these loans is not significant.
NET CHARGE-OFFS
Net charge-offs as a percentage of average net loans were .41 percent in 1995,
compared with .40 percent in 1994. The increase in net charge-offs was
principally related to the maturing credit card portfolio. In 1996 we anticipate
an increase in the dollar level of charge-offs as credit card receivables
continue to increase and the portfolio seasons to a charge-off ratio that is
expected to be aligned with industry averages. We do not believe that the higher
levels of net charge-offs are indicative of any significant deterioration in the
credit quality of the loan portfolio. We are carefully monitoring trends in both
the commercial and consumer loan portfolios for signs of credit weakness.
Additionally, we have evaluated our credit policies in light of changing
economic trends. All of these steps have been taken with the goals of minimizing
future credit losses and deterioration, while allowing for maximum
profitability. Table 13 provides information on net charge-offs by category.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The loan loss provision was $220 million in 1995, compared with $179 million in
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.
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 $1 million that are being monitored as
potential credit problems to determine whether supplemental, specific reserves
are necessary.
The allowance for loan losses was $1.5 billion at December 31, 1995, compared
with $1.6 billion in 1994. The ratio of the allowance for loan losses to
nonperforming assets was 182 percent and 178 percent at December 31, 1995 and
1994, respectively. The ratio of the allowance to net loans was 1.66 percent at
December 31, 1995, compared with 2.03 percent in 1994.
At December 31, 1995, impaired loans, which are included in nonaccrual loans,
amounted to $471 million. Included in the allowance for loan losses is $83
million related to $359 million of impaired loans at December
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31, 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 East Coast region of the United States is spread
primarily across 82 metropolitan statistical areas with diverse economies.
Atlanta, Georgia; Charlotte, North Carolina; Miami, Jacksonville, West Palm
Beach and Tampa, Florida; Newark, New Jersey; Philadelphia, Pennsylvania;
Westchester County, New York; and Washington, D.C., are our largest markets.
Substantially all of the $12.5 billion commercial real estate portfolio at
December 31, 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 such as loan commitments and deposit outflows. In this process, we
focus on both assets and liabilities and on the manner in which they combine to
provide adequate liquidity to meet the corporation's needs.
Funding sources primarily include customer-based core deposits but also include
purchased funds and cash flows from operations. First Union is one of the
nation's largest core deposit-funded banking institutions. Our large consumer
deposit base, which is spread across the economically strong South Atlantic
region and high per-capita income Northeast region, creates considerable funding
diversity and stability. Further, our acquisitions of bank and thrift deposits
have enhanced liquidity.
Asset liquidity is maintained through maturity management and through our
ability to liquidate assets, primarily assets held for sale. Another significant
source of asset liquidity is the potential to securitize assets such as credit
card receivables and auto, home equity, commercial and mortgage loans. The
securitization and sale of $2.0 billion in credit card receivables at the end of
the third quarter of 1995 had a significant positive effect on our liquidity
position. Other 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 $186 million at December 31, 1995.
CASH FLOWS
Cash flows from operations are a significant source of liquidity. Net cash
provided from operations primarily results from net income adjusted for the
following noncash accounting items: the provisions for loan losses and
foreclosed properties; depreciation and amortization; and deferred income taxes
or benefits. This cash was available in 1995 to increased earning assets or to
reduce borrowings.
CORE DEPOSITS
Core deposits are a fundamental and cost-effective funding source for any
banking institution. Core deposits were $86.4 billion at December 31, 1995,
compared with $81.0 billion at December 31, 1994. Core deposits include savings,
negotiable order of withdrawal (NOW), money market, noninterest-bearing and
other consumer time deposits.
In 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 December 31, 1995, and 34 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 they are less expensive to process.
Average core deposit balances were $81.6 billion in 1995, an increase of $4.8
billion from 1994. Average balances in savings and NOW, other consumer time
deposits and noninterest-bearing deposits were higher when compared with the
previous year, while money market deposits were lower. Deposits were primarily
affected by the purchase acquisitions. Deposits can also be affected by branch
closings or consolidations, seasonal factors and the rates being offered
compared to other investment opportunities.
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PURCHASED FUNDS
Purchased funds at December 31, 1995, were $25.7 billion, compared with $17.2
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. In
1995 we began utilizing a newly established $10 billion shelf as part of our
ongoing bank note program, which we expect to continue to use as a source of
liquidity. Average purchased funds in 1995 were $19.7 billion, an increase of 30
percent from $15.1 billion in 1994. The increase was used primarily to fund loan
growth.
LONG-TERM DEBT
Long-term debt was 79 percent of total stockholders' equity at December 31,
1995, compared with 51 percent at December 31, 1994. The increase in long-term
debt compared with year-end 1994 was primarily related to $1.2 billion of bank
notes with varying rates and terms that mature by 1997. Additionally, in 1995 we
issued $300 million of three-year floating rate senior notes and $1.0 billion of
subordinated debentures and notes with rates ranging from 6.55 percent to 7.50
percent and maturities of either 10 years or 40 years. 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 $1.5 billion of senior or
subordinated debt securities. The sale of any additional debt securities will
depend on future market conditions, funding needs and other factors.
DEBT OBLIGATIONS
We have a $350 million, committed back-up line of credit that expires in
December 1998. This credit facility contains financial covenants that require
First Union to maintain a minimum level of tangible net worth, restrict double
leverage ratios and require capital levels at subsidiary banks to meet
regulatory standards. First Union has not used this line of credit. During 1996,
$1.7 billion of long-term debt will mature, including bank notes discussed above
of $865 million. Funds for the payment of long-term debt will come from
operations or, if necessary, additional borrowings.
STOCKHOLDERS' EQUITY
The management of capital in a regulated banking environment requires a balance
between maximizing leverage and return on equity to our stockholders while
maintaining sufficient capital levels and related ratios to satisfy regulatory
requirements. We have historically generated attractive returns on equity to
stockholders while maintaining sufficient regulatory capital ratios.
At December 31, 1995, total stockholders' equity was $9.0 billion, compared with
$8.3 billion at December 31, 1994, and 278 million common shares were
outstanding, compared with 285 million shares at December 31, 1994. In 1995 we
paid $965 million for the repurchase of 20 million shares of First Union common
stock pursuant to board of directors authorizations in February 1995 and June
1995. Of these repurchases in the open market, 14.0 million shares were related
to completed or pending stock-for-stock purchase accounting acquisitions, 4.8
million shares were related to the First Fidelity acquisition and 1.2 million
shares were related to stock options. First Fidelity paid $234 million for the
purchase of 5.4 million shares of its common stock in 1995 which were primarily
related to stock options. In February 1996, the board of directors renewed its
authorization for the purchase in the open market from time to time of up to 15
million shares of First Union common stock. The timing of any such repurchases
would be based on our assessment of First Union's capital structure and
liquidity, the market price of our common stock compared to our assessment
of its underlying value, regulatory, accounting and other factors. Repurchases
would be made primarily in connection with future acquisitions and
stock-based employee benefit plans.
In 1995 we announced a dividend increase for the 18th consecutive year,
resulting in dividends of $1.96 per common share. The current annualized
dividend rate is $2.08 per common share. The corporation paid $343 million in
dividends to preferred and common stockholders in 1995.
9
At December 31, 1995, stockholders' equity reflected an $111 million unrealized
after-tax gain related to debt and equity securities. The SECURITIES AVAILABLE
FOR SALE section provides additional information about debt and equity
securities.
SUBSIDIARY DIVIDENDS
Our banking subsidiaries are the largest source of parent company dividends.
Capital requirements established by regulators limit dividends that these and
certain other of our subsidiaries can pay. 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 $468 million
available for dividends at December 31, 1995, without prior approval from the
OCC. Our subsidiaries paid $793 million in dividends to the corporation in 1995.
The reduction in dividends paid in 1995 compared with 1994 was related to the
redemption of preferred stock in early 1995.
REGULATORY CAPITAL
Federal banking regulations require that bank holding companies and their
subsidiary banks maintain minimum levels of capital. These banking regulations
measure capital using three formulas relating to tier 1 capital, total capital
and leverage capital. The minimum level for the ratio of total capital to
risk-weighted assets (including certain off-balance-sheet financial instruments,
such as standby letters of credit and interest rate swaps) is currently 8
percent. At least half of total capital is to be composed of common equity,
retained earnings and a limited amount of qualifying preferred stock, less
certain intangible assets (tier 1 capital). The rest may consist of a limited
amount of subordinated debt, nonqualifying preferred stock and a limited amount
of the loan loss allowance (together with tier 1 capital, total capital).
At December 31, 1995, the tier 1 and total capital ratios were 6.62 percent and
11.33 percent, respectively, compared with 7.76 percent and 12.94 percent at
December 31, 1994. The reduction in the tier 1 and total capital ratios in 1995
was due primarily to the common stock repurchase program, the preferred stock
redemption and the increase in total assets and intangible assets.
In addition, the Federal Reserve Board has established minimum leverage ratio
requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
equal to 3 percent for bank holding companies that meet specified criteria,
including having the highest regulatory rating. All other bank holding companies
are generally required to maintain a leverage ratio of at least 4 to 5 percent.
The leverage ratio at December 31, 1995, was 5.49 percent, compared with 6.12
percent at December 31, 1994.
The requirements also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without significant
reliance on intangible assets. The Federal Reserve Board has indicated it will
continue to consider a tangible tier 1 leverage ratio (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised us of any specific minimum leverage ratio
applicable to us.
Each subsidiary bank is subject to similar capital requirements adopted by the
OCC. Each subsidiary bank listed in Table 19 had a leverage ratio in excess of
5.17 percent at December 31, 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 ratio of 5 percent, a tier 1 capital ratio of 6 percent and a total
capital ratio of 10 percent. At December 31, 1995, the subsidiary banks listed
in Table 19 met the capital and leverage ratio requirements for "well
capitalized" banks, except First Union National Bank of North Carolina, which
had a total capital ratio of 9.92 percent. At the end of February 1996, First
Union National Bank of North Carolina was "well capitalized." We expect to
maintain these ratios at the required levels by the retention of earnings and,
if necessary, the issuance of additional capital. Failure to meet certain
capital ratio or
10
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 three members of the Office of the
Chairman and senior executives from our Capital Markets Group, credit and
finance areas, oversees the interest rate risk management process and approves
policy guidelines. Balance sheet management and finance personnel monitor the
day-to-day exposure to changes in interest rates in response to loan and deposit
flows. They make adjustments within established policy guidelines.
We measure interest rate sensitivity by estimating the amount of earnings per
share at risk based on the modeling of future changes in interest rates. Our
model captures all assets and liabilities and off-balance sheet financial
instruments, and combines various assumptions affecting rate sensitivity and
changes in balance sheet mix into an earnings outlook that incorporates our view
of the 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.
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 measurement of
interest rate sensitivity is the percentage change in earnings per share
calculated by the model under "high rate" and under "low rate" scenarios. The
"high rate" and "low rate" scenarios assume 100 basis point shifts from the
base-line scenario in the federal funds rate by the fourth succeeding month and
that the rate remains 100 basis points higher or lower than the base-line
through the rest of the 24-month period. Our policy limit for the maximum
negative impact on earnings per share resulting from high rate or low rate
scenarios is 5 percent. The policy measurement period begins with the fourth
month forward and ends with the 15th month (i.e., a 12-month period.)
Our estimate in January 1996 of future short-term interest rates was that the
federal funds rate would decline to 4.92 percent by December 1996 and then rise
gradually to 5.40 percent by December 1997. Based on the January 1996 outlook,
if interest rates were to decline 100 basis points below the estimated
short-term rate scenario, i.e., follow the low rate scenario, the model
indicates that earnings during the policy measurement
11
period would be negatively affected by 1.6 percent. Our model indicates that
earnings would also be immaterially affected in our high rate scenario, i.e., a
100 point increase in estimated short-term interest rates.
The January 1996 outlook indicates that 1997 earnings would be negatively
affected by 2.0 percent if interest rates fell 100 basis points below the
base-line scenario, and earnings would be affected slightly positively in the
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, more extreme interest rate scenarios. These alternate scenarios may
include interest rate paths both higher, lower and more volatile than those used
for policy measurement. Because the interest rate sensitivity model is based on
numerous interest rate assumptions, projected changes in growth in balance sheet
categories and changes in other basic assumptions, actual results may differ
from our current simulated outlook.
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.
While our interest rate sensitivity modeling assumes that management takes no
action, we regularly assess the viability of strategies to reduce unacceptable
risks to earnings and implement such strategies when we believe those actions
are prudent. We took actions in 1995 to mitigate the negative effect on earnings
of adverse changes in interest rates beyond the policy measurement period. For
example, in the fourth quarter of 1995, we implemented a strategy to add
off-balance sheet positions that we believe will significantly reduce our
potential asset sensitivity in 1997. As new monthly outlooks become available,
management will continue 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 matter of policy we do
not use highly leveraged derivative instruments for interest rate risk
management. The impact of derivative products on our earnings and rate
sensitivity is fully incorporated in the earnings simulation model in the same
manner as on-balance sheet instruments.
Our overall goal is to manage our rate sensitivity in ways that earnings are not
adversely affected materially whether rates go up or down. As a result of
interest rate fluctuations, off-balance sheet transactions (and securities) will
from time to time develop unrealized appreciation or depreciation in market
value when compared with their cost. The impact on net interest income
attributable to these off-balance sheet transactions, all of which are linked to
specific assets and liabilities as part of our overall interest rate risk
management strategy, will generally be offset by net interest income from
on-balance sheet assets and liabilities. The important consideration is not the
shifting of unrealized appreciation or depreciation between and among on- and
off-balance sheet instruments, but the prudent management of interest rate
sensitivity so that corporate earnings are not unduly at risk as interest rates
move up or down.
There was significant interest rate volatility between year-end 1993 and
year-end 1995, which was reflected in the dramatic change in the market value of
our securities portfolio and off-balance sheet positions. The combined market
value of those positions moved from an unrealized gain of $903 million at
December 31, 1993, to an unrealized loss of $1.1 billion at December 31, 1994,
and then back to an unrealized gain of $771 million at December 31, 1995.
Despite the large year-to-year fluctuations in market value and related
fluctuations in the net interest income contribution from these positions, total
net interest income continued to
12
increase. This is the outcome we strive to achieve in using portfolio securities
and off-balance sheet products in the conduct of asset and liability management.
The fair value appreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $390 million at
December 31, 1995, compared with fair value depreciation of $623 million at
December 31, 1994.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses related to terminated
positions. The amount of deferred gains and losses was $9 million and $11
million, respectively, as of December 31, 1995. These net losses will reduce net
interest income by $2 million in 1996. In 1995 net interest income was reduced
by $18 million of net deferred losses.
Although off-balance sheet derivative financial instruments do not expose the
corporation to credit risk equal to the notional amount, we are exposed to
credit risk equal to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. We
minimize the credit risk in these instruments by dealing only with high quality
counterparties. Each transaction is specifically approved for applicable credit
exposure.
In addition, our policy is to require that all swaps and options be governed by
an International Swaps and Derivatives Association Master Agreement. Bilateral
collateral arrangements are in place for substantially all dealer
counterparties. Derivative collateral arrangements for dealer transactions and
trading activities are based on established thresholds of acceptable credit risk
by counterparty. Thresholds are determined based on the strength of the
individual counterparty and are bilateral. As of December 31, 1995, the total
credit risk in excess of thresholds was $275 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. 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 has also issued Standard No. 123, "Accounting for Stock-Based
Compensation," which requires that the fair value of employee stock-based
compensation plans be recorded as a component of compensation expense in the
statement of income as of the date of grant of awards related to such plans or
that the impact of such fair value on net income and earnings per share be
disclosed on a pro forma basis in a footnote to financial statements for awards
granted after December 15, 1994, if the accounting for such awards continues to
be in accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). The corporation will continue such
accounting under the provisions of APB 25. This Standard is required for fiscal
years beginning after December 15, 1995.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), among other provisions, imposes liability on a bank insured by the
FDIC for certain obligations to the FDIC incurred in connection with other
insured banks under common control with such bank.
13
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.
On August 8, 1995, the FDIC revised its regulations on insurance assessments to
establish a revised assessment rate schedule of 4 to 31 cents per $100.00 of
deposits in replacement of the then existing schedule of 23 to 31 cents per
$100.00 of deposits subject to assessment by the Bank Insurance Fund (BIF). The
FDIC maintained the current assessment rate schedule of 23 to 31 cents per
$100.00 of deposits for institutions whose deposits are subject to assessment by
the Savings Association Insurance Fund (SAIF). The revised BIF schedule became
effective on June 1, 1995. Assessments collected at the previous assessment
schedule that exceeded the amount due under the new schedule were refunded, with
interest, from the effective date of the new schedule. As a result, a $41
million refund, including interest, was received in 1995. On November 14, 1995,
the FDIC further reduced the rate structure for BIF deposits by 4 cents per
$100.00 of deposits, beginning January 1996. As a result, the highest-rated
institutions will pay only the statutory annual minimum rate of $2,000.00 for
FDIC insurance. Adequately capitalized banks will pay a rate of 3 cents per
$100.00 of deposits. As of December 31, 1995, the corporation's BIF deposit
assessment base was $63.4 billion and the corporation's SAIF deposit assessment
base was $19.8 billion. Various legislative proposals related to the future of
the BIF and SAIF have been under consideration. Several of these proposals,
including a proposal previously approved by Congress that is understood to have
the support of the President, include a one-time special assessment for SAIF
deposits (in the range of 70 cents to 85 cents per $100.00 of assessable SAIF
deposits, with a discount for certain SAIF deposits held by BIF member banks)
and a subsequent comparable and reduced level of annual premiums for SAIF
deposits. It is not known when and if any such proposal or any other related
proposal may be adopted.
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the "liquidation or other resolution" of such an institution by any receiver.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA)
authorized interstate acquisitions of banks and bank holding companies without
geographic limitation beginning September 27, 1995. Beginning June 1, 1997, a
bank may merge with a bank in another state as long as neither of the states opt
out of interstate branching between the date of enactment of IBBEA and May 31,
1997. IBBEA further provides that a state may enact laws permitting interstate
merger transactions before June 1, 1997.
Various other legislative proposals concerning the banking industry are pending
in Congress. Given the uncertainty of the legislative process, we cannot assess
the impact of any such legislation on our financial condition or results of
operations.
EARNINGS AND BALANCE SHEET ANALYSIS
(1994 COMPARED WITH 1993)
Combined net income applicable to common stockholders increased in 1994 to $1.33
billion before a redemption premium on preferred stock, or 14 percent from $1.17
billion in 1993. On a per common share basis, earnings before redemption premium
were $4.72 in 1994, compared with $4.30 in 1993. After the redemption premium,
net income applicable to common stockholders was $1.29 billion, or $4.58 per
common share in 1994. The redemption premium was related to the redemption of
the corporation's series 1990 preferred stock.
Key factors in our 1994 performance were a 7 percent growth in tax-equivalent
net interest income; 14 percent loan growth; and continued improvement in credit
quality. Tax-equivalent net interest income was $4.6 billion in 1994, compared
with $4.3 billion in 1993. Net loans increased by $9.6 billion since year-end
1993. Commercial loans increased throughout our banking region. Consumer loan
growth was led by direct consumer
14
loans through the retail bank branches and credit cards.
Credit quality improvement included a $524 million net decrease in nonperforming
assets compared with year-end 1993, to $887 million, or 1.14 percent of net
loans and foreclosed properties at December 31, 1994. Another key measure of
credit quality is charge-offs, and net charge-offs in 1994 were .40 percent of
average net loans, compared with .78 percent in 1993.
Nonperforming loans reduced interest income since the contribution from these
loans is eliminated or sharply reduced. In 1994, $70 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 1994
was $10 million. However, the $524 million net decrease in nonperforming assets
since year-end 1993 reduced the negative impact on interest income in 1994.
The net interest margin was 4.75 percent in 1994, compared with 4.82 percent in
1993. The average rate earned on earning assets was 7.67 percent in 1994,
compared with 7.63 percent in 1993. The average rate paid on interest-bearing
liabilities was 3.46 percent in 1994 and 3.29 percent in 1993.
Noninterest income was $1.6 billion in both 1994 and 1993. Noninterest income
included $84 million in 1994 and $48 million in 1993 from the disposition of
segregated assets acquired in connection with First Union's 1993 acquisition of
First American Metro Corp.
At December 31, 1994, trading account assets were $1.3 billion, compared with
$802 million at year-end 1993. Investments in commercial paper, federal agency
securities, U.S. Treasury notes and revaluation gains accounted for most of the
increase in trading account assets from year-end 1993. These assets are carried
at market value.
Noninterest expense was $3.7 billion in 1994, compared with $3.5 billion in
1993. The increase reflected growth in personnel, advertising and other expenses
related to our card products, capital management and capital markets initiatives
undertaken to improve prospects for revenue growth, as well as expenses related
to acquisitions. Partially offsetting these increases was a decline in mortgage
servicing amortization. Costs related to environmental matters were not
material.
Income taxes were $711 million in 1994, compared with $579 million in 1993. The
increase resulted primarily from an increase in income before taxes.
Average earning assets in 1994 were $95.8 billion, an 8 percent increase from
$88.3 billion in 1993.
At December 31, 1994, we had securities available for sale with a market value
of $11.5 billion, compared with a market value of $14.5 billion at year-end
1993. The market value of securities available for sale was $396 million below
amortized cost at year-end 1994. As a result, a $289 million after-tax
unrealized loss was recorded as a reduction of stockholders' equity at December
31, 1994. The average rate earned on securities available for sale in 1994 was
5.54 percent, compared with 5.02 percent in 1993. The average maturity of the
portfolio was 3.40 years at December 31, 1994.
Investment securities amounted to $7.9 billion at both December 31, 1994, and
December 31, 1993. The average rate earned on investment securities in 1994 was
7.23 percent, compared with 6.99 percent in 1993. The average maturity of the
portfolio was 4.50 years at December 31, 1994. Gains and losses in this
portfolio in 1994 were primarily related to premiums received on the call of
certain securities prior to their securities' maturity, and sales of securities
downgraded in creditworthiness.
Net loans at December 31, 1994, were $77.8 billion, compared with $68.3 billion
at year-end 1993. Consumer loan growth largely reflected strength in direct
lending. The fastest growth in our consumer loan portfolio was in
higher-yielding credit card products. This was the result of a targeted,
national solicitation effort that increased credit card outstandings 102 percent
in 1994. The increase also included $1.2 billion from First
15
Union's 1994 purchase accounting acquisitions.
The loan portfolio at December 31, 1994, was composed of 46 percent in
commercial loans and 54 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1993. At December 31, 1994, unused loan
commitments related to commercial and consumer loans were $17.6 billion and
$13.2 billion, respectively. Commercial and standby letters of credit were $3.1
billion. At December 31, 1994, loan participations sold to other lenders
amounted to $1.7 billion, and were recorded as a reduction of gross loans.
The average rate earned on loans in 1994 was 8.28 percent, compared with 8.33
percent in 1993. The average prime rate in 1994 was 6.81 percent, compared with
6.00 percent in 1993. Loan yields lagged the increases in the prime rate.
Commercial real estate loans amounted to 15 percent of the total portfolio at
December 31, 1994, and 17 percent at December 31, 1993. This portfolio included
commercial real estate mortgage loans of $9.5 billion at December 31, 1994, and
$9.3 billion at December 31, 1993.
At December 31, 1994, nonperforming assets were $887 million, or 1.14 percent of
net loans and foreclosed properties, compared with $1.4 billion, or 2.06
percent, at December 31, 1993. Loans or properties of less than $5 million each
made up 84 percent, or $747 million, of nonperforming assets at December 31,
1994. Of the rest, nine loans or properties between $5 million and $10 million
each accounted for $61 million; and four loans or properties over $10 million
each accounted for $79 million. Sixty-six percent of nonperforming assets were
collateralized by real estate at December 31, 1994.
In addition to these nonperforming assets, at December 31, 1994, accruing loans
90 days past due were $272 million, compared with $213 million at December 31,
1993. The increase in past due loans was attributable in part to the 1994
purchase accounting acquisitions.
Net charge-offs as a percentage of average net loans were .40 percent in 1994,
compared with .78 percent in 1993.
At December 31, 1994, acquired Southeast Banks segregated assets and Howard
shared loans amounted to $259 million, or $233 million net of a $26 million
allowance, compared with $635 million, or $595 million net of a $40 million
allowance, at December 31, 1993. Segregated assets are included in other assets.
Core deposits were $81.0 billion at December 31, 1994, compared with $78.4
billion at December 31, 1993. This increase in core deposits primarily reflected
deposits acquired in the 1994 purchase accounting acquisitions. In 1994 average
noninterest-bearing deposits were 20 percent of average core deposits, compared
with 19 percent in 1993. The portion of core deposits in higher-rate, other
consumer time deposits was 34 percent at December 31, 1994, and 33 percent at
year-end 1993. Average core deposit balances in 1994 increased $2.9 billion from
1993 to $76.8 billion. Average balances in savings and NOW, money market and
noninterest-bearing deposits were higher when compared with the previous year,
while other consumer time deposits were lower. Core deposits were primarily
affected by the 1994 acquisitions, and also were affected by branch closings or
consolidations, seasonal factors and the rates being offered for deposits
compared to other investment opportunities.
Purchased funds at December 31, 1994, were $17.2 billion compared with $12.3
billion at year-end 1993. Average purchased funds in 1994 were $15.1 billion, an
increase of 22 percent from $12.4 billion in 1993.
Long-term debt was 51 percent of total stockholders' equity at December 31,
1994, compared with 46 percent at December 31, 1993. In 1994 we issued $200
million of two-year floating rate senior notes and $450 million of subordinated
debt with rates ranging from 6.375 percent to 8.77 percent and maturities of
either 10 or 15 years. Proceeds from these debt issues were used for general
corporate purposes.
In 1994 we redeemed $15 million of convertible subordinated debt that First
Union assumed in the August 1994 acquisition of BancFlorida Financial
Corporation, which was converted into approximately 437,000 shares
16
of First Union common stock prior to redemption. In 1993 we redeemed $134
million of floating rate debt at par plus accrued interest.
At December 31, 1994, common stockholders' equity was $8.0 billion, an 8 percent
increase from $7.4 billion at December 31, 1993. Total stockholders' equity was
$8.3 billion, compared with $7.9 billion at year-end 1993. In 1994 we paid $218
million for the purchase in the open market of 5 million shares of common stock
related to acquisitions and the conversion of debentures.
In December 1994, the board of directors elected to redeem all of the 6.3
million outstanding shares of our series 1990 cumulative perpetual adjustable
rate preferred stock. The redemption occurred on March 31, 1995, at a redemption
price of $51.50 per share. We recorded a redemption premium of $41 million in
the fourth quarter of 1994, representing the difference between the $44.96 book
value of the series 1990 preferred stock and the $51.50 redemption price.
At December 31, 1994, stockholders' equity included a $289 million unrealized
after-tax loss related to debt and equity securities.
In 1993, in connection with three pooling of interests acquisitions, we issued
29 million shares of common stock and 527,000 shares of a new series of
convertible class A preferred stock, which were convertible into 680,000 shares
of First Union common stock. In the second quarter of 1993, we redeemed the
convertible class A preferred stock, most of which was converted into common
stock before redemption.
