Exhibit (13)(b)
FIRST UNION CORPORATION AND SUBSIDIARIES
1995 Annual Report
(Historical Basis)
First Union Corporation and Subsidiaries
1995 Annual Report (Historical Basis)
Table of Contents
Management's Analysis of Operations.......................................................................................... 1
Financial Tables............................................................................................................. T-1
Six-Year Net Interest Income Summary......................................................................................... T-23
Management's Statement of Financial Responsibility........................................................................... H-1
Independent Auditors' Report................................................................................................. H-1
Consolidated Balance Sheets.................................................................................................. H-2
Consolidated Statements of Income............................................................................................ H-3
Consolidated Statements of Changes in Stockholders' Equity................................................................... H-4
Consolidated Statements of Cash Flows........................................................................................ H-5
Notes to Consolidated Financial Statements................................................................................... H-6
MANAGEMENT'S ANALYSIS OF OPERATIONS
EARNINGS HIGHLIGHTS
The following review is a discussion of the performance and financial condition
of First Union Corporation on a historical basis at December 31, 1995. On
January 1, 1996, First Union acquired First Fidelity Bancorporation, a New
Jersey and Pennsylvania-based bank holding company. The First Fidelity
acquisition has been accounted for on a pooling of interests basis. As a result,
First Union's historical financial statements, including such statements for
1995, have been restated to reflect the First Fidelity acquisition as if First
Union and First Fidelity had always been combined. First Union's restated 1995
financial statements reflecting the First Fidelity acquisition, including a
Management's Analysis of Operations related thereto, are included in First
Union's 1995 Report on Form 10-K and reference is made thereto for additional
information that is included in such statements and analyses. The following
discussion is qualified in its entirety by reference to such additional
information.
In 1995 First Union earned $1.0 billion, or $5.85 per common share after $16
million ($13 million after tax) in merger-related restructuring charges, which
were direct costs related to the First Fidelity merger that were incurred in
1995. These restructuring charges were a part of a previously announced $270
million after-tax restructuring charges related to the merger. First Fidelity
separately recorded an expense of $78 million ($60 million after tax) in 1995.
The estimated $197 million balance of after-tax restructuring charges will be
incurred primarily in the first and second quarters of 1996. These results
compared with 1994 results of $859 million in net income applicable to common
stockholders after a preferred stock redemption premium, or $4.98 per share.
In the fourth quarter of 1995, First Union earned $272 million, or $1.58 per
common share, after the restructuring charges, compared with $183 million, or
$1.04, in the fourth quarter of 1994, after the preferred stock redemption
premium.
During 1995, domestic banking operations, including trust operations, located in
Georgia, Florida, Maryland, North Carolina, South Carolina, Tennessee, Virginia
and Washington, D.C., and mortgage banking operations were 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 selections, install expanded
sales 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.
At December 31, 1995, First Fidelity had assets of $35.3 billion, net loans of
$24.9 billion, deposits of $27.6 billion and net income applicable to common
stockholders of $398 million.
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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.
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 7 percent compared with 1994, to
$3.3 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, $53 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 $14 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
4.41 percent in 1995, compared with 4.77 percent in 1994. The margin decline in
1995 was primarily related to the addition of acquired banks and thrifts with
lower margins; the addition of short-term securities; and the competitiveness of
loan pricing. We also anticipate a further contraction in the margin in future
periods as a result of a $2.0 billion credit card securitization and sale in
September 1995; 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 $10.3 billion, resulting in an
increase in tax-equivalent interest income of $1.3 billion.
The average rate earned on earning assets was 8.52 percent in 1995, compared
with 7.92 percent in 1994. The average rate paid on interest-bearing liabilities
was 4.70 percent in 1995 and 3.69 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
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by making discretionary investments designed 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 23
percent growth in noninterest income, excluding securities transactions, to $1.4
billion in 1995, compared with $1.2 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 $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 28 percent in
1995 to $288 million from $225 million in 1994. Assets under management, which
include mutual funds and trust services, increased in 1995 to $27.9 billion from
$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 family of mutual funds has increased to $10.4 billion in
assets under management at December 31, 1995, compared with $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 $112 million to noninterest income in 1995
compared with $74 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 $3.2 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 our sensitivity to the cyclical changes in
our mortgage banking operations.
Securities gains were $22 million in 1995, compared with securities losses of $8
million in 1994. Other significant sources of noninterest income included
service charges on deposit accounts, which increased 8 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 profits increased in 1995 to $60 million,
compared with $42 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 $1.8 billion at year-end 1995, compared with $1.2
billion at year-end 1994.
Noninterest Expense
Noninterest expense increased in 1995 to $3.0 billion, compared with $2.7
billion in 1994. Our overhead efficiency ratio in 1995 and 1994 was 62 percent.
The overhead efficiency ratio was adversely affected by the merger-related
charges, which were discussed earlier, of $16 million in 1995 and intangibles
amortization expense of $171 million and $121 million in 1995 and 1994,
respectively. Without the merger-related charges and intangibles amortization
expense, our overhead efficiency ratio would have been 58 percent in 1995,
compared with 60 percent in 1994. The overhead efficiency ratio was affected
somewhat by the significant
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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 $16.3 billion in SAIF deposits that are subject to the
potential one-time assessment. Based on the pending legislation, the one-time
assessment could be as high as $72 million after tax. The FDIC premium expense
decreased from $120 million in 1994 to $84 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 results 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 years 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 $1.6
billion in other intangible assets, compared with $1.2 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 $546 million in 1995, compared with $490 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 interest rate risk, as well as credit risk 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 more detail in the Loans section.
Average earning assets in 1995 were $75.8 billion, a 16 percent increase from
$65.5 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
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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 $12.7 billion, compared with $7.8 billion at year-end 1994. The market value
of securities available for sale was $182 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 $6.9 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 $2.0
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 6.47
percent, compared with 5.51 percent in 1994. The average maturity of the
portfolio was 3.25 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 $2.5 billion at December 31, 1995,
compared with $3.7 billion at year-end 1994. As part of the strategy to reduce
exposure to falling interest rates, we added $1.5 billion to the investment
securities portfolio. Additionally, $2.0 billion of investment securities was
transferred to the available for sale portfolio.
The average rate earned on investment securities in 1995 was 8.61 percent,
compared with 9.03 percent in 1994. The average maturity of the portfolio was
5.16 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 it is a significant
source of interest and fee income. The loan portfolio is subject to both credit
and interest rate risk. Our lending strategy stresses quality growth,
diversified by product, geography and industry. A common credit underwriting
structure is in place throughout the company.
The loan portfolio at December 31, 1995, was composed of 45 percent in
commercial loans and 55 percent in consumer loans. The portfolio mix did not
change significantly from year-end 1994. 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.
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Net loans at December 31, 1995, were $65.6 billion, compared with $54.0 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 $19.0 billion and $12.5 billion, respectively. Commercial and standby
letters of credit were $2.7 billion. At December 31, 1995, loan participations
sold to other lenders amounted to $1.1 billion and were recorded as a reduction
of gross loans.
The average rate earned on loans in 1995 was 8.98 percent, compared with 8.55
percent in 1994. The average prime rate in 1995 was 8.83 percent, compared with
7.15 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 12 percent of the total portfolio at
December 31, 1995, compared with 13 percent at December 31, 1994. This portfolio
included commercial real estate mortgage loans of $6.0 billion at December 31,
1995, and $5.4 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 $602 million, or .92 percent of
net loans and foreclosed properties, compared with $558 million, or 1.03
percent, at December 31, 1994.
Segregated assets, which are not included in nonperforming assets and which
relate to the acquisition of the Southeast Banks in 1991, were $106 million at
December 31, 1995, or $93 million net of a $13 million allowance for losses on
segregated assets. This compared with $187 million, or $165 million net of a $22
million allowance, at December 31, 1994. Under a loss-sharing arrangement, FDIC
reimbursements substantially minimize any losses associated with the acquired
Southeast Banks loan portfolio. Segregated assets are included in other assets.
Loans or properties of less than $5 million each made up 71 percent, or $424
million, of nonperforming assets at December 31, 1995. Of the rest:
(bullet) Five loans or properties between $5 million and $10 million each
accounted for $37 million; and
(bullet) Seven loans or properties over $10 million each accounted for $141
million.
Fifty-four percent of nonperforming assets were collateralized primarily by
real estate at year-end 1995, compared with 72 percent at year-end 1994.
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Past Due Loans
In addition to these nonperforming assets, at December 31, 1995, accruing loans
90 days past due were $147 million, compared with $140 million at December 31,
1994. Of these, $11 million were related to commercial and commercial real
estate loans, compared with $27 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 .40 percent in 1995,
compared with .33 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 $180 million in 1995, compared with $100 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 $967 million at December 31, 1995, compared
with $979 million at December 31, 1994. The ratio of the allowance for loan
losses to nonperforming assets was 161 percent and 175 percent at December 31,
1995 and 1994, respectively. The ratio of the allowance to net loans was 1.47
percent at December 31, 1995, compared with 1.81 percent at December 31, 1994.
At December 31, 1995, impaired loans, which are included in nonaccrual loans,
amounted to $340 million. Included in the allowance for loan losses is $44
million related to $259 million of impaired loans at December 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 South Atlantic region of the United States is spread
primarily across 57 metropolitan statistical areas with diverse economies.
Washington, D.C.; Charlotte, North Carolina; Atlanta, Georgia; and Miami,
Jacksonville, West Palm Beach and Tampa, Florida, are our largest markets, but
no individual metropolitan market contains more than 8 percent of the commercial
loan portfolio. Substantially all of the $8.2 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.
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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 $179 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 $59.8 billion at December 31, 1995,
compared with $53.2 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 38
percent at December 31, 1995, and 35 percent at year-end 1994. Other consumer
time and other noncore deposits usually pay higher rates than savings and
transaction accounts, but they generally are not available for immediate
withdrawal, and they are less expensive to process.
Average core deposit balances were $54.9 billion in 1995, an increase of $4.9
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.
Purchased Funds
Purchased funds at December 31, 1995, were $21.8 billion, compared with $13.3
billion at year-end 1994. Purchased funds are acquired primarily through (i) our
large branch network, consisting principally of $100,000 and over certificates
of deposit, public funds and treasury deposits, and (ii) national market
sources, consisting of relatively short-term funding sources such as federal
funds, securities sold under repurchase agreements, eurodollar time deposits,
short-term bank notes and commercial paper, and longer-term funding sources such
as term bank notes, Federal Home Loan Bank borrowings and corporate notes. 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 $16.8 billion, an increase of 33
percent from $12.6 billion in 1994. The increase was used primarily to fund loan
growth.
Long-Term Debt
Long-term debt was 105 percent of total stockholders' equity at December 31,
1995, compared with 64 percent at December 31, 1994. The increase in long-term
debt compared with year-end 1994 was primarily
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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,
$1.5 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 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 $6.2 billion, compared with
$5.4 billion at December 31, 1994, and 172 million common shares were
outstanding, compared with 176 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. 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. The reduction in
dividends paid in 1995 compared with 1994 was related to the redemption of
preferred stock in early 1995.
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 $367 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.
9
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 6.15 percent and
10.44 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 5.15 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 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.
10
The Financial Management Committee of the corporation's board of directors
reviews overall interest rate risk management activity. The corporation's Funds
Management Committee, which includes the corporation's chief executive officer,
president and senior executives from our Capital Markets Group, credit and
finance areas, oversees the interest rate risk management process and approves
policy guidelines. Balance sheet management and finance personnel monitor the
day-to-day exposure to changes in interest rates in response to loan and deposit
flows, and 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 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
11
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 $747 million at
December 31, 1993, to an unrealized loss of $712 million at December 31, 1994,
and then back to an unrealized gain of $695 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 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 $359 million at
December 31, 1995, compared with fair value depreciation of $422 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.
12
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 it 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.
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
13
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 $26
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 in 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 $40.7 billion and the corporation's SAIF deposit assessment
base was $16.3 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)
Net income applicable to common stockholders increased in 1994 to $900 million
before a redemption premium on preferred stock, or 14 percent from $793 million
in 1993. On a per common share basis, earnings before the redemption premium
were $5.22 in 1994, compared with $4.73 in 1993. After the redemption premium,
net income applicable to common stockholders was $859 million, or $4.98 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 9 percent growth in tax-equivalent
net interest income; 15 percent loan growth; and continued improvement in credit
quality. Tax-equivalent net interest income was $3.1 billion in 1994, compared
with $2.9 billion in 1993. Net loans increased by $7.2 billion since year-end
1993. Commercial loans increased throughout our banking region. Consumer loan
growth was led by direct consumer loans through the retail bank branches and
credit cards.
Credit quality improvements included a $358 million net decrease in
nonperforming assets compared with year-end 1993, to $558 million, or 1.03
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 .33
percent of average net loans, compared with .58 percent in 1993.
Nonperforming loans reduced interest income because the contribution from these
loans is eliminated or sharply reduced. In 1994, $48 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
14
to these assets and included in income in 1994 was $6 million. However, the $358
million net decrease in nonperforming assets since year-end 1993 reduced the
negative impact on interest income in 1994.
The net interest margin was 4.77 percent in 1994, compared with 4.78 percent in
1993. The average rate earned on earning assets was 7.92 percent in 1994,
compared with 7.77 percent in 1993. The average rate paid on interest-bearing
liabilities was 3.69 percent in 1994 and 3.44 percent in 1993.
Noninterest income was $1.16 billion in 1994, compared with $1.20 billion in
1993, when the mortgage servicing environment was more robust. 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 $1.2 billion, compared with
$652 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 $2.68 billion in 1994, compared with $2.52 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 $490 million in 1994, compared with $403 million in 1993. The
increase resulted primarily from an increase in income before taxes.
Average earning assets in 1994 were $65.5 billion, a 9 percent increase from
$59.9 billion in 1993.
At December 31, 1994, we had securities available for sale with a market value
of $7.8 billion, compared with a market value of $11.9 billion at year-end 1993.
The market value of securities available for sale was $302 million below
amortized cost at year-end 1994. As a result, a $214 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
5.51 percent, compared with 5.03 percent in 1993. The average maturity of the
portfolio was 3.82 years at December 31, 1994.
Investment securities amounted to $3.7 billion at December 31, 1994, compared
with $2.7 billion at year-end 1993. The average rate earned on investment
securities in 1994 was 9.03 percent, compared with 7.07 percent in 1993. The
average maturity of the portfolio was 6.34 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 maturity, and sales of securities
downgraded in creditworthiness.
