-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qTQxeEpXjhDi/pP2bkTIBJdhRFIIzSgBI5oZFep72AnQZXqTx/bT2EofgD2esCH7 IXTCi/YwHJjlkJbl6jZtMA== 0000950168-95-000134.txt : 19950609 0000950168-95-000134.hdr.sgml : 19950609 ACCESSION NUMBER: 0000950168-95-000134 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950303 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION CORP CENTRAL INDEX KEY: 0000036995 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560898180 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10000 FILM NUMBER: 95518602 BUSINESS ADDRESS: STREET 1: ONE FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 BUSINESS PHONE: 7043746565 MAIL ADDRESS: STREET 1: FIRST UNION CORPORA STREET 2: ONE FIRST UNION CENTER CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 FORMER COMPANY: FORMER CONFORMED NAME: CAMERON FINANCIAL CORP DATE OF NAME CHANGE: 19750522 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION NATIONAL BANCORP INC DATE OF NAME CHANGE: 19721115 10-K 1 FIRST UNION CORPORATION 10-K 3/3/95 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [(check mark)] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-10000 FIRST UNION CORPORATION (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0898180 (State of incorporation) (I.R.S. Employer Identification No.) ONE FIRST UNION CENTER CHARLOTTE, NORTH CAROLINA 28288-0013 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 374-6565 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED Common Stock, $3.33 1/3 par value (including rights New York Stock Exchange attached thereto) Series 1990 Cumulative Perpetual Adjustable Rate New York Stock Exchange Preferred Stock, no-par value Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes(Check mark) No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes (check mark) No (APPLICABLE ONLY TO CORPORATE REGISTRANTS) As of January 31, 1995, there were 173,902,909 shares of the registrant's Common Stock outstanding, $3.33 1/3 par value per share, and based on the last reported sale price of $42.75 per share on the New York Stock Exchange on such date, the aggregate market value of the registrant's Common Stock held by those persons deemed by the registrant to be nonaffiliates was approximately $7.3 billion. DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K 1. Certain portions of the Corporation's Annual Report to Part I -- Items 1 and 2; Part II -- Items 5, 6, 7 Stockholders for year ended December 31, 1994 ("Annual and 8. Report"). 2. Certain portions of the Corporation's Proxy Statement Part III -- Items 10, 11, 12 and 13. for Annual Meeting of Stockholders to be held on April 18, 1995 ("Proxy Statement").
PART I ITEM 1. BUSINESS. GENERAL First Union Corporation (the "Corporation" or "FUNC") was incorporated under the laws of North Carolina in 1967 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Pursuant to a corporate reorganization in 1968, First Union National Bank of North Carolina ("FUNB-NC ") and First Union Mortgage Corporation, a mortgage banking firm acquired by FUNB-NC in 1964, became subsidiaries of the Corporation. In addition to FUNB-NC, the Corporation also operates banking subsidiaries in Florida (since November 1985), South Carolina (since March 1986), Georgia (since March 1986), Tennessee (since December 1987), Maryland (since December 1992), Virginia (since December 1992) and Washington, D.C. (since December 1992). In addition to providing a wide range of commercial and retail banking and trust services through its banking subsidiaries, the Corporation also provides various other financial services, including mortgage banking, home equity lending, insurance and securities brokerage services, through other subsidiaries. The Corporation's principal executive offices are located at One First Union Center, Charlotte, North Carolina 28288-0013 (telephone number (704)374-6565). Since the 1985 Supreme Court decision upholding regional interstate banking legislation, the Corporation has concentrated its efforts on building a large regional banking organization in the southeastern and south atlantic regions of the United States. Since November 1985, the Corporation has completed 50 banking related acquisitions and currently has five pending acquisitions, including the more significant completed and pending acquisitions (I.E., acquisitions involving the acquisition of $3.0 billion or more of assets or deposits) set forth in the following table.
CONSIDERATION/ ASSETS/ ACCOUNTING NAME (1) HEADQUARTERS DEPOSITS (2)(3) TREATMENT COMPLETION DATE Atlantic Bancorporation.......................... Florida $3.8 billion common stock/ November 1985 pooling Northwestern Financial Corporation............... North Carolina 3.0 billion common stock/ December 1985 pooling First Railroad & Banking Company of Georgia...... Georgia 3.7 billion common stock/ November 1986 pooling Florida National Banks of Florida, Inc........... Florida 7.9 billion cash and preferred January 1990 stock/purchase Southeast banks.................................. Florida 9.9 billion cash/notes September 1991 and preferred stock/purchase Resolution Trust Corporation ("RTC") acquisitions................................... Florida, 5.3 billion cash/purchase 1991-1994 Georgia, Virginia Dominion Bankshares Corporation.................. Virginia 8.9 billion common and March 1993 preferred stock/pooling Georgia Federal Bank, FSB........................ Georgia 4.0 billion cash/purchase June 1993 First American Metro Corp........................ Virginia 4.6 billion cash/purchase June 1993 American Savings of Florida, F.S.B. ("ASF") (4).................................... Florida $3.5 billion common stock/ purchases
1 (1) Additional information relating to certain of the foregoing and other acquisitions is set forth in the Annual Report in Note 2 on pages 62 and 63. (2) The dollar amounts indicated represent assets of the related organization as of the last reporting period prior to acquisition, except for (i) the dollar amount relating to RTC acquisitions, which represents deposits acquired from the RTC and (ii) the dollar amount relating to Southeast banks, which represents assets of the two banking subsidiaries of Southeast Banking Corporation acquired from the Federal Deposit Insurance Corporation (the "FDIC"). (3) In addition, the Corporation purchased Lieber & Company ("Lieber"), a mutual fund advisory company with approximately $3.4 billion in assets under management, in June 1994. Since such assets are not owned by Lieber, they are not reflected on the Corporation's balance sheet. (4) The ASF acquisition was announced on December 5, 1994, and is currently expected to close during the first half of 1995, subject to certain conditions of closing. The acquisition provides for issuance of $21.00 in value of shares of the Corporation's Common Stock, $3.33 1/3 par value per share (the "Common Stock"), based on the price of Common Stock prior to the closing, in exchange for each share of ASF common stock, resulting in a purchase price of approximately $253 million. The Corporation paid $161 million for the purchase in the open market of 3.8 million shares of Common Stock expected to be issued in the acquisition and will account for the acquisition as a purchase. The Corporation is continually evaluating acquisition opportunities and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Acquisitions typically involve the payment of a premium over book and market values, and therefore some dilution of the Corporation's book value and net income per common share may occur in connection with any future transactions. Additional information relating to the business of the Corporation and its subsidiaries is set forth on pages 6 through 10 in the Annual Report and incorporated herein by reference. Information relating to the Corporation only is set forth in Note 16 on pages 81 through 84 in the Annual Report and incorporated herein by reference. COMPETITION The Corporation's subsidiaries face substantial competition in their operations from banking and nonbanking institutions, including savings and loan associations, credit unions, money market funds and other investment vehicles, brokerage firms, insurance companies, leasing companies, credit card issuers, mortgage banking companies, finance companies and other types of financial institutions. Based on the volume of permanent mortgages serviced on December 31, 1994, the Corporation's mortgage banking subsidiary, First Union Mortgage Corporation, was the 17th largest mortgage banking company in the United States. SUPERVISION AND REGULATION GENERAL As a bank holding company, the Corporation is subject to regulation under the BHCA and its examination and reporting requirements. Under the BHCA, bank holding companies may not directly or indirectly acquire the ownership or control of more than five percent of the voting shares or substantially all of the assets of any company, including a bank, without the prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking activities, subject to certain exceptions. The earnings of the Corporation's subsidiaries, and therefore the earnings of the Corporation, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board and the Comptroller of the Currency (the "Comptroller"). In addition, there are numerous governmental requirements and regulations which affect the activities of the Corporation and its subsidiaries. PAYMENT OF DIVIDENDS The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. A major portion of the revenues of the Corporation result from amounts paid as dividends to the Corporation by its national bank subsidiaries. The Corporation's banking subsidiaries are subject to legal limitations on the amount of dividends they can pay. The prior 2 approval of the Comptroller is required if the total of all dividends declared by a national bank in any calendar year will exceed the sum of such bank's net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends which would be greater than the bank's undivided profits after deducting statutory bad debt in excess of the bank's allowance for loan losses. Under the foregoing dividend restrictions and certain restrictions applicable to certain of the Corporation's nonbanking subsidiaries, as of December 31, 1994, the Corporation's subsidiaries, without