At December 31, 1994, the corporation's tier 1 and total capital ratios were
7.76 percent and 12.94 percent, respectively. The corporation's leverage ratio
at December 31, 1994, was 6.12 percent. Each subsidiary bank had a leverage
ratio in excess of 5.68 percent at December 31, 1994. At December 31, 1994, our
deposit- taking subsidiary banks met the capital and leverage ratio requirements
for "well capitalized" banks.
The fair value depreciation of off-balance sheet derivative financial
instruments used to manage our interest rate sensitivity was $623 million at
December 31, 1994, compared with the fair value appreciation of $495 million at
December 31, 1993.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses. The amount of
deferred gains and losses from off-balance sheet instruments used to manage
interest rate risk was $15 million and $35 million, respectively, as of December
31, 1994. The $20 million of net deferred losses reduced net interest income by
$18 million in 1995.
17
Table 1
CONSOLIDATED SUMMARIES OF INCOME, PER SHARE, AND BALANCE SHEET DATA
- ------------------------------------------------------------------------
Years Ended December 31,
--------------------
(In thousands except per share data) 1995 1994 1993 1992 1991 1990
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
CONSOLIDATED SUMMARIES OF INCOME
Interest income $ 8,686,377 7,230,813 6,601,528 6,608,666 7,031,400 7,549,088
========================================================= ============ ============== ============= ============ ============
Interest income* $ 8,791,826 7,352,023 6,736,036 6,752,660 7,199,405 7,740,412
Interest expense 4,051,815 2,792,982 2,481,952 2,941,680 4,070,885 4,806,471
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
Net interest income* 4,740,011 4,559,041 4,254,084 3,810,980 3,128,520 2,933,941
Provision for loan losses 220,000 179,000 369,753 642,708 946,284 923,409
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
Net interest income after
provision for loan losses* 4,520,011 4,380,041 3,884,331 3,168,272 2,182,236 2,010,532
Securities available for sale
transactions 44,340 6,213 32,784 39,227 53,566 24,387
Investment security transactions 4,818 4,006 7,435 (2,881) 155,048 7,884
Noninterest income 1,847,350 1,565,694 1,541,569 1,360,202 1,254,635 1,028,755
Noninterest expense** 4,092,469 3,746,857 3,536,346 3,443,524 2,777,665 2,564,124
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
Income before income taxes* 2,324,050 2,209,097 1,929,773 1,121,296 867,820 507,434
Income taxes 788,420 711,444 578,912 278,514 129,843 59,868
Tax-equivalent adjustment 105,449 121,210 134,508 143,994 168,005 191,324
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
Net income 1,430,181 1,376,443 1,216,353 698,788 569,972 256,242
Dividends on preferred stock 26,390 46,020 45,553 53,040 51,746 47,151
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
Net income applicable to common
stockholders before redemption premium 1,403,791 1,330,423 1,170,800 645,748 518,226 209,091
Redemption premium on preferred stock 41,355 - - - -
-
- ------------------------------------------- ------------ ------------ -------------- ------------- ------------ ------------
Net income applicable to common
stockholders after redemption premium $ 1,403,791 1,289,068 1,170,800 645,748 518,226 209,091
========================================================= ============ ============== ============= ============ ============
PER COMMON SHARE DATA
Net income before redemption premium $ 5.04 4.72 4.30 2.53 2.34 .97
Net income after redemption premium $ 5.04 4.58 4.30 2.53 2.34 .97
Average common shares 278,677,119 281,662,617 272,438,239 255,384,145 221,469,355 215,503,124
Average common stockholders' equity*** $ 8,412,020 7,869,710 6,781,863 5,723,532 4,554,234 4,301,110
Common stock price
High 58 7/8 47 5/8 51 1/2 44 7/8 30 7/8 21 3/4
Low 41 3/8 39 3/8 37 7/8 29 1/2 13 3/4 13 7/8
Year-end $ 55 5/8 41 3/8 41 1/4 43 5/8 30 15 3/8
To earnings ratio**** 11.04 X 8.76 9.60 17.25 12.82 15.85
To book value 174 % 147 154 187 141 78
Cash dividends $ 1.96 1.72 1.50 1.28 1.12 1.08
Book value 31.89 28.19 26.71 23.36 21.21 19.83
BALANCE SHEET DATA
Assets 131,879,873 113,529,201 104,549,554 95,308,328 89,488,406 83,698,754
Long-term debt $ 7,120,947 4,242,137 3,675,002 3,732,768 3,549,815 2,967,847
========================================================= ============ ============== ============= ============ ============
*Tax-equivalent.
**Includes merger-related restructuring charges of $94,446,000
($72,826,000 after tax) in the fourth quarter of 1995.
***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
- --------------------------------------------------------
Years Ended December 31,
--------------
(In thousands) 1995 1994 1993 1992 1991 1990
- ------------------------------------------- ----------- ------------- ----------- ----------- ---------- -----------
Trading account profits $ 69,407 $ 51,672 59,939 39,593 32,305 22,397
Service charges on deposit accounts 615,552 580,271 572,625 525,428 407,481 344,463
Mortgage banking income 149,585 88,436 150,896 164,832 143,734 109,404
Capital management income 397,191 330,416 306,392 263,771 216,910 187,717
Securities available for sale transactions 44,340 6,213 32,784 39,227 53,566 24,387
Investment security transactions 4,818 4,006 7,435 (2,881) 155,048 7,884
Fees for other banking services* 159,571 130,992 100,122 79,891 -- --
Merchant discounts 100,580 89,508 79,452 75,316 64,216 63,629
Insurance commissions 53,843 48,076 46,717 45,959 48,755 51,205
Sundry income 301,621 246,323 225,426 165,412 341,234 249,940
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total $1,896,508 $1,575,913 1,581,788 1,396,548 1,463,249 1,061,026
========== ========== ========== ========== ========== ==========
* Information not available prior to 1992.
Table 3
NONINTEREST EXPENSE
- --------------------------------------------------------
Years Ended December 31,
--------------
(In thousands) 1995 1994 1993 1992 1991 1990
- ---------------------------------------------- ---------- ---------- ----------- ---------- ---------- ----------
Personnel expense
Salaries $1,615,310 $1,435,702 1,321,416 1,218,612 1,053,789 1,034,820
Other benefits 346,842 337,140 302,533 255,531 210,385 203,362
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total 1,962,152 1,772,842 1,623,949 1,474,143 1,264,174 1,238,182
Occupancy 352,551 352,721 341,847 345,997 317,238 280,537
Equipment rentals, depreciation and maintenance 320,036 270,157 233,572 208,481 174,909 182,401
Advertising 72,205 64,737 44,390 37,545 31,967 34,984
Telephone 86,798 76,249 71,392 69,679 64,120 66,431
Travel 78,330 61,336 50,157 39,813 30,133 31,367
Postage 63,450 55,697 54,619 55,207 49,167 41,147
Printing and office supplies 75,827 67,803 69,989 48,351 36,541 46,818
FDIC insurance 120,489 183,580 181,593 163,623 126,263 69,818
Other insurance 24,756 19,707 24,548 26,549 25,596 26,901
Professional fees 176,359 169,461 95,267 98,240 79,073 62,225
Data processing 71,025 72,138 89,640 78,864 67,388 33,182
Owned real estate expense 13,981 34,544 69,050 205,963 110,471 64,371
Mortgage servicing amortization 24,749 23,525 106,942 37,422 27,149 23,448
Other amortization 228,951 162,609 130,969 106,283 84,992 91,508
Merger-related restructuring charges 94,446 -- -- -- -- --
Sundry 326,364 359,751 348,422 447,364 288,484 270,804
- ----------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total $4,092,469 $3,746,857 3,536,346 3,443,524 2,777,665 2,564,124
========== ========== ========== ========== ========== ==========
Overhead efficiency ratio* 61.67% 61.07 60.60 66.13 60.49 64.18
========== ========== ========== ========== ========== ==========
*The overhead efficiency ratio is equal to noninterest expense divided by net
operating revenue. Net operating revenue is equal to the sum of tax-equivalent
net interest income and noninterest income.
T-2
Table 4
SELECTED LINES OF BUSINESS*
- ------------------------------
First Union Other
Card Home Equity Consumer Capital Capital Mortgage
(Dollars in thousands) Products Bank Banking Markets Management Banking
- ------------------------------ ----------- ----------- ---------- ----------- ------------ -------------
Income Statement Data
Interest income** $ 708,778 278,857 1,126,471 922,941 22,842 1,094,653
Interest expense 281,195 159,361 601,220 671,690 1,220 808,680
Provision for loan losses 212,708 6,361 62,166 29,354 124 25,137
Noninterest income 107,994 30,035 26,352 265,428 397,191 149,585
- ------------------------------ ---------- ------------- --------- ----------- ------------ -------------
Other Data
Net charge-offs 171,977 3,569 49,152 8,153 - 5,439
Average loans, net 4,827,681 2,664,311 10,988,757 7,442,955 110,277 13,798,477
Nonperforming assets 13,066 10,640 82,414 118,177 - 101,581
Average deposits - - - 2,317,510 579,173 -
Assets under care - - - - 51,226,399 -
Assets under management - - - - 45,500,000 -
Loans serviced - - - - - 51,505,000
Origination volume $ 6,397,661 1,224,558 6,162,978 - - 3,800,668
Locations 1,290 143 1,296 1,304 1,485 1,311
============================== ========== ============ ========== =========== ============ =============
</TABLE
*The information contained herein represents
selected lines of business data other than commercial
lending and branch operations. Certain
information is prepared from internal management
reports.
**Tax-equivalent.
Table 5
INTERNAL CAPTIAL GROWTH AND DIVIDEND PAYOUT RATIOS
Years Ended December 31,
1995 1994 1993 1992 1991 1990
INTERNAL CAPITAL GROWTH*
Assets to stockholders' equity 13.83 X 12.86 13.64 14.43 16.49 17.19
X
Return on assets 1.21 % 1.29 1.22 .77 .68 .31
Return on total stockholders' equity (a) 16.59 % 16.44 16.66 11.13 11.21 5.38
X
Earnings retained 63.00 % 63.57 67.14 54.88 52.81 (2.50)
Internal capital growth (a) 10.45 % 10.45 11.18 6.11 5.92 (.13)
DIVIDEND PAYOUT RATIOS ON
Common shares 35.82 % 34.16 30.25 40.61 41.91 103.06
Preferred and common shares 37.00 % 36.43 32.86 45.12 47.19 102.50
Return on common stockholders' equity
before redemption premium** (a) 16.69 % 16.91 17.26 11.28 11.38 4.86
Return on common stockholders' equity
after redemption premium** (a) 16.69 % 16.38 17.26 11.28 11.38 4.86
(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 6
SELECTED QUARTERLY DATA
- --------------------------------------------------------
(Unaudited)
1995 1994
--------------- ---------------
(In thousands except
per share data) Fourth Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income
Interest income $ 2,278,414 2,252,435 2,132,530 2,022,998 1,952,073 1,844,459 1,757,056 1,677,225
Interest expense 1,111,571 1,068,367 976,328 895,549 823,355 714,878 654,326 600,423
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,166,843 1,184,068 1,156,202 1,127,449 1,128,718 1,129,581 1,102,730 1,076,802
Provision for loan losses 64,500 59,000 54,000 42,500 40,000 45,000 45,000 49,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after 1,102,343 1,125,068 1,102,202 1,084,949 1,088,718 1,084,581 1,057,730 1,027,802
provision for loan losses
Securities available for sale 15,701 9,718 8,213 10,708 (5,917) 1,957 1,791 8,382
transactions
Investment security transactions 777 2,591 1,233 217 411 2,286 694 615
Noninterest income 545,343 466,754 431,442 403,811 417,804 400,595 372,387 374,908
Noninterest expense* 1,137,294 1,018,641 979,992 956,542 976,559 945,850 917,203 907,245
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes* 526,870 585,490 563,098 543,143 524,457 543,569 515,399 504,462
Income taxes 191,508 204,909 198,704 193,299 177,322 186,799 174,186 173,137
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 335,362 380,581 364,394 349,844 347,135 356,770 341,213 331,325
Dividends on preferred stock 4,084 4,956 5,113 12,237 12,039 11,777 11,347 10,857
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders before redemption premium 331,278 375,625 359,281 337,607 335,096 344,993 329,866 320,468
Redemption premium on preferred stock - - - - 41,355 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders after redemption premium $ 331,278 375,625 359,281 337,607 293,741 344,993 329,866 320,468
====================================================================================================================================
Per Common Share Data
Net income before redemption premium $ 1.19 1.36 1.30 1.19 1.17 1.21 1.19 1.15
Net income after redemption premium 1.19 1.36 1.30 1.19 1.03 1.21 1.19 1.15
Cash dividends .52 .52 .46 .46 .46 .46 .40 .40
Common stock price
High 58 7/8 51 3/8 49 3/4 45 1/8 45 1/4 47 1/4 47 5/8 43 3/4
Low 49 5/8 45 1/4 42 7/8 41 3/8 39 3/8 43 1/4 41 1/4 39 3/4
Quarter-end $ 55 5/8 51 45 1/4 43 3/8 41 3/8 43 1/4 46 1/8 41 5/8
====================================================================================================================================
Selected Ratios**
Return on assets*** 1.06 % 1.25 1.28 1.27 1.25 1.33 1.30 1.30
Return on common stockholders' equity
before redemption premium**** 15.13 17.84 17.32 16.52 16.04 17.03 17.31 17.34
Return on common stockholders' equity
after redemption premium**** 15.13 17.84 17.32 16.52 14.06 17.03 17.31 17.34
Stockholders' equity to assets 7.11 % 7.07 7.39 7.40 7.74 7.89 7.67 7.79
====================================================================================================================================
First Union Corporation, As Originally
Reported
Net interest income $ 827,789 841,117 814,187 779,683 779,298 776,519 751,293 726,605
Net income 272,015 255,016 249,136 236,909 231,549 241,752 229,620 222,459
Net income applicable to common
stockholders before redemption premium 272,015 255,016 249,136 229,880 224,718 235,157 223,419 216,733
Net income applicable to common
stockholders after redemption premium 272,015 255,016 249,136 229,880 183,363 235,157 223,419 216,733
Net income per common share
before redemption premium 1.58 1.50 1.45 1.32 1.28 1.35 1.32 1.27
Net income per common share
after redemption premium $ 1.58 1.50 1.45 1.32 1.04 1.35 1.32 1.27
====================================================================================================================================
*Includes merger-related restructuring charges of
$94,446,000 ($72,826,000 after tax) in the fourth
quarter of 1995.
**Based on average balances.
***Based on net income.
****Based on net income applicable to common
stockholders, excluding average net unrealized gains
(losses) on debt and equity securities.
T-4
Table 7
SELECTED SIX-YEAR DATA*
- --------------------------------------------------------
Years Ended December 31,
(Dollars in thousands) 1995 1994 1993 1992 1991 1990
- --------------------------------------- ----------------------------- ----------------------------------------------------------
MORTGAGE LOAN PORTFOLIO
PERMANENT LOAN ORIGINATIONS
Residential
Direct $ 2,879,420 3,569,451 6,276,720 4,549,392 2,206,796 1,832,758
Wholesale 428,071 933,214 2,431,455 2,641,656 2,657,534 2,092,646
- --------------------------------------- ----------------------------- ----------------------------------------------------------
Total 3,307,491 4,502,665 8,708,175 7,191,048 4,864,330 3,925,404
Income property 493,177 443,356 238,199 263,749 266,518 237,980
- --------------------------------------- ----------------------------- ----------------------------------------------------------
Total $ 3,800,668 4,946,021 8,946,374 7,454,797 5,130,848 4,163,384
====================================================================== ==========================================================
VOLUME OF LOANS SERVICED
Residential $ 50,047,000 32,677,000 32,786,000 22,528,000 22,161,000 17,878,000
Income property 1,458,000 1,537,000 1,972,000 1,848,000 1,951,000 1,534,000
- --------------------------------------- ----------------------------- ----------------------------------------------------------
Total $ 51,505,000 34,214,000 34,758,000 24,376,000 24,112,000 19,412,000
====================================================================== ==========================================================
NUMBER OF OFFICES
Banking 1,964 1,340 1,303 898 1,004 768
Other 190 222 222 235 209 285
- --------------------------------------- ----------------------------- ----------------------------------------------------------
Total offices 2,154 1,562 1,525 1,133 1,213 1,053
======================================= ============================= ==========================================================
OTHER DATA
ATMs 2,123 1,242 1,189 847 943 707
Employees 44,536 31,858 32,861 23,459 24,203 20,521
Common stockholders 89,257 54,236 58,670 37,955 33,456 34,951
======================================= ============================= ==========================================================
*1990-1994 not restated for pooling of interests acquisitions.
Table 8
GROWTH THROUGH ACQUISITIONS
- ------------------------------------------------
Loans,
(In thousands) Assets net Deposits
- ------------------------------------- ----------------------------------------
December 31, 1989, as reported $ 45,506,847 31,600,776 31,531,770
Pooling of interests acquisition 30,727,815 19,631,808 22,872,460
- ------------------------------------- ----------------------------------------
December 31, 1989, as restated 76,234,662 51,232,584 54,404,230
1990 acquisition 7,946,973 4,174,478 5,727,330
Growth in operations (482,881) (826,039) 1,142,818
- ------------------------------------- ----------------------------------------
December 31, 1990, as reported 83,698,754 54,581,023 61,274,378
1991 acquisitions 12,322,456 7,025,621 9,921,421
Reduction in operations (6,532,804) (2,881,547) 1,198,974
- ------------------------------------- ----------------------------------------
December 31, 1991, as reported 89,488,406 58,725,097 72,394,773
1992 acquisitions 3,739,039 1,773,797 3,645,316
Growth (reduction) in operations 2,080,883 (197,432) 115,711
- ------------------------------------- ----------------------------------------
December 31, 1992, as reported 95,308,328 60,301,462 76,155,800
1993 acquisitions 7,785,479 4,380,362 6,302,873
Growth (reduction) in operations 1,455,747 3,581,264 (573,240)
- ------------------------------------- ----------------------------------------
December 31, 1993, as reported 104,549,554 68,263,088 81,885,433
1994 acquisitions 4,595,762 1,238,703 4,026,375
Growth in operations 4,383,885 8,329,202 1,953,317
- ------------------------------------- --------------- ------------------------
December 31, 1994, as reported 113,529,201 77,830,993 87,865,125
1995 acquisitions 10,254,013 7,537,477 7,252,524
Growth (reduction) in operations 8,096,659 5,194,410 (2,562,431)
- ------------------------------------- ----------------------------------------
December 31, 1995, as reported $ 131,879,873 90,562,880 92,555,218
===============================================================================
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; the
purchase acquisitions of Georgia Federal Savings Bank, FSB and First American
Metro Corp. in 1993; the purchase acquisition of American Savings of Florida,
FSB in 1995; and the pooling of interests acquisition of First Fidelity
Bancorporation on on January 1, 1996. Acquisitions consummated by acquired
companies are not included herein.
T-5
Table 9
SECURITIES AVAILABLE FOR SALE
- --------------------------------------------------------
Average
December 31, 1995 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 $1,507,112 1,443,582 4,440 3,799 2,958,933 (6,415) 7,036 2,959,554 1.58
U.S. Government agencies 795,915 5,978,720 1,724,404 4,925 8,503,964 (110,206) 8,318 8,402,076 3.75
CMOs 847,785 3,727,165 179,355 940 4,755,245 (34,593) 18,082 4,738,734 2.49
State, county and municipal - 2,149 1,384 9,375 12,908 - 201 13,109 14.50
Other 241,536 951,782 96,173 673,158 1,962,649 (97,253) 14,029 1,879,425 3.50
- ---------------------------------- ---------------------------------------------------------------------------------------------
Total $3,392,348 12,103,398 2,005,756 692,197 18,193,699 (248,467) 47,666 17,992,898 3.03
====================================================================================================================
Market Value
Debt securities $3,392,348 12,103,398 2,005,756 104,120 17,605,622 (174,872) 46,818 17,477,568
Sundry securities - - - 588,077 588,077 (73,595) 848 515,330
- ---------------------------------- ---------------------------------------------------------------------------------
Total $3,392,348 12,103,398 2,005,756 692,197 18,193,699 (248,467) 47,666 17,992,898
====================================================================================================================
Amortized Cost
Debt securities $3,374,168 12,014,119 1,984,974 104,307 17,477,568
Sundry securities - - - 515,330 515,330
- ---------------------------------- ---------------------------------------------------
Total $3,374,168 12,014,119 1,984,974 619,637 17,992,898
======================================================================================
Weighted Average Yield
U.S. Treasury 6.66% 5.39 7.67 8.02 6.06
U.S. Government agencies 6.69 6.67 6.57 6.82 6.67
CMOs 7.19 6.97 7.27 6.18 6.59
State, county and municipal - 8.80 10.24 10.28 10.03
Other 7.85 5.26 10.92 4.15 5.39
Consolidated 6.80% 6.40 6.81 6.09 6.42
=====================================================================================
Average
December 31, 1994 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 $1,213,646 2,953,338 2,970 - 4,169,954 (9) 154,020 4,323,965 1.70
U.S. Government agencies 370,462 1,195,754 2,548,803 126,771 4,241,790 (9,804) 199,197 4,431,183 5.34
CMOs 107,156 1,166,164 75,407 21,928 1,370,655 (257) 45,777 1,416,175 3.04
State, county and municipal - 1,750 1,348 10,122 13,220 (24) 417 13,613 8.50
Other 85,333 1,294,705 20,345 337,640 1,738,023 (56,823) 63,555 1,744,755 2.83
- ------------------------------------ ------------------------------ --------- ----------- --------------------------------------
Total $1,776,597 6,611,711 2,648,873 496,461 11,533,642 (66,917) 462,966 11,929,691 3.40
=================================================================== ========= =========== ======================================
Market Value
Debt securities $1,776,597 6,611,711 2,648,873 182,344 11,219,525 (12,884) 454,023 11,660,664
Sundry securities - - - 314,117 314,117 (54,033) 8,943 269,027
- ------------------------------------ ------------------------------ --------- ----------- ------------------------------
Total $1,776,597 6,611,711 2,648,873 496,461 11,533,642 (66,917) 462,966 11,929,691
=================================================================== ========= =========== ==============================
Amortized Cost
Debt securities $1,788,551 6,883,740 2,809,470 178,903 11,660,664
Sundry securities - - - 269,027 269,027
- ------------------------------------ ------------------------------ --------- -----------
Total $1,788,551 6,883,740 2,809,470 447,930 11,929,691
=================================================================== ========= ===========
Weighted Average Yield
U.S. Treasury 7.26% 5.65 6.05 - 6.10
U.S. Government agencies 6.61 6.08 5.89 6.99 6.03
CMOs 5.47 5.33 5.32 6.34 5.35
State, county and municipal - 9.09 8.08 10.54 10.11
Other 7.24 6.97 5.91 4.88 6.62
Consolidated 7.01% 5.93 5.87 5.64 6.07
=================================================================== =======================
T-6
Average
December 31, 1993 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. Treasury $3,335,359 2,355,889 8,445 3,336 5,703,029 3,609 (49,334) 5,657,304 1.35
U.S. Government agencies 281,106 2,216,818 1,878,133 633 4,376,690 44,412 (6,403) 4,414,699 3.98
CMOs 1,017,691 1,377,790 106 - 2,395,587 13,852 (9,157) 2,400,282 1.40
State, county and municipal - 1,577 1,589 11,037 14,203 441 - 14,644 8.65
Other 453,981 1,124,617 35,680 297,876 1,912,154 99,616 (6,748) 2,005,022 2.47
- ---------------------------------- ---------------------------------------------------------------------------------------
Total $5,088,137 7,076,691 1,923,953 312,882 14,401,663 161,930 (71,642) 14,491,951 2.31
==================================================================================================================================
Carrying Value
Debt securities $5,088,137 7,076,691 1,923,953 16,433 14,105,214 123,032 (64,947) 14,163,299
Sundry securities - - - 296,449 296,449 38,898 (6,695) 328,652
- ---------------------------------- ----------------------------------------------------------------------------------------
Total $5,088,137 7,076,691 1,923,953 312,882 14,401,663 161,930 (71,642) 14,491,951
===========================================================================================================================
Market Value
Debt securities $5,089,468 7,120,270 1,937,263 16,298 14,163,299
Sundry securities - - - 328,652 328,652
- ---------------------------------- ------------------------------------------------------------
Total $5,089,468 7,120,270 1,937,263 344,950 14,491,951
===============================================================================================
Weighted Average Yield
U.S. Treasury 3.95% 5.21 4.53 8.24 4.47
U.S. Government agencies 4.86 6.32 5.67 6.71 5.95
CMOs 5.05 5.28 3.85 - 5.18
State, county and municipal - 8.30 6.04 10.56 9.83
Other 5.15 7.70 5.74 7.54 7.03
Consolidated 4.33% 5.97 5.67 7.66 5.39
================================== ===========================================================
Included in "U.S. Government agencies" and "Other" at December 31, 1995, are
$1,101,704,000 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 December 31, 1995, these securities had a weighted average maturity of
2.92 years and a weighted average yield of 6.10 percent. The weighted average
U.S. equivalent yield for comparative purposes of these securities was 7.50
percent based on a weighted average funding cost differential of 1.40 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. 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 in 1995,
7.8275 percent in 1994, and 7.905 percent in 1993; 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 and
1993, respectively.
There were commitments to purchase securities at a cost of $358,825,000 that had
a market value of $360,254,000 at December 31, 1995. Commitments to sell
securities at December 31, 1995 had a carrying value of $321,089,000. There were
commitments to purchase securities at a cost of $5,551,000 that had a market
value of $5,547,000 at December 31, 1994. There were no commitments to sell
securities. Securities available for sale at December 31, 1993 include the
carrying value of $513,390,000 of securities which have been sold for future
settlement. Gross gains and losses from sales are accounted for on a trade date
basis. Gross gains and losses realized on the sale of debt securities in 1995
were $68,980,000 and $41,654,000, respectively and on sundry securities
$17,091,000 and $77,000, respectively. Gross gains and losses realized on the
sale of debt securities in 1994 were $37,924,000 and $44,607,000, respectively,
and on sundry securities $14,557,000 and $1,661,000, respectively. Gross gains
and losses realized on the sale of debt securities in 1993 were $36,353,000 and
$10,195,000, respectively, and on sundry securities $6,802,000 and $176,000,
respectively.