Net loans at December 31, 1994, were $54.0 billion, compared with $46.9 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 98 percent
in 1994. The increase also included $1.2 billion from 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 $14.5 billion and $9.8
billion, respectively. Commercial and standby letters of credit were $2.1
billion. At December 31, 1994, loan
15
participations sold to other lenders amounted to $1.3 billion, and they were
recorded as a reduction of gross loans.
The average rate earned on loans in 1994 was 8.55 percent, compared with 8.50
percent in 1993. The average prime rate in 1994 was 7.15 percent, compared with
6.00 percent in 1993. Loan yields lagged the increases in the prime rate.
Commercial real estate loans amounted to 13 percent of the total portfolio at
December 31, 1994, and 16 percent at December 31, 1993. This portfolio included
commercial real estate mortgage loans of $5.4 billion at December 31, 1994, and
$5.8 billion at December 31, 1993. This portfolio declined in 1994 primarily as
customers took advantage of the low-rate environment to move out of floating
rate debt into permanent, long-term financing.
At December 31, 1994, nonperforming assets were $558 million, or 1.03 percent of
net loans and foreclosed properties, compared with $916 million, or 1.95
percent, at December 31, 1993. Loans or properties of less than $5 million each
made up 83 percent, or $465 million, of nonperforming assets at December 31,
1994. Of the rest, seven loans or properties between $5 million and $10 million
each accounted for $47 million; and three loans or properties over $10 million
each accounted for $46 million. Seventy-two 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 $140 million, compared with $71 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 .33 percent in 1994,
compared with .58 percent in 1993.
At December 31, 1994, acquired Southeast Banks segregated assets amounted to
$187 million, or $165 million net of a $22 million allowance, compared with $380
million, or $347 million net of a $33 million allowance, at December 31, 1993.
Segregated assets are included in other assets.
Core deposits were $53.2 billion at December 31, 1994, compared with $50.9
billion at December 31, 1993. This increase in core deposits primarily reflected
deposits acquired in the 1994 purchase accounting acquisitions. In both 1993 and
1994, average noninterest-bearing deposits were 20 percent of average core
deposits. The portion of core deposits in higher-rate, other consumer time
deposits was 35 percent at December 31, 1994, and 33 percent at year-end 1993.
Average core deposit balances in 1994 increased $2.0 billion from 1993 to $50.0
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 $13.3 billion compared with $10.1
billion at year-end 1993. Average purchased funds in 1994 were $12.6 billion, an
increase of 19 percent from $10.6 billion in 1993.
Net cash provided from operations amounted to $627 million in 1994, compared
with $683 million in 1993. This cash was available in 1994 to increase earning
assets or to reduce borrowings by $304 million and to pay dividends of $323
million. In 1993 we reduced overnight investments at the parent company level to
pay $154 million to acquire Georgia Federal Bank, FSB, and $452 million to
acquire First American.
Long-term debt was 64 percent of total stockholders' equity at December 31,
1994, compared with 59 percent at December 31, 1993. In 1994, we issued $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.
16
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 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 $5.4 billion, a 10 percent
increase from $4.9 billion at December 31, 1993. Total stockholders' equity was
$5.4 billion, compared with $5.2 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 $214 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.
Our subsidiaries had $397 million available for dividends at December 31, 1994.
Our subsidiaries paid $682 million in dividends to the corporation in 1994.
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 $422 million at
December 31, 1994, compared with the fair value appreciation of $369 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 in 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 $ 6,373,830 5,094,661 4,556,332 4,479,385 4,647,440 4,829,520
Interest income* $ 6,456,118 5,187,404 4,657,100 4,583,916 4,767,943 4,966,954
Interest expense 3,111,054 2,060,946 1,790,439 2,020,968 2,742,996 3,094,334
Net interest income* 3,345,064 3,126,458 2,866,661 2,562,948 2,024,947 1,872,620
Provision for loan losses 180,000 100,000 221,753 414,708 648,284 425,409
Net interest income after
provision for loan losses* 3,165,064 3,026,458 2,644,908 2,148,240 1,376,663 1,447,211
Securities available for sale
transactions 17,191 (11,507) 25,767 34,402 -- --
Investment security transactions 4,818 4,006 7,435 (2,881) 155,048 7,884
Noninterest income 1,429,251 1,166,470 1,165,086 1,032,651 914,511 690,672
Noninterest expense** 2,975,372 2,677,228 2,521,647 2,526,678 1,905,918 1,680,973
Income before income taxes* 1,640,952 1,508,199 1,321,549 685,734 540,304 464,794
Income taxes 545,588 490,076 403,260 196,152 71,070 64,993
Tax-equivalent adjustment 82,288 92,743 100,768 104,531 120,503 137,434
Net income 1,013,076 925,380 817,521 385,051 348,731 262,367
Dividends on preferred stock 7,029 25,353 24,900 31,979 34,570 33,868
Net income applicable to common
stockholders before redemption 1,006,047 900,027 792,621 353,072 314,161 228,499
premium
Redemption premium on preferred stock -- 41,355 -- -- -- --
Net income applicable to common
stockholders after redemption premium $ 1,006,047 858,672 792,621 353,072 314,161 228,499
PER COMMON SHARE DATA
Net income before redemption premium $ 5.85 5.22 4.73 2.23 2.24 1.68
Net income after redemption premium $ 5.85 4.98 4.73 2.23 2.24 1.68
Average common shares 172,023,779 172,543,467 167,691,739 158,683,206 140,003,166 135,621,838
Average common stockholders' equity*** $ 5,726,724 5,282,412 4,550,048 3,889,256 3,131,716 2,937,441
Common stock price
High 58 7/8 47 5/8 51 1/2 44 7/8 30 7/8 21 3/4
Low 49 5/8 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**** 9.51 X 7.93 8.72 19.61 13.39 9.15
To book value 155 % 135 143 173 120 70
Cash dividends $ 1.96 1.72 1.50 1.28 1.12 1.08
Book value 35.87 30.66 28.90 25.25 23.23 21.81
BALANCE SHEET DATA
Assets 96,740,496 77,313,505 70,786,969 63,828,031 59,273,177 54,588,410
Long-term debt $ 6,444,327 3,428,514 3,061,944 3,151,260 2,630,930 1,850,860
* Tax-equivalent.
** Includes merger-related restructuring charges of $16,447,000
($13,072,000 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 $ 59,989 41,583 43,007 22,908 20,053 13,599
Service charges on deposit accounts 471,315 435,212 420,285 386,118 293,075 248,891
Mortgage banking income 112,011 73,934 138,608 155,800 135,557 97,809
Capital management income 288,060 224,525 201,875 177,375 133,126 104,864
Securities available for sale transactions 17,191 (11,507) 25,767 34,402 - -
Investment security transactions 4,818 4,006 7,435 (2,881) 155,048 7,884
Fees for other banking services* 96,619 69,252 52,836 33,845 - -
Merchant discounts 70,745 62,840 55,732 54,703 48,126 47,987
Insurance commissions 48,241 45,071 43,876 44,047 46,081 46,748
Sundry income 282,271 214,053 208,867 157,855 238,493 130,774
Total $1,451,260 1,158,969 1,198,288 1,064,172 1,069,559 698,556
* 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 $1,210,686 1,039,699 938,409 886,702 735,564 695,152
Other benefits 252,867 247,667 217,490 178,600 137,617 126,995
Total 1,463,553 1,287,366 1,155,899 1,065,302 873,181 822,147
Occupancy 240,098 238,128 229,118 238,728 213,424 178,338
Equipment rentals, depreciation
and maintenance 274,412 228,372 189,589 167,063 132,858 123,026
Advertising 48,129 38,584 22,541 23,082 19,488 19,055
Telephone 65,986 58,331 53,023 51,000 43,470 46,557
Travel 68,948 53,521 42,330 33,937 25,084 25,017
Postage 55,359 48,874 39,538 40,747 35,616 29,251
Printing and office supplies 63,571 54,865 53,304 35,310 27,936 32,497
FDIC insurance 83,680 119,708 118,429 107,392 77,808 44,185
Other insurance 20,374 14,883 18,233 20,641 18,530 19,474
Professional fees 77,273 66,878 52,251 61,810 40,109 28,430
Data processing 26,778 24,499 41,440 31,906 20,419 19,149
Owned real estate expense 11,931 22,294 40,633 176,109 90,181 35,735
Mortgage servicing amortization 24,749 23,525 106,942 37,422 27,149 23,448
Other amortization 171,499 121,083 100,145 83,455 66,139 75,184
Merger-related restructuring charges 16,447 - - - - -
Sundry 262,585 276,317 258,232 352,774 194,526 159,480
Total $2,975,372 2,677,228 2,521,647 2,526,678 1,905,918 1,680,973
Overhead efficiency ratio* 62.03 % 62.47 62.03 69.66 61.59 65.38
*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*
Year Ended December 31, 1995
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 26,352 265,428 288,060 112,011
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 - - - - 27,900,000 -
Loans serviced - - - - - 51,505,000
Origination volume $ 6,397,661 1,224,558 6,162,978 - - 3,167,057
Locations 1,290 143 1,296 1,304 1,485 1,311
*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 CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
Years Ended December 31,
1995 1994 1993 1992 1991 1990
INTERNAL CAPITAL GROWTH*
Assets to stockholders' equity 14.78X 13.29 14.07 14.51 15.89 16.07
X
Return on assets 1.21% 1.27 1.20 .63 .63 .50
Return on total stockholders' equity (a) 17.69% 16.66 16.89 9.14 10.06 8.09
X
Earnings retained 66.11% 65.07 67.13 46.45 48.48 29.68
Internal capital growth (a) 11.69% 10.84 11.34 4.24 4.88 2.40
DIVIDEND PAYOUT RATIOS ON
Common shares 33.50% 34.54 31.71 49.34 46.18 65.92
Preferred and common shares 33.89% 34.93 32.87 53.55 51.52 70.32
Return on common stockholders' equity
before redemption premium** (a) 17.57% 17.04 17.42 9.08 10.03 7.78
Return on common stockholders' equity
after redemption premium** (a) 17.57% 16.26 17.42 9.08 10.03 7.78
(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 $1,699,456 1,673,957 1,552,525 1,447,892 1,389,470 1,307,377 1,235,206 1,162,608
Interest expense 871,667 832,840 738,338 668,209 610,172 530,858 483,913 436,003
Net interest income 827,789 841,117 814,187 779,683 779,298 776,519 751,293 726,605
Provision for loan losses 54,500 49,000 44,000 32,500 25,000 25,000 25,000 25,000
Net interest income after 773,289 792,117 770,187 747,183 754,298 751,519 726,293 701,605
provision for loan losses
Securities available for sale 7,600 4,713 1,243 3,635 (9,926) (2,946) (2,935) 4,300
transactions
Investment security transactions 777 2,591 1,233 217 411 2,286 694 615
Noninterest income 438,367 362,842 326,503 301,539 311,419 303,259 276,011 275,781
Noninterest expense* 804,982 770,949 714,739 684,702 703,948 682,219 651,220 639,841
Income before income taxes* 415,051 391,314 384,427 367,872 352,254 371,899 348,843 342,460
Income taxes 143,036 136,298 135,291 130,963 120,705 130,147 119,223 120,001
Net income 272,015 255,016 249,136 236,909 231,549 241,752 229,620 222,459
Dividends on preferred stock - - - 7,029 6,831 6,595 6,201 5,726
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
Redemption premium on preferred stock - - - - 41,355 - - -
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
Per Common Share Data
Net income before redemption premium $ 1.58 1.50 1.45 1.32 1.28 1.35 1.32 1.27
Net income after redemption premium 1.58 1.50 1.45 1.32 1.04 1.35 1.32 1.27
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*** 1.19% 1.16 1.25 1.24 1.22 1.31 1.28 1.28
Return on common stockholders' equity
before redemption premium**** 18.08 17.71 17.71 16.71 15.92 17.29 17.53 17.54
Return on common stockholders' equity
after redemption premium**** 18.08 17.71 17.71 16.71 12.99 17.29 17.53 17.54
Stockholders' equity to assets 6.58% 6.55 6.96 7.01 7.49 7.62 7.39 7.60
* Includes merger-related restructuring charges of $16,447,000
($13,072,000 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 $ 2,529,742 3,569,451 6,276,720 4,549,392 2,206,796 1,832,758
Wholesale 144,138 933,214 2,431,455 2,641,656 2,657,534 2,092,646
Total 2,673,880 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 $ 3,167,057 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 1,285 1,340 1,303 898 1,004 768
Other 190 222 222 235 209 285
Total offices 1,475 1,562 1,525 1,133 1,213 1,053
OTHER DATA
ATMs 1,415 1,242 1,189 847 943 707
Employees 32,971 31,858 32,861 23,459 24,203 20,521
Common stockholders 61,058 54,236 58,670 37,955 33,456 34,951
* 1990-1994 not restated for pooling of interests acquisitions.
T-5
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
1990 acquisition 7,946,973 4,174,478 5,727,330
Growth in operations 1,134,590 275,465 935,168
December 31, 1990, as reported 54,588,410 36,050,719 38,194,268
1991 acquisitions 12,322,456 7,025,621 9,921,421
Reduction in operations (7,637,689) (1,692,760) (939,466)
December 31, 1991, as reported 59,273,177 41,383,580 47,176,223
1992 acquisitions 3,739,039 1,773,797 3,645,316
Growth (reduction) in operations 815,815 (1,233,610) (1,670,574)
December 31, 1992, as reported 63,828,031 41,923,767 49,150,965
1993 acquisitions 7,785,479 4,380,362 6,302,873
Growth (reduction) in operations (826,541) 572,048 (1,711,427)
December 31, 1993, as reported 70,786,969 46,876,177 53,742,411
1994 acquisitions 4,595,762 1,238,703 4,026,375
Growth in operations 1,930,774 5,914,872 1,189,487
December 31, 1994, as reported 77,313,505 54,029,752 58,958,273
1995 acquisitions 10,254,013 7,537,477 7,252,524
Growth (reduction) in operations 9,172,978 4,061,215 (1,210,496)
December 31, 1995, as reported $ 96,740,496 65,628,444 65,000,301
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; and the purchase
acquisition of American Savings of Florida, FSB
in 1995.