obtaining affirmative governmental approvals, could pay aggregate dividends of $397 million to FUNC during 1995. During 1994, the Corporation's subsidiaries paid $682 million in cash dividends to FUNC. In addition, both the Corporation and its national bank subsidiaries are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a national bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The Comptroller has indicated that paying dividends that deplete a national bank's capital base to an inadequate level would be an unsound and unsafe banking practice. The Comptroller and the Federal Reserve Board have each indicated that banking organizations should generally pay dividends only out of current operating earnings. BORROWINGS BY THE CORPORATION There are also various legal restrictions on the extent to which the Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to any one of the Corporation or such nonbank subsidiaries, to ten percent of the lending bank's capital stock and surplus, and as to the Corporation and all such nonbank subsidiaries in the aggregate, to 20 percent of such lending bank's capital stock and surplus. CAPITAL Under the risk-based capital requirements for bank holding companies, the minimum requirement for the ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) is eight percent. At least half of the total capital is to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less goodwill ("tier 1 capital" and together with tier 2 capital "total capital"). The remainder may consist of subordinated debt, non-qualifying preferred stock and a limited amount of the loan loss allowance ("tier 2 capital"). At December 31, 1994, the Corporation's tier 1 capital and total capital ratios were 7.76 percent and 12.94 percent, respectively. 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 ("leverage ratio") equal to three percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of from at least four to five percent. The Corporation's leverage ratio at December 31, 1994, was 6.12 percent. The requirements also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the requirements indicate that the Federal Reserve Board will continue to consider a "tangible tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised the Corporation of any specific minimum tier 1 leverage ratio applicable to it. 3 Each of the Corporation's subsidiary national banks is subject to similar capital requirements adopted by the Comptroller. The Comptroller has not advised any of the Corporation's subsidiary national banks of any specific minimum leverages ratio applicable to it. As of December 31, 1994, the capital ratios of the bank subsidiaries of the Corporation, FUNB-NC, First Union National Bank of South Carolina ("FUNB-SC"), First Union National Bank of Georgia ("FUNB-GA"), First Union National Bank of Florida ("FUNB-FL"), First Union National Bank of Washington, D.C. ("FUNB-DC"), First Union National Bank of Maryland ("FUNB-MD"), First Union National Bank of Tennessee ("FUNB-TN"), First Union National Bank of Virginia ("FUNB-VA") and First Union Home Equity Bank, N.A. ("FUHEB"), were as follows:
REGULATORY FUNB- FUNB- FUNB- FUNB- FUNB- FUNB- FUNB- FUNB- MINIMUM NC SC GA FL DC MD TN VA FUHEB Tier 1 capital ratio.... 4% 7.32 7.88 8.26 7.95 16.75 20.53 12.76 9.21 7.60 Total capital ratio..... 8 10.69 12.15 11.18 10.76 18.03 21.81 14.02 13.11 12.10 Leverage ratio.......... 3-5% 6.10 5.77 5.69 5.91 8.33 12.82 8.47 7.10 7.22
Banking regulators continue to indicate their desire to raise capital requirements applicable to banking organizations, including a proposal to add an interest rate risk component to risk-based capital requirements. FIRREA; SUPPORT OF SUBSIDIARY BANKS The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), among other things, imposes liability on an institution the deposits of which are insured by the FDIC, such as the Corporation's subsidiary national banks, for certain potential obligations to the FDIC incurred in connection with other FDIC-insured institutions under common control with such institution. Under the National Bank Act, if the capital stock of a national bank is impaired by losses or otherwise, the Comptroller is authorized to require payment of the deficiency by assessment upon the bank's stockholders, pro rata, and to the extent necessary, if any such assessment is not paid by any stockholder after three months notice, to sell the stock of such stockholder to make good the deficiency. Under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each of such subsidiaries. This support may be required at times when, absent such Federal Reserve Board policy, the Corporation may not find itself able to provide it. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), among other things, requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDICIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". A depository institution's capital tier will depend upon where its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. The Comptroller has adopted regulations establishing relevant capital measures and relevant capital levels. The relevant capital measures are the total capital ratio, tier 1 capital ratio and the leverage ratio. Under the regulations, a bank will be: (i) "well capitalized" if it has a total capital ratio of ten percent or greater, a tier 1 capital ratio of six percent or greater and a leverage ratio of five percent or greater and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total capital ratio of eight percent or greater, a tier 1 capital ratio of four percent or greater and a leverage ratio of four percent or greater (three percent in certain circumstances) and is not "well capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less than eight percent, a tier 1 capital ratio of less than four percent or a leverage ratio of less than four percent (three percent in certain circumstances); (iv) "significantly undercapitalized" if it has a total capital ratio of less than six percent, a tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent; and (v) "critically undercapitalized" if its tangible equity is equal to or less than two percent of average quarterly tangible 4 assets. As of December 31, 1994, all of the Corporation's subsidiary banks had capital levels that qualify them as being "well capitalized" under such regulations. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be "undercapitalized". "Undercapitalized" depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to five percent of the depository institution's total assets at the time it became "undercapitalized", and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized". "Significantly undercapitalized" depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized", requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. "Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator. FDICIA directs that each federal banking agency prescribe standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and such other standards as the agency deems appropriate. The ultimate effect of these standards cannot be ascertained until final regulations are adopted. FDICIA also contains a variety of other provisions that may affect the operations of the Corporation, including reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, the requirement that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch, and a prohibition on the acceptance or renewal of brokered deposits by depository institutions that are not "well capitalized" or are "adequately capitalized" and have not received a waiver from the FDIC. Under regulations relating to the brokered deposit prohibition, all of the Corporation's subsidiary banks are "well capitalized" and not subject to the prohibition. DEPOSITOR PREFERENCE STATUTE 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. INTERSTATE BANKING AND BRANCHING LEGISLATION The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA"), authorizes interstate acquisitions of banks and bank holding companies without geographic limitation beginning one year after enactment. In addition, beginning June 1, 1997, the IBBEA authorizes a bank to merge with a bank in another state as long as neither of the states has opted out of interstate branching between the date of enactment of the IBBEA and May 31, 1997. The IBBEA further provides that states may enact laws permitting interstate bank merger transactions prior to June 1, 1997. A bank may establish and operate a DE NOVO branch in a state in which the bank does not maintain a branch if that state expressly permits DE NOVO branching. Once a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where any bank involved in the interstate merger transaction could have established or acquired branches under applicable federal or state law. A bank that has established a branch in a state through DE NOVO branching may establish and acquire additional branches in such state in the same manner and to the same extent as a bank having a branch in such state as a result of an interstate merger. If a state opts out of interstate branching within the specified time period, no bank in any other state may establish a branch in the opting out state, whether through an acquisition or DE NOVO. 5 ADDITIONAL INFORMATION Additional information related to certain regulatory and accounting matters is set forth on pages 21 and 22 in the Annual Report and incorporated herein by reference. ITEM 2. PROPERTIES. As of December 31, 1994, the Corporation and its subsidiaries owned or leased 1,562 locations in 42 states and two foreign countries from which their business is conducted, including a multi-story office complex in Charlotte, North Carolina, which serves as the administrative headquarters of the Corporation, FUNB-NC, FUHEB and most of the Corporation's nonbanking subsidiaries. Listed below are the number of banking and nonbanking locations of the Corporation that are leased or owned, as of December 31, 1994:
LEASED OWNED First Union National Bank of Florida............................................... 211 342 First Union National Bank of North Carolina........................................ 98 179 First Union National Bank of Georgia............................................... 46 108 First Union National Bank of South Carolina........................................ 12 54 First Union National Bank of Tennessee............................................. 11 43 First Union National Bank of Virginia.............................................. 66 111 First Union National Bank of Maryland.............................................. 22 4 First Union National Bank of Washington, D.C....................................... 31 2 First Union Home Equity Bank, N.A.................................................. 184 -- Nonbanking locations............................................................... 38 -- Total............................................................................ 719 843
The principal offices of each of the Corporation's subsidiary banks in Jacksonville, Florida; Atlanta, Georgia; Greenville, South Carolina; Nashville, Tennessee; Roanoke, Virginia; Rockville, Maryland; and Washington, D.C., are all leased. Additional information relating to the Corporation's lease commitments is set forth in Note 17 on page 87 in the Annual Report and incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. The Corporation and certain of its subsidiaries have been named as defendants in various legal actions arising from their normal business activities in which varying amounts are claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, based upon the opinions of counsel, any such liability will not have a material effect on the consolidated financial position of the Corporation and its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock is listed on the New York Stock Exchange. Table 6 on page 29 in the Annual Report sets forth information relating to the quarterly prices of, and quarterly dividends paid on, the Common Stock for the two-year period ended December 31, 1994, and is incorporated herein by reference. Prices shown represent the high, low and quarter-end sale prices of the Common Stock as reported on the New York Stock Exchange, Inc. Composite Transactions Tape for the periods indicated. As of December 31, 1994, there were 54,236 holders of record of the Common Stock. In December 1990, the Board of Directors of the Corporation adopted a Shareholder Protection Rights Plan (the "Plan") designed to enhance the ability of the Board to protect stockholders against attempts to acquire control of the Corporation by means of unfair or abusive tactics. The Plan provides, among other things, that the rights granted under the Plan to the holders of shares of Common Stock (one right for each share of Common Stock) will become exercisable (after a specified period) if any person or group announces a tender or exchange offer for, or acquires, 15 percent or more of the Common Stock. At that time each right will enable the holders of the rights (other than such person or group, whose rights become void) to purchase additional shares of 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 $110 exercise price of the right, subject to adjustment in certain events. If any person or group acquires beneficial ownership of between 15 percent and 50 percent of the Common Stock, the Corporation's Board of Directors may, at its option, exchange for each outstanding and not voided right either two shares of Common Stock or junior participating Class A Preferred Stock having economic and voting terms similar to two shares of Common Stock, subject to adjustment in certain events. The rights are redeemable by the Corporation at $0.01 per right (subject to adjustment in certain events) prior to becoming exercisable and, in certain events, may be cancelled and terminated without any payment to holders. The rights have no voting rights and are not entitled to dividends. The rights will expire on December 28, 2000, unless sooner redeemed or terminated. Each share of Common Stock has attached to it one right, and the rights will not trade separately from the Common Stock unless they become exercisable. Subject to the prior rights of the holders of the Series 1990 Cumulative Perpetual Adjustable Rate Preferred Stock ("Series 1990 Preferred Stock"), holders of the Common Stock are entitled to receive such dividends as may be legally declared by the Board of Directors and, in the event of dissolution and liquidation, to receive the net assets of the Corporation remaining after payment of all liabilities, in proportion to their respective holdings. All of the 6.3 million outstanding shares of Series 1990 Preferred Stock have been called for redemption on March 31, 1995, at the redemption price of $51.50 per share. Additional information concerning certain limitations on the payment of dividends by the Corporation and its subsidiaries is set forth above under "Business -- Supervision and Regulation; Payment of Dividends" and in Note 16 on page 81 in the Annual Report and incorporated herein by reference. Additional information relating to the Series 1990 Preferred Stock and Common Stock is set forth in Note 12 on page 75 in the Annual Report and incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. In response to this Item the information set forth in Table 2 on page 26 in the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. In response to this Item the information set forth on pages 12 through 53 in the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. In response to this Item the information set forth on page 29 and on pages 54 through 89 in the Annual Report is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Corporation are elected to their offices for one year terms at the meeting of the Board of Directors in April of each year. The terms of any executive officers elected after such date expire at the same time as the terms of the executive officers elected on such date. The names of each of the current executive officers of the Corporation, their ages, their current positions with the Corporation and certain subsidiaries and, if different, their business experience during the past five years, are as follows: Edward E. Crutchfield (53). Chairman and Chief Executive Officer, the Corporation. Also, President, the Corporation, October 1988 to June 1990. John R. Georgius (50). President, the Corporation, since June 1990. Chairman and Chief Executive Officer, FUNB-NC, from October 1988 to February 1993. Vice Chairman, the Corporation, August 1987 to June 1990. B. J. Walker (64). Vice Chairman, the Corporation. Also, Chairman and Chief Executive Officer, FUNB-FL, prior to March 1991. Robert T. Atwood (54). Executive Vice President and Chief Financial Officer, the Corporation, since March 1991. Prior to that time, Mr. Atwood was a partner with the accounting firm of Deloitte & Touche. Marion A. Cowell, Jr. (60). Executive Vice President, Secretary, and General Counsel, the Corporation. Mr. Cowell served as Senior Vice President, Secretary and General Counsel of the Corporation prior to December 1991. In addition to the foregoing, the information set forth in the Proxy Statement under the heading "General Information and Nominees", and in the last paragraph under the heading "Other Matters Relating to Executive Officers and Directors" is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. In response to this Item the information set forth in the Proxy Statement under the heading "Executive Compensation", excluding the information under the subheadings "HR Committee Report on Executive Compensation" and "Performance Graph", is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. In response to this Item the information set forth in the Proxy Statement relating to the ownership of Common Stock and Series 1990 Preferred Stock by the directors and executive officers of the Corporation under the heading "General Information and Nominees" is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In response to this Item the information set forth in the Proxy Statement in the first paragraph under the heading "Other Matters Relating to Executive Officers and Directors" is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The consolidated financial statements of the Corporation, including the notes thereto and independent auditors' report thereon, are set forth on pages 54 through 89 of the Annual Report. All financial statement schedules are omitted since the required information is either not applicable, is immaterial or is included in the consolidated financial statements of the Corporation and notes thereto. A list of the exhibits to this Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference. (b) During the quarter ended December 31, 1994, a Current Report on Form 8-K, dated December 20, 1994, was filed by the Corporation with the Securities and Exchange Commission. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST UNION CORPORATION Date: March 3, 1995 By: MARION A. COWELL, JR. MARION A. COWELL, JR. EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date indicated.
SIGNATURE CAPACITY EDWARD E. CRUTCHFIELD* Chairman and Chief Executive Officer and Director EDWARD E. CRUTCHFIELD ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer ROBERT T. ATWOOD JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal Accounting Officer) JAMES H. HATCH G. ALEX BERNHARDT* Director G. ALEX BERNHARDT W. WALDO BRADLEY* Director W. WALDO BRADLEY ROBERT J. BROWN* Director ROBERT J. BROWN Director ROBERT D. DAVIS R. STUART DICKSON* Director R. STUART DICKSON B. F. DOLAN* Director B. F. DOLAN RODDEY DOWD, SR.* Director RODDEY DOWD, SR. JOHN R. GEORGIUS* Director JOHN R. GEORGIUS
9
SIGNATURE CAPACITY WILLIAM H. GOODWIN, JR.* Director WILLIAM H. GOODWIN, JR. BRENTON S. HALSEY* Director BRENTON S. HALSEY HOWARD H. HAWORTH* Director HOWARD H. HAWORTH TORRENCE E. HEMBY, JR.* Director TORRENCE E. HEMBY, JR. LEONARD G. HERRING* Director LEONARD G. HERRING JACK A. LAUGHERY* Director JACK A. LAUGHERY MAX LENNON* Director MAX LENNON RADFORD D. LOVETT* Director RADFORD D. LOVETT HENRY D. PERRY, JR.* Director HENRY D. PERRY, JR. RANDOLPH N. REYNOLDS* Director RANDOLPH N. REYNOLDS RUTH G. SHAW* Director RUTH G. SHAW LANTY L. SMITH* Director LANTY L. SMITH DEWEY L. TROGDON* Director DEWEY L. TROGDON JOHN D. UIBLE* Director JOHN D. UIBLE B. J. WALKER* Director B. J. WALKER
10
SIGNATURE CAPACITY KENNETH G. YOUNGER* Director KENNETH G. YOUNGER *By Marion A. Cowell, Jr., Attorney-in-Fact MARION A. COWELL, JR. MARION A. COWELL, JR.