T-7
Table 10
INVESTMENT SECURITIES
- --------------------------------------------------------
Average
December 31, 1995 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 $ 80,287 950,270 236,183 - 1,266,740 32,411 (1,157) 1,297,994 3.59
CMOs 59,410 546,111 - - 605,521 12,443 (1) 617,963 2.95
State, county and municipal 286,591 273,754 170,614 446,052 1,177,011 131,805 (3,226) 1,305,590 7.54
Other 3,825 2,600 16,821 67,098 90,344 7,713 (2) 98,055 11.54
- ----------------------------------------- --------------------------------------------------------------------------------
Total $ 430,113 1,772,735 423,618 513,150 3,139,616 184,372 (4,386) 3,319,602 5.15
====================================================================================================================================
Carrying Value
Debt securities $ 430,113 1,772,735 423,618 497,309 3,123,775 184,372 (4,386) 3,303,761
Sundry securities - - - 15,841 15,841 - - 15,841
- ----------------------------------------- ---------------------------------------------------------------------------------
Total $ 430,113 1,772,735 423,618 513,150 3,139,616 184,372 (4,386) 3,319,602
============================================================================================================================
Market Value
Debt securities $ 438,097 1,828,457 453,150 584,057 3,303,761
Sundry securities - - - 15,841 15,841
- ----------------------------------------- --------------------------------------------------
Total $ 438,097 1,828,457 453,150 599,898 3,319,602
=============================================================================================
Weighted Average Yield
U.S. Government agencies 7.29% 7.71 7.87 - 7.71
CMOs 7.37 7.20 - - 7.22
State, county and municipal 9.55 10.84 11.25 11.80 10.95
Other 6.81 7.80 7.50 9.21 8.75
Consolidated 8.81% 8.03 9.22 11.46 8.86
========================================= ==================================================
Average
December 31, 1994 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. Treasury $ 56,236 255,455 3,986 3,481 319,158 94 (14,788) 304,464 2.66
U.S. Government agencies 837,468 1,396,876 1,409,971 16,409 3,660,724 10,676 (136,301) 3,535,099 4.20
CMOs 149,476 1,280,403 145,952 5,346 1,581,177 17 (63,111) 1,518,083 3.37
State, county and municipal 528,855 449,800 225,968 542,472 1,747,095 95,491 (8,890) 1,833,696 6.13
Other 133,127 185,587 20,827 269,034 608,575 7,759 (15,685) 600,649 5.91
---------- ---------- ---------- ---------- ---------- --------- --------- ---------- -----
Total $1,705,162 3,568,121 1,806,704 836,742 7,916,729 114,037 (238,775) 7,791,991 4.50
========== ========== ========== ========== ========== ========= ========= ========== =====
Carrying Value
Debt securities $1,705,162 3,568,121 1,806,704 658,592 7,738,579 110,485 (235,398) 7,613,666
Sundry securities -- -- -- 178,150 178,150 3,552 (3,377) 178,325
---------- ---------- ---------- ---------- ---------- --------- --------- ----------
Total $1,705,162 3,568,121 1,806,704 836,742 7,916,729 114,037 (238,775) 7,791,991
========== ========== ========== ========= ========== ========= ========== ==========
Market Value
Debt securities $1,667,535 3,473,709 1,769,848 702,574 7,613,666
Sundry securities -- -- -- 178,325 178,325
---------- ---------- ---------- --------- ----------
Total $1,667,535 3,473,709 1,769,848 880,899 7,791,991
========== ========== ========== ========= ==========
Weighted Average Yield
U.S. Treasury 4.52% 7.26 8.90 4.48 4.57
U.S. Government agencies 5.52 6.38 7.32 6.89 6.55
CMOs 5.64 6.24 6.57 6.86 6.22
State, county and municipal 10.27 9.74 10.97 12.20 10.83
Other 5.28 6.36 7.22 7.41 6.62
Consolidated 6.95% 7.72 10.51 6.62 7.35
========= ========== ========== ======== =====
T-8
Average
December 31, 1993 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. Treasury $ 122,178 267,080 2,498 3,585 395,341 460 (39) 395,762 1.63
U.S. Government agencies 1,540,583 2,646,578 166,280 3,209 4,356,650 81,740 (5,342) 4,433,048 1.96
CMOs 79,311 322,388 41,095 -- 442,794 579 (248) 443,125 2.74
State, county and municipal 162,145 660,358 391,032 693,556 1,907,091 227,178 (1,187) 2,133,082 7.26
Other 197,327 379,998 13,629 241,633 832,587 15,755 (981) 847,361 2.91
---------- ---------- --------- --------- --------- --------- -------- ---------- -----
Total $2,101,544 4,276,402 614,534 941,983 7,934,463 325,712 (7,797) 8,252,378 3.37
========== ========== ========= ========= ========= ========= ======== ========== =====
Carrying Value
Debt securities $2,101,544 4,276,402 614,534 709,726 7,702,206 312,732 (7,797) 8,007,141
Sundry securities -- -- -- 232,257 232,257 12,980 -- 245,237
---------- ---------- --------- --------- --------- --------- -------- ----------
Total $2,101,544 4,276,402 614,534 941,983 7,934,463 325,712 (7,797) 8,252,378
========== ========== ========= ========= ========= ========= ========= ==========
Market Value
Debt securities $2,133,939 4,367,756 665,643 839,803 8,007,141
Sundry securities -- -- -- 245,237 245,237
---------- ---------- --------- --------- ---------
Total $2,133,939 4,367,756 665,643 1,085,040 8,252,378
========== ========== ========= ========= =========
Weighted Average Yield
U.S. Treasury 4.95% 7.81 9.41 4.24 4.53
U.S. Government agencies 5.83 6.30 7.66 8.00 6.19
CMOs 6.18 5.30 6.64 -- 5.58
State, county and municipal 9.07 10.68 11.15 12.21 11.19
Other 5.79 6.01 7.73 7.85 6.52
Consolidated 6.04% 9.81 11.07 6.75 7.31
========== ========== ========== ========= =======
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.
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 in 1995, 7.8275 percent in 1994, and 7.905 percent in 1993;
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 and 1993, respectively.
There were no commitments to purchase or sell investment securities at December
31, 1995, 1994 or 1993. Gross gains and losses realized on repurchase agreement
underdeliveries and calls of investment securities in 1995 were $5,705,000 and
$887,000, respectively. In 1994 such gross gains and losses were $4,050,000 and
$44,000, respectively. In 1993 such gross gains and losses were $7,837,000 and
$402,000, respectively.
T-9
Table 11
LOANS
- --------------------------------------------------------
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
Commercial
Commercial, financial and agricultural
Taxable $23,897,326 21,272,227 18,899,874 15,876,374 17,131,471 17,224,533
Nontaxable 750,958 781,257 791,194 874,284 1,078,161 1,447,655
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total commercial, financial
and agricultural 24,648,284 22,053,484 19,691,068 16,750,658 18,209,632 18,672,188
Real estate - construction and other 2,505,627 2,052,054 2,138,128 2,489,451 3,729,288 4,310,470
Real estate - mortgage 9,991,640 9,472,695 9,282,448 8,699,155 7,757,915 6,182,383
Lease financing 3,169,698 1,921,302 1,286,560 1,442,320 1,665,305 1,808,942
Foreign 649,760 526,325 416,664 391,791 368,287 356,190
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total commercial 40,965,009 36,025,860 32,814,868 29,773,375 31,730,427 31,330,173
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Retail
Real estate - mortgage 27,273,991 21,061,449 18,206,600 14,322,721 11,873,683 9,212,001
Installment loans - Bankcard* 3,657,619 4,345,069 2,154,799 -- -- --
Installment loans - other** 20,212,216 17,381,379 15,658,181 16,819,822 15,865,430 14,868,815
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total retail 51,143,826 42,787,897 36,019,580 31,142,543 27,739,113 24,080,816
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total loans 92,108,835 78,813,757 68,834,448 60,915,918 59,469,540 55,410,989
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Unearned Income
Loans 476,591 419,429 335,081 383,895 467,288 545,305
Lease financing 1,069,364 563,335 236,279 230,561 277,155 284,661
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Total unearned income 1,545,955 982,764 571,360 614,456 744,443 829,966
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
Loans, net $90,562,880 77,830,993 68,263,088 60,301,462 58,725,097 54,581,023
=========== =========== =========== =========== =========== ===========
*Information not available prior to 1993.
**Installment loans-other include (in thousands) $2,358,021; $1,742,947;
$1,095,565; $798,167; $504,763 and $491,944 of retail leasing loans at
December 31, 1995, 1994, 1993, 1992, 1991 and 1990, respectively, that were
acquired in the First Fidelity merger.
Table 12
CERTAIN LOAN MATURITIES AND SENSITIVITY
TO CHANGES IN INTEREST RATES
- --------------------------------------------------------
December 31, 1995
Commercial, Commercial
Financial Real Estate: Commercial
and Construction Real Estate:
(In thousands) Agricultural and Other Mortgage Foreign Total
- ------------------------------------------------------------------------------------------------------------------------------
Fixed Rate
1 year or less $ 3,681,155 85,147 604,198 371,760 4,742,260
1-5 years 2,640,865 119,322 2,169,059 26,495 4,955,741
After 5 years 1,161,769 145,373 1,813,942 23,258 3,144,342
- ---------------------------------------- ------------- --------------- --------------- --------------- ---------------
Total 7,483,789 349,842 4,587,199 421,513 12,842,343
- ---------------------------------------- ------------- --------------- --------------- --------------- ---------------
Adjustable Rate
1 year or less 7,127,580 863,293 1,049,147 174,033 9,214,053
1-5 years 6,913,406 992,954 2,897,502 30,751 10,834,613
After 5 years 3,123,509 299,538 1,457,792 23,463 4,904,302
- ---------------------------------------- ------------- --------------- --------------- --------------- ---------------
Total 17,164,495 2,155,785 5,404,441 228,247 24,952,968
- ---------------------------------------- ------------- --------------- --------------- --------------- ---------------
Total $ 24,648,284 2,505,627 9,991,640 649,760 37,795,311
======================================== ============= =============== =============== =============== ===============
T-10
Table 13
ALLOWANCE FOR LOAN LOSSES AND
NONPERFORMING ASSETS
- --------------------------------------------------------
Year Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of year $ 1,578,128 1,622,374 1,551,157 1,461,429 1,258,857 744,226
Provision for loan losses 220,000 179,000 369,753 642,708 946,284 923,409
Reversal of tax effect of acquired bank-
related net charge-offs included in
the provision for loan losses -- -- -- -- (16,386) --
Allowance of divested subsidiary and other sales -- -- -- -- (10,800) (7,769)
Allowance of loans acquired or sold, net 48,666 58,606 191,037 70,861 133,170 173,660
Transfer to allowance for segregated asset losses -- -- -- (20,000) (13,000) --
Loan losses, net (338,996) (281,852) (489,573) (603,841) (836,696) (574,669)
----------- ----------- ----------- ----------- ----------- ----------
Balance, end of year $ 1,507,798 1,578,128 1,622,374 1,551,157 1,461,429 1,258,857
=========== =========== =========== =========== =========== ==========
(as % of loans, net) 1.66 2.03 2.38 2.57 2.49 2.31
=========== =========== =========== =========== =========== ==========
(as % of nonaccrual and restructured loans) 233 248 151 105 77 76
=========== =========== =========== =========== =========== ==========
(as % of nonperforming assets) 182 178 115 76 55 58
=========== =========== =========== =========== =========== ==========
LOAN LOSSES
Commercial, financial and agricultural $ 108,092 150,986 232,029 276,740 365,333 319,971
Real estate - construction and other 3,823 15,901 75,761 108,517 209,691 157,459
Real estate - mortgage 70,906 79,741 134,522 108,778 130,394 11,137
Installment loans - Bankcard* 179,942 73,018 63,783 -- -- --
Installment loans - other 100,018 95,046 107,081 207,812 211,764 159,764
----------- ----------- ----------- ----------- ----------- -----------
Total 462,781 414,692 613,176 701,847 917,182 648,331
----------- ----------- ----------- ----------- ----------- -----------
LOAN RECOVERIES
Commercial, financial and agricultural 63,408 67,971 47,003 40,968 33,251 42,806
Real estate - construction and other 5,994 3,574 8,921 2,103 3,994 3,229
Real estate - mortgage 12,100 16,141 18,996 6,182 4,752 1,524
Installment loans - Bankcard* 13,861 11,376 9,927 -- -- --
Installment loans - other 28,422 33,778 38,756 48,753 38,489 26,103
----------- ----------- ----------- ----------- ----------- -----------
Total 123,785 132,840 123,603 98,006 80,486 73,662
----------- ----------- ----------- ----------- ----------- -----------
Loan losses, net $ 338,996 281,852 489,573 603,841 836,696 574,669
=========== =========== =========== =========== =========== ===========
(as % of average loans, net) .41 .40 .78 1.03 1.53 1.05
=========== =========== =========== =========== =========== ===========
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 335,507 280,409 422,641 641,645 826,051 727,587
Real estate and other loans 308,574 336,796 609,711 735,632 898,642 882,407
----------- ----------- ----------- ----------- ----------- -----------
Total nonaccrual loans 644,081 617,205 1,032,352 1,377,277 1,724,693 1,609,994
Restructured loans 3,772 19,125 40,415 104,539 177,679 39,997
Foreclosed properties 178,484 250,498 338,370 564,928 742,941 506,172
----------- ----------- ----------- ----------- ----------- -----------
Total nonperforming assets $ 826,337 886,828 1,411,137 2,046,744 2,645,313 2,156,163
=========== =========== =========== =========== =========== ===========
(as % of loans, net and foreclosed properties) .91 1.14 2.06 3.36 4.45 3.91
=========== =========== =========== =========== =========== ===========
Accruing loans past due 90 days $ 289,866 271,607 212,792 240,012 289,481 291,153
=========== =========== =========== =========== =========== ===========
*Information not available prior to 1993.
T-11
Table 14
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------
Years Ended December 31,
1995 1994 1993 1992 1991
---------- --------------- --------------- --------------- ---------------
Loans Loans Loans Loans Loans
% % % % %
Total Total Total Total Total
(In millions) Amt. Loans Amt. Loans Amt. Loans Amt. Loans Amt. Loans
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------- -------------------------------------------------------------------------------
Commercial, financial and agricultural $412 27% $ 504 28% $ 413 28% $ 573 27% $ 648 30%
Real estate-construction and other 57 3 93 3 171 3 256 4 234 6
Real estate - mortgage 298 40 292 39 370 40 264 38 197 33
Installment loans - Bankcard 243 4 188 5 101 3 - - - -
Installment loans - other 224 22 194 22 220 23 299 28 283 27
Lease financing 9 3 7 2 7 2 7 2 8 3
Foreign 35 1 24 1 8 1 11 1 16 1
Unallocated 230 - 276 - 332 - 141 - 75 -
==================================================== ===============================================================================
Total $1,508 100% $1,578 100% $1,622 100% $1,551 100% $1,461 100%
==================================================== ===============================================================================
Beginning in 1993, the allocation for loan losses is based on the Corporation's
loss migration process. The unallocated portion of the allowance for loan losses
at December 31, 1992, would have been increased by $37 million had the migration
model been available in 1992. The allocation of the allowance for loan losses to
the respective classifications is not necessarily indicative of future losses or
future allocations. Information related to Bankcards is not available prior to
1993.
See the "Loans" and "Allowance for Loan Losses" discussion in Management's
Analysis of Operations and in Note 1 to the supplemental consolidated financial
statements.
Table 15
INTANGIBLE ASSETS
- --------------------------------------------------------
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
- ------------------------------- ---------- --------------- --------- ---------- ---------- ----------
Mortgage Servicing Rights $ 148,933 134,421 91,431 186,785 196,796 173,915
========== =============== ========== ========== ========== ==========
Credit Card Premium $ 43,894 58,494 75,588 71,140 73,792 24,785
========== =============== ========== ========== ========== ==========
Other Intangible Assets
Goodwill $1,883,362 1,381,720 1,038,423 840,079 887,811 914,333
Deposit base premium 535,373 535,531 367,209 285,207 216,621 191,097
Other 12,932 19,589 26,854 34,497 25,489 14,807
- ------------------------------- ---------- --------------- ---------- ---------- ---------- ----------
Total $2,431,667 1,936,840 1,432,486 1,159,783 1,129,921 1,120,237
========== =============== ========== ========== ========== ==========
T-12
Table 16
ALLOWANCE FOR FORECLOSED PROPERTIES
- --------------------------------------------------------
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991
- -------------------------------------------------------- -------------------------------------------------------
Foreclosed properties $ 202,686 292,076 401,183 674,021 781,199
- -------------------------------------------------------- ------------- ------------------------------------------
Allowance for foreclosed properties, beginning of year 41,578 62,813 109,093 38,258 10,920
Provision for foreclosed properties (2,756) 13,753 46,530 132,415 45,755
Transfer from (to) allowance for segregated assets 78 2,178 4,651 - -
Dispositions, net (14,698) (37,166) (97,461) (61,580) (18,417)
- -------------------------------------------------------- -----------------------------------------------------
Allowance for foreclosed properties, end of year 24,202 41,578 62,813 109,093 38,258
- -------------------------------------------------------- -----------------------------------------------------
Foreclosed properties, net $ 178,484 250,498 338,370 564,928 742,941
======================================================== ========================================================
Table 17
DEPOSITS
- --------------------------------------------------------
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
- ---------------------------- ------------ ------------ ----------- ----------- ---------- ------------
Core Deposits
Noninterest-bearing $17,043,223 15,917,287 16,208,214 14,583,331 12,463,681 10,705,416
Savings and NOW accounts 24,297,270 23,263,322 21,661,410 17,652,860 14,021,445 10,061,707
Money market accounts 13,112,918 14,376,098 15,024,464 13,835,528 12,833,961 11,115,590
Other consumer time 31,945,313 27,402,767 25,534,358 27,211,878 28,925,361 23,576,212
- --------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total core deposits 86,398,724 80,959,474 78,428,446 73,283,597 68,244,448 55,458,925
Foreign 3,526,771 4,802,719 1,456,828 512,793 362,477 972,439
Other time 2,629,723 2,102,932 2,000,159 2,359,410 3,787,848 4,843,014
- --------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total deposits $92,555,218 87,865,125 81,885,433 76,155,800 72,394,773 61,274,378
========== ========== ========== ========== ========== ==========
Table 18
TIME DEPOSITS IN AMOUNT OF $100,000 OR MORE
- --------------------------------------------------------
December 31, 1995
---------------------------
Time Other
(In thousands) Certificates Time
- -------------------------------------------- -------------- -------------
Maturity of
3 months or less $ 2,961,453 390,340
Over 3 months through 6 months 1,313,023 33,295
Over 6 months through 12 months 1,096,910 27,348
Over 12 months 1,340,372 20,921
- -------------------------------------------- --------------- ------------
Total $ 6,711,758 471,904
============================================ ================== ============
T-13
Table 19
CAPITAL RATIOS
- --------------------------------------------------------
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
- ------------------------------------------- -------------- ------------- ------------- ------------- ------------- -------------
CONSOLIDATED CAPITAL RATIOS*
Qualifying Capital
Tier 1 capital $ 6,551,148 4,466,670 4,342,664 3,189,276 2,441,839 1,901,657
Total capital 11,212,378 7,450,602 6,960,671 4,948,156 3,799,073 3,153,733
Adjusted risk-based assets 98,966,217 57,593,799 47,529,159 34,573,794 32,314,244 29,121,464
Adjusted leverage ratio assets $ 119,420,752 73,011,243 70,785,664 48,671,501 45,955,064 38,833,477
Ratios
Tier 1 capital 6.62% 7.76 9.14 9.22 7.56 6.53
Total capital 11.33 12.94 14.64 14.31 11.76 10.83
Leverage 5.49 6.12 6.13 6.55 5.31 4.90
Stockholders' Equity to Assets
Year-end 6.86 6.98 7.36 6.99 6.51 6.05
Average 7.23% 7.52 7.11 6.89 6.29 6.22
=========================================== ============================= ============= ============= ============= =============
BANK CAPITAL RATIOS
Tier 1 capital
First Union National Bank of
Florida 7.39% 7.95 9.13 9.38 8.79 6.44
Georgia 6.69 8.26 9.58 8.14 6.06 6.51
Maryland 11.36 20.53 15.78 - - -
North Carolina 6.31 7.32 8.24 7.22 6.45 6.87
South Carolina 8.42 7.88 7.55 7.88 6.85 6.46
Tennessee 11.12 12.76 12.43 24.03 6.57 7.50
Virginia 7.41 9.21 10.77 - - -
Washington, D.C. 13.77 16.75 14.23 - - -
First Union National Bank 9.16 - - - - -
First Union Bank of Connecticut 12.60 - - - - -
First Union Bank of Delaware 25.45 - - - - -
First Union Home Equity Bank 7.50 7.60 - - - -
Total capital
First Union National Bank of
Florida 10.72 10.76 10.83 11.10 10.61 8.56
Georgia 10.62 11.18 12.62 11.05 7.62 8.23
Maryland 12.62 21.81 17.07 - - -
North Carolina 9.92 10.69 11.35 10.60 7.99 8.39
South Carolina 11.79 12.15 11.82 10.89 8.25 7.84
Tennessee 12.38 14.02 13.69 25.29 7.84 8.55
Virginia 10.57 13.11 13.08 - - -
Washington, D.C. 15.03 18.03 15.52 - - -
First Union National Bank 10.95 - - - - -
First Union Bank of Connecticut 13.88 - - - - -
First Union Bank of Delaware 26.74 - - - - -
First Union Home Equity Bank 10.09 12.10 - - - -
Leverage
First Union National Bank of
Florida 5.18 5.91 5.79 5.62 4.91 4.91
Georgia 5.54 5.69 5.67 6.58 4.91 4.78
Maryland 9.32 12.82 9.04 - - -
North Carolina 5.72 6.10 5.52 5.46 4.91 4.97
South Carolina 6.24 5.77 5.56 5.93 5.39 4.82
Tennessee 7.64 8.47 8.05 25.10 7.34 8.22
Virginia 6.17 7.10 6.89 - - -
Washington, D.C. 6.32 8.33 6.06 - - -
First Union National Bank 7.43 - - - - -
First Union Bank of Connecticut 8.30 - - - - -
First Union Bank of Delaware 17.20 - - - - -
First Union Home Equity Bank 6.48% 7.22 - - - -
=========================================== ============================= ============= ============= ============= =============
* Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of 4.00 percent and a minimum ratio of total
capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio
of tier 1 capital to adjusted average quarterly assets is from 3.00 to 5.00
percent. The 1990-1994 capital ratios presented herein have not been
restated to reflect pooling of interests acquisitions.
T-14
Table 20
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted
Average Rate Estimated
December 31, 1995 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
Asset Rate Conversions
Interest rate swaps $11,282,355 6.35 % 5.83 % 1.27 Converts floating rate loans to fixed rate.
Carrying amount $ 19,713 Adds to liability sensitivity. Similar
Unrealized gross gain 113,314 characteristics to a fixed income security
Unrealized gross loss (22,237) funded with variable rate liabilities.
Total 110,790 Includes $6.3 billion of indexed amortizing
swaps, with $2.8 billion maturing within 3
years and $3.5 billion within 4.75 years.
Forward bullet
interest rate swaps 6,120,000 5.97 - 1.96 Converts floating rates on loans to fixed
Carrying amount - rates at higher than current yields in future
Unrealized gross gain 38,428 periods. $63 million effective March 1996;
Unrealized gross loss - $6.0 billion effective December 1996; $57
Total 38,428 million effective March 1997.
Total asset rate conversions $17,402,355 6.22 % 5.83 % 1.51 $149,218
Liability Rate Conversions
Interest rate swaps $ 5,127,000 6.89 % 5.76 % 5.83 Converts $5.1 billion of fixed rate long-term
Carrying amount $ 9,627 debt to floating rate by matching the
Unrealized gross gain 224,927 maturity of the swap to the debt issue. Rate
Unrealized gross loss (7,718) sensitivity remains unchanged due to the
Total 226,836 direct linkage of the swap to the debt issue.
Also converts $42 million of fixed
rate CD's to variable rate.
Other financial instruments 180,000 - - 6.33 Miscellaneous purchased option-based products
Carrying amount (2,224) for liability management purposes include $5
Unrealized gross gain - million of options on swaps, $25 million of
Unrealized gross loss (130) eurodollar caps and $150 million of
Total (2,354) eurodollar floors.
Total liability rate conversions $ 5,307,000 6.89 % 5.76 % 5.84 $224,482
Asset Hedges
Short eurodollar futures $ 1,016,000 - % 5.81 % .29 Hedges market values of U.S. Treasury notes
Carrying amount $ - in the available-for-sale portfolio. $788
Unrealized gross gain - million effective March 1996; $164 million
Unrealized gross loss (1,391) effective June 1996; $64 million effective
Total (1,391) September 1996.
Total asset hedges $ 1,016,000 - % 5.81 % .29 $(1,391)
(Continued)
T-15
Table 20
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted
Average Rate Estimated
December 31, 1995 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
Rate Sensitivity Hedges
Put options on eurodollar futures $ 4,252,000 - % 7.87 % .33 (1)
Carrying amount $ 624
Unrealized gross gain -
Unrealized gross loss (624)
Total -
Interest rate cap 67,200 - - .43 (2)
Carrying amount 81
Unrealized gross gain 6
Unrealized gross loss (50)
Total 37
Short eurodollar futures 2,000,000 - 5.60 .22 (3)
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (1,378)
Total (1,378)
Long eurodollar futures 23,355,000 5.56 - 1.40 (4)
Carrying amount -
Unrealized gross gain 19,255
Unrealized gross loss -
Total 19,255
Total rate sensitivity hedges $ 29,674,200 5.56 % 7.14 % 1.16 $ 17,914
Offsetting Positions
Interest rate floors $ 800,000 6.16 % 6.16 % .45 (5)
Carrying amount $ (524)
Unrealized gross gain 2,362
Unrealized gross loss (1,838)
Total -
Prime/federal funds cap 4,000,000 5.90 5.90 .27 (6)
Carrying amount 448
Unrealized gross gain 1,353
Unrealized gross loss (1,801)
Total -
Total offsetting positions $ 4,800,000 5.95 % 5.95 % .30 $ -
(1) Paid a premium for the right to lock in the 3 month LIBOR reset
rates on pay variable rate swaps and short-term liabilities
$2.4 billion effective March 1996; $1.9 billion effective June 1996.
(2) Purchased LIBOR caps; $50 million converts floating rate liabilities
to fixed if short-term rates rise above 8 percent; $17 million
uncaps a LIBOR-based, asset-backed security at 11.72 percent.
(3) Locks in the 3 month LIBOR reset rates on pay variable rate
swaps. Effective March 1996.
(4) Converts floating rate LIBOR - based loans to fixed rate. Adds to
liability sensitivity. Similar characteristics to fixed income security
funded with variable rate liabilities. $4.9 billion effective December
1996; $5.0 billion effective March 1997; $4.9 billion effective
June 1997; $8.6 billion effective September 1997.
(5) Consists of $800 million of interest rate floors, of which $400
million were purchased and offset by $400 million sold, locking
in gains to be amortized over the remaining life of the contracts.
(6) In December 1994, the corporation offset an existing federal funds
cap (purchased) and a prime rate cap (written) position by
simultaneously purchasing a prime rate cap and writing a federal
funds cap at strikes of 6.0 percent and 3.25 percent, respectively.
The notional amount of each cap is $1.0 billion. Lock in losses to
be amortized over the remaining life of the contracts.
* 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 December 31, 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-16
Table 20
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted
Average Rate Estimated
December 31, 1994 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comments
Asset Rate Conversions
Interest rate swaps $ 10,322,216 5.71 % 6.13 % 2.08 (1)
Carrying amount $ 8,917
Unrealized gross gain 12,699
Unrealized gross loss (476,815)
Total (455,199)
Forward interest rate swaps 1,200,000 7.93 - 1.63 (2)
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (7,071)
Total (7,071)
Total asset rate conversions $ 11,522,216 5.94 % 6.13 % 2.04 $ (462,270)
Liability Rate Conversions
Interest rate swaps $ 4,026,500 6.90 % 6.49 % 5.20 (3)
Carrying amount $ 18,960
Unrealized gross gain 1,685
Unrealized gross loss (220,348)
Total (199,703)
Other financial instruments 392,000 - - 3.46 (4)
Carrying amount 1,902
Unrealized gross gain -
Unrealized gross loss (1,792)
Total 110
Total liability rate conversions $ 4,418,500 6.90 % 6.49 % 5.04 $ (199,593)
Asset Hedges
Short T-bill futures $ 1,200,000 - % 7.01 % .42 (5)
Carrying amount $ -
Unrealized gross gain 555
Unrealized gross loss -
Total 555
Long Eurodollar futures 800,000 6.50 - .43 (6)
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (2,410)
Total (2,410)
Total asset hedges $ 2,000,000 6.50 % 7.01 % .42 $ (1,855)
(1) Converts floating rate loans to fixed rate. Adds to liability
sensitivity. Similar characteristics to a fixed income security
funded with variable rate liabilities. Includes $4.3 billion of
indexed amortizing swaps, all of which mature within four years.