T-6
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 $ 1,374,773 867,427 - - 2,242,200 (2,847) 6,370 2,245,723 1.29
U.S. Government agencies 129,910 4,864,394 1,487,637 639 6,482,580 (88,831) 2,397 6,396,146 4.19
CMOs 143,852 2,068,606 79,596 - 2,292,054 (24,974) 13,602 2,280,682 2.70
Other 157,390 882,308 86,549 573,882 1,700,129 (93,230) 5,102 1,612,001 2.91
Total $ 1,805,925 8,682,735 1,653,782 574,521 12,716,963 (209,882) 27,471 12,534,552 3.25
Market Value
Debt securities $ 1,805,925 8,682,735 1,653,782 70,643 12,213,085 (139,913) 27,202 12,100,374
Sundry securities - - - 503,878 503,878 (69,969) 269 434,178
Total $ 1,805,925 8,682,735 1,653,782 574,521 12,716,963 (209,882) 27,471 12,534,552
Amortized Cost
Debt securities $ 1,801,221 8,588,759 1,639,547 70,847 12,100,374
Sundry securities - - - 434,178 434,178
Total $ 1,801,221 8,588,759 1,639,547 505,025 12,534,552
Weighted Average Yield
U.S. Treasury 6.70 % 5.31 - - 6.16
U.S. Government agencies 7.04 6.69 6.35 6.89 6.62
CMOs 7.19 6.97 7.47 - 7.00
Other 7.93 6.16 11.20 5.10 6.28
Consolidated 6.87 % 6.57 6.67 5.10 6.56
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 $ 1,156,159 1,035,790 - - 2,191,949 - 81,975 2,273,924 1.89
U.S. Government agencies 153,675 469,468 2,031,111 546 2,654,800 (404) 171,580 2,825,976 6.31
CMOs 90,066 1,091,930 58,524 - 1,240,520 (49) 44,627 1,285,098 2.96
Other 84,757 1,282,076 20,299 278,078 1,665,210 (51,633) 56,017 1,669,594 2.75
Total $ 1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592 3.82
Market Value
Debt securities $ 1,484,657 3,879,264 2,109,934 24,069 7,497,924 (3,243) 346,011 7,840,692
Sundry securities - - - 254,555 254,555 (48,843) 8,188 213,900
Total $ 1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592
Amortized Cost
Debt securities $ 1,486,608 4,061,240 2,264,716 28,128 7,840,692
Sundry securities - - - 213,900 213,900
Total $ 1,486,608 4,061,240 2,264,716 242,028 8,054,592
Weighted Average Yield
U.S. Treasury 7.29 % 5.60 - - 6.46
U.S. Government agencies 6.90 5.40 5.89 6.02 5.86
CMOs 5.10 5.21 5.36 - 5.21
Other 7.27 6.99 5.90 4.40 6.62
Consolidated 7.12 % 5.92 5.88 4.40 6.08
T-7
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 $ 3,177,119 1,249,298 - - 4,426,417 3,609 (7,315) 4,422,711 1.34
U.S. Government agencies 114,531 1,646,429 1,494,136 555 3,255,651 43,814 (270) 3,299,195 4.29
CMOs 1,006,973 1,226,569 - - 2,233,542 13,389 (8,825) 2,238,106 1.33
Other 438,585 1,121,571 35,474 233,702 1,829,332 95,296 (255) 1,924,373 2.40
Total $ 4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) 11,884,385 2.32
Carrying Value
Debt securities $ 4,737,208 5,243,867 1,529,610 860 11,511,545 119,624 (16,445) 11,614,724
Sundry securities - - - 233,397 233,397 36,484 (220) 269,661
Total $ 4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) 11,884,385
Market Value
Debt securities $ 4,742,741 5,328,847 1,542,264 872 11,614,724
Sundry securities - - - 269,661 269,661
Total $ 4,742,741 5,328,847 1,542,264 270,533 11,884,385
Weighted Average Yield
U.S. Treasury 3.84 % 5.23 - - 4.23
U.S. Government agencies 3.36 6.45 6.00 6.68 6.14
CMOs 5.03 5.13 - - 5.09
Other 5.17 7.71 5.74 7.68 7.06
Consolidated 4.21 % 6.12 6.00 7.68 5.36
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 $36,655,000 and $33,755,000, respectively and on sundry
securities $14,365,000 and $74,000, respectively. Gross gains and
losses realized on the sale of debt securities in 1994 were $27,017,000
and $43,813,000, respectively, and on sundry securities $5,998,000 and
$709,000, respectively. Gross gains and losses realized on the sale of
debt securities in 1993 were $28,818,000 and $9,553,000, respectively,
and on sundry securities $6,570,000 and $68,000, respectively.
T-8
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 $ 15,624 805,739 147,234 - 968,597 23,005 (935) 990,667 3.52
CMOs 47,339 546,111 - - 593,450 12,443 (1) 605,892 3.00
State, county and municipal 179,761 151,460 122,491 364,296 818,008 115,107 (2,950) 930,165 8.12
Other 1,008 - 6,156 67,098 74,262 6,771 (2) 81,031 12.98
Total $ 243,732 1,503,310 275,881 431,394 2,454,317 157,326 (3,888) 2,607,755 5.16
Carrying Value
Debt securities $ 243,732 1,503,310 275,881 415,553 2,438,476 157,326 (3,888) 2,591,914
Sundry securities - - - 15,841 15,841 - - 15,841
Total $ 243,732 1,503,310 275,881 431,394 2,454,317 157,326 (3,888) 2,607,755
Market Value
Debt securities $ 247,076 1,545,715 300,156 498,967 2,591,914
Sundry securities - - - 15,841 15,841
Total $ 247,076 1,545,715 300,156 514,808 2,607,755
Weighted Average Yield
U.S. Government agencies 6.17 % 7.71 7.94 - 7.72
CMOs 7.28 7.20 - - 7.21
State, county and municipal 9.64 11.27 11.58 12.13 11.34
Other 5.70 - 7.42 9.21 9.01
Consolidated 8.94 % 7.88 9.55 11.67 8.84
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. Government agencies $ - 100,853 1,201,803 14,474 1,317,130 5,528 (39,881) 1,282,777 7.28
CMOs - 910,733 92,516 - 1,003,249 - (26,786) 976,463 3.70
State, county and municipal 369,189 267,835 151,533 437,523 1,226,080 78,676 (4,698) 1,300,058 7.06
Other - 2,036 6,178 175,196 183,410 3,022 (3,196) 183,236 13.33
Total $ 369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561) 3,742,534 6.34
Carrying Value
Debt securities $ 369,189 1,281,457 1,452,030 517,532 3,620,208 87,226 (74,561) 3,632,873
Sundry securities - - - 109,661 109,661 - - 109,661
Total $ 369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561) 3,742,534
Market Value
Debt securities $ 376,983 1,269,819 1,423,936 562,135 3,632,873
Sundry securities - - - 109,661 109,661
Total $ 376,983 1,269,819 1,423,936 671,796 3,742,534
Weighted Average Yield
U.S. Government agencies - % 7.83 7.32 6.80 7.35
CMOs - 6.49 6.80 - 6.52
State, county and municipal 11.74 10.65 11.52 12.38 11.70
Other - 6.76 7.42 7.81 7.79
Consolidated 11.74% 7.47 7.73 10.97 8.58
T-9
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 $ 550 - - - 550 - (1) 549 .04
U.S. Government agencies 311,750 814,667 30,232 - 1,156,649 44,054 (1,222) 1,199,481 1.87
State, county and municipal 80,863 508,477 242,072 511,523 1,342,935 183,230 (756) 1,525,409 8.03
Other - - 6,200 186,142 192,342 13,358 - 205,700 8.00
Total $ 393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) 2,931,139 5.19
Carrying Value
Debt securities $ 393,163 1,323,144 278,504 511,530 2,506,341 227,730 (1,979) 2,732,092
Sundry securities - - - 186,135 186,135 12,912 - 199,047
Total $ 393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) 2,931,139
Market Value
Debt securities $ 401,304 1,399,666 311,652 619,470 2,732,092
Sundry securities - - - 199,047 199,047
Total $ 401,304 1,399,666 311,652 818,517 2,931,139
Weighted Average Yield
U.S. Treasury 2.88% - - - 2.88
U.S. Government agencies 4.95 7.14 6.60 - 6.53
State, county and municipal 10.61 11.49 11.48 12.24 11.72
Other - - 7.77 8.09 8.08
Consolidated 6.11% 8.81 10.87 11.14 9.23
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-10
Table 11
LOANS
December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
Commercial
Commercial, financial and agricultural
Taxable $ 17,737,919 15,198,651 12,509,283 10,532,842 10,854,321 9,946,557
Nontaxable 721,386 709,092 724,442 738,834 936,416 1,054,246
Total commercial, financial
and agricultural 18,459,305 15,907,743 13,233,725 11,271,676 11,790,737 11,000,803
Real estate - construction and other 2,260,193 1,734,095 1,664,694 1,886,319 3,014,877 3,380,426
Real estate - mortgage 5,953,377 5,437,496 5,834,894 5,782,780 5,421,698 4,067,445
Lease financing 2,829,628 1,613,763 962,599 1,033,809 1,109,525 1,184,196
Foreign 519,970 415,857 304,267 274,800 233,601 190,621
Total commercial 30,022,473 25,108,954 22,000,179 20,249,384 21,570,438 19,823,491
Retail
Real estate - mortgage 20,143,480 15,014,775 13,318,058 10,775,107 9,406,329 7,173,064
Installment loans - Bankcard* 3,383,903 3,959,657 1,995,568 - - -
Installment loans - other 13,252,126 10,618,696 9,896,431 11,260,708 10,850,557 9,485,633
Total retail 36,779,509 29,593,128 25,210,057 22,035,815 20,256,886 16,658,697
Total loans 66,801,982 54,702,082 47,210,236 42,285,199 41,827,324 36,482,188
Unearned Income
Loans 148,544 145,691 129,830 186,173 247,016 245,363
Lease financing 1,024,994 526,639 204,229 175,259 196,728 186,106
Total unearned income 1,173,538 672,330 334,059 361,432 443,744 431,469
Loans, net $ 65,628,444 54,029,752 46,876,177 41,923,767 41,383,580 36,050,719
*Information not available prior to 1993.
T-11
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 $ 1,303,638 64,820 231,910 365,835 1,966,203
1-5 years 1,736,458 111,845 1,098,345 26,495 2,973,143
After 5 years 902,013 129,039 826,568 5,408 1,863,028
Total 3,942,109 305,704 2,156,823 397,738 6,802,374
Adjustable Rate
1 year or less 5,358,626 741,844 735,740 95,286 6,931,496
1-5 years 6,221,800 914,710 2,222,118 24,380 9,383,008
After 5 years 2,936,770 297,935 838,696 2,566 4,075,967
Total 14,517,196 1,954,489 3,796,554 122,232 20,390,471
Total $ 18,459,305 2,260,193 5,953,377 519,970 27,192,845
T-12
Table 13
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of year $ 978,795 1,020,191 940,804 851,830 702,685 355,442
Provision for loan losses 180,000 100,000 221,753 414,708 648,284 425,409
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 - - - - - (7,769)
Allowance of loan acquired or sold, net 48,226 21,520 109,321 50,141 83,770 173,660
Transfer to allowance for segregated
asset losses - - - (20,000) (13,000) -
Loan losses, net (240,510) (162,916) (251,687) (355,875) (553,523) (244,057)
Balance, end of year $ 966,511 978,795 1,020,191 940,804 851,830 702,685
(as % of loans, net) 1.47 % 1.81 2.18 2.24 2.06 1.95
(as % of nonaccrual and restructured loans) 193 245 147 96 72 77
(as % of nonperforming assets) 161 % 175 111 70 50 56
LOAN LOSSES
Commercial, financial and agricultural $ 53,222 67,804 121,373 142,600 189,648 116,060
Real estate - construction and other 1,178 8,897 25,829 52,524 164,044 49,183
Real estate - mortgage 37,751 54,108 66,105 80,934 118,555 4,196
Installment loans - Bankcard* 163,217 65,760 55,610 - - -
Installment loans - other 70,972 58,358 60,643 130,493 124,536 108,117
Total 326,340 254,927 329,560 406,551 596,783 277,556
LOAN RECOVERIES
Commercial, financial and agricultural 43,291 48,314 29,681 21,252 15,924 12,991
Real estate - construction and other 5,413 2,834 5,718 1,254 1,882 1,633
Real estate - mortgage 7,869 12,554 15,866 4,926 4,097 847
Installment loans - Bankcard* 11,537 9,605 7,160 - - -
Installment loans - other 17,720 18,704 19,448 23,244 21,357 18,028
Total 85,830 92,011 77,873 50,676 43,260 33,499
Loan losses, net $ 240,510 162,916 251,687 355,875 553,523 244,057
(as % of average loans, net) .40 % .33 .58 .86 1.48 .68
NONPERFORMING ASSETS
Nonaccrual loans
Commercial loans $ 276,987 155,752 242,241 407,583 494,649 300,334
Real estate and other loans 223,587 241,886 425,101 498,973 574,324 574,732
Total nonaccrual loans 500,574 397,638 667,342 906,556 1,068,973 875,066
Restructured loans 599 1,872 26,544 68,935 116,893 38,867
Foreclosed properties 100,468 158,464 222,503 375,559 530,524 330,984
Total nonperforming assets $ 601,641 557,974 916,389 1,351,050 1,716,390 1,244,917
(as % of loans, net and foreclosed properties) .92 % 1.03 1.95 3.19 4.10 3.42
Accruing loans past due 90 days $ 146,764 140,081 71,307 85,513 144,075 194,605
*Information not available prior to 1993.
T-13
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 $246 28% $224 29% $ 188 28% $316 27% $337 28%
Real estate - construction and other 45 3 58 3 73 4 140 4 148 7
Real estate - mortgage 146 39 175 37 200 41 199 39 164 35
Installment loans - Bankcard 169 5 133 7 76 4 - - - -
Installment loans - other 124 20 107 20 149 21 142 27 124 26
Lease financing 4 4 2 3 2 2 2 2 3 3
Foreign 3 1 4 1 - - 1 1 1 1
Unallocated 230 - 276 - 332 - 141 - 75 -
Total $967 100% $979 100% $1,020 100% $941 100% $852 100%
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 consolidated
financial statements.