Date: March 3, 1995 11 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION (3)(i) Articles of Incorporation of the Corporation, as amended. Incorporated by reference to Exhibit (4) to the Corporation's 1990 First Quarter Report on Form 10-Q and to Exhibit (99)(a) to the Corporation's 1993 First Quarter Report on Form 10-Q. (3)(ii) By-laws of the Corporation, as amended. Incorporated by reference to Exhibit (4)(b) to the Corporation's Form 8-K dated September 20, 1991. (4)(a) Statement of Classification of Shares creating the Series 1990 Incorporated by reference to Exhibit (4)(a) Preferred Stock. to the Corporation's 1989 Annual Report on Form 10-K. (4)(b) Instruments defining the rights of the holders of the * Corporation's long-term debt. (4)(c) The Corporation's Shareholder Protection Rights Plan, as amended. Incorporated by reference to Exhibit (4)(b) to the Corporation's Forms 8-K dated December 18, 1990 and October 20, 1992. (10)(a) The Corporation's Management Incentive Plan. Incorporated by reference to Exhibit (10)(a) to the Corporation's 1992 Annual Report on Form 10-K. (10)(b) The Corporation's Deferred Compensation Plan for Officers. Incorporated by reference to Exhibit (10)(b) to the Corporation's 1988 Annual Report on Form 10-K. (10)(c) The Corporation's Deferred Compensation Plan for Non-Employee Incorporated by reference to Exhibit (10)(c) Directors. to the Corporation's 1989 Annual Report on Form 10-K. (10)(d) The Corporation's Supplemental Executive Long-Term Disability Incorporated by reference to Exhibit (10)(d) Plan. to the Corporation's 1988 Annual Report on Form 10-K. (10)(e) The Corporation's 1969 Stock Option Plan. Incorporated by reference to Exhibit (28) to Post-Effective Amendment No. 13 to the Corporation's Registration Statement No. 2-42050. (10)(f) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit (10)(f) to the Corporation's 1988 Annual Report on Form 10-K. (10)(g) The Corporation's Retirement Plan for Non-Employee Directors. Incorporated by reference to Exhibit (10)(g) to the Corporation's 1988 Annual Report on Form 10-K. (10)(h) The Corporation's 1984 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to the Corporation's Registration Statement No. 33-47447. (10)(i) The Corporation's 1988 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to the Corporation's Registration Statement No. 33-47447.
* The Corporation agrees to furnish to the Securities and Exchange Commission upon request, copies of the instruments, including indentures, defining the rights of the holders of the long-term debt of the Corporation and its subsidiaries.
EXHIBIT NO. DESCRIPTION LOCATION (10)(j) The Corporation's 1992 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to the Corporation's Registration Statement No. 33-47447. (10)(k) Employment Agreement between the Corporation and Edward E. Filed herewith. Crutchfield, as amended. (10)(l) The Corporation's Management Long-Term Cash Incentive Plan. Incorporated by reference to Exhibit (10)(m) to the Corporation's 1992 Annual Report on Form 10-K. (12)(a) Computations of consolidated ratios of earnings to fixed charges. Filed herewith. (12)(b) Computations of consolidated ratios of earnings to fixed charges Filed herewith. and preferred stock dividends. (13) The Corporation's 1994 Annual Report to Stockholders.** Filed herewith. (21) List of the Corporation's subsidiaries. Filed herewith. (23) Consent of KPMG Peat Marwick LLP. Filed herewith. (24) Power of Attorney. Filed herewith. (27) The Corporation's Financial Data Schedules.*** (99)(a) First Union Corporation of Virginia and Subsidiaries Summarized Filed herewith. Financial Information. (99)(b) Pro Forma Financial Information. Filed herewith.
** Except for those portions of the Annual Report which are expressly incorporated by reference in this Form 10-K, the Annual Report is furnished for the information of the Securities and Exchange Commission only and is not to be deemed "filed" as part of such Form 10-K. *** Filing by Electronic Data Gathering, Analysis and Retrieval System only. EX-10 2 EXHIBIT 10(K) Exhibit 10(k) AMENDED AND RESTATED AGREEMENT AMENDED and RESTATED AGREEMENT, dated as of August 1, 1985, by and between FIRST UNION CORPORATION, a North Carolina corporation (hereinafter referred to as "Employer") and EDWARD E. CRUTCHFIELD, JR., an individual (hereinafter referred to as "Employee"). IN CONSIDERATION OF the mutual covenants herein contained, and other good and valuable consideration, the parties hereto agree as follows: 1. Employment. (a) Employer hereby agrees to employ Employee, and Employee agrees to serve as an employee of Employer and as an employee of one or more of its subsidiaries, during the Period of Employment, as defined in Section 2, in such executive capacity as is set forth herein. During the Period of Employment, Employee also agrees to serve as a Director on the Board of Directors of Employer, as well as a member of any committee of the Board of Directors of the Employer to which Employee may be elected or appointed. Effective as of the date hereof, Employee shall serve as Chairman of the Board of Directors and Chief Executive Officer of Employer. (b) If at any time during the Period of Employment, the Board of Directors of Employer fails, without Employee's consent, to elect or re-elect Employee to the offices specified in paragraph (a) of this Section, or removes Employee from such offices, or if at any time during the Period of Employment, Employee shall fail to be vested by the Board of Directors of Employer with the power and authority of such offices or Employee shall lose any significant duties or responsibilities attending such offices, Employee shall have the right by written notice to Employer to terminate his services hereunder, effective as of the last day of the month of receipt of such notice, in which event the Period of Employment, as hereinafter defined, shall so terminate on such last day of the month; such termination under such circumstances shall be deemed pursuant to paragraph (a) of Section 6 hereof as a termination by Employer other than for Cause with all of the consequences which flow from such termination. 2. Period of Employment. The "Period of Employment" shall be the period commencing August 1, 1985 and ending on December 31, 1990 and the period of any extensions thereof in accordance with the further provisions of this Section. The Period of Employment shall be extended automatically without further action by either party as of January 1, 1987 and each succeeding January 1, for the one-year period beginning on January 1, 1991 and each succeeding January 1 thereafter, unless either party shall have served written notice in accordance with the provisions of Section 9 hereof upon the other party prior to November 1, 1986 or prior to December 31 of any succeeding year during the Period of Employment, as the case may be, of its or his intention that the Period of Employment under this Agreement shall terminate ten days after such notice is served. 3. Duties During the Period of Employment. Employee shall devote his full business time, attention and best efforts to the affairs of Employer and its subsidiaries during the Period of Employment; provided, however, that Employee may engage in other activities, such as activities involving charitable, educational, religious and similar types of organizations, speaking engagements, membership on the board of directors of other organizations, and similar type activities to the extent that such other activities do not prohibit the performance of his duties under this Agreement, or inhibit or conflict in any material way with the business of Employer and its subsidiaries. 4. Current Cash Compensation. (a) Base Annual Salary. Employer will pay to Employee during the Period of Employment a base annual salary payable in substantially equal semi-monthly installments, at an annual rate at least equal to the aggregate annual base salary payable to Employee by Employer and any of its affiliated or subsidiary companies as of August 1, 1985, during each calendar year, or portion thereof, of the Period of Employment; provided, however, it is agreed between the parties that the Employer shall review annually, and in light of such review may, in the discretion of the Board of Directors of Employer and in accordance with Employer's compensation procedures and guidelines, increase such base annual salary taking into account Employee's then responsibilities, increase in the cost of living, increases in compensation of other executives of Employer and its subsidiaries, increases in salaries of executives of other corporations, performance by Employee and Employer, or other pertinent factors. (b) Bonus. During the Period of Employment, Employer, in its sole discretion, will award Employee an annual bonus based on his performance and other factors; provided, however, that while not being legally required to pay any bonus Employer agrees to take into account, in determining the amount of the annual bonus, the 2 factors described in paragraph (a) of this Section. The bonus in respect of any calendar year shall be paid on or before March 31 of the succeeding calendar year. An award made to Employee under Employer's Management Incentive Plan shall be considered to be a bonus for purposes of this paragraph. 