(2) Converts floating rates on loans to fixed rates at higher than current
yields for future periods. $200 million effective March 1995 and $1.0
billion effective September 1995. Put options on forward swaps
referenced under "Rate Sensitivity Hedges" are linked to this item.
(3) Converts fixed rate long-term debt to floating rate by matching
maturity of the swap to the debt issue. Rate sensitivity remains
unchanged due to the linkage of the swap to the debt issue.
(4) Miscellaneous option-based products for liability management
purposes include $35 million of options on swaps,
$207 million eurodollar caps and $150 million of eurodollar
floors. These instruments were assumed as a result of certain
of the corporation's acquisitions.
(5) Converts the maturity of $200 million U.S. Treasury bills in the
available for sale portfolio from June 1995 to March 1995 and
$1.0 billion U.S. Treasury bills from September 1995 to June 1995.
(6) Locks in the rate of a portion of the Mortgage-backed securities
portfolio.
T-17
Table 20
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted
Average Rate Estimated
December 31, 1994 Notional Maturity Fair
(In thousands) Amount Receive Pay In Years Value Comment
Rate Sensitivity Hedges
Put options on eurodollar futures $ 27,181,000 - % 8.05 % .56 (1)
Carrying amount $ 21,524
Unrealized gross gain 12,322
Unrealized gross loss -
Total 33,846
Put options on forward swaps 1,000,000 - 8.08 .72 (2)
Carrying amount 3,721
Unrealized gross gain 3,514
Unrealized gross loss -
Total 7,235
Interest rate cap 50,000 - - 1.16 (3)
Carrying amount 356
Unrealized gross gain -
Unrealized gross loss (181)
Total 175
Long eurodollar futures 25,000 5.31 - .20 (4)
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (120)
Total (120)
Total rate sensitivity hedges $ 28,256,000 5.31 % 8.05 % .56 $ 41,136
Offsetting Positions
Interest rate floors $ 800,000 6.44 % 6.44 % 1.45 (5)
Carrying amount $ (1,675)
Unrealized gross gain 2,336
Unrealized gross loss (661)
Total -
Prime/federal funds cap 4,000,000 4.63 4.63 1.27 (6)
Carrying amount 1,611
Unrealized gross gain 23
Unrealized gross loss (2,120)
Total (486)
Total offsetting positions $ 4,800,000 4.93 % 4.93 % 1.30 $ (486)
(1) Paid a premium for the right to lock in the 3 month LIBOR
reset rates on pay variable rate swaps and short-term liabilities.
$1.7 billion effective March 1995; $12.5 billion efffective June 1995;
and $13.0 billion effective September 1995.
(2) Paid a premium for the right to terminate $1.0 billion of forward
interest rate swaps based on interest rates in effect in September
1995. Reduces liability sensitivity.
(3) Purchased cap to convert floating rate liabilities to fixed rate if
short-term rates rise above 8 percent.
(4) Locks in the rate of the future placement of 3 month eurodollar
deposits.
(5) Consists of $800 million of interest rate floors, of which $400
million were purchased and offset by $400 million sold,
locking in gains to be amortized over the remaining life of
the contracts.
(6) In December 1994, the corporation offset an existing federal funds
cap (purchased) and a prime rate cap (written) position by
simultaneously purchasing a prime rate cap and writing a federal
funds cap at strikes of 6.00 percent and 3.25 percent, respectively.
The notional amount of each cap is $1.0 billion. Locks in losses to
be 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 December 31, 1994. 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-18
Table 21
OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES*
- ------------------------------------------------------------------------
December 31, 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 $ 6,249,009 10,026,072 1,127,274 -- -- 17,402,355
Weighted average receive rate 6.26 % 6.27 5.49 -- -- 6.22
Estimated fair value $ 43,801 109,675 (4,258) -- -- 149,218
------------ ------------ ------------ ------------ ------------ ------------
Liability Rate Conversions
Notional amount $ 854,000 408,000 1,070,000 2,475,000 500,000 5,307,000
Weighted average receive rate 6.59 % 6.82 6.44 7.27 6.68 6.89
Estimated fair value $ 18,383 9,037 19,576 162,706 14,780 224,482
------------ ------------ ------------ ------------ ------------ ------------
Asset Hedges
Notional amount $ 1,016,000 -- -- -- -- 1,016,000
Weighted average receive rate -- % -- -- -- -- --
Estimated fair value $ (1,391) -- -- -- -- (1,391)
------------ ------------ ------------ ------------ ------------ ------------
Rate Sensitivity Hedges
Notional amount $ 11,169,000 18,505,200 -- -- -- 29,674,200
Weighted average receive rate 5.31 % 5.62 -- -- -- 5.56
Estimated fair value $ 1,203 16,711 -- -- -- 17,914
------------ ------------ ------------ ------------ ------------ ------------
Offsetting Positions
Notional amount $ 4,800,000 -- -- -- -- 4,800,000
Weighted average receive rate 5.95 % -- -- -- -- 5.95
Estimated fair value $ -- -- -- -- -- --
============ ============ ============ ============ ============ ============
December 31, 1994 1 Year 1 -2 2 -5 5 -10 After 10
(In thousands) or Less Years Years Years Years Total
- --------------------------------- ------------- ------------- ------------- ------------- ------------- --------------
Asset Rate Conversions
Notional amount $ 2,036,623 3,807,490 5,678,103 -- -- 11,522,216
Weighted average receive rate 5.81 % 7.19 5.15 -- -- 5.94
Estimated fair value $ (25,724) (57,775) (378,771) -- -- (462,270)
------------ ------------ ------------ ------------ ------------ ------------
Liability Rate Conversions
Notional amount $ 1,116,500 344,000 983,000 1,225,000 750,000 4,418,500
Weighted average receive rate 6.98 % 6.23 6.60 7.58 6.52 6.90
Estimated fair value $ (23,382) (7,410) (37,280) (24,229) (107,292) (199,593)
------------ ------------ ------------ ------------ ------------ ------------
Asset Hedges
Notional amount $ 2,000,000 -- -- -- -- 2,000,000
Weighted average receive rate 6.50 % -- -- -- -- 6.50
Estimated fair value $ (1,855) -- -- -- -- (1,855)
------------ ------------ ------------ ------------ ------------ ------------
Rate Sensitivity Hedges
Notional amount $ 28,206,000 50,000 -- -- -- 28,256,000
Weighted average receive rate 5.31 % -- -- -- -- 5.31
Estimated fair value $ 40,961 175 -- -- -- 41,136
------------ ------------ ------------ ------------ ------------ ------------
Offsetting Positions
Notional amount $ -- 4,800,000 -- -- -- 4,800,000
Weighted average receive rate -- % 4.93 -- -- -- 4.93
Estimated fair value $ -- (486) -- -- -- (486)
============ ============ ============ ============ ============ ============
* 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 20.
T-19
Table 22
OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
- ------------------------------------------------------------------------
Rate
Asset Rate Liability Rate Basis Asset Sensitivity Offsetting
(In thousands) Conversions Conversions Protection Hedges Hedges Positions Total
- ------------------------ -------------- -------------- ------------ ------------ ---------------- ------------- -------------
Balance, December 31, 1993 $ 18,334,640 4,408,173 6,000,000 750,000 23,543,000 800,000 53,835,813
Additions 2,877,000 2,153,000 -- 11,050,000 44,907,643 2,000,000 62,987,643
Maturities/Amortizations (7,295,424) (1,656,673) -- (3,000,000) (34,694,643) -- (46,646,740)
Offsets -- -- (2,000,000) -- -- 2,000,000 --
Terminations (2,394,000) (486,000) (4,000,000) (6,800,000) (5,500,000) -- (19,180,000)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 11,522,216 4,418,500 -- 2,000,000 28,256,000 4,800,000 50,996,716
Additions 9,760,147 2,298,000 -- 4,245,000 55,466,631 -- 71,769,778
Maturities/Amortizations (3,455,617) (1,409,500) -- (4,229,000) (48,625,705) -- (57,719,822)
Terminations (424,391) -- -- (1,000,000) (5,422,726) -- (6,847,117)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 $ 17,402,355 5,307,000 -- 1,016,000 29,674,200 4,800,000 58,199,555
============ =========== ============ ============ ============ ============ ============
*Includes only off-balance sheet derivative financial instruments related to
interest rate risk management activities.
Table 23
INTEREST DIFFERENTIAL
- ------------------------------------------------------------------------
1995 Compared to 1994 1994 Compared to 1993
Interest Interest
Income/ Variance Income/ Variance
Expense Attributable to** Expense Attributable to**
(in thousands) Variance Rate Volume Variance Rate Volume
- ----------------------------------------------- ------------ ---------- ----------- ------------ ------------ -----------
Earning Assets
Interest-bearing bank balances $ (39,098) 3,005 (42,103) (22,585) 12,223 (34,808)
Federal funds sold and securities
purchased under resale agreements 73,872 30,735 43,137 23,941 11,435 12,506
Trading account assets* 28,908 5,638 23,270 20,186 16,072 4,114
Securities available for sale* (31,547) 107,631 (139,178) 332,088 56,844 275,244
Investment securities*:
US Government and other 48,207 40,922 7,285 (346,051) (24,064) (321,987)
State, county, and municipal (39,635) (4,407) (35,228) 4,482 (5,301) 9,783
- ----------------------------------------------------------- --------- --------- ----------- ----------- -----------
Total 8,572 36,515 (27,943) (341,569) (29,365) (312,204)
- ----------------------------------------------------------- --------- --------- ----------- ----------- -----------
Loans* 1,399,096 333,910 1,065,186 603,926 (38,113) 642,039
- ----------------------------------------------------------- --------- --------- ----------- ----------- -----------
Total earning assets $ 1,439,803 517,434 922,369 615,987 29,096 586,891
=========================================================== ========= ========= =========== =========== ===========
Interest- Bearing Liabilities
Deposits 807,284 587,167 220,117 102,056 5,068 96,988
Short-term borrowings 320,719 174,795 145,924 156,380 89,061 67,319
Long-term debt 130,830 20,865 109,965 52,594 28,385 24,209
- ----------------------------------------------------------- --------- --------- ----------- ----------- -----------
Total interest-bearing liabilities 1,258,833 782,827 476,006 311,030 122,514 188,516
=========================================================== ========= ========= =========== =========== ===========
Net interest income $ 180,970 (265,393) 446,363 304,957 (93,418) 398,375
=========================================================== ========= ========= =========== =========== ===========
* Income related to securities and loans exempt from both federal and state
income taxes, federal income taxes only or state income taxes only is stated
on a fully tax-equivalent basis. It is 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.
** Changes attributable to rate/volume are allocated to both rate and
volume on an equal basis.
T-20
FIRST UNION CORPORATION AND SUBSIDIARIES
NET INTEREST INCOME SUMMARIES
- ------------------------------------------------------------------------
YEAR ENDED 1995 YEAR ENDED 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 $ 475,771 25,946 5.45% $ 1,272,933 65,044 5.11 %
Federal funds sold and securities
purchased under resale agreements 2,265,686 130,759 5.77 1,390,819 56,887 4.09
Trading account assets (a) (d) 1,537,655 96,677 6.29 1,154,787 67,769 5.87
Securities available for sale (a) (d) 11,211,947 718,499 6.41 13,541,857 750,046 5.54
Investment securities (a) (d)
U.S. Government and other 6,026,734 403,513 6.70 5,912,052 355,306 6.01
State, county and municipal 1,488,009 162,780 10.94 1,806,142 202,415 11.21
Total investment securities 7,514,743 566,293 7.54 7,718,194 557,721 7.23
Loans (a) (b) (d)
Commercial
Commercial, financial and
agricultural 22,634,368 1,792,003 7.92 19,796,537 1,548,958 7.82
Real estate - construction and
other 2,265,962 210,524 9.29 1,980,354 153,918 7.77
Real estate - mortgage 9,826,476 872,605 8.88 9,441,337 766,483 8.12
Lease financing 1,416,042 130,647 9.23 860,642 76,580 8.90
Foreign 613,855 43,243 7.04 547,675 29,583 5.40
Total commercial 36,756,703 3,049,022 8.30 32,626,545 2,575,522 7.89
Retail
Real estate - mortgage 23,389,576 1,785,710 7.63 19,171,920 1,406,905 7.34
Installment loans - Bankcard (c) 4,370,403 631,555 14.45 2,949,165 415,630 14.09
Installment loans - other 18,748,715 1,787,365 9.53 15,978,276 1,456,499 9.12
Total retail 46,508,694 4,204,630 9.04 38,099,361 3,279,034 8.61
Total loans 83,265,397 7,253,652 8.71 70,725,906 5,854,556 8.28
Total earning assets 106,271,199 8,791,826 8.27 95,804,496 7,352,023 7.67
Cash and due from banks 5,003,881 4,861,732
Other assets 6,867,006 5,746,875
Total assets $118,142,086 $106,413,103
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 23,047,127 588,161 2.55 21,785,954 463,870 2.13
Money market accounts 13,269,875 387,635 2.92 14,619,988 351,943 2.41
Other consumer time 29,779,347 1,538,455 5.17 25,215,788 1,042,233 4.13
Foreign 3,088,832 178,146 5.77 1,968,960 90,856 4.61
Other time 2,571,123 160,931 6.26 1,963,031 97,142 4.95
Total interest-bearing deposits 71,756,304 2,853,328 3.98 65,553,721 2,046,044 3.12
Federal funds purchased and securities
sold under repurchase agreements 10,324,539 595,920 5.77 8,868,625 382,268 4.31
Commercial paper 1,053,037 60,111 5.71 849,588 35,278 4.15
Other short-term borrowings 2,649,027 160,619 6.06 1,463,162 78,385 5.36
Long-term debt 5,707,257 381,837 6.69 4,009,128 251,007 6.26
Total interest-bearing
liabilities 91,490,164 4,051,815 4.43 80,744,224 2,792,982 3.46
Noninterest-bearing deposits 15,518,337 15,206,362
Other liabilities 2,588,347 2,189,378
Stockholders' equity 8,545,238 8,273,139
Total liabilities and
stockholders' equity $118,142,086 $106,413,103
Interest income and rate earned $ 8,791,826 8.27 % $ 7,352,023 7.67 %
Interest expense and rate paid 4,051,815 3.81 2,792,982 2.92
Net interest income and margin $ 4,740,011 4.46 % $ 4,559,041 4.75 %
(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
in 1993 through 1995, and 34 percent in 1991 and 1992; a North Carolina state
tax rate of 7.75 percent in 1995, 7.8275 percent in 1994, 7.905 percent in
1993, 7.9825 percent in 1992, and 8.06 percent in 1991; a Georgia and
Tennessee state rate of 6 percent; a South Carolina state tax rate of 4.5
percent; a Florida state tax rate of 5.5 percent in 1991 through 1995; a
Maryland state tax rate of 7 percent in 1993 through 1995; and a Washington,
D.C. tax rate of 9.975 percent in 1995 and 10.25 percent in 1994 and 1993,
respectively.
T-21
YEAR ENDED 1993 YEAR ENDED 1992 YEAR ENDED 1991
-------------------- ----------------------- -----------------------
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
- ----------------- ------------- --------------- ------------- ----------- ------------- ------------- ---------- -----------
$ 2,007,712 87,629 4.36 % $ 3,069,633 146,462 4.77 % $ 2,308,668 151,533 6.56 %
1,045,429 32,946 3.15 2,105,693 77,053 3.66 2,008,998 119,697 5.96
1,074,861 47,583 4.43 613,521 33,044 5.39 640,336 44,571 6.96
8,327,713 417,958 5.02 3,042,895 196,681 6.46 - - -
11,146,829 701,357 6.29 11,118,731 813,188 7.31 13,382,040 1,187,609 8.87
1,720,005 197,933 11.51 2,068,583 237,659 11.49 2,652,599 275,742 10.40
-------------- ----------- ------------- ------------ ------------ -------------
12,866,834 899,290 6.99 13,187,314 1,050,847 7.97 16,034,639 1,463,351 9.13
-------------- ----------- ------------- ------------ ------------ -------------
17,630,957 1,363,711 7.73 17,301,641 1,397,324 8.08 18,138,917 1,684,488 9.29
2,543,279 152,094 5.98 2,945,597 173,411 5.89 3,494,022 259,836 7.44
8,474,559 661,130 7.80 8,066,965 667,087 8.27 7,100,245 655,025 9.23
793,381 76,840 9.69 1,093,294 86,712 7.93 1,259,617 128,215 10.18
384,786 18,664 4.85 329,076 19,077 5.80 307,222 21,690 7.06
-------------- ----------- ------------- ------------ ------------ -------------
29,826,962 2,272,439 7.62 29,736,573 2,343,611 7.88 30,300,023 2,749,254 9.07
-------------- ----------- ------------- ------------ ------------ -------------
14,864,444 1,168,278 7.86 12,317,891 1,104,654 8.97 9,406,448 945,393 10.05
2,128,802 324,510 15.24 - - - - - -
16,176,170 1,485,403 9.18 16,645,847 1,800,308 10.82 15,137,554 1,725,606 11.40
-------------- ----------- ------------- ------------ ------------ -------------
33,169,416 2,978,191 8.98 28,963,738 2,904,962 10.03 24,544,002 2,670,999 10.88
-------------- ----------- ------------- ------------ ------------ -------------
62,996,378 5,250,630 8.33 58,700,311 5,248,573 8.94 54,844,025 5,420,253 9.88
-------------- ----------- ------------- ------------ ------------ -------------
88,318,927 6,736,036 7.63 80,719,367 6,752,660 8.37 75,836,666 7,199,405 9.49
=========== ========= ======================= ============= =========
5,092,753 4,252,712 3,737,676
6,198,758 5,648,764 4,247,857
-------------- ------------- ------------
$ 99,610,438 $ 90,620,843 $ 83,822,199
============== ============= ============
18,857,865 407,579 2.16 15,390,096 458,106 2.98 11,700,049 521,608 4.46
14,264,113 328,167 2.30 13,553,818 401,394 2.96 11,589,761 589,395 5.09
26,444,207 1,091,109 4.13 26,809,254 1,373,684 5.12 26,251,514 1,803,055 6.87
798,027 27,789 3.48 361,863 22,381 6.18 622,583 51,370 8.25
2,078,150 89,344 4.30 3,591,178 184,559 5.14 4,456,165 301,670 6.77
-------------- ----------- ------------- ------------ ------------ -------------
62,442,362 1,943,988 3.11 59,706,209 2,440,124 4.09 54,620,072 3,267,098 5.98
8,206,273 294,962 3.59 5,536,779 212,780 3.84 8,084,685 471,766 5.84
484,074 12,772 2.64 483,358 15,207 3.15 765,575 44,595 5.83
810,033 31,817 3.93 749,590 33,108 4.42 541,955 34,101 6.29
3,597,957 198,413 5.51 3,527,853 240,461 6.82 3,192,477 253,325 7.94
-------------- ----------- ------------- ------------ ------------ -------------
75,540,699 2,481,952 3.29 70,003,789 2,941,680 4.20 67,204,764 4,070,885 6.06
=========== ========= ======================= ============= =========
14,388,027 12,240,490 9,982,548
2,379,560 2,096,157 1,551,313
7,302,152 6,280,407 5,083,574
-------------- ------------- ------------
$ 99,610,438 $ 90,620,843 $ 83,822,199
============== ============= ============
$ 6,736,036 7.63 % $ 6,752,660 8.37 % $ 7,199,405 9.49 %
2,481,952 2.81 2,941,680 3.64 4,070,885 5.37
----------- --------- ----------------------- ------------- ---------
$ 4,254,084 4.82 % $ 3,810,980 4.73 % $ 3,128,520 4.12 %
=========== ========= ======================= ============= =========
(b)The loan averages include loans on which the accrual of interest has been
discontinued and are stated net of unearned income.
(c)Information not available prior to 1993.
(d)Tax-equivalent adjustments included in trading account assets, securities
available for sale, investment securities, commercial, financial and
agricultural loans, and lease financing are (in thousands) $5,668, $12,934,
$56,037, $27,330 and $3,480 in 1995, respectively; and $4,062, $15,955,
$70,854, $27,886 and $2,453 in 1994, respectively.
T-22
MANAGEMENT'S STATEMENT OF FINANCIAL RESPONSIBILITY
First Union Corporation and Subsidiaries
Management of First Union Corporation and its
subsidiaries (the Corporation) is committed to the highest standards in quality
customer service and the enhancement of stockholder value. Management expects
the Corporation's employees to respect its customers and to assign the highest
priority to customer needs.
The accompanying supplemental consolidated financial statements were
prepared in conformity with generally accepted accounting principles and
include, as necessary, best estimates and judgments by management. Other
financial information contained in this supplemental annual report is presented
on a basis consistent with the supplemental consolidated financial statements
unless otherwise indicated.
To ensure the integrity, objectivity and fairness of data in these
supplemental consolidated financial statements, management of the Corporation
has established and maintains an internal control structure that is supplemented
by a program of internal audits. The internal control structure is designed to
provide reasonable assurance that assets are safeguarded and transactions are
executed, recorded and reported in accordance with management's intentions and
authorizations and to comply with applicable laws and regulations. To enhance
the reliability of the internal control structure, management recruits and
trains highly qualified personnel, and maintains sound risk management practices
and efficient operations.
The supplemental consolidated financial statements have been audited by KPMG
Peat Marwick LLP, independent auditors, in accordance with generally accepted
auditing standards. KPMG Peat Marwick LLP reviews the results of its audit with
both management and the Audit Committee of the Board of Directors of the
Corporation. The Audit Committee, composed entirely of outside directors, meets
periodically with management, internal auditors and KPMG Peat Marwick LLP to
determine that each is fulfilling its responsibilities and to support actions to
identify, measure and control risks, augment internal controls and enhance
operational efficiency.
Edward E. Crutchfield
Chairman and Chief Executive Officer
Robert T. Atwood
Executive Vice President and
Chief Financial Officer
January 11, 1996
INDEPENDENT AUDITORS' REPORT
First Union Corporation and Subsidiaries
Board of Directors and Stockholders
First Union Corporation
We have audited the supplemental consolidated balance sheets of First Union
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
supplemental consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These supplemental consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect
to the merger of First Union Corporation and First Fidelity Bancorporation on
January 1, 1996, which has been accounted for as a pooling of interests as
described in Note 2 to the supplemental consolidated financial statements.
Generally accepted accounting principles proscribe giving effect to a
consummated business combination accounted for by the pooling of interests
method in financial statements that do not include the date of consummation.
These financial statements do not extend through the date of consummation.
However, they will become the historical consolidated financial statements of
First Union Corporation and subsidiaries after financial statements covering the
date of consummation of the business combination are issued.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
First Union Corporation and subsidiaries at December 31, 1995 and 1994, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
As discussed in Note 3 to the supplemental consolidated financial
statements, the Corporation adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 11, 1996
C-1
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
First Union Corporation and Subsidiaries
December 31,
(In thousands except share data) 1995
Assets
Cash and due from banks $ 6,312,076
Interest-bearing bank balances 79,235
Federal funds sold and securities purchased under resale agreements 4,152,754
Total cash and cash equivalents 10,544,065
Trading account assets 1,881,066
Securities available for sale (amortized cost $17,992,898 in 1995; $11,929,691 in 1994) 18,193,699
Investment securities (market value $3,319,602 in 1995; $7,791,991 in 1994) 3,139,616
Loans, net of unearned income ($1,545,955 in 1995; $982,764 in 1994) 90,562,880
Allowance for loan losses (1,507,798)
Loans, net 89,055,082
Premises and equipment 2,553,170
Due from customers on acceptances 616,301
Mortgage servicing rights 148,933
Credit card premium 43,894
Other intangible assets 2,431,667
Other assets 3,272,380
Total assets $131,879,873
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits 17,043,223
Interest-bearing deposits 75,511,995
Total deposits 92,555,218
Short-term borrowings 19,500,127
Bank acceptances outstanding 616,301
Other liabilities 3,044,136
Long-term debt 7,120,947
Total liabilities 122,836,729
Stockholders' equity
Preferred stock 183,223
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding
277,845,768 shares in 1995; 285,360,745 shares in 1994 926,152
Paid-in capital 1,974,833
Retained earnings 5,847,922
Unrealized gain (loss) on debt and equity securities 111,014
Total stockholders' equity 9,043,144
Total liabilities and stockholders' equity $131,879,873
1994
(In thousands except share data)
Assets
Cash and due from banks 5,822,693
Interest-bearing bank balances 980,693
Federal funds sold and securities purchased under resale agreements 1,421,700
Total cash and cash equivalents 8,225,086
Trading account assets 1,317,169
Securities available for sale (amortized cost $17,992,898 in 1995; $11,929,691 in 1994) 11,533,642
Investment securities (market value $3,319,602 in 1995; $7,791,991 in 1994) 7,916,729
Loans, net of unearned income ($1,545,955 in 1995; $982,764 in 1994) 77,830,993
Allowance for loan losses (1,578,128)
Loans, net 76,252,865
Premises and equipment 2,193,974
Due from customers on acceptances 437,474
Mortgage servicing rights 134,421
Credit card premium 58,494
Other intangible assets 1,936,840
Other assets 3,522,507
Total assets 113,529,201
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits 15,917,287
Interest-bearing deposits 71,947,838
Total deposits 87,865,125
Short-term borrowings 10,249,265
Bank acceptances outstanding 437,474
Other liabilities 2,460,708
Long-term debt 4,242,137
Total liabilities 105,254,709
Stockholders' equity
Preferred stock 229,707
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding
277,845,768 shares in 1995; 285,360,745 shares in 1994 951,202
Paid-in capital 2,361,350
Retained earnings 5,021,730
Unrealized gain (loss) on debt and equity securities (289,497)
Total stockholders' equity 8,274,492
Total liabilities and stockholders' equity 113,529,201
See accompanying Notes to Supplemental Consolidated Financial Statements.