Table 15
INTANGIBLE ASSETS
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
Mortgage Servicing Rights $ 102,365 84,898 87,350 183,196 196,796 173,915
Credit Card Premium $ 43,894 58,494 75,588 71,140 73,792 24,785
Other Intangible Assets
Goodwill $ 1,176,667 754,417 712,485 643,978 676,046 685,602
Deposit base premium 450,211 437,025 255,359 175,707 179,152 176,043
Other 5,325 7,465 10,468 18,285 15,324 9,508
Total $ 1,632,203 1,198,907 978,312 837,970 870,522 871,153
T-14
Table 16
ALLOWANCE FOR FORECLOSED PROPERTIES
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991
Foreclosed properties $ 124,058 193,290 278,694 478,887 561,476
Allowance for foreclosed properties, beginning
of year 34,826 56,191 103,328 30,952 799
Provision for foreclosed properties (3,756) 4,503 23,730 111,260 36,467
Transfer from (to) allowance for segregated
assets 78 1,722 (1,998) - -
Dispositions, net (7,558) (27,590) (68,869) (38,884) (6,314)
Allowance for foreclosed properties, end of year 23,590 34,826 56,191 103,328 30,952
Foreclosed properties, net $ 100,468 158,464 222,503 375,559 530,524
Table 17
DEPOSITS
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
Core Deposits
Noninterest-bearing $ 11,788,401 10,523,538 10,861,207 9,213,646 7,836,183 6,267,894
Savings and NOW accounts 15,739,529 13,991,987 12,010,636 9,825,918 7,954,985 5,633,720
Money market accounts 9,360,061 10,118,963 11,131,334 9,930,789 8,832,272 6,950,226
Other consumer time 22,899,251 18,544,324 16,897,062 18,014,195 19,181,341 14,856,718
Total core deposits 59,787,242 53,178,812 50,900,239 46,984,548 43,804,781 33,708,558
Foreign 2,962,870 4,069,587 1,240,448 249,429 125,159 642,592
Other time 2,250,189 1,709,874 1,601,724 1,916,988 3,246,283 3,843,118
Total deposits $ 65,000,301 58,958,273 53,742,411 49,150,965 47,176,223 38,194,268
Table 18
TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
December 31, 1995
Time Other
(In thousands) Certificates Time
Maturity of
3 months or less $ 2,729,041 76,972
Over 3 months through 6 months 1,220,833
Over 6 months through 12 months 1,014,013
Over 12 months 1,142,507
Total $ 6,106,394 76,972
T-15
Table 19
CAPITAL RATIOS
Years Ended December 31,
(In thousands) 1995 1994 1993 1992 1991 1990
CONSOLIDATED CAPITAL RATIOS*
Qualifying capital
Tier 1 capital $ 4,439,185 4,466,670 4,342,664 3,189,276 2,441,839 1,901,657
Total capital 7,533,356 7,450,602 6,960,671 4,948,156 3,799,073 3,153,733
Adjusted risk-based assets 72,135,721 57,593,799 47,529,159 34,573,794 32,314,244 29,121,464
Adjusted leverage ratio assets $ 86,169,989 73,011,243 70,785,664 48,671,501 45,955,064 38,833,477
Ratios
Tier 1 capital 6.15 % 7.76 9.14 9.22 7.56 6.53
Total capital 10.44 12.94 14.64 14.31 11.76 10.83
Leverage 5.15 6.12 6.13 6.55 5.31 4.90
Stockholders' equity to assets
Year-end 6.36 6.98 7.36 6.99 6.51 6.05
Average 6.76 % 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 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 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 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 1990-1992 capital ratios presented
herein have not been restated to reflect pooling of interests acquisitions.
T-16
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
Asset Rate Conversions
Interest rate swaps $ 8,327,656 6.67 % 5.80 % 1.30
Carrying amount $ 20,516
Unrealized gross gain 104,589
Unrealized gross loss (6,645)
Total 118,460
Forward bullet
interest rate swaps 6,120,000 5.97 - 1.96
Carrying amount -
Unrealized gross gain 38,428
Unrealized gross loss -
Total 38,428
Total asset rate conversions $ 14,447,656 6.38 % 5.80 % 1.58 $ 156,888
Liability Rate Conversions
Interest rate swaps $ 3,367,000 7.07 % 5.72 % 7.82
Carrying amount $ 5,416
Unrealized gross gain 186,869
Unrealized gross loss (4,071)
Total 188,214
Other financial instruments 180,000 - - 6.33
Carrying amount (2,224)
Unrealized gross gain -
Unrealized gross loss (130)
Total (2,354)
Total liability rate conversions $ 3,547,000 7.07 % 5.72 % 7.74 $ 185,860
Asset Hedges
Short eurodollar futures $ 1,016,000 - % 5.81 % .29
Carrying amount $ -
Unrealized gross gain -
Unrealized gross loss (1,391)
Total (1,391)
Total asset hedges $ 1,016,000 - % 5.81 % .29 $ (1,391)
December 31,1995
(In thousands) Comments
Asset Rate Conversions
Interest rate swaps Converts floating rate loans to fixed rate. Adds to liability
Carrying amount sensitivity. Similar characteristics to a fixed income security
Unrealized gross gain funded with variable rate liabilities. Includes $4.1 billion of
Unrealized gross loss indexed amortizing swaps, with $628 million maturing
Total within 3 years and $3.5 billion within 4.75 years.
Forward bullet
interest rate swaps Converts floating rates on loans to fixed rates at higher
Carrying amount than current yields in future periods. $63 million effective
Unrealized gross gain March 1996; $6.0 billion effective December 1996; $57
Unrealized gross loss million effective March 1997.
Total
Total asset rate conversions
Liability Rate Conversions
Interest rate swaps Converts $3.3 billion of fixed rate long-term debt to floating rate
Carrying amount by matching the maturity of the swap to the debt issue. Rate
Unrealized gross gain sensitivity remains unchanged due to the direct linkage of the
Unrealized gross loss swap to the debt issue. Also converts $42 million of fixed rate
Total CD's to variable rate.
Other financial instruments Miscellaneous purchased option-based products for liability
Carrying amount management purposes include $5 million of options on
Unrealized gross gain swaps, $25 million of eurodollar caps and $150 million of
Unrealized gross loss eurodollar floors.
Total
Total liability rate
conversions
Asset Hedges
Short eurodollar futures Hedges market values of U.S. Treasury notes in the available-
Carrying amount for-sale portfolio. $788 million effective March 1996; $164 million
Unrealized gross gain effective June 1996; $64 million effective September 1996.
Unrealized gross loss
Total
Total asset hedges
(Continued)
T-17
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
Rate Sensitivity Hedges
Put options on eurodollar futures $ 4,252,000 - % 7.87 % .33
Carrying amount $ 624
Unrealized gross gain -
Unrealized gross loss (624)
Total -
Interest rate caps 67,200 - - .43
Carrying amount 81
Unrealized gross gain 6
Unrealized gross loss (50)
Total 37
Short eurodollar futures 2,000,000 - 5.60 .22
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (1,378)
Total (1,378)
Long eurodollar futures 23,355,000 5.56 - 1.40
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
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
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 $ -
December 31, 1995
(In thousands) Comments
Rate Sensitivity Hedges
Put options on eurodollar futures Paid a premium for the right to lock in the 3 month LIBOR reset
Carrying amount rates on pay variable rate swaps and short-term liabilities.
Unrealized gross gain $2.4 billion effective March 1996; $1.9 billion effective June 1996.
Unrealized gross loss
Total
Interest rate caps Purchased LIBOR caps; $50 million converts floating rate liabilities
Carrying amount to fixed if short-term rates rise above 8 percent; $17 million
Unrealized gross gain uncaps a LIBOR-based, asset-backed security at 11.72 percent.
Unrealized gross loss
Total
Short eurodollar futures Locks in the 3 month LIBOR reset rates on pay variable rate
Carrying amount swaps. Effective March 1996.
Unrealized gross gain
Unrealized gross loss
Total
Long eurodollar futures Converts floating rate LIBOR - based loans to fixed rate. Adds to
Carrying amount liability sensitivity. Similar characteristics to fixed income security
Unrealized gross gain funded with variable rate liabilities. $4.9 billion effective December
Unrealized gross loss 1996; $5.0 billion effective March 1997; $4.9 billion effective
Total June 1997; $8.6 billion effective September 1997.
Total rate sensitivity hedges
Offsetting Positions
Interest rate floors Consists of $800 million of interest rate floors, of which $400
Carrying amount million were purchased and offset by $400 million sold, locking
Unrealized gross gain in gains to be amortized over the remaining life of the contracts.
Unrealized gross loss
Total
Prime/federal funds cap In December 1994, the corporation offset an existing federal funds
Carrying amount cap (purchased) and a prime rate cap (written) position by
Unrealized gross gain simultaneously purchasing a prime rate cap and writing a federal
Unrealized gross loss funds cap at strikes of 6.00 percent and 3.25 percent, respectively.
Total The notional amount of each cap is $1.0 billion. Locks in losses to
Total offsetting positions 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.
(Continued)
T-18
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
Asset Rate Conversions
Interest rate swaps $ 7,022,116 5.78 % 6.32 % 2.22
Carrying amount $ 5,784
Unrealized gross gain 2,659
Unrealized gross loss (321,716)
Total (313,273)
Forward interest rate swaps 1,200,000 7.93 - 1.63
Carrying amount -
Unrealized gross gain -
Unrealized gross loss (7,071)
Total (7,071)
Total asset rate conversions $ 8,222,116 6.10 % 6.32 % 2.14 $ (320,344)
Liability Rate Conversions
Interest rate swaps $ 2,370,500 7.27 % 6.77 % 7.68
Carrying amount $ 15,487
Unrealized gross gain 1,685
Unrealized gross loss (160,195)
Total (143,023)
Other financial instruments 392,000 - - 3.46
Carrying amount 1,902
Unrealized gross gain -
Unrealized gross loss (1,792)
Total 110
Total liability rate conversions $ 2,762,500 7.27 % 6.77 % 7.08 $ (142,913)
Asset Hedge
Short T-Bill futures $ 1,200,000 - % 7.01 % .42
Carrying amount $ -
Unrealized gross gain 555
Unrealized gross loss -
Total 555
Total asset hedge $ 1,200,000 - % 7.01 % .42 $ 555
December 31, 1994
(In thousands) Comments
Asset Rate Conversions
Interest rate swaps Converts floating rate loans to fixed rate. Adds to liability
Carrying amount sensitivity. Similar characteristics to a fixed income security
Unrealized gross gain funded with variable rate liabilities. Includes $2.1 billion of
Unrealized gross loss indexed amortizing swaps, all of which mature within four years.
Total
Forward interest rate swaps Converts floating rates on loans to fixed rates at higher than current
Carrying amount yields for future periods. $200 million effective March 1995 and $1.0
Unrealized gross gain billion effective September 1995. Put options on forward swaps
Unrealized gross loss referenced under "Rate Sensitivity Hedges" are linked to this item.
Total
Total asset rate conversions
Liability Rate Conversions
Interest rate swaps Converts fixed rate long-term debt to floating rate by matching
Carrying amount maturity of the swap to the debt issue. Rate sensitivity remains
Unrealized gross gain unchanged due to the linkage of the swap to the debt issue.
Unrealized gross loss
Total
Other financial instruments Miscellaneous option-based products for liability management
Carrying amount purposes include $35 million of options on swaps,
Unrealized gross gain $207 million eurodollar caps and $150 million of eurodollar
Unrealized gross loss floors. These instruments were assumed as a result of certain
Total of the corporation's acquisitions.
Total liability rate conversions
Asset Hedge
Short T-Bill futures Converts the maturity of $200 million U.S. Treasury bills in the
Carrying amount available for sale portfolio from June 1995 to March 1995 and
Unrealized gross gain $1.0 billion U.S. Treasury bills from September 1995 to June 1995.
Unrealized gross loss
Total
Total asset hedge
(Continued)
T-19
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
Rate Sensitivity Hedges
Put options on eurodollar futures $ 27,181,000 - % 8.05 % .56
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
Carrying amount 3,721
Unrealized gross gain 3,514
Unrealized gross loss -
Total 7,235
Interest rate cap 50,000 - - 1.16
Carrying amount 356
Unrealized gross gain -
Unrealized gross loss (181)
Total 175
Long eurodollar futures 25,000 5.31 - .20
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
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
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)
December 31, 1994
(In thousands) Comments
Rate Sensitivity Hedges
Put options on eurodollar futures Paid a premium for the right to lock in the 3 month LIBOR
Carrying amount reset rates on pay variable rate swap and short-term liabilities
Unrealized gross gain $1.7 billion effective March 1995; $12.5 billion effective June 1995;
Unrealized gross loss and $13.0 billion effective September 1995.
Total
Put options on forward swaps Paid a premium for the right to terminate $1.0 billion of forward
Carrying amount interest rate swaps based on interest rates in effect in September
Unrealized gross gain 1995. Reduces liability sensitivity.
Unrealized gross loss
Total
Interest rate cap Purchased cap to convert floating rate liabilities to fixed rate if
Carrying amount short-term rates rise above 8 percent.
Unrealized gross gain
Unrealized gross loss
Total
Long eurodollar futures Locks in the rate of the future placement of 3 month eurodollar
Carrying amount deposits.
Unrealized gross gain
Unrealized gross loss
Total
Total rate sensitivity hedges
Offsetting Positions
Interest rate floors Consists of $800 million of interest rate floors, of which $400
Carrying amount million were purchased and offset by $400 million sold,
Unrealized gross gain locking in gains to be amortized over the remaining life of
Unrealized gross loss the contracts.
Total
Prime/federal funds cap In December 1994, the corporation offset an existing federal funds
Carrying amount cap (purchased) and a prime rate cap (written) position by
Unrealized gross gain simultaneously purchasing a prime rate cape and writing a federal
Unrealized gross loss funds cap at strikes of 6.00 percent and 3.25 percent, respectively.