5. Other Employee Benefits. (a) Vacation and Sick Leave. Employee shall be entitled to reasonable paid annual vacation periods and to reasonable sick leave. (b) Regular Reimbursed Business Expenses. Employer shall reimburse Employee for all expenses and disbursements reasonably incurred by Employee in the performance of his duties during the Period of Employment and such other facilities or services as Employer and Employee may, from time to time, agree are reimbursable. (c) Employee's Benefit Plans or Arrangements. In addition to the cash compensation provided for in Section 4 hereof, Employee, subject to meeting eligibility provisions and to the provisions of this Agreement, shall be entitled to participate in all employee benefit plans of Employer, as in effect on August 1, 1985 or as they may be modified or added to by the Employer from time to time, including, without limitation, plans providing retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance. (d) Employer's Executive Compensation Plans. In addition to the cash compensation provided for in Section 4 hereof and the employee benefits of Employer provided for in paragraph (c) of this Section, Employee, subject to meeting eligibility provisions and to the provisions of this Agreement, shall be entitled to participate in all executive compensation plans of Employer, as in effect on August 1, 1985 or as they may be modified or added to by the Employer from time to time, including, without limitation, management incentive plans, deferred compensation plans, supplemental retirement plans and stock option plans. (e) Permanent Disability. If, during the Period of Employment, Employee shall become permanently disabled, Employer shall pay Employee (i) that amount payable to Employee under any long-term disability plan and supplements thereto maintained by Employer providing for 3 disability benefits, and (ii) an annual amount equal to 15% of the average of Employee's base annual salary (pursuant to paragraph (a) of Section 4) and bonus (pursuant to paragraph (b) of Section 4) during the three calendar years immediately preceding the date Employee becomes disabled. Amounts payable to Employee pursuant to this paragraph shall be paid in substantially equal monthly installments. For the purposes of this paragraph (e) and this Agreement, "permanently disabled" shall have the same meaning, be adjudicated, and impact or affect other Employer benefit plans as provided in such long-term disability plan maintained by Employer which provides disability benefits to employees. 6. Termination. (a) Termination by Employer Other Than for Cause; Certain Voluntary Termination. If Employer should terminate the Period of Employment for other than Cause, as herein defined, or if Employee should voluntarily terminate the Period of Employment pursuant to paragraph (b) of Section 1, Employer shall forthwith pay to Employee an amount equal to the sum of (a) the result of multiplying (i) the base annual salary payable to Employee pursuant to paragraph (a) of Section 4 as of the date of termination of the Period of Employment by (ii) the number of years (and fractions thereof) then remaining in the Period of Employment and (b) the result of multiplying (i) the average of the bonus payable to Employee pursuant to paragraph (b) of Section 4 or otherwise during the three calendar years immediately preceding the date of termination of the Period of Employment by (ii) the numbers of years (and fractions thereof) then remaining in the Period of Employment. "Cause" shall mean willful misconduct in following the legitimate directions of the Board of Directors of Employer; conviction of a felony or conviction for dishonesty; excessive absenteeism not related to illness, sick leave or vacations, but only after notice from the Board of Directors followed by a repetition of such excessive absenteeism; or continuous conflicts of interest after notice in writing from the Board of Directors. (b) Termination by Employer for Cause. If Employer should terminate the Period of Employment for Cause, as herein defined, Employee will be entitled to be paid the base annual salary otherwise payable to Employee under paragraph (a) of Section 4 through the end of the month in which the Period of Employment is terminated. (c) Termination by Employee. 4 If during the Period of Employment, Employee shall terminate his employment other than in accordance with Paragraph (b) of Section 1, he will be entitled to be paid 66-2/3% the base annual salary otherwise payable to Employee under paragraph (a) of Section 4 for a period of two years following the termination of the Period of Employment. Such payments shall cease if Employee engages in competition with Employer as specified in paragraph (a) of Section 7, whether or not with the written consent of the Board of Directors of Employer. 7. Non-Competition and Non-Disclosure. (a) Without the consent in writing of the Board of Directors of Employer, upon termination of the Period of Employment for any reason whatsoever, Employee will not, for a period of two years thereafter, become an officer, employee, agent, partner, director or substantial stockholder of any commercial bank, savings bank or savings and loan association or holding company thereof operating a bank or savings and loan association in any of the states of North Carolina, Florida, Georgia, Alabama, Tennessee, Mississippi, Louisiana, South Carolina, Maryland or Virginia. (b) Employee shall not, at any time during or following the Period of Employment, disclose, use, transfer or sell, except in the course of employment with Employer, any confidential information or proprietary data of Employer and its subsidiaries so long as such information or proprietary data remains confidential and has not been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. 8. Governing Law. This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of North Carolina. If under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement; and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 9. Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person (in the Employer's case, to its Secretary) or twenty-four (24) hours after deposit thereof in the U.S. mails, postage prepaid, for delivery as registered or certified mail -- addressed, in the 5 case of Employee, to him at his residential address, and in the case of Employer, to its corporate headquarters, attention of the Secretary, or to such other address as Employee or Employer may designate in writing at any time or from time to time to the other party. In lieu of notice by deposit in the U.S. mail, a party may give notice by telegram or telex. 10. Miscellaneous. This Agreement constitutes the entire understanding between Employer and Employee relating to employment of Employee by Employer and its subsidiaries and supersedes and cancels all prior written and oral agreements and understandings with respect to the subject matter of this Agreement. This Agreement may be amended but only by a subsequent written agreement of the parties. This Agreement shall be binding upon and shall inure to the benefit of Employee, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of Employer and its successors. 11. Gross Up Payment. (a) In the event that any payments under this Agreement, in combination with payments from any other plans or arrangements maintained by Employer, constitute "excess parachute payments" under Section 280G of the Internal Revenue Code (the "Code"), and as such are subject to excise tax under Section 4999 of the Code, Employer shall pay to Employee an additional amount (the "Gross Up Payment"). The Gross Up Payment shall be equal to the amount needed to ensure that the net payments retained by Employee equal the payments due under this Agreement before taking into account any Gross Up Payment. The net payments retained by Employee shall be equal to the total payments made under this Agreement reduced by the amount of any excise tax under Section 4999 of the Code and any federal, state and local income tax on the Gross Up Payment. An example of the foregoing is set forth on Exhibit A attached hereto. (b) For purposes of determining whether any of the payments under this Agreement will be subject to the excise tax and the amount of such excise tax, (i) any other payments or benefits received or to be received by Employee in connection with a change in control of Employer or the termination of employment of Employee (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Employer, any person whose actions result in a change of control of Employer or any person affiliated with Employer or such person) (which, together with the payments under this Agreement, shall constitute the "Total Payments") shall be treated as "parachute payments" under Section 280(b)(2) of the Code, and all excess parachute payments shall be treated as subject to the excise tax, unless in the opinion of tax counsel selected by Employer's independent 6 auditors such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered under Section 280G(b)(4) of the Code in excess