C-2
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
First Union Corporation and Subsidiaries
Years Ended December 31,
(In thousands except per share data) 1995 1994
Interest Income
Interest and fees on loans $ 7,222,842 5,824,217
Interest and dividends on securities available for sale 705,565 734,091
Interest and dividends on investment securities
Taxable income 401,145 352,689
Nontaxable income 109,111 134,178
Trading account interest 91,009 63,707
Other interest income 156,705 121,931
Total interest income 8,686,377 7,230,813
Interest Expense
Interest on deposits 2,853,328 2,046,044
Interest on short-term borrowings 816,650 495,931
Interest on long-term debt 381,837 251,007
Total interest expense 4,051,815 2,792,982
Net interest income 4,634,562 4,437,831
Provision for loan losses 220,000 179,000
Net interest income after provision for loan losses 4,414,562 4,258,831
Noninterest Income
Trading account profits 69,407 51,672
Service charges on deposit accounts 615,552 580,271
Mortgage banking income 149,585 88,436
Capital management income 397,191 330,416
Securities available for sale transactions 44,340 6,213
Investment security transactions 4,818 4,006
Fees for other banking services 159,571 130,992
Merchant discounts 100,580 89,508
Insurance commissions 53,843 48,076
Sundry income 301,621 246,323
Total noninterest income 1,896,508 1,575,913
Noninterest Expense
Personnel expense 1,962,152 1,772,842
Occupancy 352,551 352,721
Equipment rentals, depreciation and maintenance 320,036 270,157
Postage, printing and supplies 139,277 123,500
FDIC insurance 120,489 183,580
Professional fees 176,359 169,461
Owned real estate expense 13,981 34,544
Amortization 253,700 186,134
Merger-related restructuring charges 94,446 --
Sundry 659,478 653,918
Total noninterest expense 4,092,469 3,746,857
Income before income taxes 2,218,601 2,087,887
Income taxes 788,420 711,444
Net income 1,430,181 1,376,443
Dividends on preferred stock 26,390 46,020
Net income applicable to common stockholders before redemption premium 1,403,791 1,330,423
Redemption premium on preferred stock -- 41,355
Net income applicable to common stockholders after redemption premium $ 1,403,791 1,289,068
Per Common Share Data
Net income before redemption premium $ 5.04 4.72
Net income after redemption premium 5.04 4.58
Cash dividends $ 1.96 1.72
Average common shares 278,677,119 281,662,617
1993
(In thousands except per share data)
Interest Income
Interest and fees on loans 5,215,845
Interest and dividends on securities available for sale 390,689
Interest and dividends on investment securities
Taxable income 697,084
Nontaxable income 132,801
Trading account interest 44,534
Other interest income 120,575
Total interest income 6,601,528
Interest Expense
Interest on deposits 1,943,988
Interest on short-term borrowings 339,551
Interest on long-term debt 198,413
Total interest expense 2,481,952
Net interest income 4,119,576
Provision for loan losses 369,753
Net interest income after provision for loan losses 3,749,823
Noninterest Income
Trading account profits 59,939
Service charges on deposit accounts 572,625
Mortgage banking income 150,896
Capital management income 306,392
Securities available for sale transactions 32,784
Investment security transactions 7,435
Fees for other banking services 100,122
Merchant discounts 79,452
Insurance commissions 46,717
Sundry income 225,426
Total noninterest income 1,581,788
Noninterest Expense
Personnel expense 1,623,949
Occupancy 341,847
Equipment rentals, depreciation and maintenance 233,572
Postage, printing and supplies 124,608
FDIC insurance 181,593
Professional fees 95,267
Owned real estate expense 69,050
Amortization 237,911
Merger-related restructuring charges --
Sundry 628,549
Total noninterest expense 3,536,346
Income before income taxes 1,795,265
Income taxes 578,912
Net income 1,216,353
Dividends on preferred stock 45,553
Net income applicable to common stockholders before redemption premium 1,170,800
Redemption premium on preferred stock --
Net income applicable to common stockholders after redemption premium 1,170,800
Per Common Share Data
Net income before redemption premium 4.30
Net income after redemption premium 4.30
Cash dividends 1.50
Average common shares 272,438,239
See accompanying Notes to Supplemental Consolidated Financial Statements.
C-3
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
First Union Corporation and Subsidiaries
Unrealized Gain
(Loss) on Debt
Preferred Stock Common Stock Paid-in Retained and Equity
(In thousands except per share data) Shares Amount Shares Amount Capital Earnings Securities
Balance at December 31, 1992, as
originally reported 6,846 $ 44,774 164,849 $549,497 1,396,701 2,468,191 --
Preferred and common stock issued for
pooled bank acquired January 1, 1996 5,312 232,172 100,046 333,486 755,527 936,465 --
Balance at December 31, 1992, as restated 12,158 276,946 264,895 882,983 2,152,228 3,404,656 --
Net income -- -- -- -- -- 1,216,353 --
Purchase of Class A Series A preferred
stock (6) (134) -- -- -- -- --
Purchase of common stock -- -- (3,879) (12,930) (110,428) -- --
Common stock issued for stock
options exercised -- -- 2,339 7,797 69,779 (4,366) --
Common stock issued through dividend
reinvestment plan -- -- 3,518 11,727 141,007 (230) --
Common stock issued for purchase accounting
acquisitions -- -- 5,328 17,760 148,329 -- --
Converted debentures and preferred stock (592) (14,798) 774 2,580 12,551 -- --
Pre-merger transactions of pooled banks -- -- 5,229 17,429 98,892 361 --
Cash dividends paid
By First Union Corporation at
$2.50 per Class A Series A preferred
share -- -- -- -- -- (337) --
7.78% per Series 1990 preferred share -- -- -- -- -- (24,563) --
$1.50 per common share -- -- -- -- -- (243,845) --
By acquired bank on
Preferred shares -- -- -- -- -- (20,653) --
Common shares -- -- -- -- -- (110,336) --
Unrealized gain on debt and equity
securities -- -- -- -- -- -- 27,295
Balance at December 31, 1993 11,560 262,014 278,204 927,346 2,512,358 4,217,040 27,295
Stockholders' equity of pooled banks not
restated prior to 1994 -- -- 4,169 13,897 36,610 13,844 --
Net income -- -- -- -- -- 1,376,443 --
Redemption of preferred stock (6,318) (31,592) -- -- (252,449) (41,355) --
Purchase of common stock primarily for
purchase accounting acquisitions -- -- (11,067) (36,890) (380,731) -- --
Common stock issued for stock
options exercised -- -- 2,318 7,727 79,387 (4,760) --
Common stock issued through dividend
reinvestment plan -- -- 1,246 4,153 43,676 (231) --
Common stock issued for purchase
accounting acquisition -- -- 3,607 12,023 150,617 -- --
Converted debentures and preferred stock (29) (715) 467 1,557 18,918 -- --
Pre-merger transactions of pooled bank -- -- 6,417 21,389 152,964 (52,926) --
Cash dividends paid
By First Union Corporation at
8.03% per Series 1990 preferred share -- -- -- -- -- (25,353) --
$1.72 per common share -- -- -- -- -- (297,902) --
By acquired bank on
Preferred shares -- -- -- -- -- (20,667) --
Common shares -- -- -- -- -- (142,403) --
Unrealized loss on debt and equity
securities -- -- -- -- -- -- (316,792)
Balance at December 31, 1994 5,213 229,707 285,361 951,202 2,361,350 5,021,730 (289,497)
Net income -- -- -- -- -- 1,430,181 --
Purchase of common stock primarily for
acquisitions -- -- (25,435) (84,783) (1,113,843) -- --
Common stock issued for stock
options exercised -- -- 6,619 22,063 232,847 (51,890) --
Common stock issued through dividend
reinvestment plan -- -- 1,004 3,347 41,171 825 --
Converted preferred stock (1,574) (39,364) 1,658 5,527 57,982 (23,740) --
Common stock issued for purchase
accounting acquisitions -- -- 12,545 41,817 568,693 -- --
Pre-merger transactions of pooled bank (251) (7,120) (3,906) (13,021) (173,367) -- --
Cash dividends paid
By First Union Corporation at
8.90% per Series 1990 preferred share -- -- -- -- -- (7,029) --
$1.96 per common share -- -- -- -- -- (336,321) --
By acquired bank on
Preferred shares -- -- -- -- -- (19,361) --
Common shares -- -- -- -- -- (166,473) --
Unrealized gain on debt and equity securities -- -- -- -- -- -- 400,511
Balance at December 31, 1995 3,388 $ 183,223 277,846 $926,152 1,974,833 5,847,922 111,014
(In thousands except per share data) Total
Balance at December 31, 1992, as
originally reported 4,459,163
Preferred and common stock issued for
pooled bank acquired January 1, 1996 2,257,650
Balance at December 31, 1992, as restated 6,716,813
Net income 1,216,353
Purchase of Class A Series A preferred
stock (134)
Purchase of common stock (123,358)
Common stock issued for stock
options exercised 73,210
Common stock issued through dividend
reinvestment plan 152,504
Common stock issued for purchase accounting
acquisitions 166,089
Converted debentures and preferred stock 333
Pre-merger transactions of pooled banks 116,682
Cash dividends paid
By First Union Corporation at
$2.50 per Class A Series A preferred
share (337)
7.78% per Series 1990 preferred share (24,563)
$1.50 per common share (243,845)
By acquired bank on
Preferred shares (20,653)
Common shares (110,336)
Unrealized gain on debt and equity
securities 27,295
Balance at December 31, 1993 7,946,053
Stockholders' equity of pooled banks not
restated prior to 1994 64,351
Net income 1,376,443
Redemption of preferred stock (325,396)
Purchase of common stock primarily for
purchase accounting acquisitions (417,621)
Common stock issued for stock
options exercised 82,354
Common stock issued through dividend
reinvestment plan 47,598
Common stock issued for purchase
accounting acquisition 162,640
Converted debentures and preferred stock 19,760
Pre-merger transactions of pooled bank 121,427
Cash dividends paid
By First Union Corporation at
8.03% per Series 1990 preferred share (25,353)
$1.72 per common share (297,902)
By acquired bank on
Preferred shares (20,667)
Common shares (142,403)
Unrealized loss on debt and equity
securities (316,792)
Balance at December 31, 1994 8,274,492
Net income 1,430,181
Purchase of common stock primarily for
acquisitions (1,198,626)
Common stock issued for stock
options exercised 203,020
Common stock issued through dividend
reinvestment plan 45,343
Converted preferred stock 405
Common stock issued for purchase
accounting acquisitions 610,510
Pre-merger transactions of pooled bank (193,508)
Cash dividends paid
By First Union Corporation at
8.90% per Series 1990 preferred share (7,029)
$1.96 per common share (336,321)
By acquired bank on
Preferred shares (19,361)
Common shares (166,473)
Unrealized gain on debt and equity securities 400,511
Balance at December 31, 1995 9,043,144
See accompanying Notes to Supplemental Consolidated Financial Statements.
C-4
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
First Union Corporation and Subsidiaries
Years Ended December 31,
(In thousands) 1995 1994
Operating Activities
Net income $ 1,430,181 1,376,443
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Accretion and amortization of securities discounts and premiums, net (32,155) (11,192)
Provision for loan losses 220,000 179,000
Provision for foreclosed properties (2,756) 13,753
Gain on sale of mortgage servicing rights -- --
Securities available for sale transactions (44,340) (6,213)
Investment security transactions (4,818) (4,006)
Depreciation and amortization 545,337 419,149
Deferred income taxes 372,082 315,230
Trading account assets, net (563,897) (514,812)
Mortgage loans held for resale (102,267) 879,715
Loss on sales of premises and equipment 11,364 5,154
Gain on sale of First American segregated assets (18,639) (84,260)
Other assets, net 124,411 482,489
Other liabilities, net 50,901 263,420
Net cash provided by operating activities 1,985,404 3,313,870
Investing Activities
Increase (decrease) in cash realized from
Sales of securities available for sale 7,910,049 14,274,729
Maturities of securities available for sale 1,671,832 3,725,025
Purchases of securities available for sale (7,328,065) (15,637,053)
Sales and calls of investment securities 32,964 39,437
Maturities of investment securities 2,459,216 2,964,869
Purchases of investment securities (3,642,118) (1,602,496)
Origination of loans, net (7,468,244) (7,869,008)
Sales of loans 2,000,000 250,804
Sales of premises and equipment 47,220 77,071
Purchases of premises and equipment (597,042) (486,877)
Sales of mortgage servicing rights -- --
Purchases of mortgage servicing rights (21,912) (7,561)
Other intangible assets, net (39,550) 37,441
Purchases of banking organizations, net of acquired cash equivalents 524,669 2,009,964
Net cash used by investing activities (4,450,981) (2,223,655)
Financing Activities
Increase (decrease) in cash realized from
Sales of deposits, net (3,624,458) (567,485)
Securities sold under repurchase agreements and other short-term borrowings, net 7,324,686 878,552
Issuances of long-term debt 3,346,251 772,287
Payments of long-term debt (775,761) (212,429)
Sales of common stock 248,363 251,379
Purchases of preferred stock (7,120) --
Redemption of preferred stock -- (325,396)
Cash received (paid) on conversion of preferred stock 405 --
Purchases of common stock (1,198,626) (417,621)
Cash dividends paid (529,184) (486,325)
Net cash provided (used) by financing activities 4,784,556 (107,038)
Increase (decrease) in cash and cash equivalents 2,318,979 983,177
Cash and cash equivalents, beginning of year 8,225,086 7,241,909
Cash and cash equivalents, end of year $10,544,065 8,225,086
Cash Paid For
Interest $ 3,953,325 2,685,879
Income taxes 450,047 328,321
Noncash Items
Increase (decrease) in securities available for sale 5,890,516 (414,266)
Increase (decrease) in investment securities (5,905,408) 414,266
Increase (decrease) in other assets 14,892 --
Increase in foreclosed properties and a decrease in loans 61,031 76,165
Conversion of preferred stock to common stock 39,364 715
Increase in other intangible assets and stockholders' equity for converted
debentures -- 19,760
Issuance of common stock for purchase accounting acquisitions 610,510 162,640
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity
securities included in
Securities available for sale 596,850 (396,049)
Other assets (deferred income taxes) $ 196,339 (79,257)
1993
(In thousands)
Operating Activities
Net income 1,216,353
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Accretion and amortization of securities discounts and premiums, net (13,964)
Provision for loan losses 369,753
Provision for foreclosed properties 46,530
Gain on sale of mortgage servicing rights (973)
Securities available for sale transactions (32,784)
Investment security transactions (7,435)
Depreciation and amortization 437,614
Deferred income taxes 164,612
Trading account assets, net (404,745)
Mortgage loans held for resale (312,090)
Loss on sales of premises and equipment 7,365
Gain on sale of First American segregated assets (48,147)
Other assets, net 1,295,397
Other liabilities, net (1,005,304)
Net cash provided by operating activities 1,712,182
Investing Activities
Increase (decrease) in cash realized from
Sales of securities available for sale 13,456,048
Maturities of securities available for sale 5,637,948
Purchases of securities available for sale (18,384,416)
Sales and calls of investment securities 244,473
Maturities of investment securities 7,682,753
Purchases of investment securities (8,857,219)
Origination of loans, net (1,109,774)
Sales of loans --
Sales of premises and equipment 76,098
Purchases of premises and equipment (302,691)
Sales of mortgage servicing rights 1,300
Purchases of mortgage servicing rights (11,423)
Other intangible assets, net 19,709
Purchases of banking organizations, net of acquired cash equivalents 663,879
Net cash used by investing activities (883,315)
Financing Activities
Increase (decrease) in cash realized from
Sales of deposits, net (5,218,742)
Securities sold under repurchase agreements and other short-term borrowings, net 1,246,405
Issuances of long-term debt 1,194,657
Payments of long-term debt (1,279,481)
Sales of common stock 342,396
Purchases of preferred stock (134)
Redemption of preferred stock --
Cash received (paid) on conversion of preferred stock (5)
Purchases of common stock (123,358)
Cash dividends paid (399,734)
Net cash provided (used) by financing activities (4,237,996)
Increase (decrease) in cash and cash equivalents (3,409,129)
Cash and cash equivalents, beginning of year 10,651,038
Cash and cash equivalents, end of year 7,241,909
Cash Paid For
Interest 2,499,339
Income taxes 506,979
Noncash Items
Increase (decrease) in securities available for sale 6,876,380
Increase (decrease) in investment securities (6,843,797)
Increase (decrease) in other assets (32,583)
Increase in foreclosed properties and a decrease in loans 167,075
Conversion of preferred stock to common stock 15,136
Increase in other intangible assets and stockholders' equity for converted
debentures --
Issuance of common stock for purchase accounting acquisitions 166,089
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity
securities included in
Securities available for sale --
Other assets (deferred income taxes) 27,295
See accompanying Notes to Supplemental Consolidated Financial Statements.
C-5
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
First Union Corporation (the Parent Company) is a bank holding company whose
principal wholly-owned subsidiaries are national banking associations using the
name First Union National Bank, First Union Capital Markets Corp., an investment
banking firm, and First Union Mortgage Corporation, a mortgage banking firm.
The accounting and reporting policies of First Union Corporation and
subsidiaries (the Corporation) are in accordance with generally accepted
accounting principles and conform to general practices within the banking and
mortgage banking industries. In consolidation, all significant intercompany
accounts and transactions are eliminated.
The Corporation's principal sources of revenue emanate from its domestic
banking, including trust operations, capital markets activity and mortgage
banking operations, located primarily in Connecticut, Delaware, Florida,
Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South
Carolina, Tennessee, Virginia and Washington, D.C. Its foreign banking
operations are immaterial.
Management of the Corporation has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these supplemental consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, interest-bearing
balances in other banks and federal funds sold and securities purchased under
resale agreements. Generally, both cash and cash equivalents are considered to
have maturities of three months or less, and accordingly, the carrying amount of
such instruments is deemed to be a reasonable estimate of fair value.
SECURITIES
The classification of securities is determined at the date of purchase.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
Trading account assets, primarily debt securities, and interest rate
futures, options, caps and floors and forward contracts, are adjusted to market
value. Included in noninterest income are realized and unrealized gains and
losses resulting from such adjustments and from recording the effects of sales
of trading account securities.
Securities available for sale, primarily debt securities, are recorded at
market value with a corresponding adjustment net of tax recorded as a component
of stockholders' equity. Securities available for sale are used as a part of the
Corporation's interest rate risk management strategy and may be sold in response
to changes in interest rates, changes in prepayment risk, and other factors.
Investment securities, primarily debt securities, are stated at cost, net of
the amortization of premium and the accretion of discount. The Corporation
intends and has the ability to hold such securities until maturity.
The market value of securities, including securities sold not owned, is
generally based on quoted market prices or dealer quotes. If a quoted market
price is not available, market value is estimated using quoted market prices for
similar securities.
INTEREST RATE SWAPS, FLOORS AND CAPS
The Corporation uses interest rate swaps, floors and caps for interest rate
risk management, in connection with providing risk management services to
customers and for trading for its own account.
Interest rate swaps, floors and caps used to achieve interest rate risk
management objectives are designated as hedges of specific assets and
liabilities. The net interest payable or receivable on swaps, caps, and floors
is accrued and recognized as an adjustment to interest income or interest
expense of the related asset or liability. Premiums paid for purchased caps and
floors are amortized over the term of the floors and caps as a yield adjustment
of the related asset or liability. Floors and caps are written only to adjust
the amount or term of purchased floors and caps to more effectively reduce
interest rate risk, and a net written position is not created. Premiums received
on floors and caps offset the premium paid on the caps and floors they adjust.
Upon the early termination of swaps, floors and caps, the net proceeds received
or paid, including premiums, are deferred and included in other assets or
liabilities and amortized over the shorter of the remaining contract life or the
maturity of the related asset or liability. Upon disposition or settlement of
the asset or liability being hedged, deferral accounting is discontinued and any
related premium or market value is recognized in earnings.
Interest rate swaps, floors and caps entered into for trading purposes and
sold to customers are accounted for on a mark-to-market basis with both realized
and unrealized gains and losses recognized as trading profits. The fair value of
these financial instruments represent the estimated amount the Corporation would
receive or pay to terminate the contracts or agreements and is determined using
a valuation model which considers current market yields and other relevant
variables.
INTEREST RATE FUTURES, FORWARD AND OPTION CONTRACTS
The Corporation uses interest rate futures, forward and option contracts,
other than caps and floors, for interest rate risk management and in connection
with hedging interest rate products sold to customers.
C-6
Interest rate futures and option contracts are used to hedge interest rate
risk arising from specific financial instruments. Gains and losses on interest
rate futures are deferred and included in the carrying value of the related
assets or liabilities and amortized over the estimated lives of those assets and
liabilities as a yield adjustment. Premiums paid for option contracts are
included in other assets and are amortized over the option term as a yield
adjustment of the related asset or liability. Upon the early termination of
futures contracts, the deferred amounts are amortized over the remaining
maturity of the related asset or liability. Upon disposition or settlement of
the asset or liability being hedged, deferral accounting is discontinued and any
related premium or market value is recognized in earnings.
Interest rate futures, forward and option contracts used to hedge risk
management products sold to customers are marked to market and both the realized
and unrealized gains and losses recognized as trading profits. The market value
of these financial instruments is based on dealer or exchange quotes.
LOANS
Commercial, financial and agricultural loans include industrial revenue
bonds, highly leveraged transaction loans and certain other loans that are made
primarily on the strength of the borrower's general credit standing and ability
to generate repayment cash flows from income sources even though such bonds and
loans may be secured by real estate or other assets.
Commercial real estate construction and mortgage loans represent interim and
permanent financing of commercial properties that are secured by real estate.
Retail real estate mortgage loans represent 1-4 family first mortgage loans.
Bankcard installment loans represent unsecured revolving lines of credit.
Retail installment loans represent all other consumer loans, including home
equity and second mortgage loans.
Mortgage notes held for sale are valued at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on the aggregate loan basis. Gains or losses resulting
from sales of mortgage notes are recognized when the proceeds are received from
investors.
In many lending transactions, collateral is taken to provide an additional
measure of security. Generally, the cash flow or earning power of the borrower
represents the primary source of repayment and collateral liquidation a
secondary source of repayment. The Corporation determines the need for
collateral on a case-by-case or product-by-product basis. Factors considered
include the current and prospective creditworthiness of the customer, terms of
the instrument and economic conditions.
Unearned income is generally accreted to interest income using the constant
yield method. Interest income is recorded on an accrual basis.
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan --
Income Recognition and Disclosure," on January 1, 1995. The adoption of the
Standards required no increase to the allowance for loan losses and had no
impact on net income in 1995. The impact to historical and current amounts
related to in-substance foreclosures was not material, and accordingly,
historical amounts have not been restated.
A loan is considered to be impaired when based on current information, it is
probable that the Corporation will not receive all amounts due in accordance
with the contractual terms of a loan agreement. The discounted expected cash
flow method is used in determining the value of impaired loans.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent that any interest has been foregone.
Future cash receipts are recorded as recoveries of any amounts previously
charged off. When this doubt does not exist, cash receipts are applied under the
contractual terms of the loan agreement.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring after January 1, 1995. For these accruing impaired loans,
cash receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting. As of December
31, 1995, there were no accruing impaired loans.
The accrual of interest is generally discontinued on all loans, except
consumer loans, that become 90 days past due as to principal or interest unless
collection of both principal and interest is assured by way of
collateralization, guarantees or other security. Generally, loans past due 180
days or more are placed on nonaccrual status regardless of security. Consumer
loans and bankcard products that become approximately 120 days and 180 days past
due, respectively, are generally charged to the allowance for loan losses. When
borrowers demonstrate over an extended period the ability to repay a loan in
accordance with the contractual terms of a loan the Corporation has classified
as nonaccrual, such loan is returned to accrual status.
Fair values are estimated for loans with similar financial characteristics.
These loans are segregated by type of loan, considering credit risk and
prepayment characteristics. Each loan category is further segmented into fixed
and adjustable rate categories.
C-7
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
The fair values of performing loans for all portfolios are calculated by
discounting estimated cash flows through expected maturity dates. These cash
flows are discounted using estimated market yields that reflect the credit and
interest rate risks inherent in each category of loans. Such market yields also
reflect a component for the estimated cost of servicing the portfolio. A
prepayment assumption is used as an estimate of the number of loans which will
be repaid prior to their scheduled maturity.
For performing residential mortgage loans, fair values are estimated using a
discounted cash flow analysis utilizing yields of comparable mortgage-backed
securities. The loan portfolio is segmented into homogeneous pools based on loan
types, coupon rates, maturities, prepayment characteristics and credit risk.
These pools are compared with similar mortgage-backed securities to arrive at an
appropriate discount rate; whole loan liquidity and risk characteristics are
considered within the comparison.
Fair values of nonperforming loans greater than $1,000,000 are calculated by
estimating the timing and amount of cash flows. These cash flows are discounted
using estimated market yields commensurate with the risk associated with
estimating such cash flows. Estimates of cash flows are made using knowledge of
the borrower and available market data. It is not considered practicable to
calculate a fair value for nonperforming loans less than $1,000,000.
Accordingly, they are included in fair value disclosures at net cost.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Generally, for fixed rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of commitments and letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is the amount that is considered adequate to
provide for potential losses in the portfolio. Management's evaluation of the
adequacy of the allowance is based on a review of individual loans, recent loss
experience, current economic conditions, the risk characteristics of the various
classifications of loans, the fair value of underlying collateral and other
factors.
Management believes that the allowances for losses on loans and real estate
owned are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances may be
necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's bank subsidiaries'
allowances for losses on loans and real estate owned. Such agencies may require
such subsidiaries to recognize changes to the allowances based on their
judgments about information available to them at the time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on a straight-line
basis for financial purposes and on straight-line and accelerated bases for tax
purposes, using estimated lives generally as follows: buildings, 10 to 50 years;
furniture and equipment, 3 to 10 years; and leasehold improvements and
capitalized leases, over the lives of the respective leases.
INTANGIBLE ASSETS
Generally, goodwill is being amortized on a straight-line basis over periods
ranging from 15 to 25 years. The Corporation's unamortized goodwill is
periodically reviewed to ensure that conditions are not present that indicate
the recorded amount of goodwill is not recoverable from future undiscounted cash
flows. The review process includes an evaluation of the earnings history of each
subsidiary, its contribution to the Corporation, capital levels and other
factors. If events or changes in circumstances indicate further evaluation is
warranted, the undiscounted net cash flows of the operations to which goodwill
relates are estimated. If the estimated undiscounted net cash flows are less
than the carrying amount of goodwill, a loss is recognized to reduce goodwill's
carrying value to the amount recoverable, and when appropriate the amortization
period also is reduced. Unamortized goodwill associated with disposed assets is
charged to current earnings. Credit card premiums are being amortized
principally over the period of benefit not to exceed 10 years using the
sum-of-the-years' digits method. Deposit base premiums are amortized principally
over a 10-year period using accelerated methods. Annually, the fair value of the
unamortized balance of such premiums is determined on a discounted cash flow
basis, and if such value is less than such balance, the difference is charged to
noninterest expense.
FORECLOSED PROPERTIES
Foreclosed properties are included in other assets and represent other real
estate that has been acquired through loan or in-substance foreclosures or deeds
received in lieu of loan payments. Generally such properties are appraised
annually and are recorded at the lower of cost or fair value less estimated
selling costs. When appropriate, adjustments to cost are charged or credited to
the allowance for foreclosed properties.
MORTGAGE LOAN ADMINISTRATION AND ORIGINATION
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights", on a prospective
basis only on
C-8
July 1, 1995. The adoption of the Standard resulted in an increase to
noninterest income of $13,300,000 in 1995.
When the Corporation acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells or securitizes those loans
with servicing rights retained, the total cost of the mortgage loans is
allocated to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values.
Mortgage servicing fees are recorded on an accrual basis. Mortgage servicing
rights are amortized over the life of the related mortgages, in proportion to
estimated net servicing income. Quarterly, an appropriate carrying value of the
unamortized balance of such mortgage servicing rights is determined by the
Corporation, based principally on a disaggregated, discounted cash flow method.