Total The notional amount of each cap is $1.0 billion. Locks in losses to
Total offsetting positions 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-20
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 $ 3,762,656 9,643,000 1,042,000 - - 14,447,656
Weighted average receive rate 6.82% 6.31 5.42 - - 6.38
Estimated fair value $ 50,256 110,669 (4,037) - - 156,888
Liability Rate Conversions
Notional amount $ 130,000 10,000 582,000 2,325,000 500,000 3,547,000
Weighted average receive rate 8.08% 7.64 6.35 7.31 6.68 7.07
Estimated fair value $ 2,496 303 8,867 159,414 14,780 185,860
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 $ 1,606,523 3,287,490 3,328,103 - - 8,222,116
Weighted average receive rate 5.62% 7.09 5.34 - - 6.10
Estimated fair value $ (7,227) (35,412) (277,705) - - (320,344)
Liability Rate Conversions
Notional amount $ 557,500 130,000 250,000 1,075,000 750,000 2,762,500
Weighted average receive rate 7.80% 8.08 6.72 7.73 6.52 7.27
Estimated fair value $ (4,249) (85) (12,192) (19,095) (107,292) (142,913)
Asset Hedges
Notional amount $ 1,200,000 - - - - 1,200,000
Weighted average receive rate -% - - - - -
Estimated fair value $ 555 - - - - 555
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-21
Table 22
OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
Rate
Asset Rate Liability Rat Basis Asset Sensitivity Offsetting
(In thousands) Conversions Conversions Protection Hedge Hedges Positions Total
Balance, December 31, 1993 $ 15,229,540 3,241,173 6,000,000 - 23,543,000 800,000 48,813,713
Additions 2,200,000 455,000 - 8,700,000 44,907,643 2,000,000 58,262,643
Maturities/Amortizations (7,007,424) (933,673) - (3,000,000) (34,694,643) - (45,635,740)
Offsets - - (2,000,000) - - 2,000,000 -
Terminations (2,200,000) - (4,000,000) (4,500,000) (5,500,000) - (16,200,000)
Balance, December 31, 1994 8,222,116 2,762,500 - 1,200,000 28,256,000 4,800,000 45,240,616
Additions 9,620,000 1,565,000 - 4,245,000 55,466,631 - 70,896,631
Maturities/Amortizations (2,970,069) (780,500) - (3,429,000) (48,625,705) - (55,805,274)
Terminations (424,391) - - (1,000,000) (5,422,726) - (6,847,117)
Balance, December 31, 1995 $ 14,447,656 3,547,000 - 1,016,000 29,674,200 4,800,000 53,484,856
*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 $ (17,200) 660 (17,860) 18,229 7,195 11,034
Federal funds sold and securities
purchased under resale agreements 70,174 29,625 40,549 38,959 9,101 29,858
Trading account assets* 29,878 4,296 25,582 19,771 14,163 5,608
Securities available for sale* (15,685) 90,705 (106,390) 218,031 41,294 176,737
Investment securities*
US Government and other 63,445 5,950 57,495 (270,052) 38,266 (308,318)
State, county, and municipal (28,034) (2,484) (25,550) 18,231 (3,010) 21,241
Total 35,411 3,466 31,945 (251,821) 35,256 (287,077)
Loans* 1,166,136 235,324 930,812 487,135 61,739 425,396
Total earning assets $ 1,268,714 364,076 904,638 530,304 168,748 361,556
Interest-Bearing Liabilities
Deposits 637,443 413,666 223,777 117,990 55,563 62,427
Short-term Borrowings 284,187 146,204 137,983 113,566 71,007 42,559
Long-term debt 128,478 15,990 112,488 38,951 27,044 11,907
Total interest-bearing liabilities 1,050,108 575,860 474,248 270,507 153,614 116,893
Net interest income $ 218,606 (211,784) 430,390 259,797 15,134 244,663
* Income related to securities and loans exempt from both federal and
state income taxes, federal income taxes only or state income 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-22
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 $ 419,033 22,350 5.33 % $ 757,440 39,550 5.22%
Federal funds sold and securities
purchased under resale agreements 2,191,729 125,903 5.74 1,366,180 55,729 4.08
Trading account assets (a) (d) 1,440,539 90,495 6.28 1,021,681 60,617 5.93
Securities available for sale (a) (d) 8,491,694 549,797 6.47 10,267,532 565,482 5.51
Investment securities (a) (d)
U.S. Government and other 2,521,782 189,030 7.50 1,740,203 125,585 7.22
State, county and municipal 1,043,874 117,963 11.30 1,267,845 145,997 11.52
Total investment securities 3,565,656 306,993 8.61 3,008,048 271,582 9.03
Loans (a) (b) (d)
Commercial
Commercial, financial and
agricultural 16,938,337 1,367,717 8.07 13,803,412 1,123,333 8.14
Real estate - construction and
other 2,002,213 184,694 9.22 1,608,090 129,173 8.03
Real estate - mortgage 5,800,425 513,375 8.85 5,828,345 462,942 7.94
Lease financing 1,129,058 112,202 9.94 658,776 62,628 9.51
Foreign 489,040 33,750 6.90 428,724 22,498 5.25
Total commercial 26,359,073 2,211,738 8.39 22,327,347 1,800,574 8.06
Retail
Real estate - mortgage 17,018,103 1,313,465 7.72 13,810,015 1,019,955 7.39
Installment loans - Bankcard (c) 4,009,190 583,525 14.55 2,775,476 391,603 14.11
Installment loans - other 12,286,211 1,251,852 10.19 10,142,377 982,312 9.69
Total retail 33,313,504 3,148,842 9.45 26,727,868 2,393,870 8.96
Total loans 59,672,577 5,360,580 8.98 49,055,215 4,194,444 8.55
Total earning assets 75,781,228 6,456,118 8.52 65,476,096 5,187,404 7.92
Cash and due from banks 3,270,917 3,045,410
Other assets 4,942,134 4,149,188
Total assets $ 83,994,279 $ 72,670,694
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits
Savings and NOW accounts 14,337,680 410,931 2.87 12,452,101 285,151 2.29
Money market accounts 9,351,684 263,131 2.81 10,576,097 254,863 2.41
Other consumer time 20,692,285 1,116,485 5.40 16,968,029 742,381 4.38
Foreign 2,594,526 150,015 5.78 1,625,575 75,956 4.67
Other time 2,170,145 138,129 6.36 1,607,283 82,897 5.16
Total interest-bearing deposits49,146,320 2,078,691 4.23 43,229,085 1,441,248 3.33
Federal funds purchased and securities
sold under repurchase agreements 8,620,601 502,019 5.82 7,270,734 317,225 4.36
Commercial paper 879,889 50,846 5.78 661,327 28,166 4.26
Other short-term borrowings 2,512,054 152,239 6.06 1,419,477 75,526 5.32
Long-term debt 4,976,516 327,259 6.58 3,213,607 198,781 6.19
Total interest-bearing
liabilities 66,135,380 3,111,054 4.70 55,794,230 2,060,946 3.69
Noninterest-bearing deposits 10,486,371 10,015,666
Other liabilities 1,690,417 1,393,526
Stockholders' equity 5,682,111 5,467,272
Total liabilities and
stockholders' equity $ 83,994,279 $ 72,670,694
Interest income and rate earned $ 6,456,118 8.52 % $ 5,187,404 7.92 %
Interest expense and rate paid 3,111,054 4.11 2,060,946 3.15
Net interest income and margin $ 3,345,064 4.41 % $ 3,126,458 4.77 %
(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-23
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
$ 520,591 21,321 4.10 % $ 980,669 41,938 4.28 % $ 758,101 48,186 6.36 %
537,021 16,770 3.12 1,177,119 43,475 3.69 1,047,764 59,919 5.72
913,864 40,846 4.47 478,887 26,126 5.46 533,278 36,293 6.81
6,912,046 347,451 5.03 3,042,895 196,681 6.46 - - -
6,313,607 395,637 6.27 5,519,744 399,510 7.24 8,152,492 701,326 8.60
1,085,412 127,766 11.77 1,280,231 154,617 12.08 1,745,204 208,444 11.94
7,399,019 523,403 7.07 6,799,975 554,127 8.15 9,897,696 909,770 9.19
11,742,520 925,951 7.89 11,162,012 883,415 7.91 11,105,933 1,035,158 9.32
2,083,646 124,689 5.98 2,559,774 158,515 6.19 3,146,087 238,419 7.58
5,333,306 399,671 7.49 5,406,634 435,121 8.05 4,479,356 423,430 9.45
531,539 55,193 10.38 793,152 61,850 7.80 892,027 91,898 10.30
263,896 12,940 4.90 205,090 11,101 5.41 179,259 10,642 5.94
19,954,907 1,518,444 7.61 20,126,662 1,550,002 7.70 19,802,662 1,799,547 9.09
10,892,980 839,434 7.71 9,455,411 838,786 8.87 7,340,466 714,093 9.73
1,962,346 300,357 15.31 - - - - - -
10,821,177 1,049,074 9.69 11,688,918 1,332,781 11.40 10,171,230 1,200,135 11.80
23,676,503 2,188,865 9.24 21,144,329 2,171,567 10.27 17,511,696 1,914,228 10.93
43,631,410 3,707,309 8.50 41,270,991 3,721,569 9.02 37,314,358 3,713,775 9.95
59,913,951 4,657,100 7.77 53,750,536 4,583,916 8.53 49,551,197 4,767,943 9.62
3,340,993 2,607,487 2,174,704
4,846,278 4,787,951 3,369,538
$ 68,101,222 $ 61,145,974 $ 55,095,439
10,567,006 232,231 2.20 8,700,338 241,814 2.78 6,185,016 266,152 4.30
10,320,835 232,402 2.25 9,570,397 272,261 2.84 7,767,466 390,125 5.02
17,594,023 761,623 4.33 17,718,372 924,498 5.22 16,363,843 1,138,030 6.95
576,590 20,905 3.63 145,149 13,247 9.13 379,836 35,824 9.43
1,650,325 76,097 4.61 3,154,821 163,851 5.19 3,810,814 260,472 6.84
40,708,779 1,323,258 3.25 39,289,077 1,615,671 4.11 34,506,975 2,090,603 6.06
7,214,686 267,751 3.71 4,458,239 177,371 3.98 6,910,230 409,300 5.92
321,310 8,356 2.60 337,860 10,530 3.12 609,657 36,402 5.97
799,077 31,245 3.91 659,541 29,725 4.51 521,765 32,708 6.27
3,006,560 159,829 5.32 2,789,653 187,671 6.73 2,187,595 173,983 7.95
52,050,412 1,790,439 3.44 47,534,370 2,020,968 4.25 44,736,222 2,742,996 6.13
9,540,069 7,884,629 5,975,458
1,671,344 1,513,079 916,322
4,839,397 4,213,896 3,467,437
68,101,222 $ 61,145,974 $ 55,095,439
$ 4,657,100 7.77 % $ 4,583,916 8.53 % $ 4,767,943 9.62 %
1,790,439 2.99 2,020,968 3.76 2,742,996 5.54
$ 2,866,661 4.78 % $ 2,562,948 4.77 % $ 2,024,947 4.08 %
(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)
$5,069, $12,815, $42,064, $18,860 and $3,480 in 1995, respectively;
and $3,372, $15,486, $52,779, $18,653 and $2,453 in 1994, respectively.
T-24
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 consolidated financial statements were prepared in
conformity with generally accepted accounting principles and include, as
necessary, best estimates and judgments by management. Other financial
information contained in this annual report is presented on a basis consistent
with the consolidated financial statements unless otherwise indicated.
To ensure the integrity, objectivity and fairness of data in these
consolidated financial statements, management of the Corporation has established
and maintains an internal control structure that is supplemented by a program of
internal audits. The internal control structure is designed to provide
reasonable assurance that assets are safeguarded and transactions are executed,
recorded and reported in accordance with management's intentions and
authorizations and to comply with applicable laws and regulations. To enhance
the reliability of the internal control structure, management recruits and
trains highly qualified personnel, and maintains sound risk management practices
and efficient operations.
The consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors, in accordance with generally accepted auditing
standards. KPMG Peat Marwick LLP reviews the results of its audit with both
management and the Audit Committee of the Board of Directors of the Corporation.
The Audit Committee, composed entirely of outside directors, meets periodically
with management, internal auditors and KPMG Peat Marwick LLP to determine that
each is fulfilling its responsibilities and to support actions to identify,
measure and control risks, 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 consolidated balance sheets of First Union Corporation
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Union
Corporation and subsidiaries at December 31, 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.
As discussed in Note 3 to the 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", on January 1, 1994.
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 11, 1996
H-1
CONSOLIDATED BALANCE SHEETS
First Union Corporation and Subsidiaries
December 31,
(In thousands except share data) 1995
Assets
Cash and due from banks $ 4,239,737
Interest-bearing bank balances 44,284
Federal funds sold and securities purchased under resale agreements 4,122,754
Total cash and cash equivalents 8,406,775
Trading account assets 1,804,391
Securities available for sale (amortized cost $12,534,552 in 1995; $8,054,592 in 1994) 12,716,963
Investment securities (market value $2,607,755 in 1995; $3,742,534 in 1994) 2,454,317
Loans, net of unearned income ($1,173,538 in 1995; $672,330 in 1994) 65,628,444
Allowance for loan losses (966,511)
Loans, net 64,661,933
Premises and equipment 2,137,993
Due from customers on acceptances 479,799
Mortgage servicing rights 102,365
Credit card premium 43,894
Other intangible assets 1,632,203
Other assets 2,299,863
Total assets $96,740,496
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits 11,788,401
Interest-bearing deposits 53,211,900
Total deposits 65,000,301
Short-term borrowings 16,598,072
Bank acceptances outstanding 479,799
Other liabilities 2,065,551
Long-term debt 6,444,327
Total liabilities 90,588,050
Stockholders' equity
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding
171,537,433 shares in 1995; 176,033,912 shares in 1994 571,791
Paid-in capital 1,208,717
Retained earnings 4,261,307
Unrealized gain (loss) on debt and equity securities 110,631
Total stockholders' equity 6,152,446
Total liabilities and stockholders' equity $96,740,496
1994
(In thousands except share data)
Assets
Cash and due from banks 3,740,691
Interest-bearing bank balances 945,126
Federal funds sold and securities purchased under resale agreements 1,371,025
Total cash and cash equivalents 6,056,842
Trading account assets 1,206,675
Securities available for sale (amortized cost $12,534,552 in 1995; $8,054,592 in 1994) 7,752,479
Investment securities (market value $2,607,755 in 1995; $3,742,534 in 1994) 3,729,869
Loans, net of unearned income ($1,173,538 in 1995; $672,330 in 1994) 54,029,752
Allowance for loan losses (978,795)
Loans, net 53,050,957
Premises and equipment 1,756,297
Due from customers on acceptances 218,849
Mortgage servicing rights 84,898
Credit card premium 58,494
Other intangible assets 1,198,907
Other assets 2,199,238
Total assets 77,313,505
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing deposits 10,523,538
Interest-bearing deposits 48,434,735
Total deposits 58,958,273
Short-term borrowings 7,532,343
Bank acceptances outstanding 218,849
Other liabilities 1,778,009
Long-term debt 3,428,514
Total liabilities 71,915,988
Stockholders' equity
Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding
171,537,433 shares in 1995; 176,033,912 shares in 1994 586,779
Paid-in capital 1,433,422
Retained earnings 3,591,581
Unrealized gain (loss) on debt and equity securities (214,265)
Total stockholders' equity 5,397,517
Total liabilities and stockholders' equity 77,313,505
See accompanying Notes to Consolidated Financial Statements.