of the "base amount" under Section 280G(b)(3) of the Code or are otherwise not subject to the excise tax, (ii) the amount of the Total Payments which shall be treated as subject to the excise tax shall be equal to the lesser of (A) the total amount of the Total Payments or (B) the amount of excess parachute payments (after applying clause (i), above), and (iii) the value of any non-cash benefit or any deferred payment or benefit shall be determined by Employer's independent auditors in accordance with the principles of Section 280(G)(d)(3) and (4) of the Code. (c) For purposes of determining the amount of the Gross Up Payment, Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation for the calendar year in which the Gross Up Payment is to be made. Employee shall also be deemed to pay state and local income taxes at the highest marginal rate of taxation imposed by Employee's state of residence (or by any other state which may impose taxes on such payments) for the calendar year in which the Gross Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local income taxes. In computing the highest marginal rate of federal income taxation, adjustments shall be made to the highest marginal rate of tax imposed by Section 1 of the Code to account for the effect of Section 68 of the Code. The marginal rate of federal income taxation shall also be adjusted to account for Employee's portion of any FICA taxes imposed on any Gross Up Payment by Section 3101 of the Code. (d) In the event that the excise tax to be paid as a result of payments pursuant to this Agreement is subsequently determined to be less than the amount taken into account at the time the Gross Up Payment is made, Employee shall repay Employer at the time that the amount of such reduction in excise tax is finally determined, the portion of the Gross Up Payment attributable to such reduction, plus interest on the amount of such repayment at the applicable federal rate under Section 1274 of the Code from the date of payment of the Gross Up Payment to the date of repayment. The amount of reduction of the Gross Up Payment shall take into account any subsequent reduction in excise taxes resulting from this payment. (e) In the event that the excise tax is determined to exceed the amount taken into account hereunder at the time the Gross Up Payment is made, Employer shall make an additional Gross Up Payment in respect of such excess, plus interest on such additional Gross Up Payment at the applicable federal rate under Section 1274 of the Code from the date of the Gross Up Payment to 7 the date of payment of the additional Gross Up Payment, at the time such additional excise tax is finally determined. The amount of the additional Gross Up Payment shall take into account any increase in excise taxes resulting from this payment. (f) The Gross Up Payment provided above shall be paid not later than the thirtieth (30th) day following payment of any amounts pursuant to this Agreement. (g) As a condition to making the payment set forth above, Employer shall have the right to challenge, on Employee's behalf, any excise tax assessment relating to payments made pursuant to this Agreement. All expenses incurred as a result of any challenge initiated by Employer shall be born by Employer. 12. Legal Expenses. Employer shall pay all legal fees and expenses which Employee may incur as a result of Employer contesting the validity or enforceability of this Agreement and Employee shall be entitled to receive interest thereon for the period of any delay in payment from the date such payment was due at the rate determined by adding two hundred basis points to the one-year constant maturity Treasury index. 8 IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Agreement, under seal, as of the day and year first above indicated. FIRST UNION CORPORATION Attest: /s/ Kent S. Hathaway /s/ Robert T. Atwood ____________________________ By: _______________________________ Senior Vice President Executive Vice President Title: _____________________ Title: ____________________________ (Corporate Seal) /s/ Edward E. Crutchfield, Jr. _____________________________(L.S.) Edward E. Crutchfield, Jr. 9 EX-12 3 EXHIBIT 12(A) EXHIBIT (12)(A) FIRST UNION CORPORATION COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990 EXCLUDING INTEREST ON DEPOSITS Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360 Fixed charges, excluding capitalized interest............... 669,978 517,742 456,867 698,898 982,086 (A.) Earnings............................................... $2,085,434 1,738,523 1,038,070 1,118,699 1,309,446 Interest, excluding interest on deposits.................... $ 619,698 467,181 405,297 652,393 949,046 One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040 Capitalized interest........................................ 1,120 285 381 2,326 3,144 (B.) Fixed charges.......................................... $ 671,098 518,027 457,248 701,224 985,230 Consolidated ratios of earnings to fixed charges, excluding interest on deposits (A./B.).............................. 3.11X 3.36 2.27 1.60 1.33 INCLUDING INTEREST ON DEPOSITS Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360 Fixed charges, excluding capitalized interest............... 2,111,226 1,841,000 2,072,538 2,789,501 3,127,374 (C.) Earnings............................................... $3,526,682 3,061,781 2,653,741 3,209,302 3,454,734 Interest, including interest on deposits.................... $2,060,946 1,790,439 2,020,968 2,742,996 3,094,334 One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040 Capitalized interest........................................ 1,120 285 381 2,326 3,144 (D.) Fixed charges.......................................... $2,112,346 1,841,285 2,072,919 2,791,827 3,130,518 Consolidated ratios of earnings to fixed charges, including interest on deposits (C./D.).............................. 1.67X 1.66 1.28 1.15 1.10
EX-12 4 EXHIBIT 12(B) EXHIBIT (12)(B) FIRST UNION CORPORATION COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
YEARS ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990 EXCLUDING INTEREST ON DEPOSITS Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360 Fixed charges, excluding preferred stock dividends and capitalized interest.................................. 705,306 530,024 473,158 705,944 990,476 (A.) Earnings............................................... $2,120,762 1,750,805 1,054,361 1,125,745 1,317,836 Interest, excluding interest on deposits.................... $ 619,698 467,181 405,297 652,393 949,046 One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040 Preferred stock dividends*.................................. 102,036 37,182 48,270 41,615 42,258 Capitalized interest........................................ 1,120 285 381 2,326 3,144 (B.) Fixed charges.......................................... $ 773,134 555,209 505,518 742,839 1,027,488 Consolidated ratios of earnings to fixed charges, excluding interest on deposits (A./B.).............................. 2.74X 3.15 2.09 1.52 1.28 INCLUDING INTEREST ON DEPOSITS Pretax income from continuing operations.................... $1,415,456 1,220,781 581,203 419,801 327,360 Fixed charges, excluding preferred stock dividends and capitalized interest.................................. 2,146,554 1,853,282 2,088,829 2,796,546 3,135,764 (C.) Earnings............................................... $3,562,010 3,074,063 2,670,032 3,216,347 3,463,124 Interest, including interest on deposits.................... $2,060,946 1,790,439 2,020,968 2,742,996 3,094,334 One-third of rents.......................................... 50,280 50,561 51,570 46,505 33,040 Preferred stock dividends*.................................. 102,036 37,182 48,270 41,615 42,258 Capitalized interest........................................ 1,120 285 381 2,326 3,144 (D.) Fixed charges.......................................... $2,214,382 1,878,467 2,121,189 2,833,442 3,172,776 Consolidated ratios of earnings to fixed charges, including interest on deposits (C./D.).............................. 1.61X 1.64 1.26 1.14 1.09
* Includes redemption premium of $41,355,000 in 1994. EX-13 5 EXHIBIT 13 FIRST UNION CORPORATION ANNUAL REPORT 1994 TABLE OF CONTENTS Financial Highlights........................................1 Letter from the Chairman....................................3 Strategies and Markets......................................6 Index to Special Topics....................................11 Management's Analysis of Operations........................12 Financial Tables...........................................25 Glossary...................................................90 Corporate Board of Directors...............................91 Corporate Management Committee.............................91 Bank Boards of Directors...................................91 Principal Subsidiaries.....................................93 Stockholder Information....................................94 THIS PUBLICATION IS PRODUCED ON 100 PERCENT RECYCLED PAPER AND IS RECYCLABLE. THE MAJORITY OF THIS PAPER HAS BEEN MADE FROM 158 TONS OF OFFICE PAPER RECYCLED FROM OUR OFFICES IN CHARLOTTE, NORTH CAROLINA; JACKSONVILLE, FLORIDA; ATLANTA, GEORGIA; AND RICHMOND, VIRGINIA.