The loans and associated servicing rights are segmented by predominant risk
characteristics to include loan type, investor and interest rate. Additionally,
quarterly, based principally on an aggregated discounted method, an appropriate
carrying value of the unamortized deferred excess servicing fee balance is
determined by the Corporation. If such values are less than such balances, the
differences are included as a reduction of mortgage banking income.
Placement fees for services rendered in arranging permanent financing for
income property loans are earned when the permanent commitment issued by the
lender is approved and accepted by the borrower.
Loan origination, commitment and certain other fees and certain direct loan
origination costs are being deferred and the net amount is being amortized as an
adjustment of the related loan's yield, generally over the contractual life of
the related loan, or if the related loan is held for resale, until the loan is
sold.
PENSION AND SAVINGS PLANS
Substantially all employees with one year of service are eligible for
participation in a non-contributory, defined benefit pension plan and a matching
savings plan. Pension cost is determined annually by an actuarial valuation,
which includes service costs for the current year and amortization of amounts
related to prior years. The Corporation's funding policy is to contribute to the
pension plan the amount required to fund the benefits expected to be earned for
the current year and to amortize amounts related to prior years using the
projected unit credit valuation method. The difference between the pension cost
included in current income and the funded amount is included in other assets or
other liabilities, as appropriate. Actuarial assumptions are evaluated annually.
The matching savings plan permits eligible employees to make basic
contributions to the plan of up to 6 percent of base compensation, and
supplemental contributions of up to 9 percent of base compensation. Annually,
upon approval of the Board of Directors, employee basic contributions may be
matched up to 6 percent of the employee's base compensation.
INCOME TAXES
The operating results of the Parent Company and its eligible subsidiaries
are included in a consolidated federal income tax return. Each subsidiary pays
its allocation of federal income taxes to the Parent Company, or receives
payment from the Parent Company to the extent that tax benefits are realized.
Where state income tax laws do not permit consolidated income tax returns,
applicable state income tax returns are filed. As more fully described in Note
14 to the supplemental consolidated financial statements, the Corporation has
adopted the method of accounting for income taxes set forth in Statement of
Financial Accounting Standard No. 109.
INCOME PER COMMON SHARE
Income per common share is determined by dividing net income applicable to
common stockholders by the weighted average number of shares of common stock
outstanding. Common stock equivalents have not been material.
NOTE 2:
ACQUISITIONS
The supplemental consolidated financial statements give retroactive effect
to the pooling of interests acquisition of First Fidelity Bancorporation (First
Fidelity) as more fully described below. As a result, the supplemental
consolidated balance sheets as of December 31, 1995 and 1994, and the related
supplemental consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995, are presented as if the combining companies had been consolidated for all
periods presented. As required by generally accepted accounting principles, the
supplemental consolidated financial statements will become the historical
consolidated financial statements upon issuance of the consolidated financial
statements for the period that includes the date of the acquisition. The
supplemental consolidated statements of changes in stockholders' equity reflect
the accounts of the Corporation as if the additional preferred and common stock
had been issued during all the periods presented. The supplemental consolidated
financial statements, including the notes thereto, should be read in conjunction
with the historical consolidated financial statements of the Corporation
included in the Corporation's 1995 annual report on Form 10-K and of First
Fidelity included in the Corporation's Form 8-K dated June 30, 1995.
In 1995, various banking subsidiaries of the Parent Company acquired eight
financial institutions and certain other assets which in the aggregate amounted
to the addition of $10,254,013,000 in assets, $7,537,477,000 in net loans and
$7,252,524,000 in deposits. The purchase method of accounting, which requires no
restatements of the Corporation's historical financial statements and the
inclusion of the acquired company's financial information on a fair value basis
only from the date of consummation, was used in these
C-9
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
transactions. With respect to these transactions, the Parent Company issued
12,545,000 shares of its common stock in exchange for the common stock of
certain of the acquired financial institutions and paid cash for the other
financial institutions and assets which in the aggregate amounted to a cost of
$623,338,000. These transactions resulted in an increase to stockholders' equity
of $610,510,000, and the increase was reduced by the Parent Company's purchase
in the open market of 11,637,000 shares of its common stock at a cost of
$526,968,000 in 1995 and the purchase of 908,000 shares at a cost of $37,297,000
in 1994. These transactions also resulted in an increase to goodwill of
$476,229,000, which will be amortized on a straight-line basis over 25 years,
and deposit base premium of $114,023,000, which will be amortized on an
accelerated basis over 10 years.
In 1994, various banking subsidiaries of the Parent Company acquired three
financial institutions which were accounted for as pooling of interests
transactions. In the aggregate, these transactions added $477,647,000 in assets,
$381,436,000 in net loans, $372,052,000 in deposits, $64,351,000 in
stockholders' equity and involved the issuance of 4,169,000 shares of the Parent
Company's common stock. The Corporation's supplemental consolidated financial
statements were not restated in prior periods to reflect these 1994 pooling of
interests transactions.
Also in 1994, various banking subsidiaries of the Parent Company acquired
one financial institution and certain loans and deposits which in the aggregate
amounted to the addition of $4,118,115,000 in assets, $857,267,000 in net loans
and $3,654,323,000 in deposits. The purchase method of accounting was used in
these transactions. With respect to these transactions, the Parent Company
issued 3,561,000 shares and 437,000 shares of its common stock in exchange for
the common stock and convertible debentures, respectively, of the acquired
financial institution and paid cash for the loans and deposits which in the
aggregate amounted to a cost of $365,778,000. These transactions resulted in an
increase to stockholders' equity of $180,833,000, and the increase was reduced
by the Parent Company's purchase in the open market of 3,998,000 shares of its
common stock at a cost of $174,584,000. These transactions also resulted in an
increase to goodwill of $90,708,000, which will be amortized on a straight-line
basis over 25 years, and deposit base premium of $250,365,000, which will be
amortized on an accelerated basis over 10 years.
At December 31, 1995, various banking affiliates of the Parent Company had
agreements to acquire three financial institutions which at that date had
aggregate assets of $2,224,283,000, net loans of $1,634,118,000 and deposits of
$1,816,997,000. With respect to these transactions, the Parent Company has
agreed to issue approximately 2,372,000 shares of its common stock in exchange
for the common stock of two of the three financial institutions, subject to
adjustment under certain conditions, and an affiliate of the Parent Company will
pay approximately $188,000,000 in cash for the third financial institution.
These transactions will be accounted for as purchases. Two of these transactions
were consummated in January 1996.
On January 1, 1996, the Corporation acquired First Fidelity, a multi-bank
holding company based in New Jersey. The merger was accounted for as a pooling
of interests. At December 31, 1995, First Fidelity had assets of
$35,332,885,000, net loans of $24,934,436,000, deposits of $27,554,917,000 and
net income applicable to common stockholders of $397,744,000. Acquisitions
completed by First Fidelity are not material, and accordingly have not been
included herein.
As a result of the merger, each of the 78,746,915 net outstanding shares of
First Fidelity common stock was converted into 1.35 shares of the Corporation's
common stock and common stock equivalents, with cash being paid for fractional
share interests. In addition, the 2,963,820 net outstanding shares of First
Fidelity Series B Convertible Preferred Stock were converted into a like number
of shares of the Corporation's Series B Convertible Class A Preferred Stock
having substantially identical terms as the First Fidelity Series B, the 350,000
outstanding shares of First Fidelity Series D Adjustable Rate Cumulative
Preferred Stock were converted into a like number of shares of the Corporation's
Series D Adjustable Rate Cumulative Class A Preferred Stock having substantially
identical terms as the First Fidelity Series D, and the 2,965,200 net
outstanding FFB Depositary Receipts (each representing a 1/40th interest in a
share of First Fidelity Series F 10.64% Preferred Stock (74,130 net outstanding
shares)) were converted into a like number of the Corporation's Depositary
Receipts (each representing a 1/40th interest in the Corporation's Series F
10.64% Class A Preferred Stock) having substantially identical terms as the
First Fidelity Series F.
Additionally, restructuring charges primarily related to direct costs and
existing severance contracts associated with the First Fidelity merger of
$94,446,000 ($72,826,000 after tax) are included as a component of noninterest
expense in 1995. It is anticipated that approximately $197,000,000 of after-tax
restructuring charges related to the First Fidelity merger will be taken in the
first half of 1996.
The information below indicates on a pro forma basis, amounts as if the
purchase accounting acquisitions discussed above (completed and pending at
December 31, 1995) had been acquired as of January 1, 1994, the First Fidelity
pooling of interests merger for all years presented, and historical amounts as
reported by the Corporation.
C-10
(In thousands except per share Years Ended December 31,
data) 1995 1994 1993
(Unaudited)
Interest income $9,243,418 7,937,133 6,601,528
Interest expense 4,426,056 3,246,946 2,481,952
Net interest income 4,817,362 4,690,187 4,119,576
Provision for loan losses 237,349 180,643 369,753
Net interest income after
provision for loan losses 4,580,013 4,509,544 3,749,823
Securities available for sale
transactions 39,911 8,860 32,784
Investment security
transactions 4,818 4,006 7,435
Noninterest income 1,899,339 1,620,712 1,541,569
Noninterest expense 4,360,762 4,070,027 3,536,346
Income before income taxes 2,163,319 2,073,095 1,795,265
Income taxes 778,573 709,028 578,912
Net income 1,384,746 1,364,067 1,216,353
Dividends on preferred stock 26,390 46,020 45,553
Net income available to common
stockholders before
redemption premium 1,358,356 1,318,047 1,170,800
Redemption premium on
preferred stock -- 41,355 --
Net income applicable to
common stockholders after
redemption premium $1,358,356 1,276,692 1,170,800
Net income per common share
before redemption premium $ 4.83 4.63 4.30
Net income per common share
after redemption premium $ 4.83 4.48 4.30
Corporation as Reported
Net interest income $3,262,776 3,033,715 2,765,893
Net income 1,013,076 925,380 817,521
Net income applicable to
common stockholders before
redemption premium 1,006,047 900,027 792,621
Net income applicable to
common stockholders after
redemption premium 1,006,047 858,672 792,621
Net income per common share
before redemption premium 5.85 5.22 4.73
Net income per common share
after redemption premium $ 5.85 4.98 4.73
The following assumptions were applied in arriving at the pro forma results;
cost of funds of 5.77 percent and 4.08 percent for 1995 and 1994, respectively;
applying a straight-line depreciation method over useful lives ranging from 10
to 25 years; goodwill amortized over 25 years using the straight-line method;
credit card relationships amortized over a 6.3-year period and other intangibles
amortized over a 10-year period using the sum-of-the-years' digits method; and
various other assets amortized over seven-to-ten years using both the
straight-line and sum-of-the-years' digits methods.
C-11
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 3:
SECURITIES AVAILABLE FOR SALE
December 31, 1995 1 Year 1-5 5-10 After 10 Gross Unrealized
(In thousands) or Less Years Years Years Total Gains Losses
Market Value
U.S. Treasury $1,507,112 1,443,582 4,440 3,799 2,958,933 (6,415) 7,036
U.S. Government agencies 795,915 5,978,720 1,724,404 4,925 8,503,964 (110,206) 8,318
Collateralized mortgage
obligations 847,785 3,727,165 179,355 940 4,755,245 (34,593) 18,082
State, county and municipal -- 2,149 1,384 9,375 12,908 -- 201
Other 241,536 951,782 96,173 673,158 1,962,649 (97,253) 14,029
Total $3,392,348 12,103,398 2,005,756 692,197 18,193,699 (248,467) 47,666
Market Value
Debt securities $3,392,348 12,103,398 2,005,756 104,120 17,605,622 (174,872) 46,818
Sundry securities -- -- -- 588,077 588,077 (73,595) 848
Total $3,392,348 12,103,398 2,005,756 692,197 18,193,699 (248,467) 47,666
Amortized Cost
Debt securities $3,374,168 12,014,119 1,984,974 104,307 17,477,568
Sundry securities -- -- -- 515,330 515,330
Total $3,374,168 12,014,119 1,984,974 619,637 17,992,898
December 31, 1995 Amortized
(In thousands) Cost
Market Value
U.S. Treasury 2,959,554
U.S. Government agencies 8,402,076
Collateralized mortgage
obligations 4,738,734
State, county and municipal 13,109
Other 1,879,425
Total 17,992,898
Market Value
Debt securities 17,477,568
Sundry securities 515,330
Total 17,992,898
Amortized Cost
Debt securities
Sundry securities
Total
December 31, 1994 1 Year 1-5 5-10 After 10 Gross Unrealized
(In thousands) or Less Years Years Years Total Gains Losses
Market Value
U.S. Treasury $1,213,646 2,953,338 2,970 -- 4,169,954 (9) 154,020
U.S. Government agencies 370,462 1,195,754 2,548,803 126,771 4,241,790 (9,804) 199,197
Collateralized mortgage
obligations 107,156 1,166,164 75,407 21,928 1,370,655 (257) 45,777
State, county and municipal -- 1,750 1,348 10,122 13,220 (24) 417
Other 85,333 1,294,705 20,345 337,640 1,738,023 (56,823) 63,555
Total $1,776,597 6,611,711 2,648,873 496,461 11,533,642 (66,917) 462,966
Market Value
Debt securities $1,776,597 6,611,711 2,648,873 182,344 11,219,525 (12,884) 454,023
Sundry securities -- -- -- 314,117 314,117 (54,033) 8,943
Total $1,776,597 6,611,711 2,648,873 496,461 11,533,642 (66,917) 462,966
Amortized Cost
Debt securities $1,788,551 6,883,740 2,809,470 178,903 11,660,664
Sundry securities -- -- -- 269,027 269,027
Total $1,788,551 6,883,740 2,809,470 447,930 11,929,691
December 31, 1994 Amortized
(In thousands) Cost
Market Value
U.S. Treasury 4,323,965
U.S. Government agencies 4,431,183
Collateralized mortgage
obligations 1,416,175
State, county and municipal 13,613
Other 1,744,755
Total 11,929,691
Market Value
Debt securities 11,660,664
Sundry securities 269,027
Total 11,929,691
Amortized Cost
Debt securities
Sundry securities
Total
C-12
Securities available for sale with an aggregate amortized cost of
$7,219,019,000 at December 31, 1995, are pledged to secure U.S. Government and
other public deposits and for other purposes as required by various statutes or
agreements.
Expected maturities differ from contractual maturities since issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Generally, the aging of mortgage-backed securities included in U.S.
Government agencies and collateralized mortgage obligations is based on their
weighted average maturities at December 31, 1995 and 1994.
At December 31, 1995 and 1994, collateralized mortgage obligations had a
weighted average yield based on amortized cost of 6.59 percent and 5.35 percent,
respectively.
Included in U.S. Government agencies and Other at December 31, 1995, are
$1,101,704,000 of securities available for sale that are denominated in
currencies other than the U.S. dollar. The currency exchange rates were hedged
to minimize the exposure to currency revaluation risks. At December 31, 1995,
these securities had a weighted average maturity of 2.92 years and a weighted
average yield of 6.10 percent. The weighted average U.S. equivalent yield for
comparative purposes of these securities was 7.50 percent based on a weighted
average funding cost differential of 1.40 percent.
Securities available for sale at December 31, 1995, do not include
commitments to purchase $358,825,000 of additional securities that at December
31, 1995, had a market value of $360,254,000.
Securities available for sale at December 31, 1995, include the carrying
value of $321,089,000 of securities which have been sold for future settlement.
Related gains and losses are accounted for on a trade date basis.
There were commitments to purchase securities at a cost of $5,551,000 that
had a market value of $5,547,000 at December 31, 1994. There were no commitments
to sell securities.
Gross gains and losses realized on the sale of debt securities in 1995 were
$68,980,000 and $41,654,000, respectively, and on sundry securities $17,091,000
and $77,000, respectively.
Gross gains and losses realized on the sale of debt securities in 1994 were
$37,924,000 and $44,607,000, respectively, and on sundry securities $14,557,000
and $1,661,000, respectively.
Gross gains and losses realized on the sale of debt securities in 1993 were
$36,353,000 and $10,195,000, respectively, and on sundry securities $6,802,000
and $176,000, respectively.
The Financial Accounting Standards Board has issued Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", that
requires that debt and equity securities held: (i) to maturity be classified as
such and reported at amortized cost; (ii) for current resale be classified as
trading securities and reported at fair value, with unrealized gains and losses
included in current earnings; and (iii) for any other purpose be classified as
securities available for sale and reported at fair value, with unrealized gains
and losses excluded from current earnings and reported as a separate component
of stockholders' equity. The effect of the foregoing will cause fluctuations in
stockholders' equity based on changes in values of debt and equity securities.
At December 31, 1995, stockholders' equity includes an after-tax amount of
$111,014,000 based on appreciation in the securities available for sale
portfolio of $200,801,000, and on an unamortized after-tax gain of $89,787,000.
A transfer of $5,890,516,000 of investment securities to the securities
available for sale portfolio as permitted by the Financial Accounting Standards
Board only for the year ended December 31, 1995 was completed in the fourth
quarter of 1995.
At December 31, 1994, stockholders' equity includes an after-tax amount of
$289,497,000 based on depreciation in the securities available for sale
portfolio of $396,049,000, net of an unamortized after-tax loss of $106,552,000.
C-13
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 4:
INVESTMENT SECURITIES
December 31, 1995 1 Year 1-5 5-10 After 10 Gross Unrealized
(In thousands) or Less Years Years Years Total Gains Losses
Carrying Value
U.S. Government agencies $ 80,287 950,270 236,183 -- 1,266,740 32,411 (1,157)
Collateralized mortgage
obligations 59,410 546,111 -- -- 605,521 12,443 (1)
State, county and
municipal 286,591 273,754 170,614 446,052 1,177,011 131,805 (3,226)
Other 3,825 2,600 16,821 67,098 90,344 7,713 (2)
Total $430,113 1,772,735 423,618 513,150 3,139,616 184,372 (4,386)
Carrying Value
Debt securities $430,113 1,772,735 423,618 497,309 3,123,775 184,372 (4,386)
Sundry securities -- -- -- 15,841 15,841 -- --
Total $430,113 1,772,735 423,618 513,150 3,139,616 184,372 (4,386)
Market Value
Debt securities $438,097 1,828,457 453,150 584,057 3,303,761
Sundry securities -- -- -- 15,841 15,841
Total $438,097 1,828,457 453,150 599,898 3,319,602
December 31, 1995 Market
(In thousands) Value
Carrying Value
U.S. Government agencies 1,297,994
Collateralized mortgage
obligations 617,963
State, county and
municipal 1,305,590
Other 98,055
Total 3,319,602
Carrying Value
Debt securities 3,303,761
Sundry securities 15,841
Total 3,319,602
Market Value
Debt securities
Sundry securities
Total
December 31, 1994 1 Year 1-5 5-10 After 10 Gross Unrealized
(In thousands) or Less Years Years Years Total Gains Losses
Carrying Value
U.S. Treasury $ 56,236 255,455 3,986 3,481 319,158 94 (14,788)
U.S. Government
agencies 837,468 1,396,876 1,409,971 16,409 3,660,724 10,676 (136,301)
Collateralized
mortgage
obligations 149,476 1,280,403 145,952 5,346 1,581,177 17 (63,111)
State, county and
municipal 528,855 449,800 225,968 542,472 1,747,095 95,491 (8,890)
Other 133,127 185,587 20,827 269,034 608,575 7,759 (15,685)
Total $1,705,162 3,568,121 1,806,704 836,742 7,916,729 114,037 (238,775)
Carrying Value
Debt securities $1,705,162 3,568,121 1,806,704 658,592 7,738,579 110,485 (235,398)
Sundry securities -- -- -- 178,150 178,150 3,552 (3,377)
Total $1,705,162 3,568,121 1,806,704 836,742 7,916,729 114,037 (238,775)
Market Value
Debt securities $$1,667,535 3,473,709 1,769,848 702,574 7,613,666
Sundry securities -- -- -- 178,325 178,325
Total $$1,667,535 3,473,709 1,769,848 880,899 7,791,991
December 31, 1994 Market
(In thousands) Value
Carrying Value
U.S. Treasury 304,464
U.S. Government
agencies 3,535,099
Collateralized
mortgage
obligations 1,518,083
State, county and
municipal 1,833,696
Other 600,649
Total 7,791,991
Carrying Value
Debt securities 7,613,666
Sundry securities 178,325
Total 7,791,991
Market Value
Debt securities
Sundry securities
Total
Investment securities with an aggregate carrying value of $2,213,277,000 at
December 31, 1995, are pledged to secure U.S. Government and other public
deposits and for other purposes as required by various statutes or agreements.
Expected maturities differ from contractual maturities since borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Generally, the aging of mortgage-backed securities included in U.S.
Government agencies and collateralized mortgage
C-14
obligations is based on their weighted average maturities at December 31, 1995
and 1994.
At December 31, 1995 and 1994, collateralized mortgage obligations had a
weighted average yield of 7.22 percent and 6.22 percent, respectively.
There were no commitments to purchase or sell investment securities at
December 31, 1995 and 1994.
Gross gains and losses realized on repurchase agreement underdeliveries and
calls of investment securities in 1995 were $5,705,000 and $887,000,
respectively.
In 1994 such gross gains and losses were $4,050,000 and $44,000,
respectively.
In 1993 such gross gains and losses were $7,837,000 and $402,000,
respectively.
See Note 3 for information related to accounting rules for debt and equity
securities and a transfer of investment securities to the available for sale
portfolio.
NOTE 5:
LOANS
(In thousands) 1995
Commercial
Commercial, financial and agricultural $24,648,284
Real estate-construction and other 2,505,627
Real estate-mortgage 9,991,640
Lease financing 3,169,698
Foreign 649,760
Total commercial 40,965,009
Retail
Real estate-mortgage 27,273,991
Installment loans-Bankcard 3,657,619
Installment loans-other 20,212,216
Total retail 51,143,826
Total $92,108,835
(In thousands) 1994
Commercial
Commercial, financial and agricultural 22,053,484
Real estate-construction and other 2,052,054
Real estate-mortgage 9,472,695
Lease financing 1,921,302
Foreign 526,325
Total commercial 36,025,860
Retail
Real estate-mortgage 21,061,449
Installment loans-Bankcard 4,345,069
Installment loans-other 17,381,379
Total retail 42,787,897
Total 78,813,757
Installment loans -- other include $2,358,021,000 and $1,742,947,000 of
retail leasing loans at December 31, 1995 and 1994, respectively, that were
acquired in the First Fidelity merger.
Directors and executive officers of the Parent Company and their related
interests were indebted to the Corporation in the aggregate amounts of
$887,313,000 and $703,493,000 at December 31, 1995 and 1994, respectively. From
January 1 through December 31, 1995, directors and executive officers of the
Parent Company and their related interests borrowed $770,277,000 and repaid
$586,457,000. In the opinion of management, these loans do not involve more than
the normal risk of collectibility, nor do they present other unfavorable
features.
At December 31, 1995 and 1994, nonaccrual and restructured loans amounted to
$647,853,000 and $636,330,000, respectively. Interest related to nonaccrual and
restructured loans for the years ended December 31, 1995, 1994 and 1993 amounted
to $69,194,000, $70,163,000 and $111,666,000, respectively. Interest collected
on such loans and included in the results of operations for each of the years in
the three-year period then ended amounted to $17,016,000, $9,582,000 and
$27,350,000, respectively.
At December 31, 1995, impaired loans, which are included in nonaccrual
loans, amounted to $470,592,000. Included in the allowance for loan losses is
$82,966,000 related to $358,611,000 of impaired loans at December 31, 1995. The
rest of the impaired loans are recorded at or below fair value. At December 31,
1995, the average recorded investment in impaired loans was $491,728,000 and
$14,920,000 of interest income was recognized on loans while they were impaired.
All of this income was recognized using a cash-basis method of accounting.
Loan fair values are disclosed in Note 17.
C-15
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 6:
ALLOWANCE FOR LOAN LOSSES
Years Ended December 31,
(In thousands) 1995 1994 1993
Balance, beginning of
year $1,578,128 1,622,374 1,551,157
Provision for loan
losses 220,000 179,000 369,753
Allowance of loans
acquired or sold,
net 48,666 58,606 191,037
1,846,794 1,859,980 2,111,947
Less
Loan losses 462,781 414,692 613,176
Less loan
recoveries 123,785 132,840 123,603
Loan losses, net 338,996 281,852 489,573
Balance, end of year $1,507,798 1,578,128 1,622,374
NOTE 7:
PREMISES AND EQUIPMENT
Years Ended December 31,
(In thousands) 1995 1994 1993
Land $ 457,003 419,165 403,916
Buildings 1,761,503 1,588,842 1,453,926
Equipment 1,864,570 1,545,679 1,326,455
Capitalized leases 40,119 13,327 12,441
4,123,195 3,567,013 3,196,738
Less accumulated
depreciation and
amortization 1,570,025 1,373,039 1,267,675
Total $2,553,170 2,193,974 1,929,063
Net premises and
equipment pledged
as security for
mortgage notes $ 59,256 69,621 83,761
Depreciation and
amortization $ 268,084 221,393 198,809
NOTE 8:
FORECLOSED PROPERTIES
Years Ended December 31,
(In thousands) 1995 1994 1993
Foreclosed properties $202,686 292,076 401,183
Allowance for foreclosed
properties, beginning of
year 41,578 62,813 109,093
Provision for foreclosed
properties (2,756) 13,753 46,530
Transfer from (to)
allowance for segregated
assets 78 2,178 4,651
Dispositions, net (14,698) (37,166) (97,461)
Allowance for foreclosed
properties, end of year 24,202 41,578 62,813
Foreclosed properties, net $178,484 250,498 338,370
C-16
NOTE 9:
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
AND OTHER SHORT-TERM BORROWINGS
The following is a schedule of securities sold under repurchase agreements,
which includes accrued interest, and other short-term borrowings of the
Corporation at December 31, 1995, 1994 and 1993, and the related maximum amount
outstanding at the end of any month during the periods:
Maximum Outstanding
(In thousands) 1995 1994 1993 1995 1994 1993
Securities sold under repurchase
agreements $11,017,983 6,887,295 5,896,177 11,017,983 8,368,484 7,542,148
Other Short-Term Borrowings
Federal funds purchased $ 3,385,212 1,335,892 1,307,261 3,385,212 3,094,431 3,064,202
Fixed and variable rate bank
notes 2,586,000 -- -- 2,586,000 -- --
Interest-bearing demand
deposits issued to the U.S.
Treasury 365,245 377,526 843,069 764,155 723,248 875,676
Commercial paper 1,162,293 620,997 482,451 1,293,439 1,542,612 598,375
Other 983,394 1,027,555 345,345 2,020,760 1,879,440 483,349
Total $ 8,482,144 3,361,970 2,978,126
At December 31, 1995, 1994 and 1993, the combined weighted average interest
rates related to federal funds purchased and securities sold under repurchase
agreements were 5.52 percent, 6.04 percent and 3.09 percent, respectively.
Maturities related to federal funds purchased and securities sold under
repurchase agreements in each of the years in the three-year period then ended
were not greater than 230 days.
At December 31, 1995, the weighted average interest rate and maturity for
fixed and variable rate bank notes were 5.70 percent and 90 days, respectively.
At December 31, 1995, 1994 and 1993, the weighted average interest rates for
commercial paper were 5.49 percent, 5.24 percent and 2.69 percent, respectively.
Weighted average maturities for commercial paper issued at December 31, 1995,
1994 and 1993, approximated 21, 4 and 5 days, respectively.