H-2
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 $ 5,338,240 4,173,338
Interest and dividends on securities available for sale 536,982 549,996
Interest and dividends on investment securities
Taxable income 186,662 122,968
Nontaxable income 78,267 95,835
Trading account interest 85,426 57,245
Other interest income 148,253 95,279
Total interest income 6,373,830 5,094,661
Interest Expense
Interest on deposits 2,078,691 1,441,248
Interest on short-term borrowings 705,104 420,917
Interest on long-term debt 327,259 198,781
Total interest expense 3,111,054 2,060,946
Net interest income 3,262,776 3,033,715
Provision for loan losses 180,000 100,000
Net interest income after provision for loan losses 3,082,776 2,933,715
Noninterest Income
Trading account profits 59,989 41,583
Service charges on deposit accounts 471,315 435,212
Mortgage banking income 112,011 73,934
Capital management income 288,060 224,525
Securities available for sale transactions 17,191 (11,507)
Investment security transactions 4,818 4,006
Fees for other banking services 96,619 69,252
Merchant discounts 70,745 62,840
Insurance commissions 48,241 45,071
Sundry income 282,271 214,053
Total noninterest income 1,451,260 1,158,969
Noninterest Expense
Personnel expense 1,463,553 1,287,366
Occupancy 240,098 238,128
Equipment rentals, depreciation and maintenance 274,412 228,372
Postage, printing and supplies 118,930 103,739
FDIC insurance 83,680 119,708
Professional fees 77,273 66,878
Owned real estate expense 11,931 22,294
Amortization 196,248 144,608
Merger-related restructuring charges 16,447 --
Sundry 492,800 466,135
Total noninterest expense 2,975,372 2,677,228
Income before income taxes 1,558,664 1,415,456
Income taxes 545,588 490,076
Net income 1,013,076 925,380
Dividends on preferred stock 7,029 25,353
Net income applicable to common stockholders before redemption premium 1,006,047 900,027
Redemption premium on preferred stock -- 41,355
Net income applicable to common stockholders after redemption premium $ 1,006,047 858,672
Per Common Share Data
Net income before redemption premium $ 5.85 5.22
Net income after redemption premium 5.85 4.98
Cash dividends $ 1.96 1.72
Average common shares 172,023,779 172,543,467
1993
(In thousands except per share data)
Interest Income
Interest and fees on loans 3,683,945
Interest and dividends on securities available for sale 320,860
Interest and dividends on investment securities
Taxable income 391,364
Nontaxable income 84,043
Trading account interest 38,029
Other interest income 38,091
Total interest income 4,556,332
Interest Expense
Interest on deposits 1,323,258
Interest on short-term borrowings 307,352
Interest on long-term debt 159,829
Total interest expense 1,790,439
Net interest income 2,765,893
Provision for loan losses 221,753
Net interest income after provision for loan losses 2,544,140
Noninterest Income
Trading account profits 43,007
Service charges on deposit accounts 420,285
Mortgage banking income 138,608
Capital management income 201,875
Securities available for sale transactions 25,767
Investment security transactions 7,435
Fees for other banking services 52,836
Merchant discounts 55,732
Insurance commissions 43,876
Sundry income 208,867
Total noninterest income 1,198,288
Noninterest Expense
Personnel expense 1,155,899
Occupancy 229,118
Equipment rentals, depreciation and maintenance 189,589
Postage, printing and supplies 92,842
FDIC insurance 118,429
Professional fees 52,251
Owned real estate expense 40,633
Amortization 207,087
Merger-related restructuring charges --
Sundry 435,799
Total noninterest expense 2,521,647
Income before income taxes 1,220,781
Income taxes 403,260
Net income 817,521
Dividends on preferred stock 24,900
Net income applicable to common stockholders before redemption premium 792,621
Redemption premium on preferred stock --
Net income applicable to common stockholders after redemption premium 792,621
Per Common Share Data
Net income before redemption premium 4.73
Net income after redemption premium 4.73
Cash dividends 1.50
Average common shares 167,691,739
See accompanying Notes to Consolidated Financial Statements.
H-3
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 6,846 $ 44,774 164,849 $549,497 1,396,701 2,468,191 --
Net income -- -- -- -- -- 817,521 --
Purchase of Class A Series A preferred stock (6) (134) -- -- -- -- --
Purchase of common stock -- -- (88) (294) (3,557) -- --
Common stock issued for stock
options exercised -- -- 1,557 5,189 51,529 -- --
Common stock issued through dividend
reinvestment plan -- -- 3,271 10,904 133,829 -- --
Converted debentures -- -- 27 90 248 -- --
Converted preferred stock (522) (13,047) 673 2,242 10,801 -- --
Pre-merger transactions of pooled banks -- (1) 49 163 1,724 -- --
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) --
Balance at December 31, 1993 6,318 31,592 170,338 567,791 1,591,275 3,016,967 --
Stockholders' equity of pooled banks not
restated prior to 1994 -- -- 4,169 13,897 36,610 13,844 --
Net income -- -- -- -- -- 925,380 --
Redemption of preferred stock (6,318) (31,592) -- -- (252,449) (41,355) --
Purchase of common stock primarily for
purchase accounting acquisitions -- -- (5,034) (16,780) (200,774) -- --
Common stock issued for stock
options exercised -- -- 1,800 6,000 61,958 -- --
Common stock issued through dividend
reinvestment plan -- -- 763 2,544 29,296 -- --
Common stock issued for purchase
accounting acquisition -- -- 3,561 11,870 149,203 -- --
Converted debentures -- -- 437 1,457 18,303 -- --
Cash dividends paid
By First Union Corporation at
8.03% per Series 1990 preferred share -- -- -- -- -- (25,353) --
$1.72 per common share -- -- -- -- -- (297,902) --
Unrealized loss on debt and equity
securities -- -- -- -- -- -- (214,265)
Balance at December 31, 1994 -- -- 176,034 586,779 1,433,422 3,591,581 (214,265)
Net income -- -- -- -- -- 1,013,076 --
Purchase of common stock primarily for
acquisitions -- -- (19,839) (66,130) (898,854) -- --
Common stock issued for stock
options exercised -- -- 1,990 6,633 70,364 -- --
Common stock issued through dividend
reinvestment plan -- -- 807 2,690 35,094 -- --
Common stock issued for purchase accounting
acquisitions -- -- 12,545 41,819 568,691 -- --
Cash dividends paid
By First Union Corporation at
8.90% per Series 1990 preferred share -- -- -- -- -- (7,029) --
$1.96 per common share -- -- -- -- -- (336,321) --
Unrealized gain on debt and equity securities -- -- -- -- -- -- 324,896
Balance at December 31, 1995 -- $ -- 171,537 $571,791 1,208,717 4,261,307 110,631
(In thousands except per share data) Total
Balance at December 31, 1992 4,459,163
Net income 817,521
Purchase of Class A Series A preferred stock (134)
Purchase of common stock (3,851)
Common stock issued for stock
options exercised 56,718
Common stock issued through dividend
reinvestment plan 144,733
Converted debentures 338
Converted preferred stock (4)
Pre-merger transactions of pooled banks 1,886
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)
Balance at December 31, 1993 5,207,625
Stockholders' equity of pooled banks not
restated prior to 1994 64,351
Net income 925,380
Redemption of preferred stock (325,396)
Purchase of common stock primarily for
purchase accounting acquisitions (217,554)
Common stock issued for stock
options exercised 67,958
Common stock issued through dividend
reinvestment plan 31,840
Common stock issued for purchase
accounting acquisition 161,073
Converted debentures 19,760
Cash dividends paid
By First Union Corporation at
8.03% per Series 1990 preferred share (25,353)
$1.72 per common share (297,902)
Unrealized loss on debt and equity
securities (214,265)
Balance at December 31, 1994 5,397,517
Net income 1,013,076
Purchase of common stock primarily for
acquisitions (964,984)
Common stock issued for stock
options exercised 76,997
Common stock issued through dividend
reinvestment plan 37,784
Common stock issued for purchase accounting
acquisitions 610,510
Cash dividends paid
By First Union Corporation at
8.90% per Series 1990 preferred share (7,029)
$1.96 per common share (336,321)
Unrealized gain on debt and equity securities 324,896
Balance at December 31, 1995 6,152,446
See accompanying Notes to Consolidated Financial Statements.
H-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Union Corporation and Subsidiaries
Years Ended December 31,
(In thousands) 1995 1994
Operating Activities
Net income $ 1,013,076 925,380
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Accretion and amortization of securities discounts and premiums, net (5,332) (19,583)
Provision for loan losses 180,000 100,000
Provision for foreclosed properties (3,756) 4,503
Gain on sale of mortgage servicing rights -- --
Securities available for sale transactions (17,191) 11,507
Investment security transactions (4,818) (4,006)
Depreciation and amortization 417,606 321,420
Deferred income taxes (benefits) 240,136 200,990
Trading account assets, net (597,716) (554,205)
Mortgage loans held for resale (102,267) 879,715
Loss on sales of premises and equipment 13,523 9,387
Gain on sale of First American segregated assets (18,639) (84,260)
Other assets, net (47,966) 604,786
Other liabilities, net (109,078) 248,520
Net cash provided by operating activities 957,578 2,644,154
Investing Activities
Increase (decrease) in cash realized from
Sales of securities available for sale 5,618,973 13,255,786
Maturities of securities available for sale 1,099,462 2,796,323
Purchases of securities available for sale (6,869,362) (12,466,200)
Sales and calls of investment securities 32,964 39,437
Maturities of investment securities 751,157 485,993
Purchases of investment securities (1,490,523) (886,589)
Origination of loans, net (6,240,810) (7,237,982)
Sales of loans 2,000,000 250,804
Sales of premises and equipment 37,368 66,635
Purchases of premises and equipment (554,829) (432,022)
Sales of mortgage servicing rights -- --
Purchases of mortgage servicing rights (16,587) (7,561)
Other intangible assets, net 57 37,441
Purchases of banking organizations, net of acquired cash equivalents (418,513) 2,317,118
Net cash used by investing activities (6,050,643) (1,780,817)
Financing Activities
Increase (decrease) in cash realized from
Purchases (sales) of deposits, net (1,210,495) 1,189,487
Securities sold under repurchase agreements and other short-term borrowings, net 7,139,553 (5,606)
Issuances of long-term debt 3,346,251 572,287
Payments of long-term debt (638,758) (212,126)
Sales of common stock 114,781 99,798
Purchases of preferred stock -- --
Redemption of preferred stock -- (325,396)
Purchases of common stock (964,984) (217,554)
Cash dividends paid (343,350) (323,255)
Net cash provided (used) by financing activities 7,442,998 777,635
Increase (decrease) in cash and cash equivalents 2,349,933 1,640,972
Cash and cash equivalents, beginning of year 6,056,842 4,415,870
Cash and cash equivalents, end of year $ 8,406,775 6,056,842
Cash Paid For
Interest $ 3,023,042 2,026,740
Income taxes 336,438 227,379
Noncash Items
Increase (decrease) in securities available for sale 1,973,719 (400,314)
Increase (decrease) in investment securities (1,973,719) 400,314
Decrease in other assets -- --
Increase in foreclosed properties and a decrease in loans 30,199 29,675
Conversion of preferred stock to common stock -- --
Increase in other intangible assets and stockholders' equity for converted
debentures -- 19,760
Issuance of common stock for purchase accounting acquisitions 610,510 161,073
Effect on stockholders' equity of an unrealized gain (loss) on debt and equity
securities included in
Securities available for sale 484,524 (302,113)
Other assets (deferred income taxes) $ 159,628 (87,848)
1993
(In thousands)
Operating Activities
Net income 817,521
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Accretion and amortization of securities discounts and premiums, net (4,297)
Provision for loan losses 221,753
Provision for foreclosed properties 23,730
Gain on sale of mortgage servicing rights (973)
Securities available for sale transactions (25,767)
Investment security transactions (7,435)
Depreciation and amortization 359,359
Deferred income taxes (benefits) 78,159
Trading account assets, net (483,202)
Mortgage loans held for resale (312,090)
Loss on sales of premises and equipment 7,764
Gain on sale of First American segregated assets (48,147)
Other assets, net 1,044,223
Other liabilities, net (921,719)
Net cash provided by operating activities 748,879
Investing Activities
Increase (decrease) in cash realized from
Sales of securities available for sale 13,043,607
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 2,414,793
Purchases of investment securities (3,060,327)
Origination of loans, net (563,530)
Sales of loans --
Sales of premises and equipment 65,255
Purchases of premises and equipment (247,442)
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 22,493
Net cash used by investing activities (817,560)
Financing Activities
Increase (decrease) in cash realized from
Purchases (sales) of deposits, net (1,711,427)
Securities sold under repurchase agreements and other short-term borrowings, net 1,017,826
Issuances of long-term debt 1,044,657
Payments of long-term debt (1,161,031)
Sales of common stock 203,337
Purchases of preferred stock (138)
Redemption of preferred stock --
Purchases of common stock (3,851)
Cash dividends paid (268,745)
Net cash provided (used) by financing activities (879,372)
Increase (decrease) in cash and cash equivalents (948,053)
Cash and cash equivalents, beginning of year 5,363,923
Cash and cash equivalents, end of year 4,415,870
Cash Paid For
Interest 1,775,759
Income taxes 398,705
Noncash Items
Increase (decrease) in securities available for sale 4,569,363
Increase (decrease) in investment securities (4,536,780)
Decrease in other assets 32,583
Increase in foreclosed properties and a decrease in loans 51,885
Conversion of preferred stock to common stock 13,044
Increase in other intangible assets and stockholders' equity for converted
debentures --
Issuance of common stock for purchase accounting acquisitions --
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) --
See accompanying Notes to Consolidated Financial Statements.