PERCENT YEARS ENDED DECEMBER 31, INCREASE (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 (DECREASE) ........................................ NET INCOME $ 925,380 817,521 13.2% DIVIDENDS ON PREFERRED STOCK 25,353 24,900 1.8 NET INCOME APPLICABLE TO COMMON STOCKHOLDERS (BEFORE REDEMPTION PREMIUM) 900,027 792,621 13.6 REDEMPTION PREMIUM ON PREFERRED STOCK 41,355 - - NET INCOME APPLICABLE TO COMMON STOCKHOLDERS (AFTER REDEMPTION PREMIUM) $ 858,672 792,621 8.3% ........................................ PER COMMON SHARE DATA Net income before redemption premium $ 5.22 4.73 10.4% Net income after redemption premium 4.98 4.73 5.3 Cash dividends 1.72 1.50 14.7 Book value 30.66 28.90 6.1 Year-end price $ 41.375 41.25 .3% ........................................ PER SERIES 1990 PREFERRED SHARE DATA Year-end price $ 51.75 52.375 (1.2)% Cash dividends $ 4.0127 3.8876 3.2 Dividend rate 8.03% 7.78 3.2% ........................................ YEAR-END BALANCE SHEET ITEMS Assets $ 77,313,505 70,786,969 9.2% Securities available for sale 7,752,479 11,744,942 (34.0) Investment securities 3,729,869 2,692,476 38.5 Loans, net of unearned income 54,029,752 46,876,177 15.3 Deposits 58,958,273 53,742,411 9.7 Common stockholders' equity 5,397,517 4,923,584 9.6 Total stockholders' equity $ 5,397,517 5,207,625 3.6 Common shares outstanding 176,033,912 170,337,619 3.3% ........................................ FINANCIAL RATIOS Return on average assets 1.27% 1.20 Return on average common stockholders' equity before redemption premium 17.04 17.42 Net interest margin 4.77 4.78 Net charge-offs to average loans, net .33 .58 Allowance as % of loans, net 1.81 2.18 Allowance as % of nonaccrual and restructured loans 245 147 Allowance as % of nonperforming assets 175 111 Nonperforming assets to loans, net and foreclosed properties 1.03 1.95 Dividend payout ratio on common shares 34.54% 31.71
CERTAIN RATIOS RELATED TO NONPERFORMING ASSETS, NET CHARGE-OFFS AND THE LOAN LOSS PROVISION WERE FAVORABLY AFFECTED BECAUSE OF THE INCLUSION OF THE ACQUIRED SOUTHEAST BANKS' PERFORMING LOAN PORTFOLIO IN THE CALCULATION OF THE RATIOS. 1 ... STATISTICS DIVIDENDS PER COMMON SHARE (Dollars per share)
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 .29 .31 .33 .36 .40 .65 .49 .58 .65 .77 .86 1.00 1.08 1.12 1.28 1.50 1.72
TOTAL RETURN AFTER 3 YEARS Compound Annual Growth Rate 15% Assumes dividends reinvested. 1991 1994 $1,000 $1,536 TOTAL RETURN AFTER 5 YEARS Compound Annual Growth Rate 20% Assumes dividends reinvested. 1989 1994 $1,000 $2,505 TOTAL RETURN AFTER 10 YEARS Compound Annual Growth Rate 13% Assumes dividends reinvested. 1984 1994 $1,000 $3,501 BOOK VALUE PER SHARE GROWTH (In dollars) Originally reported (adjusted for stock splits), not restated for pooling of interest acquistions.
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 6.63 7.39 8.30 8.19 9.20 10.66 12.51 12.96 14.55 16.25 17.98 19.37 20.72 22.54 26.08 28.90 30.66
2 ... LETTER FROM THE CHAIRMAN Your company achieved solid growth and record performance during 1994, with earnings of $900 million in net income applicable to common stockholders before a redemption premium on preferred stock. This was a 14 percent increase from $793 million in 1993. On a per share basis, net income applicable to common stockholders before the redemption premium increased 10 percent to $5.22 from $4.73. First Union's strong generation of internal capital allowed us to call for redemption approximately 6.3 million outstanding shares of Series 1990 cumulative perpetual adjustable rate preferred stock. Based on the number of common shares currently outstanding, this will have a positive impact of approximately 7 to 10 cents per share in 1995 and beyond. In 1994, this action resulted in a one-time reduction in earnings per share applicable to common stockholders of 24 cents. Our earnings performance also allowed us to invest for the future by expanding our fundamental businesses and by developing new areas for growth, such as capital markets and card products. We are committed to helping our stockholders achieve the full potential of their investment. Stockholders benefited in 1994 from increased dividends, which currently are $1.84 per share on an annualized basis. This was the 17th consecutive year of increased dividends. Our dividends have grown at a 14 percent compound annual rate for the past eight years - the third best rate of increase among the nation's 25 largest banking companies over that period. First Union has paid a dividend every year since 1914, including its predecessor banks. In addition, First Union's book value has increased more than $16 per share, or 10 percent on a compound annual basis, over the past eight years. This was the third best annual rate of increase among the nation's 25 largest banking companies over that period. Another way of looking at how First Union stockholders have shared in our success over the long term is to consider total return (dividends, including reinvested dividends, plus stock price appreciation). A $1,000 investment in First Union common stock yielded a total return of 15 percent over the past three years, 20 percent over the past five years, and 13 percent over the past 10 years, on a compound annual basis. ................................. INDUSTRY TRENDS On the surface, things have never looked better for the nation's banking industry, with enviable profitability and strong loan demand. But in today's environment the bank that thinks of itself as just a bank is a dinosaur. As we all know, even if you are good at being a dinosaur, you are still extinct. With nationwide banking on the horizon, the banking companies that survive in the years ahead will be those that realize they are in the financial services business. They must rapidly evolve into full-service providers of the innovative products and financial solutions their customers demand. By redefining themselves as financial service companies, banks today are providing new products and services - everything from financial planning for individuals to sophisticated financial problem-solving partnerships with commercial customers. First Union's 1994 performance generates a great deal of momentum as the financial services industry consolidates and diversifies. First Union is meeting the new competitive challenges with investments designed to complement our traditional lending and deposit-taking functions and to strengthen prospects for future profitability. BUSINESS PROFILE FIRST UNION CORPORATION, WITH HEADQUARTERS IN CHARLOTTE, NORTH CAROLINA, HAD ASSETS OF $77.3 BILLION AT DECEMBER 31, 1994. IT IS THE NATION'S NINTH LARGEST BANK HOLDING COMPANY, BASED ON TOTAL ASSETS. (BULLET) OUR 31,858 EMPLOYEES SERVE A CUSTOMER BASE OF MORE THAN 8 MILLION. OUR 1,338 FULL-SERVICE BANK BRANCHES IN THE ECONOMICALLY DIVERSE SOUTH ATLANTIC STATES CONSTITUTE THE NATION'S FOURTH LARGEST BANK BRANCH NETWORK, PROVIDING RETAIL BANKING, RETAIL INVESTMENT AND COMMERCIAL BANKING SERVICES. THROUGH 222 DIVERSIFIED OFFICES NATIONWIDE, WE ALSO PROVIDE OTHER FINANCIAL SERVICES INCLUDING MORTGAGE BANKING, HOME EQUITY LENDING, LEASING, INSURANCE AND SECURITIES BROKERAGE SERVICES. WE ALSO HAVE THE NATION'S EIGHTH LARGEST ATM NETWORK. STRATEGIC PRIORITIES (BULLET) PROVIDE OUR CUSTOMERS UNPARALLELED SERVICE, CONVENIENCE AND RESPONSIVENESS; (BULLET) BALANCE EARNINGS POWER THROUGH GEOGRAPHIC AND PRODUCT DIVERSITY; (BULLET) PROVIDE THE MOST INNOVATIVE FINANCING SOLUTIONS AND A BROAD ARRAY OF PRODUCTS; (BULLET) INCREASE THE PRODUCTION OF OUR SPECIALTY BUSINESSES; (BULLET) MAXIMIZE OPERATING EFFICIENCY; AND (BULLET) EMPHASIZE CAPITAL STRENGTH AND LOAN QUALITY, WITH GROWTH IN LOANS, DEPOSITS AND FEE INCOME. 3 ... (FIRST UNION logo) LETTER FROM THE CHAIRMAN (Photograph of Edward E. Crutchfield) EDWARD E.CRUTCHFIELD, CHAIRMAN AND CHIEF EXECUTIVE OFFICER Since the advent of regional interstate banking nine years ago, we have built the nation's fourth largest banking network, with more than 1,300 bank branches in seven states and Washington, D.C., stretching from Key West, Florida, to Baltimore, Maryland. In building this extensive network, it wasn't 1,300 branches we were after - (Bullet) It was access to 8 million customers; (Bullet) It was access to a depth of resources that would attract the talent and the expertise - what I call the "intellectual capital" - to generate new and profitable ideas; (Bullet) It was access to the scale economies that allow us to keep our unitcosts low and stay competitive; and (Bullet) It was access to the resources to build new businesses to help us diversify our earnings stream. In short, size alone was not our objective nine years ago, nor is it today. Size helps us stay in the game for the long haul. But size can also be our enemy. The only real fear I have about our continued success is that we will begin acting like a lumbering giant, with a bloated bureaucracy, out of touch with our customers and our employees. Companies that stop listening to their customers and employees will not survive. We are determined that no matter our size, we will provide personal service to each customer - after all, they are our reason for being. ................................. MOMENTUM As we focus on our goals, we have several core values - or core competencies, in the current management terminology - that give us a strong foundation. These values are: STRONG FUNDAMENTALS: We have not forgotten the strategies behind our success. We remain committed to loan quality among the best in the nation; diversification by geography and by product; attention to operating efficiency; and policies that benefit stockholders for the long term. A STRONG SALES CULTURE: First Union's sales-oriented corporate culture is rapidly taking hold in our newer markets. Our bankers, rather than being order- takers, work to build long-term relationships with customers. They don't sit behind a desk waiting for customers to walk in the door. Instead, they are out of their offices getting to know their customers, their customers' businesses and industry trends, so they can tailor the best financial solutions to meet their customers' needs. QUALITY SERVICE: First Union is a leader in quality service. As we have grown, we have built a company that is focused on meeting customers' needs with speed, flexibility and versatility. Our goal is to not only anticipate the needs of our customers, but also to delight them by exceeding their expectations. TECHNOLOGICAL ADVANCEMENTS: Our approach nine years ago was to build a unified banking organization - one name, a standard set of products and a common automation approach. Because of that philosophy, the installation of standard automated systems is largely behind us, which gives us a competitive advantage for the future. This past year, we were able to invest in projects to enhance revenues rather than integrating automated systems. In addition, our standard automated systems have allowed us to control costs, introduce new products faster, provide more complete service and better management information. INNOVATIVE BUSINESSES AND PRODUCTS: As we have expanded into areas that are not necessarily traditional banking products, our strategy has been to emphasize diversity in our sources of earnings and to focus on higher-yielding products. We are already seeing promising results in several of these areas. 