Included in "Other" are Federal Home Loan Bank borrowings and securities
sold short of $438,530,000 and $229,667,000, respectively at December 31, 1995,
and $497,247,000 and $445,361,000, respectively, at December 31, 1994.
Substantially all short-term borrowings are due within 90 days, and
accordingly, the carrying amount of such borrowings is deemed to be a reasonable
estimate of fair value.
C-17
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 10:
LONG-TERM DEBT
1995 1994
Estimated Estimated
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Debentures and Notes Issued by the Parent Company
7 1/2 percent debentures, due in annual installments of not less
than $1,000 through December 1, 2002, net of debentures held
of $10,381 in 1995* $ 15,619 15,697 15,619 14,551
Floating rate extendible notes, due June 15, 2005** 10,100 10,100 100,000 100,000
11 percent notes, due May 1, 1996*** 18,360 18,963 18,360 19,099
Floating rate notes, due November 13, 1996** 150,000 150,000 150,000 150,000
5.95 percent notes, due July 1, 1995 (par value $150,000)*** -- -- 149,921 149,010
6 3/4 percent notes, due January 15, 1998 (par value
$250,000)*** 249,001 255,075 248,511 239,175
Floating rate notes, due February 24, 1998 (par value
$300,000)*** 299,810 299,810 -- --
Fixed rate medium-term senior notes with varying rates and terms
to 1996* 200 200 32,700 32,741
Fixed rate medium-term subordinated notes with varying rates and
terms to 2001* 54,000 63,812 54,000 56,925
Floating rate subordinated notes, due July 22, 2003 (par value
$150,000)*** 149,206 149,206 149,101 149,101
11 percent and variable rate subordinated notes, due in 1996*** 17,951 18,665 17,951 18,585
8 1/8 percent subordinated notes, due December 15, 1996*** 100,000 102,230 100,000 99,700
9.45 percent subordinated notes, due June 15, 1999 (par value
$250,000)*** 250,000 278,450 250,000 259,369
9.45 percent subordinated notes, due August 15, 2001 (par value
$150,000)*** 147,906 172,260 147,535 155,865
8 1/8 percent subordinated notes, due June 24, 2002 (par value
$250,000)*** 248,679 277,225 248,475 242,425
8 percent subordinated notes, due November 15, 2002 (par value
$225,000)*** 223,280 248,063 223,037 216,833
7 1/4 percent subordinated notes, due February 15, 2003 (par
value $150,000)*** 148,889 158,610 148,733 137,595
6 5/8 percent subordinated notes, due July 15, 2005 (par value
$250,000)*** 248,189 255,400 247,999 215,075
6 percent subordinated notes, due October 30, 2008 (par value
$200,000)*** 197,242 204,444 197,028 155,700
6 3/8 percent subordinated notes, due January 15, 2009 (par
value $150,000)*** 147,669 148,965 147,495 120,150
8 percent subordinated notes, due August 15, 2009 (par value
$150,000) 148,655 164,670 148,559 139,335
8.77 percent subordinated notes, due November 15, 2004 (par
value $150,000) 148,590 164,850 148,430 148,890
7 1/2 percent subordinated debentures, due April 15, 2035 (par
value $250,000) 246,194 276,950 -- --
7.05 percent subordinated notes, due August 1, 2005 (par value
$250,000)*** 248,065 262,725 -- --
6 7/8 percent subordinated notes, due September 15, 2005 (par
value $250,000)*** 248,350 260,000 -- --
6.55 percent subordinated debentures, due October 15, 2035 (par
value $250,000) 248,417 259,575 -- --
Total debentures and notes issued by the Parent Company 3,964,372 4,215,945 2,943,454 2,820,124
C-18
1995 1994
Estimated Estimated
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Debentures and Notes of Subsidiaries
Bank notes with varying rates and terms to 1997 1,165,000 1,165,000 100,000 100,000
Floating rate senior notes, due August 2, 1996 (par value
$200,000)*** 200,000 200,000 200,000 199,760
6.80 percent subordinated notes, due June 15, 2003 (par value
$150,000)*** 150,000 155,400 150,000 133,140
9 5/8 percent subordinated notes, due August 15, 1999 (par value
$150,000)*** 150,000 168,045 150,000 156,240
9 3/4 percent subordinated notes, due May 25, 1995 (par value
$136,750)*** -- -- 136,750 138,008
8 1/2 percent subordinated capital notes, due April 1, 1998 (par
value $150,000)*** 149,150 157,577 149,150 149,120
Floating rate subordinated note, due March 15, 1997 (par value
$25,000)*** 25,000 25,000 25,000 24,970
9 7/8 percent subordinated capital notes, due May 15, 1999 (par
value $75,000) 74,542 84,883 74,404 78,608
9 5/8 percent subordinated capital notes, due June 15, 1999 (par
value $75,000) 74,957 84,295 74,945 77,970
10 1/2 percent collateralized mortgage obligations, due in 2014 48,545 54,338 60,010 61,510
Debentures and notes with varying rates and terms to 2015 37,031 39,685 8,143 7,594
Total debentures and notes of subsidiaries 2,074,225 2,134,223 1,128,402 1,126,920
Other Debt
Notes payable to the FDIC, net of discount of $103 in 1995 and
$2,935 in 1994, due September 19, 1996 76,138 76,138 117,271 117,271
Advances from the Federal Home Loan Bank 958,150 958,162 4,696 3,728
Mortgage notes and other debt of subsidiaries with varying rates
and terms 39,983 44,791 43,008 44,764
Capitalized lease obligations calculated at rates generally
ranging from 7.5 percent to 15.2 percent 8,079 9,065 5,306 5,183
Total other debt 1,082,350 1,088,156 170,281 170,946
Total $7,120,947 7,438,324 4,242,137 4,117,990
* Redeemable at the option of the Parent Company.
** Redeemable in whole or in part at the option of the Parent Company.
*** Not redeemable prior to maturity.
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Corporation for debt of the same remaining maturities.
The interest rate on the floating rate extendible notes is 5.9625 percent to
March 15, 1996.
The interest rate on the floating rate notes due November 13, 1996, is 6
percent to February 29, 1996.
The interest rate on the floating rate notes due February 24, 1998, is
6.05469 percent to February 24, 1996.
The fixed rate medium-term senior and subordinated notes are issued
periodically. Interest rates, maturities, redemption and other terms are
determined at the date of issuance. At December 31, 1995, the Parent Company had
issued medium-term senior notes with a fixed rate of 6.69 percent and
subordinated notes with fixed rates of interest ranging from 9.49 percent to
9.93 percent.
In February 1996, $1,500,000,000 of senior or subordinated debt securities
remained available for issuance under a shelf registration statement filed with
the Securities and Exchange Commission.
The interest rate on the floating rate subordinated notes is 6.0625 percent
to January 22, 1996.
The interest rate on variable rate subordinated notes of $858,000 is 6.32
percent to March 31, 1996.
The 8 percent subordinated notes due August 15, 2009, are redeemable in
whole and not in part at the option of the Parent Company on August 15, 2004.
C-19
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
The 8.77 percent subordinated notes are redeemable in whole or in part at
the option of Parent Company on November 15, 1999.
Holders of the 7 1/2 percent subordinated debentures and the 6.55 percent
subordinated debentures may elect to redeem a part or all of their debentures on
April 15, 2005 and October 15, 2005, respectively. Otherwise such debentures are
not redeemable prior to maturity.
At December 31, 1995, bank notes of $965,000,000 had floating rates of
interest ranging from 5.50 percent to 6.02141 percent, and $200,000,000 of the
notes had an interest rate of 5.43 percent, which changes daily based on changes
in the federal funds interest rate.
The interest rate on the floating rate senior notes was 5.9375 percent at
December 31, 1995.
The interest rate on the floating rate subordinated note is 6.0781 percent
to March 5, 1996.
The floating rate subordinated note may not be redeemed prior to maturity,
except upon the occurrence of certain events.
The 9 7/8 percent(which were assumed by the Parent Company) and 9 5/8
percent subordinated capital notes may not be redeemed prior to maturity, except
upon the occurrence of certain events.
The 10 1/2 percent collateralized mortgage obligations were issued by a
wholly-owned subsidiary of an acquired savings bank. The obligations consist of
Class A-4 bonds collateralized by mortgage participation certificates (FHLMC
Certificates) issued by the Federal Home Loan Mortgage Corporation. Maturity of
the bonds depends on the rate of payments made on the FHLMC Certificates. The
bonds are redeemable upon the occurrence of certain events.
Notes payable to the FDIC result from funding assistance from the Federal
Deposit Insurance Corporation (FDIC) for Southeast Banks segregated assets.The
discount amount, which is based on an imputed interest rate of 8 3/4 percent,
will be accreted into interest expense under the interest method to September
19, 1996.
The Corporation's acquired savings banks had aggregate advances from the
Federal Home Loan Bank of $958,150,000 at December 31, 1995, with interest rates
ranging from 1 percent to 7 percent and maturity dates to July 19, 2016.
The weighted average rate paid for long-term debt in 1995, 1994 and 1993 was
6.69 percent, 6.26 percent and 5.51 percent, respectively. Interest rate swap
agreements entered at the time of issuance of certain long-term debt reduced
related interest expense.
Long-term debt maturing in each of the five years subsequent to December 31,
1995 is as follows: 1996, $1,729,855,000; 1997, $896,800,000; 1998,
$738,581,000; 1999, $566,452,000; and 2000, $138,093,000.
C-20
NOTE 11:
PREFERRED STOCK
1995 1994 1993
(In thousands) Shares Amount Shares Amount Shares Amount Shares
Series A $2.50 Cumulative
Balance as originally reported -- $ -- -- -- 528 13,182 528
Purchases of preferred stock -- -- -- -- (6) (134) --
Conversions of preferred stock into
common stock -- -- -- -- (522) (13,047) --
Pre-merger transactions of acquired bank
holding company -- -- -- -- -- (1) --
Balance, end of year -- -- -- -- -- -- 528
Series 1990
Balance as originally reported -- -- 6,318 31,592 6,318 31,592 6,318
Redemption of preferred stock -- -- (6,318) (31,592) -- -- --
Balance, end of year -- -- -- -- 6,318 31,592 6,318
Balance as originally reported -- -- -- -- 6,318 31,592 6,846
Pre-merger transactions of acquired bank
holding company
Series B $2.15 Cumulative Convertible
Balance as reported 4,788 119,707 4,817 120,422 4,887 122,172 4,887
Purchases of preferred stock (250 ) (6,250) -- -- -- -- --
Conversions of preferred stock into
common stock (1,574) (39,364) (29 ) (715) (70 ) (1,750) --
Balance, end of year 2,964 74,093 4,788 119,707 4,817 120,422 4,887
Series D Adjustable Rate Cumulative 350 35,000 350 35,000 350 35,000 350
Series F 10.64% Cumulative
Balance as reported 75 75,000 75 75,000 75 75,000 75
Purchases of preferred stock (1 ) (870) -- -- -- -- --
Balance, end of year 74 74,130 75 75,000 75 75,000 75
Total (1,825) (46,484) (29 ) (715) (70 ) (1,750) --
Balance, end of year 3,388 $183,223 5,213 229,707 11,560 262,014 12,158
1992
Amount
(In thousands)
Series A $2.50 Cumulative
Balance as originally reported 13,182
Purchases of preferred stock --
Conversions of preferred stock into
common stock --
Pre-merger transactions of acquired bank
holding company --
Balance, end of year 13,182
Series 1990
Balance as originally reported 31,592
Redemption of preferred stock --
Balance, end of year 31,592
Balance as originally reported 44,774
Pre-merger transactions of acquired bank
holding company
Series B $2.15 Cumulative Convertible
Balance as reported 122,172
Purchases of preferred stock --
Conversions of preferred stock into
common stock --
Balance, end of year 122,172
Series D Adjustable Rate Cumulative 35,000
Series F 10.64% Cumulative
Balance as reported 75,000
Purchases of preferred stock --
Balance, end of year 75,000
Total --
Balance, end of year 276,946
The Corporation is authorized to issue up to 40,000,000 shares of Class A
Preferred Stock, no-par value, and 10,000,000 shares of Preferred Stock, no-par
value, each in one or more series. In connection with the First Fidelity merger,
the Corporation has issued three new series of preferred stock which are
described in Note 2.
The Series 1990 Preferred Stock was issued in connection with the
acquisition of Florida National Banks of Florida, Inc. by the Corporation in
January 1990. On December 20, 1994, the Corporation elected to redeem all of the
outstanding shares of its Series 1990 Preferred Stock. The redemption occurred
on March 31, 1995, at the redemption price of $51.50 per share. A redemption
premium of $41,355,000, representing the difference between a $44.96 per share
book value and the $51.50 redemption price was deducted from net income
applicable to common stockholders in 1994. At December 31, 1994, $325,396,000
was placed in trust with an affiliated bank. The final dividend payable was paid
on March 31, 1995, to stockholders of record on March 15, 1995.
On June 18, 1993, the Corporation redeemed all of the outstanding shares of
Series A, $2.50 Cumulative Convertible Preferred Stock at the redemption price
of $25.00 per share (plus accrued and unpaid dividends), substantially all of
which were converted into 522,000 shares of common stock.
C-21
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 12:
COMMON STOCK
Option Prices Balance, Forfeitures Balance,
or Market Beginning Grants or New Exercises and Other End of
Values of 1995 Shares or Purchases Reductions 1995
1969 Plan
Options granted $11.59 48 -- -- -- 48
Available 52,976 -- -- -- 52,976
1984 Master Stock Plan
Options granted $20.25-$28.13 331,367 -- (134,451) -- 196,916
Available 507,669 -- -- -- 507,669
1988 Master Stock Plan
Options granted $14.75-$35.88 1,182,083 -- (166,102) (1,540) 1,014,441
Restricted stock granted $14.75-$22.88 240,504 -- (146,264) (1,530) 92,710
Available 1,112,508 -- -- 1,540 1,114,048
1992 Master Stock Plan
Options granted $44.75-$46.13 1,296,660 955,345 (74,219) (26,010) 2,151,776
Restricted stock granted $44.75-$46.13 758,102 607,330 (175,986) (13,214) 1,176,232
Available 2,826,705 (1,562,675) -- 26,010 1,290,040
1994 Employee Plan $38.36 2,508,795 -- (985,843) (139,456) 1,383,496
Dividend Reinvestment Plan -- 4,829,313 -- (807,659) -- 4,021,654
Option plans of acquired
companies $5.91-$50.60 6,766,403 1,415,744 (4,816,603) (143,023) 3,222,521
Exercisable
1969 Plan
Options granted 48
Available --
1984 Master Stock Plan
Options granted 196,916
Available --
1988 Master Stock Plan
Options granted 1,014,441
Restricted stock granted --
Available --
1992 Master Stock Plan
Options granted 1,203,001
Restricted stock granted --
Available --
1994 Employee Plan 1,383,496
Dividend Reinvestment Plan --
Option plans of acquired
companies 1,860,560
Under the terms of the 1969 Plan and the 1984, 1988 and 1992 Master Stock
Plans, stock options may be periodically granted to key personnel at a price not
less than the fair market value of the shares at the date of grant. Options
granted under the 1969 Plan must be exercised or forfeited on a prorated basis
over a fifteen-year period, or a ten-year period if the options are incentive
stock options. The exercise periods for options granted under the 1984, 1988 and
1992 Master Stock Plans are determined at the date of grant and are for periods
no longer than ten years.
Restricted stock may also be granted under the 1984, 1988 and 1992 Master
Stock Plans. The stock is subject to certain restrictions over a five-year
period, during which time the holder is entitled to full voting rights and
dividend privileges.
Employees, based on their eligibility and compensation, were granted options
to purchase shares of common stock under the 1994 Employee Stock Purchase Plan
at a price equal to 85 percent of the fair market value of the shares as of the
Plan date. From the Plan date and generally for approximately a two-year period
thereafter, employees have the option to purchase all or a portion of the
optioned shares. The Plan provides that as of June 30, 1996 (the Final Purchase
Date), the option price will be the lesser of 85 percent of the fair market
value as of the Plan date or 85 percent of the fair market value as of the Final
Purchase Date.
Under the terms of the Dividend Reinvestment Plan, a participating
stockholder's cash dividends and optional cash payments were used to purchase
original issue common stock from the Parent Company.
Under the terms of the Parent Company's merger agreements with certain
acquired companies, all options with respect to their common stock were
converted into options to purchase Parent Company common stock.
In accordance with a Shareholder Protection Rights Agreement dated December
18, 1990, the Parent Company issued a dividend of one right for each share of
Parent Company common stock outstanding or reserved for issuance as of December
18, 1990, or 117,450,463 rights, on December 28, 1990. These rights continue to
attach to all common stock issued after December 18, 1990.
The rights will become exercisable if any person or group commences a tender
or exchange offer that would result in their becoming the beneficial owner of 15
percent or more of the Parent Company's common stock or any person is determined
by the Federal Reserve Board to "control" the Corporation within the meaning of
the Bank Holding Company Act.
The rights also will become exercisable if a person or group acquires
beneficial ownership of 15 percent or more of the Parent Company's common stock.
Each right (other than rights owned by such person or group) will entitle its
holder to purchase, for an exercise price of $110, a number of shares of the
Parent Company's common stock (or at the option of the Board of Directors,
shares of junior participating Class A preferred stock) having a market value of
twice the exercise price. If any person or group acquires beneficial ownership
of between 15 percent and 50 percent of the Parent Company's common stock, the
Parent Company's Board of Directors may,
C-22
at its option, exchange for each outstanding right (other than rights owned by
such person or group) either two shares of common stock or two one-hundredths of
a share of junior participating Class A preferred stock having economic and
voting terms similar to two shares of common stock.
The rights are subject to adjustment if certain events occur, and they will
expire on December 28, 2000, if not redeemed or terminated sooner.
NOTE 13:
PERSONNEL EXPENSE
Years Ended December 31,
(In thousands) 1995 1994 1993
Salaries $1,615,310 1,435,702 1,321,416
Pension cost 24,875 27,521 13,441
Savings plan 53,289 47,993 43,224
Other benefits 268,678 261,626 245,868
Total $1,962,152 1,772,842 1,623,949
Pension expense for nonqualified plans was $9,602,000, $4,504,000 and
$3,396,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
In 1994 and 1993, the expense was related to First Fidelity.
Accumulated benefit obligation for the nonqualified plans was $52,435,000,
$27,776,000 and $26,613,000 for the years ended December 31, 1995, 1994 and
1993, respectively, including vested benefits of $51,114,000, $27,004,000 and
$25,960,000, respectively. Such plans have no assets. The assumed rates used in
actuarial computations were the same as those utilized in the qualified pension
plans.
The Corporation has tax-qualified defined benefit pension plans covering
substantially all of its employees with one year of service. The benefits are
based on years of service and the employee's highest five year average
compensation. Contributions are made each year into a trust in an amount which
is determined by an actuary to meet the minimum requirements of ERISA and to
fall at or below the maximum amount which can be deducted on the Corporation's
tax return.
At December 31, 1995, plan assets primarily include U.S. Government and
Government agency securities and equity securities. Also included are 1,533,766
shares of the Parent Company's common stock. All plan assets are held by First
Union National Bank of North Carolina (the Bank) in a Bank-administered trust
fund.
In 1994 and 1993, pension cost includes settlement losses of $514,000 and
$2,378,000, respectively, related to the purchase of annuities for certain
retirees.
The following tables set forth the plan's funded status and certain amounts
recognized in the Corporation's consolidated financial statements at December
31, 1995, 1994 and 1993, respectively:
December 31,
(In thousands) 1995 1994 1993
Actuarial Present Value of Benefit Obligations
Accumulated benefit obligation including vested benefits of $591,058,000, 1995;
$461,797,000, 1994; and $485,549,000, 1993 $ 643,012 494,188 532,685
Projected benefit obligation for service rendered to date $(838,092) (656,499) (712,666)
Plan assets at fair value 971,182 836,994 844,553
Plan assets in excess of projected benefit obligation 133,090 180,495 131,887
Prior service cost 40,483 8,198 13,351
Unrecognized net loss from past experience different from that assumed and effects
of
changes in assumptions 131,699 81,937 115,398
Unrecognized net transition asset (20,519) (24,267) (28,131)
Prepaid pension cost included in other assets $ 284,753 246,363 232,505
Assumed Rates Used in Actuarial Computations
Discount rate at beginning of year 8.25-8.75% 7-7.5 8-8.75
Discount rate at end of year 7.5 8.25-8.75 7-7.5
Weighted average rate of increase in future compensation levels 4.5 4-5 4-4.5
Long-term average rate of return 8.5-9.75% 8.5-9.75 9.5-9.75
C-23
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
Years Ended December 31,
(In thousands) 1995 1994 1993
Pension Cost
Service cost-benefits earned during the period $ 38,105 43,781 32,457
Interest cost on projected benefit obligation 52,498 50,277 38,498
Actual (return) loss on plan assets (135,288) 12,400 (62,279)
Net amortization and deferral 59,958 (83,955) (1,009)
Settlement loss -- 514 2,378
Net pension cost $ 15,273 23,017 10,045
The Corporation and its subsidiaries provide certain health care and life
insurance benefits for retired employees. Substantially all of the Corporation's
employees may become eligible for these benefits if they reach retirement age
while working for the Corporation. Life insurance benefits are provided through
an insurance company. Medical and other benefits are provided through a
tax-exempt trust formed by the Corporation. The Corporation recognizes the cost
of providing these benefits by expensing annual insurance premiums, trust
funding allocations and administrative expenses.
The amount expensed for group insurance expense for active employees in
1995, 1994 and 1993 was $94,831,000, $84,064,000 and $99,740,000, respectively.
The following tables set forth the status of postretirement benefits other
than pensions and certain amounts recognized in the Corporation's consolidated
financial statements at December 31, 1995, 1994 and 1993:
(In thousands) 1995 1994
Actuarial Present Value of Postretirement Benefits Obligation
Retirees $191,337 158,469
Fully eligible active participants 4,440 8,649
Other active participants 43,536 32,540
Accumulated postretirement benefit obligation $239,313 199,658
Projected benefit obligation in excess of plan assets $239,313 199,658
Unrecognized net transition obligation (60,363) (63,914)
Unrecognized prior service cost 10,880 --
Unrecognized net gain (loss) from past experience different from that assumed
and effects of changes in assumptions (31,432) 9,321
Accrued postretirement benefit cost $158,398 145,065
Assumed Rates Used in Actuarial Computations
Weighted average discount rate 7.5% 8.25-8.75
Rate of increase in future compensation levels, depending on age 4-9 4-5
Health care cost trend rate
11.67-
Prior to age 65 (for 1996, grading to 7 percent in 2004) 12.25 12.25-12.5
10.67-%
After age 65 (for 1996, grading to 6 percent in 2004) 11.25 10-11.25
Effect of One Percent Increase in Health Care Cost Trend Rate
Service costs $ 81 --
Interest costs 967 1,084
Accumulated postretirement benefit obligation $ 14,470 13,783
Postretirement Costs
Service cost-benefits earned during the period $ 2,876 3,262
Interest cost on projected benefit obligation 15,717 15,416
Amortization of transition obligation 2,711 3,674
Net cost $ 21,304 22,352
December 31,
1993
Actuarial Present Value of Postretirement Benefits Obligation
Retirees 175,946
Fully eligible active participants 13,075
Other active participants 38,267
Accumulated postretirement benefit obligation 227,288
Projected benefit obligation in excess of plan assets 227,288
Unrecognized net transition obligation (67,221)
Unrecognized prior service cost --
Unrecognized net gain (loss) from past experience different from that assumed
and effects of changes in assumptions (27,526)
Accrued postretirement benefit cost 132,541
Assumed Rates Used in Actuarial Computations
Weighted average discount rate 7-7.5
Rate of increase in future compensation levels, depending on age 4-4.5
Health care cost trend rate
Prior to age 65 (for 1996, grading to 7 percent in 2004) 12.83-13.5
After age 65 (for 1996, grading to 6 percent in 2004) 11-11.83
Effect of One Percent Increase in Health Care Cost Trend Rate
Service costs --
Interest costs 991
Accumulated postretirement benefit obligation 12,132
Postretirement Costs
Service cost-benefits earned during the period 2,474
Interest cost on projected benefit obligation 14,038
Amortization of transition obligation 4,309
Net cost 20,821
C-24
The Financial Accounting Standards Board has issued Standard No. 112,
"Employers' Accounting for Postemployment Benefits", which requires accrual of a
liability for all types of benefits paid to former or inactive employees after
employment but before retirement. The Corporation adopted this accounting
Standard beginning January 1, 1994. Benefits subject to this accounting
pronouncement include salary continuation, supplemental unemployment benefits,
severance benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation of such benefits as
health care and life insurance coverage. The effect of initially applying this
new accounting Standard was not material, and the result of complying with this
Standard in 1995 was not material.