H-5
NOTES TO 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 Florida, Georgia, Maryland, North
Carolina, South Carolina, Tennessee, Virginia and Washington, D.C. Its foreign
banking operations are immaterial.
Management of the Corporation has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, interest-bearing
balances in other banks and federal funds sold and securities purchased under
resale agreements. Generally, both cash and cash equivalents are considered to
have maturities of three months or less, and accordingly, the carrying amount of
such instruments is deemed to be a reasonable estimate of fair value.
SECURITIES
The classification of securities is determined at the date of purchase.
Gains or losses on the sale of securities are recognized on a specific
identification, trade date basis.
Trading account assets, primarily debt securities, and 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.
Interest rate futures and option contracts are used to hedge interest rate
risk arising from specific financial
H-6
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.
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
H-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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 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 July 1, 1995. The adoption of the Standard resulted in an increase
to noninterest income of $8,500,000 in 1995.
When the Corporation acquires mortgage servicing rights through either the
purchase or origination of mortgage loans
H-8
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 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
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 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 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
H-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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 Bancorporation
(First Fidelity), a multi-bank holding company based in New Jersey. The merger
will be 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 related to direct costs of the First
Fidelity merger of $16,447,000 ($13,072,000 after tax) are included as a
component of noninterest expense in 1995. First Fidelity separately recorded an
expense of $77,999,000 ($59,754,000 after tax) in 1995. It is anticipated that
on a combined basis $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.
H-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.
H-11
NOTES TO 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 $1,374,773 867,427 -- -- 2,242,200 (2,847) 6,370
U.S. Government agencies 129,910 4,864,394 1,487,637 639 6,482,580 (88,831) 2,397
Collateralized mortgage
obligations 143,852 2,068,606 79,596 -- 2,292,054 (24,974) 13,602
Other 157,390 882,308 86,549 573,882 1,700,129 (93,230) 5,102
Total $1,805,925 8,682,735 1,653,782 574,521 12,716,963 (209,882) 27,471
Market Value
Debt securities $1,805,925 8,682,735 1,653,782 70,643 12,213,085 (139,913) 27,202
Sundry securities -- -- -- 503,878 503,878 (69,969) 269
Total $1,805,925 8,682,735 1,653,782 574,521 12,716,963 (209,882) 27,471
Amortized Cost
Debt securities $1,801,221 8,588,759 1,639,547 70,847 12,100,374
Sundry securities -- -- -- 434,178 434,178
Total $1,801,221 8,588,759 1,639,547 505,025 12,534,552
December 31, 1995 Amortized
(In thousands) Cost
Market Value
U.S. Treasury 2,245,723
U.S. Government agencies 6,396,146
Collateralized mortgage
obligations 2,280,682
Other 1,612,001
Total 12,534,552
Market Value
Debt securities 12,100,374
Sundry securities 434,178
Total 12,534,552
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 $1,156,159 1,035,790 -- -- 2,191,949 -- 81,975
U.S. Government agencies 153,675 469,468 2,031,111 546 2,654,800 (404) 171,580
Collateralized mortgage
obligations 90,066 1,091,930 58,524 -- 1,240,520 (49) 44,627
Other 84,757 1,282,076 20,299 278,078 1,665,210 (51,633) 56,017
Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199
Market Value
Debt securities $1,484,657 3,879,264 2,109,934 24,069 7,497,924 (3,243) 346,011
Sundry securities -- -- -- 254,555 254,555 (48,843) 8,188
Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199
Amortized Cost
Debt securities $1,486,608 4,061,240 2,264,716 28,128 7,840,692
Sundry securities -- -- -- 213,900 213,900
Total $1,486,608 4,061,240 2,264,716 242,028 8,054,592
December 31, 1994 Amortized
(In thousands) Cost
Market Value
U.S. Treasury 2,273,924
U.S. Government agencies 2,825,976
Collateralized mortgage
obligations 1,285,098
Other 1,669,594
Total 8,054,592
Market Value
Debt securities 7,840,692
Sundry securities 213,900
Total 8,054,592
Amortized Cost
Debt securities
Sundry securities
Total
H-12
Securities available for sale with an aggregate amortized cost of
$5,181,431,000 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 7.00 percent and 5.21 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
$36,655,000 and $33,755,000, respectively, and on sundry securities $14,365,000
and $74,000, respectively.
Gross gains and losses realized on the sale of debt securities in 1994 were
$27,017,000 and $43,813,000, respectively, and on sundry securities $5,998,000
and $709,000, respectively.
Gross gains and losses realized on the sale of debt securities in 1993 were
$28,818,000 and $9,553,000, respectively, and on sundry securities $6,570,000
and $68,000, 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. It was adopted by the Corporation on January 1, 1994.
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
$110,631,000 based on appreciation in the securities available for sale
portfolio of $182,411,000, and on an unamortized after-tax gain of $71,780,000.
A transfer of $1,973,719,000 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 decreased by an after-tax amount
of $214,265,000 based on depreciation in the securities available for sale
portfolio of $302,113,000 and on a transfer of securities from securities
available for sale to investment securities with an unrealized loss of
$28,374,000.
H-13
NOTES TO 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 $ 15,624 805,739 147,234 -- 968,597 23,005 (935)
Collateralized mortgage
obligations 47,339 546,111 -- -- 593,450 12,443 (1)
State, county and
municipal 179,761 151,460 122,491 364,296 818,008 115,107 (2,950)
Other 1,008 -- 6,156 67,098 74,262 6,771 (2)
Total $243,732 1,503,310 275,881 431,394 2,454,317 157,326 (3,888)
Carrying Value
Debt securities $243,732 1,503,310 275,881 415,553 2,438,476 157,326 (3,888)
Sundry securities -- -- -- 15,841 15,841 -- --
Total $243,732 1,503,310 275,881 431,394 2,454,317 157,326 (3,888)
Market Value
Debt securities $247,076 1,545,715 300,156 498,967 2,591,914
Sundry securities -- -- -- 15,841 15,841
Total $247,076 1,545,715 300,156 514,808 2,607,755
December 31, 1995 Market
(In thousands) Value
Carrying Value
U.S. Government agencies 990,667
Collateralized mortgage
obligations 605,892
State, county and
municipal 930,165
Other 81,031
Total 2,607,755
Carrying Value
Debt securities 2,591,914
Sundry securities 15,841
Total 2,607,755
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. Government agencies $ -- 100,853 1,201,803 14,474 1,317,130 5,528 (39,881)
Collateralized mortgage
obligations -- 910,733 92,516 -- 1,003,249 -- (26,786)
State, county and
municipal 369,189 267,835 151,533 437,523 1,226,080 78,676 (4,698)
Other -- 2,036 6,178 175,196 183,410 3,022 (3,196)
Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561)
Carrying Value
Debt securities $369,189 1,281,457 1,452,030 517,532 3,620,208 87,226 (74,561)
Sundry securities -- -- -- 109,661 109,661 -- --
Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561)
Market Value
Debt securities $376,983 1,269,819 1,423,936 562,135 3,632,873
Sundry securities -- -- -- 109,661 109,661
Total $376,983 1,269,819 1,423,936 671,796 3,742,534
December 31, 1994 Market
(In thousands) Value
Carrying Value
U.S. Government agencies 1,282,777
Collateralized mortgage
obligations 976,463
State, county and
municipal 1,300,058
Other 183,236
Total 3,742,534
Carrying Value
Debt securities 3,632,873
Sundry securities 109,661
Total 3,742,534
Market Value
Debt securities
Sundry securities
Total
Investment securities with an aggregate carrying value of $1,766,343,000 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 obligations is based on their
weighted average maturities at December 31, 1995 and 1994.
H-14
At December 31, 1995 and 1994, collateralized mortgage obligations had a
weighted average yield of 7.21 percent and 6.52 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 securities available
for sale portfolio.
NOTE 5:
LOANS
(In thousands) 1995
Commercial
Commercial, financial and agricultural $18,459,305
Real estate-construction and other 2,260,193
Real estate-mortgage 5,953,377
Lease financing 2,829,628
Foreign 519,970
Total commercial 30,022,473
Retail
Real estate-mortgage 20,143,480
Installment loans-Bankcard 3,383,903
Installment loans-other 13,252,126
Total retail 36,779,509
Total $66,801,982
(In thousands) 1994
Commercial
Commercial, financial and agricultural 15,907,743
Real estate-construction and other 1,734,095
Real estate-mortgage 5,437,496
Lease financing 1,613,763
Foreign 415,857
Total commercial 25,108,954
Retail
Real estate-mortgage 15,014,775
Installment loans-Bankcard 3,959,657
Installment loans-other 10,618,696
Total retail 29,593,128
Total 54,702,082
Directors and executive officers of the Parent Company and their related
interests were indebted to the Corporation in the aggregate amounts of
$264,305,000 and $280,186,000 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 $50,342,000 and repaid
$66,223,000. 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
$501,173,000 and $399,510,000, respectively. Interest related to nonaccrual and
restructured loans for the years ended December 31, 1995, 1994 and 1993 amounted
to $53,145,000, $47,626,000 and $78,463,000, 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 $13,775,000, $6,254,000 and
$24,281,000, respectively.
At December 31, 1995, impaired loans, which are included in nonaccrual
loans, amounted to $339,500,000. Included in the allowance for loan losses is
$44,410,000 related to $258,757,000 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 $329,637,000 and
$14,320,000 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.
H-15
NOTES TO 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 $ 978,795 1,020,191 940,804
Provision for loan
losses 180,000 100,000 221,753
Allowance of loans
acquired or sold,
net 48,226 21,520 109,321
1,207,021 1,141,711 1,271,878
Less
Loan losses 326,340 254,927 329,560
Less loan
recoveries 85,830 92,011 77,873
Loan losses, net 240,510 162,916 251,687
Balance, end of year $ 966,511 978,795 1,020,191
NOTE 7:
PREMISES AND EQUIPMENT
Years Ended December 31,
(In thousands) 1995 1994 1993
Land $ 377,399 336,566 328,250
Buildings 1,269,721 1,071,738 985,010
Equipment 1,575,931 1,258,024 1,083,530
Capitalized leases 15,952 12,577 12,441
3,239,003 2,678,905 2,409,231
Less accumulated
depreciation and
amortization 1,101,010 922,608 884,376
Total $2,137,993 1,756,297 1,524,855
Net premises and
equipment pledged
as security for
mortgage notes $ 59,256 69,621 83,761
Depreciation and
amortization $ 219,617 176,812 152,273
NOTE 8:
FORECLOSED PROPERTIES
Years Ended December 31,
(In thousands) 1995 1994 1993
Foreclosed properties $124,058 193,290 278,694
Allowance for foreclosed
properties, beginning of
year 34,826 56,191 103,328
Provision for foreclosed
properties (3,756) 4,503 23,730
Transfer from (to)
allowance for segregated
assets 78 1,722 (1,998)
Dispositions, net (7,558) (27,590) (68,869)
Allowance for foreclosed
properties, end of year 23,590 34,826 56,191
Foreclosed properties, net $100,468 158,464 222,503
H-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 $9,985,337 5,458,661 5,102,045 9,985,337 7,613,617 6,740,066
Other Short-Term Borrowings
Federal funds purchased $2,085,771 293,732 695,627 3,220,952 2,487,862 2,890,658
Fixed and variable rate bank
notes 2,586,000 -- -- 2,586,000 -- --
Interest-bearing demand
deposits issued to the U.S.
Treasury 267,794 377,526 843,069 704,131 723,891 875,642
Commercial paper 941,968 391,216 270,666 1,132,039 1,102,557 421,079
Other 731,202 1,011,208 342,771 1,908,248 1,703,899 451,317
Total $6,612,735 2,073,682 2,152,133
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 5.53 percent, 6.32 percent and 3.17 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 5.55 percent, 5.41 percent and 2.70 percent, respectively.
Weighted average maturities for commercial paper issued at December 31, 1995,
1994 and 1993, approximated 24, 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.
H-17
NOTES TO 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
H-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
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 36,163 38,817 7,275 6,726
Total debentures and notes of subsidiaries 1,399,207 1,427,333 316,634 324,814
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 38,381 43,189 41,153 42,909
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 1,080,748 1,086,554 168,426 169,091
Total $6,444,327 6,729,832 3,428,514 3,314,029
* 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.
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 9 7/8 percent (which were assumed by the Parent Company in 1995) and
9 5/8 percent subordinated capital notes that were issued by an acquired bank
holding company 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
H-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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 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
6.58 percent, 6.19 percent and 5.32 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, $1,529,606,000; 1997, $871,552,000; 1998,
$588,326,000; 1999, $415,584,000; and 2000, $138,093,000.
NOTE 11:
PREFERRED STOCK
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. 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.
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.
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-$41.97 231,910 497,838 (200,989) (4,032) 524,727
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 524,727
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.
H-20
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, 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 $1,210,686 1,039,699 938,409
Pension cost 22,299 24,107 13,571
Savings plan 38,464 34,768 31,241
Other benefits 192,104 188,792 172,678
Total $1,463,553 1,287,366 1,155,899
Pension expense for the Corporation's nonqualified defined benefits plan was
$4,982,000 in 1995. The accumulated benefit obligation for the nonqualified plan
was $21,280,000, including vested benefits of $21,096,000. The plan has 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 1,088,266
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:
H-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
December 31,
(In thousands) 1995 1994 1993
Actuarial Present Value of Benefit Obligations
Accumulated benefit obligation including vested benefits of $376,295,000, 1995;
$304,842,000, 1994; and $346,186,000, 1993 $ 406,898 324,329 379,868
Projected benefit obligation for service rendered to date $(537,762) (454,623) (509,332)
Plan assets at fair value 635,207 553,255 555,196
Plan assets in excess of projected benefit obligation 97,445 98,632 45,864
Prior service cost 141 164 2,201
Unrecognized net loss from past experience different from that assumed and effects
of
changes in assumptions 84,319 49,112 89,055
Unrecognized net transition asset (17,064) (19,908) (22,867)
Prepaid pension cost included in other assets $ 164,841 128,000 114,253
Assumed Rates Used in Actuarial Computations
Discount rate at beginning of year 8.25% 7 8-8.5
Discount rate at end of year 7.5 8.25 7
Weighted average rate of increase in future compensation levels 4.5 5 4.5
Long-term average rate of return 8.5% 8.5 9.5
Years Ended December 31,
(In thousands) 1995 1994 1993
Pension Cost
Service cost-benefits earned during the period $ 29,236 33,425 25,649
Interest cost on projected benefit obligation 35,792 35,364 29,128
Actual (return) loss on plan assets (82,531) 10,986 (44,145)
Net amortization and deferral 34,820 (56,182) 561
Settlement loss -- 514 2,378
Net pension cost $ 17,317 24,107 13,571
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 $66,581,000, $59,210,000 and $69,841,000, respectively.
H-22
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:
December 31,
(In thousands) 1995 1994
Actuarial Present Value of Postretirement Benefits Obligation
Retirees $ 78,875 63,604
Fully eligible active participants 2,242 2,711
Other active participants 27,705 22,875
Accumulated postretirement benefit obligation $108,822 89,190
Projected benefit obligation in excess of plan assets $108,822 89,190
Unrecognized net transition obligation (60,363) (63,914)
Unrecognized net gain (loss) from past experience different from that assumed
and effects of changes in assumptions 13,805 24,070
Accrued postretirement benefit cost $ 62,264 49,346
Assumed Rates Used in Actuarial Computations
Weighted average discount rate 7.5% 8.25
Rate of increase in future compensation levels, depending on age 4.5 5
Health care cost trend rate
Prior to age 65 (for 1996, grading to 7 percent in 2004) 11.67 12.25
After age 65 (for 1996, grading to 6 percent in 2004) 10.67% 11.25
Effect of One Percent Increase in Health Care Cost Trend Rate
Service costs $ -- --
Interest costs 353 384
Accumulated postretirement benefit obligation $ 5,516 5,283
Postretirement Costs
Service cost-benefits earned during the period $ 1,866 2,151
Interest cost on projected benefit obligation 7,159 6,784
Amortization of transition obligation 2,711 3,543
Net cost $ 11,736 12,478
1993
Actuarial Present Value of Postretirement Benefits Obligation
Retirees 81,993
Fully eligible active participants 3,097
Other active participants 26,544
Accumulated postretirement benefit obligation 111,634
Projected benefit obligation in excess of plan assets 111,634
Unrecognized net transition obligation (67,221)
Unrecognized net gain (loss) from past experience different from that assumed
and effects of changes in assumptions (6,993)
Accrued postretirement benefit cost 37,420
Assumed Rates Used in Actuarial Computations
Weighted average discount rate 7
Rate of increase in future compensation levels, depending on age 4.5
Health care cost trend rate
Prior to age 65 (for 1996, grading to 7 percent in 2004) 12.83
After age 65 (for 1996, grading to 6 percent in 2004) 11.83
Effect of One Percent Increase in Health Care Cost Trend Rate
Service costs --
Interest costs 391
Accumulated postretirement benefit obligation 6,232
Postretirement Costs
Service cost-benefits earned during the period 1,605
Interest cost on projected benefit obligation 6,646
Amortization of transition obligation 4,309
Net cost 12,560
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 in 1994 resulted in additional personnel expense of
$12,948,000. The result of complying with this Standard in 1995 was not
material.
H-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
NOTE 14:
INCOME TAXES
The provision for income taxes charged to operations is as follows:
Years Ended December 31,
(In thousands) 1995 1994
Current Income Taxes
Federal $277,955 238,362
State 27,497 50,724
Total 305,452 289,086
Deferred Income Tax Expense
Federal 204,775 185,590
State 35,361 15,400
Total 240,136 200,990
Total $545,588 490,076
1993
(In thousands)
Current Income Taxes
Federal 276,379
State 48,722
Total 325,101
Deferred Income Tax Expense
Federal 74,002
State 4,157
Total 78,159
Total 403,260
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 $1,558,664 $1,415,456 $1,220,781
Tax at federal income tax rate $ 545,532 35.0% $ 495,410 35.0% $ 427,273 35.0%
Reasons for difference in federal
income tax rate and effective
rate
Tax-exempt interest, net of cost
to carry (37,505) (2.4) (41,209) (2.9) (44,986) (3.7)
State income taxes, net of
federal tax benefit 40,858 2.6 42,981 3.0 34,371 2.8
Goodwill amortization 16,404 1.1 12,740 .9 11,873 1.0
Adjustment to deferred income tax
assets and liabilities for
enacted changes in tax laws and
rates -- -- -- -- (15,875) (1.3)
Change in the beginning-of-the-
year deferred tax assets
valuation
allowance 3,031 .2 1,889 .1 (3,604) (.3)
Other items, net (22,732) (1.5) (21,735) (1.5) (5,792) (.5)
Total $ 545,588 35.0% $ 490,076 34.6% $ 403,260 33.0%
H-24
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 $ 61,863 47,296
Unrealized gain on debt and equity securities 59,457 --
Intangible assets 65,967 54,903
Leasing activity 477,298 260,763
Prepaid insurance premiums 2,170 17,554
Prepaid pension asset 55,642 50,868
Thrift loan loss reserve recapture 72,103 27,152
Purchase accounting adjustments (primarily loans and securities) 19,121 21,127
Other 37,120 31,424
Total deferred income tax liabilities 850,741 511,087
Deferred Income Tax Assets
Provision for loan losses, net (358,241) (366,049)
Accrued expenses, deductible when paid (222,696) (169,545)
Unrealized loss on debt and equity securities -- (115,219)
Foreclosed properties (12,006) (26,627)
Sale and leaseback transactions (17,227) (18,825)
Deferred income (14,489) (16,731)
Net operating loss carryforwards (27,225) (50,795)
First American segregated assets (19,769) (10,004)
Loan products (8,817) (916)
Other (29,777) (33,201)
Total deferred income tax assets (710,247) (807,912)
Deferred tax assets valuation allowance 43,570 37,421
Net deferred income tax liabilities (assets) $ 184,064 (259,404)
1993
(In thousands)
Deferred Income Tax Liabilities
Depreciation 48,710
Unrealized gain on debt and equity securities --
Intangible assets 72,943
Leasing activity 159,085
Prepaid insurance premiums --
Prepaid pension asset 44,757
Thrift loan loss reserve recapture 24,889
Purchase accounting adjustments (primarily loans and securities) 24,236
Other 39,375
Total deferred income tax liabilities 413,995
Deferred Income Tax Assets
Provision for loan losses, net (369,384)
Accrued expenses, deductible when paid (125,506)
Unrealized loss on debt and equity securities --
Foreclosed properties (52,637)
Sale and leaseback transactions (22,276)
Deferred income (13,987)
Net operating loss carryforwards (53,271)
First American segregated assets (76,003)
Loan products (11,940)
Other (30,476)
Total deferred income tax assets (755,480)
Deferred tax assets valuation allowance 22,173
Net deferred income tax liabilities (assets) (319,312)
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
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 $174,676,000 and $(115,219,000), respectively, have
been recorded directly to stockholders' equity. Purchase acquisitions also
increased the net deferred tax liability in the amount of $28,656,000 in 1995,
while increasing the net deferred tax asset by $25,863,000 in 1994 and
$109,803,000 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 $64,000,000 that are available to offset future federal taxable income
through 2007, subject to annual limitations. The Corporation also has net
operating loss carryforwards of $50,000,000 that are available to offset future
state taxable income through 2010. These carryforwards were primarily acquired
with the acquisition of FAMC.
H-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
Income tax expense (benefit) related to securities available for sale
transactions was $4,326,000, $(4,656,000) and $9,559,000 in 1995, 1994 and 1993,
respectively. Income tax expense related to investment security transactions was
$1,787,000, $1,455,000 and $2,658,000 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
1994, the Internal Revenue Service examination of the Corporation's federal
income tax returns for the years 1986 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 $366,964,000 at December 31,
1995, for the payment of dividends to the Parent Company without such regulatory
or other restrictions.
Subsidiary net assets of $6,241,582,000 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.
H-26
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 2,138,829
Other subsidiaries 467,909
7,127,252
Arising from purchase accounting acquisitions 97,989
Total investments in wholly-owned subsidiaries 7,225,241
Other assets 531,388
Total assets $11,876,796
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 6,152,446
Total liabilities and stockholders' equity $11,876,796
(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 4,226,554
Other subsidiaries 298,748
5,942,892
Arising from purchase accounting acquisitions 107,680
Total investments in wholly-owned subsidiaries 6,050,572
Other assets 235,574
Total assets 9,294,091
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 5,397,517
Total liabilities and stockholders' equity 9,294,091
H-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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 238,150 268,432 425,085
Net income 1,013,076 925,380 817,521
Dividends on preferred stock 7,029 25,353 24,900
Net income applicable to common stockholders before redemption premium 1,006,047 900,027 792,621
Redemption premium on preferred stock -- 41,355 --
Net income applicable to common stockholders after redemption premium $1,006,047 858,672 792,621
H-28
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands) 1995 1994 1993
Operating Activities
Net income $1,013,076 925,380 817,521
Adjustments to reconcile net income to net cash provided (used) by operating
activities
Equity in undistributed net income of subsidiaries (238,150) (268,432) (425,085)
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 70,369 (134,583) (700,353)
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 (561,507) (761,527) (938,505)
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 114,781 99,798 203,337
Purchases of preferred stock -- -- (134)
Redemption of preferred stock -- (325,396) --
Purchases of common stock (964,984) (217,554) (3,855)
Cash dividends paid (343,350) (323,255) (268,745)
Net cash provided (used) by financing activities 533,263 (135,137) 448,749
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) --
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 610,510 225,424 --
Assumption of long-term debt of liquidated affiliate $ 74,473 -- --
H-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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 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 an
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-17 through T-22, 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:
H-30
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 $ -- 100,664 31,492,679 -- 76,786 24,280,571
Standby and commercial letters of credit -- 26,781 2,745,170 -- 20,423 2,123,312
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 15,539,953 800,375 800,375 5,064,618
Interest rate risk management
Asset rate conversions -- 38,428 6,120,000 -- (7,071) 1,200,000
Asset hedge -- (1,391) 1,016,000 -- 555 1,200,000
Rate sensitivity hedges -- 17,877 25,355,000 -- (120) 25,000
Interest Rate Swap Agreements
Trading and dealer activities (118,032) (118,032) 10,287,396 7,508 7,508 5,533,468
Interest rate risk management
Asset rate conversions 20,516 118,460 8,327,656 5,784 (313,273) 7,022,116
Liability rate conversions 5,416 188,214 3,367,000 15,487 (143,023) 2,370,500
Purchased Options, Interest Rate Caps,
Floors, Collars and Swaptions
Trading and dealer activities 47,725 50,759 5,360,742 18,288 18,288 1,622,279
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) 7,743,202 (24,653) (24,653) 1,455,631
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) 780,418
Commitments to Sell Securities $ (806) (806) 659,383 693 693 842,744
H-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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 $1,340,936,000 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
$1,074,224,000. Minimum operating lease payments due in each of the five years
subsequent to December 31, 1995, are as follows: 1996, $113,697,000; 1997,
$105,391,000; 1998, $98,014,000; 1999, $90,837,000; 2000, $83,972,000; and
subsequent years, $709,901,000. Rental expense for all operating leases for the
three years ended December 31, 1995, was $145,239,000, 1995; $150,894,000, 1994;
and $151,242,000, 1993.
As of December 31, 1995, the Corporation's Bank Insurance Fund (BIF) deposit
assessment base was $40,733,825,000 and the Corporation's Savings Association
Insurance Fund (SAIF) deposit assessment base was $16,300,659,000. 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.
H-32
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 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 $ 8,406,775 8,406,775 6,056,842 6,056,842
Trading account assets 1,804,391 1,804,391 1,206,675 1,206,675
Securities available for sale 12,716,963 12,716,963 7,752,479 7,752,479
Investment securities 2,454,317 2,607,755 3,729,869 3,742,534
Loans
Commercial, financial and agricultural 18,412,611 18,698,176 15,867,615 15,905,366
Real estate-construction and other 2,249,093 2,313,849 1,726,469 1,755,830
Real estate-commercial mortgage 5,942,652 6,075,736 5,427,864 5,439,404
Lease financing 1,804,634 1,804,634 1,087,124 1,087,124
Foreign 519,970 522,363 415,857 415,602
Real estate-mortgage 20,122,680 20,668,077 14,981,418 14,504,275
Installment loans-Bankcard 3,383,903 3,396,894 3,959,640 4,064,859
Installment loans-other 13,192,901 13,405,913 10,563,765 10,342,894
Loans, net of unearned income 65,628,444 66,885,642 54,029,752 53,515,354
Allowance for loan losses (966,511) -- (978,795) --
Loans, net 64,661,933 66,885,642 53,050,957 53,515,354
Other assets $ 2,097,423 2,101,950 1,275,883 1,292,086
Financial Liabilities
Deposits
Noninterest-bearing deposits 11,788,401 11,788,401 10,523,538 10,523,538
Interest-bearing deposits
Savings and NOW accounts 15,739,529 15,739,529 13,991,987 13,991,987
Money market accounts 9,360,061 9,360,061 10,118,963 10,118,963
Other consumer time 22,899,251 23,294,473 18,544,324 18,594,249
Foreign 2,962,870 2,962,870 4,069,587 4,069,587
Other time 2,250,189 2,266,870 1,709,874 1,715,877
Total deposits 65,000,301 65,412,204 58,958,273 59,014,201
Short-term borrowings 16,598,072 16,598,072 7,532,343 7,532,343
Other liabilities 2,127,151 2,127,151 1,450,496 1,450,496
Long-term debt $ 6,444,327 6,729,832 3,428,514 3,314,029
Estimated fair values for the commercial loan portfolio were based on
weighted average discount rates ranging from 7.07 percent to 7.62 percent and
7.45 percent to 10.06 percent at December 31, 1995 and 1994, respectively, and
for the retail portfolio from 9.44 percent to 13.00 percent and 10.19 percent to
12.12 percent, respectively.
Nonperforming loans of less than $1,000,000 each, which amounted to
$97,353,000 and $120,120,000 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First Union Corporation and Subsidiaries
December 31, 1995, 1994 and 1993
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.
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