NOTE 14:
INCOME TAXES
The provision for income taxes charged to operations is as follows:
(In thousands) 1995 1994
Current Income Taxes
Federal $383,635 313,261
State 32,703 82,953
Total 416,338 396,214
Deferred Income Tax Expense (Benefits)
Federal 326,118 325,917
State 45,964 (10,687)
Total 372,082 315,230
Total $788,420 711,444
(In thousands) Years Ended December 31,
1993
Current Income Taxes
Federal 364,320
State 49,980
Total 414,300
Deferred Income Tax Expense (Benefits)
Federal 160,455
State 4,157
Total 164,612
Total 578,912
The federal income tax rates and amounts are reconciled with the effective
income tax rates and amounts as follows:
Years Ended December 31,
1995 1994 1993
% of % of % of
Pre-tax Pre-tax Pre-tax
(In thousands) Amount Income Amount Income Amount Income
Income before income taxes $2,218,601 $2,087,887 $1,795,265
Tax at federal income tax rate $ 776,510 35.0% $ 730,761 35.0% $ 628,342 35.0%
Reasons for difference in federal
income tax rate and effective
rate
Tax-exempt interest, net of cost
to carry (53,194) (2.4) (60,536) (2.9) (68,095) (3.8)
State income taxes, net of
federal tax benefit 51,134 2.3 46,973 2.2 35,189 2.0
Goodwill amortization 30,662 1.4 22,245 1.1 17,867 1.0
Adjustment to deferred income tax
assets and liabilities for
enacted changes in tax laws and
rates -- -- -- -- (18,588) (1.0)
Change in the beginning-of-the-
year deferred tax assets
valuation
allowance 3,031 .1 1,889 .1 (3,604) (.2)
Other items, net (19,723) (.9) (29,888) (1.4) (12,199) (.7)
Total $ 788,420 35.5% $ 711,444 34.1% $ 578,912 32.3%
C-25
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
The sources and tax effects of temporary differences that give rise to
significant portions of deferred income tax liabilities (assets) are as follows:
Years Ended December 31,
(In thousands) 1995 1994
Deferred Income Tax Liabilities
Depreciation $ 67,074 52,772
Unrealized gain on debt and equity securities 59,664 --
Intangible assets 77,326 66,040
Leasing activity 761,964 466,950
Prepaid insurance premiums 3,763 28,892
Prepaid pension asset 83,010 78,314
Thrift loan loss reserve recapture 72,103 27,152
Other 58,187 40,945
Total deferred income tax liabilities 1,183,091 761,065
Deferred Income Tax Assets
Provision for loan losses, net (535,542) (574,809)
Accrued expenses, deductible when paid (265,911) (215,623)
Unrealized loss on debt and equity securities -- (155,729)
Foreclosed properties (12,006) (30,796)
Sale and leaseback transactions (17,227) (18,825)
Deferred income (15,864) (18,106)
Purchase accounting adjustments (primarily loans and securities) (63,099) (33,814)
Net operating loss carryforwards (38,400) (58,039)
First American segregated assets (19,769) (10,004)
Loan products (3,467) (2,169)
Other (33,041) (46,559)
Total deferred income tax assets (1,004,326) (1,164,473)
Deferred tax assets valuation allowance 43,570 37,421
Net deferred income tax liabilities (assets) $ 222,335 (365,987)
(In thousands) Years Ended December 31,
1993
Deferred Income Tax Liabilities
Depreciation 49,709
Unrealized gain on debt and equity securities 14,698
Intangible assets 84,286
Leasing activity 279,618
Prepaid insurance premiums 1,239
Prepaid pension asset 72,632
Thrift loan loss reserve recapture 24,889
Other 56,906
Total deferred income tax liabilities 583,977
Deferred Income Tax Assets
Provision for loan losses, net (531,380)
Accrued expenses, deductible when paid (176,735)
Unrealized loss on debt and equity securities --
Foreclosed properties (68,403)
Sale and leaseback transactions (22,276)
Deferred income (15,283)
Purchase accounting adjustments (primarily loans and securities) (9,529)
Net operating loss carryforwards (61,072)
First American segregated assets (76,003)
Loan products (18,234)
Other (51,716)
Total deferred income tax assets (1,030,631)
Deferred tax assets valuation allowance 22,173
Net deferred income tax liabilities (assets) (424,481)
Changes to the deferred tax assets valuation allowance are as follows:
Years Ended December 31,
(In thousands) 1995 1994
Balance, beginning of year $37,421 22,173
Current year deferred provision, change in deferred tax assets valuation allowance 3,031 1,889
Purchase acquisitions 3,118 13,359
Deferred tax assets valuation allowance, end of year $43,570 37,421
Years Ended December 31,
1993
(In thousands)
Balance, beginning of year 20,024
Current year deferred provision, change in deferred tax assets valuation allowance (3,604)
Purchase acquisitions 5,753
Deferred tax assets valuation allowance, end of year 22,173
A portion of the current year change in the net deferred tax liability
(asset) relates to unrealized gains and losses on debt and equity securities
available for sale. Under Standard No. 115, the related 1995 and 1994 deferred
tax expense (benefit) of $215,393,000 and $(170,427,000), respectively, have
been recorded directly to stockholders' equity. Purchase acquisitions also
increased the net deferred tax liability in the amount of $847,000 in 1995,
while increasing the net deferred tax asset by $86,309,000 in 1994 and
$154,679,000 in 1993.
The realization of deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income in
certain periods and the utilization of tax planning strategies. Management has
determined that it is more likely than not that the deferred tax assets can be
supported by carrybacks to federal taxable income in excess of $2,400,000,000 in
the three-year federal carryback period and by expected future taxable income
which will far exceed amounts necessary to fully realize remaining deferred tax
assets resulting from net operating loss carryforwards and the scheduling of
temporary differences. The valuation allowance primarily relates to certain
state temporary differences and federal and state net operating loss
carryforwards. To the extent that the valuation allowance attributable to the
purchase acquisitions in the amount of $22,230,000 is subsequently recognized,
such income tax benefit will reduce goodwill.
At December 31, 1995, the Corporation has net operating loss carryforwards
of $82,000,000 which are available to offset future federal taxable income
through 2007, subject to annual limitations. The Corporation also has net
operating loss carryforwards of $142,000,000 that are available to offset future
state taxable income through 2010.
Income tax expense related to securities available for sale transactions was
$13,828,000, $1,546,000 and $9,559,000 in
C-26
1995, 1994 and 1993, respectively. Income tax expense related to investment
security transactions was $1,787,000, $1,455,000 and $5,044,000 in 1995, 1994
and 1993, respectively.
The Corporation adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes", at January 1, 1993, and applied the provisions of
Standard No. 109 retroactively to January 1, 1992. In accordance with Standard
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Standard No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
The Internal Revenue Service is examining the Corporation's federal income
tax returns for the years 1991 through 1993 and is examining federal income tax
returns for certain acquired subsidiaries for periods prior to acquisition. In
1995 and 1994, the Internal Revenue Service examination of the Corporation's
federal income tax returns for years through 1990 was settled with no material
impact to the Corporation's financial position or results of operations. In
1995, 1994 and 1993, tax liabilities for certain acquired subsidiaries for
periods prior to their acquisition by the Corporation were settled with the
Internal Revenue Service with no significant impact on the Corporation's
financial position or results of operations.
NOTE 15:
FIRST UNION CORPORATION
(PARENT COMPANY)
The Parent Company's principal assets are its investments in its
subsidiaries, interest-bearing balances with bank subsidiaries, securities
purchased under resale agreements, securities available for sale and loans to
subsidiaries. The significant sources of income of the Parent Company are
dividends from its subsidiary bank holding companies, interest and fees charged
on loans made to its subsidiaries, interest on eurodollars purchased from bank
subsidiaries, interest on securities available for sale and fees charged to its
subsidiaries for providing various services.
In addition, the Parent Company serves as the primary source of funding for
the mortgage banking and other activities of its nonbank subsidiaries. Lines of
credit in the amount of $350,000,000 are available to the Parent Company at an
annual facility fee of 8.00 to 18.75 basis points and a utilization fee of 6.25
basis points. The facility fee is based on the daily average commitment amount
and the utilization fee is based on the daily average principal amount
outstanding. Generally, interest rates will be determined at the time credit
line usage occurs and will vary based on the type of loan extended to the Parent
Company.
Certain regulatory and other requirements restrict the lending of funds by
the bank subsidiaries to the Parent Company and to the Parent Company's nonbank
subsidiaries and the amount of dividends that can be paid to the Parent Company
by the bank subsidiaries and certain of the Parent Company's other subsidiaries.
On December 31, 1995, the Parent Company was indebted to subsidiary banks in the
amount of $260,676,000 that, under the terms of revolving credit agreements, was
secured by certain interest-bearing balances, securities available for sale,
loans, premises and equipment and payable on demand. On such date, a subsidiary
bank had loans outstanding to Parent Company nonbank subsidiaries amounting to
$135,929,000 that, under the terms of a revolving credit agreement, was secured
by securities available for sale and certain loans and payable on demand.
Additionally, the Parent Company is the guarantor of certain publicly issued
debt of an acquired subsidiary in the amount of $75,000,000.
Industry regulators limit dividends that can be paid by the Corporation's
subsidiaries. National banks are limited in their ability to pay dividends in
two principal ways: first, dividends cannot exceed the bank's undivided profits,
less statutory bad debt in excess of the bank's allowance for loan losses, and
second, in any year dividends may not exceed a bank's net profits for that year,
plus its retained earnings from the preceding two years, less any required
transfers to surplus. The Parent Company's subsidiaries, including its bank
subsidiaries, had available retained earnings of $467,564,000 at December 31,
1995, for the payment of dividends to the Parent Company without such regulatory
or other restrictions.
Subsidiary net assets of $9,132,280,000 were restricted from being
transferred to the Parent Company at December 31, 1995, under such regulatory or
other restrictions.
At December 31, 1995 and 1994, the estimated fair value of the Parent
Company's loans was $2,361,334,000 and $1,755,517,000, respectively.
C-27
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
The Parent Company's condensed balance sheets as of December 31, 1995 and
1994, and the related condensed statements of income and cash flows for the
three-year period ended December 31, 1995, are as follows:
CONDENSED BALANCE SHEETS
(In thousands) 1995
Assets
Cash and due from banks $ 290
Interest-bearing balances with bank subsidiary 1,305,210
Securities purchased under resale agreements 200,000
Total cash and cash equivalents 1,505,500
Securities available for sale (amortized cost $190,246 in 1995; $151,505 in 1994) 258,889
Loans, net of unearned income ($648 in 1995; $591 in 1994) 76,961
Allowance for loan losses (1,325)
Loans, net 75,636
Loans due from subsidiaries
Banks 1,704,541
Bank holding companies 128,683
Other subsidiaries 446,918
Investments in wholly-owned subsidiaries
Arising from investments in equity in undistributed net income of subsidiaries
Banks 4,520,514
Bank holding companies 5,029,527
Other subsidiaries 467,909
10,017,950
Arising from purchase accounting acquisitions 97,989
Total investments in wholly-owned subsidiaries 10,115,939
Other assets 531,388
Total assets $14,767,494
Liabilities and Stockholders' Equity
Commercial paper 941,968
Other short-term borrowings 460,676
Other liabilities 282,792
Long-term debt 4,038,914
Stockholders' equity 9,043,144
Total liabilities and stockholders' equity $14,767,494
(In thousands) 1994
Assets
Cash and due from banks 300
Interest-bearing balances with bank subsidiary 958,126
Securities purchased under resale agreements 100,000
Total cash and cash equivalents 1,058,426
Securities available for sale (amortized cost $190,246 in 1995; $151,505 in 1994) 193,131
Loans, net of unearned income ($648 in 1995; $591 in 1994) 72,791
Allowance for loan losses (1,325)
Loans, net 71,466
Loans due from subsidiaries
Banks 1,030,000
Bank holding companies 272,731
Other subsidiaries 382,191
Investments in wholly-owned subsidiaries
Arising from investments in equity in undistributed net income of subsidiaries
Banks 1,417,590
Bank holding companies 7,103,529
Other subsidiaries 298,748
8,819,867
Arising from purchase accounting acquisitions 107,680
Total investments in wholly-owned subsidiaries 8,927,547
Other assets 235,574
Total assets 12,171,066
Liabilities and Stockholders' Equity
Commercial paper 395,533
Other short-term borrowings 300,000
Other liabilities 257,589
Long-term debt 2,943,452
Stockholders' equity 8,274,492
Total liabilities and stockholders' equity 12,171,066
C-28
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
(In thousands) 1995 1994 1993
Interest Income
Interest and fees on loans $ 134,037 72,350 55,379
Interest income on securities available for sale 3,908 4,139 2,377
Other interest income from subsidiaries 84,169 77,583 42,225
Total interest income 222,114 154,072 99,981
Interest Expense
Short-term borrowings 70,795 43,540 22,041
Long-term debt 234,319 163,072 110,956
Total interest expense 305,114 206,612 132,997
Net interest income (83,000) (52,540) (33,016)
Provision for loan losses -- 1,408 3,665
Net interest income after provision for loan losses (83,000) (53,948) (36,681)
Noninterest income
Dividends from subsidiaries
Banks 507,953 155,800 --
Bank holding companies 275,425 526,212 406,682
Other subsidiaries 10,000 6 6
Securities available for sale transactions 9,809 5,525 --
Sundry income 319,709 194,396 156,612
Noninterest expense (279,121) (185,932) (140,883)
Income before income tax benefits and equity in undistributed net income of
subsidiaries 760,775 642,059 385,736
Income tax benefits (14,151) (14,889) (6,700)
Income before equity in undistributed net income of subsidiaries 774,926 656,948 392,436
Equity in undistributed net income of subsidiaries 655,255 719,495 823,917
Net income 1,430,181 1,376,443 1,216,353
Dividends on preferred stock 26,390 46,020 45,553
Net income applicable to common stockholders before redemption premium 1,403,791 1,330,423 1,170,800
Redemption premium on preferred stock -- 41,355 --
Net income applicable to common stockholders after redemption premium $1,403,791 1,289,068 1,170,800
C-29
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands) 1995 1994 1993
Operating Activities
Net income $1,430,181 1,376,443 1,216,353
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Equity in undistributed net income of subsidiaries (655,255) (719,495) (823,917)
Provision for loan losses -- 1,408 3,665
Accretion and revaluation losses on securities available for sale (3,546) (4,295) 2,431
Securities available for sale transactions (9,809) (5,525) --
Depreciation and amortization 5,560 2,888 3,602
Deferred income taxes (benefits) 1,000 (19,272) 1,382
Trading account assets, net -- 10,285 8,811
Other assets, net (293,990) (40,501) (26,363)
Other liabilities, net 1,177 100,189 (33,570)
Net cash provided by operating activities 475,318 702,125 352,394
Investing Activities
Increase (decrease) in cash realized from
Sales of securities available for sale 99,240 14,284 4,763
Purchases of securities available for sale (124,626) (89,297) (1,153)
Advances to subsidiaries, net (595,220) (539,359) (198,771)
Investments in subsidiaries 362,978 76,973 (588,915)
Longer-term loans originated or acquired (101,291) (68,999) (49,921)
Principal repaid on longer-term loans 97,121 62,675 7,746
Purchases of premises and equipment, net (7,100) (6,248) (816)
Net cash used by investing activities (268,898) (549,971) (827,067)
Financing Activities
Increase (decrease) in cash realized from
Commercial paper 546,435 124,867 (71,126)
Other short-term borrowings, net 160,676 100,000 (6,215)
Issuances of long-term debt 1,292,105 444,403 989,975
Payments of long-term debt (272,400) (38,000) (394,488)
Sales of common stock 248,363 251,379 342,396
Purchases of preferred stock (7,120) -- (134)
Redemption of preferred stock -- (325,396) --
Cash received (paid) on conversion of preferred stock 405 -- (5)
Purchases of common stock (1,198,626) (417,621) (123,358)
Cash dividends paid (529,184) (486,325) (399,734)
Net cash provided (used) by financing activities 240,654 (346,693) 337,311
Increase (decrease) in cash and cash equivalents 447,074 (194,539) (137,362)
Cash and cash equivalents, beginning of year 1,058,426 1,252,965 1,390,327
Cash and cash equivalents, end of year $1,505,500 1,058,426 1,252,965
Cash Paid For
Interest $ 288,436 190,624 114,904
Income taxes 338,461 243,099 326,000
Noncash Items
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity
securities included in
Parent Company
Securities available for sale 27,016 41,626 --
Other liabilities 24,025 14,569 --
Parent Company subsidiaries
Securities available for sale 457,508 (343,739) --
Other assets 135,603 (102,417) --
Assumption of long-term debt of liquidated affiliate 74,473 -- --
Increase in securities available for sale and a decrease in investment securities -- -- 32,583
Increase in investments in subsidiaries due to acquisitions of institutions for
common stock $ 610,510 162,640 166,089
C-30
NOTE 16:
OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers, to reduce its own exposure to fluctuations in interest
rates and to conduct lending activities. These financial instruments include
commitments to extend credit; standby and commercial letters of credit; forward
and futures contracts; interest rate swaps; options, interest rate caps, floors,
collars and swaptions; foreign currency and exchange rate swap commitments;
commodity swaps; and commitments to purchase and sell securities. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the supplemental consolidated
financial statements.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby and commercial letters of credit is represented by the contract amount
of those instruments. The Corporation uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. For forward and futures contracts, interest rate swaps, options,
interest rate caps, floors, collars and swaptions, the contract or notional
amounts do not represent the exposure to credit loss. The Corporation controls
the credit risk of its forward and futures contracts, interest rate swap
agreements, foreign currency and exchange rate swaps, and securities
transactions through collateral arrangements, credit approvals, limits and
monitoring procedures.
Our policy requires all swaps and options to be governed by an International
Swaps and Derivatives Association Master Agreement. Bilateral collateral
agreements are in place for substantially all dealer counterparties. Collateral
for dealer transactions is delivered by either party when the credit risk
associated with a particular transaction, or group of transactions to the extent
netting exists, exceeds defined thresholds of credit risk. Thresholds are
determined based on the strength of the individual counterparty and are
bilateral. As of December 31, 1995, the total credit risk in excess of
thresholds was $275,250,000. The fair value of collateral held was 100 percent
of the total credit risk in excess of the thresholds.
For non-dealer transactions, the need for collateral is evaluated on a
individual transaction basis and is primarily dependent on the financial
strength of the counterparty.
The carrying amount of financial instruments used for interest rate risk
management includes amounts for deferred gains and losses. The amount of
deferred gains and losses was $8,830,000 and $10,606,000, respectively, at
December 31, 1995. These net losses will reduce net interest income by
$1,776,000 in 1996.
The FASB has issued Standard No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments", which requires improved
disclosures about derivative financial instruments -- futures, forward, swap or
option contracts, or other financial instruments with similar characteristics.
It also amends existing requirements of FASB Standard No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentration of Credit Risk", and FASB Standard No.
107, "Disclosures about Fair Value of Financial Instruments". It requires that a
distinction be made between financial instruments held or issued for the
purposes of trading or other than trading. For derivative financial instruments
held or issued for trading, disclosure of average fair values and of net trading
gains or losses is required. For derivative financial instruments held or issued
for purposes other than trading, it requires disclosure about those purposes,
about how the instruments are reported in financial statements, and, if the
purpose is hedging anticipated transactions, about the anticipated transactions,
the classes of derivative financial instruments used to hedge those
transactions, the amounts of hedging gains and losses deferred, and the
transactions or other events that result in recognition of the deferred gains or
losses in income. The Standard encourages, but does not require, quantitative
information about interest rate or other market risks of derivative financial
instruments, and also of other assets and liabilities, that is consistent with
the way the entity manages or adjusts risks and that is useful for comparing the
results of applying the entity's strategies to its objectives for holding or
issuing the derivative financial instruments. The Standard amends Standard No.
105 to require disaggregation of information about financial instruments with
off-balance sheet risk of accounting loss by class, business activity, risk or
other category that is consistent with the entity's management of those
instruments. The Standard also amends Standard No. 107 to require that fair
value information be presented without combining, aggregating or netting the
fair value of derivative financial instruments with the fair value of
nonderivative financial instruments and be presented together, with the related
carrying amounts in the body of the financial statements, a single footnote or a
summary table in a form that makes it clear whether the amounts represent assets
or liabilities. The Corporation has adopted this Standard, and information
related thereto can be found on the next page and in Tables 20 through 22 on
pages T-15 through T-20, which are incorporated herein by reference.
At December 31, 1995 and 1994, off-balance sheet derivative financial
instruments and their related fair values are as follows:
C-31
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
1995 1994
Contract or Contract or
Carrying Estimated Notional Carrying Estimated Notional
(In thousands) Amount Fair Value Amount Amount Fair Value Amount
Financial Instruments Whose Contract
Amounts Represent Credit Risk
Commitments to extend credit $ -- 144,574 38,462,518 -- 117,480 30,739,996
Standby and commercial letters of credit -- 35,705 3,651,166 -- 30,464 3,085,975
Financial Instruments Whose Contract or
Notional Amounts Exceed the Amount of
Credit Risk
Forward and Futures Contracts
Trading and dealer activities 37,811 37,811 15,539,953 801,043 801,043 5,715,894
Interest rate risk management
Asset rate conversions -- 38,428 6,120,000 -- (7,071) 1,200,000
Asset hedge -- (1,391) 1,016,000 -- (1,855) 2,000,000
Rate sensitivity hedges -- 17,877 25,355,000 -- (120) 25,000
Interest Rate Swap Agreements
Trading and dealer activities (117,450) (117,529) 10,773,748 7,511 7,511 5,700,504
Interest rate risk management
Asset rate conversions 19,713 110,790 11,282,355 8,917 (455,199) 10,322,216
Liability rate conversions 9,627 226,836 5,127,000 18,960 (199,703) 4,026,500
Purchased Options, Interest Rate Caps,
Floors, Collars and Swaptions
Trading and dealer activities 47,768 50,802 5,401,256 18,300 18,300 1,664,279
Interest rate risk management
Liability rate conversions (2,224) (2,354) 180,000 1,902 110 392,000
Rate sensitivity hedges 705 37 4,319,200 25,601 41,256 28,231,000
Offsetting positions 561 2,475 2,400,000 (124) (2,282) 2,400,000
Written Options, Interest Rate Caps,
Floors, Collars and Swaptions
Trading and dealer activities (36,890) (36,890) 7,778,202 (24,641) (24,641) 1,497,631
Interest rate risk management
Offsetting positions (637) (2,475) 2,400,000 60 1,796 2,400,000
Foreign Currency and Exchange Rate Swap
Commitments
Trading and dealer activities (562) (562) 1,528,744 (19,323) (19,323) 3,453,525
Foreign currency risk management 231 231 42,628 18,680 18,680 1,679,905
Commodity Swaps
Trading and dealer activities 797 797 29,810 (152) (152) 4,308
Commitments to Purchase Securities 1,744 1,744 567,256 (842) (842) 789,774
Commitments to Sell Securities $ (806) (806) 659,383 693 693 842,894
C-32
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby and commercial letters of credit are conditional commitments issued
by the Corporation to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Except for short-term guarantees of $2,251,226,000 guarantees
extend for more than one year and expire in varying amounts primarily through
2019. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The Corporation
holds various assets as collateral supporting those commitments for which
collateral is deemed necessary.
Forward and futures contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities values and
interest rates.
The Corporation enters into a variety of interest rate
contracts -- including options, interest rate caps, floors, collars and
swaptions written, and interest rate swap agreements -- in its trading
activities and in managing its interest rate exposure. Interest rate caps,
floors, collars and swaptions written by the Corporation enable customers to
transfer, modify or reduce their interest rate risk. Interest rate options are
contracts that allow the holder of the option to purchase or sell a financial
instrument at a specified price and within a specified period of time from the
seller or writer of the option. As a writer of options, the Corporation receives
a premium at the outset and then bears the risk of an unfavorable change in the
price of the financial instrument underlying the option.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contracts but also the interest rate risk associated with
unmatched positions. Notional principal amounts often are used to express the
volume of these transactions, but the amounts potentially subject to credit risk
are much smaller. The Corporation also acts as an intermediary in arranging
interest rate swap transactions for customers.
Generally, futures contracts are exchanged traded and all other off-balance
instruments are transacted in the over-the-counter markets.
In the normal course of business, the Corporation has entered into certain
transactions which have recourse options. These recourse options if acted upon
would not have a material impact on the Corporation's financial position.
Substantially all time drafts accepted by December 31, 1995, met the
requirements for discount with Federal Reserve Banks. Average daily Federal
Reserve balance requirements for the year ended December 31, 1995, amounted to
$1,369,332,000. Minimum operating lease payments due in each of the five years
subsequent to December 31, 1995, are as follows: 1996, $157,253,000; 1997,
$138,203,000; 1998, $126,882,000; 1999, $114,645,000; 2000, $104,746,000; and
subsequent years, $828,801,000. Rental expense for all operating leases for the
three years ended December 31, 1995, was $178,836,000, 1995; $184,335,000, 1994;
and $187,635,000, 1993.
As of December 31, 1995, the Corporation's Bank Insurance Fund (BIF) deposit
assessment base was $63,380,657,000 and the Corporation's Savings Association
Insurance Fund (SAIF) deposit assessment base was $19,767,525,000. Various
legislative proposals related to the future of the BIF and SAIF have been under
consideration. Several of these proposals, including a proposal previously
approved by Congress that is understood to have the support of the President,
include a one-time special assessment for SAIF deposits (in the range of 70
cents to 85 cents per $100.00 of assessable SAIF deposits, with a discount for
certain SAIF deposits held by BIF member banks) and a subsequent comparable and
reduced level of annual premiums for SAIF deposits. It is not known when and if
any such proposal or any other related proposal may be adopted.
The Parent Company and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which damages in various amounts are claimed. Although the amount
of any ultimate liability with respect to such matters cannot be determined, in
the opinion of management, based upon the opinions of counsel, any such
liability will not have a material effect on the Corporation's consolidated
financial position.
C-33
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 17:
CARRYING AMOUNTS AND FAIR VALUE
OF FINANCIAL INSTRUMENTS
Information about the fair value of on-balance sheet financial instruments
at December 31, 1995 and 1994, which should be read in conjunction with Note 16
and certain other notes to the supplemental consolidated financial statements
presented elsewhere herein, is set forth below.
1995 1994
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
Financial Assets
Cash and cash equivalents $10,544,065 10,544,065 8,225,086 8,225,086
Trading account assets 1,881,066 1,881,066 1,317,169 1,317,169
Securities available for sale 18,193,699 18,193,699 11,533,642 11,533,642
Investment securities 3,139,616 3,319,602 7,916,729 7,791,991
Loans
Commercial, financial and agricultural 24,599,673 24,875,278 22,004,117 21,917,748
Real estate-construction and other 2,494,527 2,561,737 2,044,428 2,057,891
Real estate-commercial mortgage 9,980,011 10,169,618 9,461,943 9,231,438
Lease financing 4,178,144 4,178,144 2,888,454 2,888,454
Foreign 649,760 650,846 526,325 526,070
Real estate-mortgage 27,251,034 27,827,083 21,027,179 20,332,389
Installment loans-Bankcard 3,657,619 3,703,456 4,345,069 4,496,520
Installment loans-other 17,752,112 18,063,147 15,533,478 15,334,491
Loans, net of unearned income 90,562,880 92,029,309 77,830,993 76,785,001
Allowance for loan losses (1,507,798) -- (1,578,128) --
Loans, net 89,055,082 92,029,309 76,252,865 76,785,001
Other assets $ 3,158,944 3,163,471 2,576,523 2,592,726
Financial Liabilities
Deposits
Noninterest-bearing deposits 17,043,223 17,043,223 15,917,287 15,917,287
Interest-bearing deposits
Savings and NOW accounts 24,297,270 24,297,270 23,263,322 23,263,322
Money market accounts 13,112,918 13,112,918 14,376,098 14,376,098
Other consumer time 31,945,313 32,317,040 27,402,767 27,361,053
Foreign 3,526,771 3,526,771 4,802,719 4,802,719
Other time 2,629,723 2,646,404 2,102,932 2,108,935
Total deposits 92,555,218 92,943,626 87,865,125 87,829,414
Short-term borrowings 19,500,127 19,500,127 10,249,265 10,249,265
Other liabilities 3,115,063 3,115,063 2,195,178 2,195,178
Long-term debt $ 7,120,947 7,438,324 4,242,137 4,117,990
Estimated fair values for the commercial loan portfolio were based on
weighted average discount rates ranging from 7.07 percent to 8.50 percent and
7.45 percent to 10.24 percent at December 31, 1995 and 1994, respectively, and
for the retail portfolio from 6.92 percent to 13.00 percent and 8.08 percent to
12.12 percent, respectively.
Nonperforming loans of less than $1,000,000 each, which amounted to
$197,303,000 and $264,486,000 at December 31, 1995 and 1994, respectively, are
included in estimated fair value at their net costs.
The fair value of noninterest-bearing deposits, savings and NOW accounts,
and money market accounts is the amount payable on demand at December 31, 1995
and 1994. The fair
C-34
value of fixed-maturity certificates of deposit is estimated based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities. The fair value estimates above do not
include the benefit that results from the low-cost funding provided by deposit
liabilities compared to the cost of borrowing funds in the market. This value,
which includes such cost assumptions related to interest rates, deposit run-off,
maintenance costs and float opportunity costs, is presented below on a
discounted cash flow basis. The value related to the recorded cost of acquired
deposits is also included therein.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. For
example, the Corporation has a substantial trust department that contributes net
fee income annually. The trust department is not considered a financial
instrument, and its value has not been incorporated into the fair value
estimates. Other significant assets and liabilities that are not considered
financial assets or liabilities include the mortgage banking operation,
brokerage network, deferred tax assets, premises and equipment, and goodwill. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates. Fair value of off-balance sheet
derivative financial instruments has not been considered in determining
on-balance sheet fair value estimates.
C-35