4 ... (FIRST UNION logo) For example, investment products are an excellent growth opportunity for two reasons: (Bullet) Many of the banks and thrifts we have acquired were not previously active in trust services or mutual funds; and (Bullet) Demographic trends are creating increased demand for investment and savings products, as our customers grow older and change from being primarily borrowers into savers and investors. We are also seeing promising results from our capital markets initiative for commercial and corporate customers. We have met the challenge of the major Wall Street brokerage and investment banking firms to serve corporations and public entities with these new, more sophisticated products. We have a competitive advantage because Wall Street is focused on Wall Street, and First Union is focused on Main Street. We are already well-established in excellent markets with more than 100,000 corporations and entrepreneurs who need these alternative financing solutions. This is our natural market, because this is where we have built business relationships for the long term. The reception that these products and services received from our customers in 1994 gives us a great deal of confidence in the future. ................................. VISION OF THE FUTURE Through the end of this decade, I expect the consolidation of the banking industry to continue, spurred by the passage of nationwide banking. Within the next decade, I believe that ten to 15 major financial institutions will control 50 percent of the nation's banking business. This consolidation is not occurring as rapidly as I once thought it would. The last few years have created an aura of cosmetic prosperity. Now, loan demand again is rising, and that growth is driving earnings in the banking industry. But competitive forces remain a threat - and traditional lending will not be the same engine of growth going forward. In other words, it is going to be a tougher earnings environment for banks. That is what the stock market believes, and that is the reason bank stocks took a pummeling throughout much of 1994. The rise of new balance sheet risk management strategies also has created concern in the marketplace. But I believe these new strategies will prove to be a stabilizing influence when used prudently, as they should be, and as they are at First Union. In a year of rapidly rising interest rates, First Union's tax- equivalent net interest income rose by 9 percent. Those companies that have not repositioned themselves for the tougher competitive and market forces ahead will hit a "revenue wall" by 1997 or 1998. At that point, we will again see a wave of consolidation in this industry. We believe we have built First Union into an innovative, flexible company with the critical mass, talent and resources to remain a strong competitor in the years ahead. As First Union continues its transformation from a company that considers itself a bank into a full-service financial company, our goal is to build a "name brand," nationally recognized organization. In fact, our vision is for First Union to be the indispensable cog in our customers' financial well-being - a company that is known for its ability to provide highly individualized service for all its customers as their needs for managing their assets or managing their businesses grow. I have every confidence in our ability to achieve this goal because of our most formidable weapon - our people. I continue to be in awe of our employees' diligence and commitment to building a flexible, successful First Union. Our people worked tirelessly to reduce the level of nonperforming assets by a net $358 million in the past year. They rapidly consolidated ten merger partners representing $4.6 billion in assets into our system in less than a year. They streamlined processes and operations to speed loan turnaround time, giving us another competitive advantage. And they have diligently served our customers every day, striving to achieve the highest levels of service. Our success is the result of this exceptional teamwork, and for that our employees have my admiration and gratitude. I also extend my sincere appreciation for the support of our directors, stockholders and customers. Sincerely, Edward E.Crutchfield CHAIRMAN AND CHIEF EXECUTIVE OFFICER FEBRUARY 21, 1995 5 ... (FIRST UNION logo) (Photograph of John R. Georgius appears here) JOHN R.GEORGIUS, PRESIDENT, FIRST UNION CORPORATION STRATEGIES AND MARKETS First Union's strength begins with its 8 million customers in seven states and Washington, D.C. Our eight full-service banks are located in the South Atlantic region, which comprises the world's fifth largest economy, based on state domestic product. Our region is expected to continue to outpace the nation in growth in per capita income, population and employment. The business environment is good and demand is strong. We see excellent opportunities ahead for growth in loans, deposits and fee income. Overall in the South Atlantic region, First Union ranks second largest with 12 percent of the region's $537 billion in deposits. First Union also is a market leader in commercial relationships. The economically diverse South Atlantic region continues to provide great potential for us to participate further in the growth and development of the communities and markets we serve. First Union is distinguished by fundamental strengths and earnings diversity, with a wide array of products and services. Our company has leading- edge automation that is driven by customers' needs and business goals. We also have a tradition of quality and geographic diversity in our loan and deposit mix, and we have kept a firm hand on core expenses. All of these strengths are focused on one thing: providing our customers with unparalleled service, convenience and responsiveness. As we expand the financial services First Union delivers, we remain focused on our reason for being: to serve our customers and to thereby enhance our value for stockholders. We intend to be the premier provider of financial services in our markets. In the years ahead, First Union expects to benefit significantly from investments we made in 1994. We have built a company that is flexible, adaptable and focused on our customers. With more than $84 billion in assets (including all pending acquisitions), First Union is able to provide a depth of resources and expertise to help customers manage their assets, grow their companies and build their communities. As First Union has grown and diversified, so has our marketplace. To meet the changing needs of our customers, in 1994 we streamlined our commercial banking processes and instituted key initiatives for both individual and commercial customers that should bear fruit in 1995 and beyond. First Union has long been known as a strong retail bank, but today our business is largely balanced between consumer and commercial banking. ................................. CONSUMER BANKING Consumer loans grew 17 percent in 1994 from year-end 1993, largely in direct consumer loans and credit cards and from acquisitions. Our fastest growth is coming in higher-yielding credit card products. Consumer loans account for 54 percent of the total loan portfolio. PRODUCTIVE BRANCH SYSTEM Our consumer banking strategies focus on expanding the array of products available through the branches, from traditional certificates of deposit to mutual funds. We are emphasizing higher-yielding retail products and small- business lending. In addition, we are streamlining and centralizing branch support functions into centralized service units so our branch personnel can spend more time focusing on customers rather than on performing administrative tasks. Our branches have grown increasingly more productive as attention turns from merger consolidation to serving customers. Deposits per branch have increased 100 percent and deposits per employee more than 100 percent since 1985. In addition, loans per branch and loans per employee both have increased more than 100 percent since 1985. During this time, we have consolidated more than 700 of the branches that we have bought over the past nine years. Our largest bank, First Union National Bank of Florida, has $31.3 billion in assets and ranks second in Florida with a 16 percent deposit share. While it is second largest in the state, our Florida bank produced more net income than any of the other large Florida banks over the past five years and ranks among the most profitable and efficient large banks in the state. Our oldest bank, the $23.1 billion-asset North Carolina bank, ranks first in the state, with 19 percent of deposits. First Union ranks third in Virginia, Washington, D.C., and Georgia. With our newest branches beginning to perform up to First Union's standards, we expect more growth in 1995 and beyond. For example, we estimate that just four additional $15,000 loans per branch per month would generate $936 million in new receivables and nearly $40 million in net interest income. ................................. COMMERCIAL BANKING Commercial loans grew 14 percent in 1994, led by our Florida, North Carolina and Virginia banks. Consumer and commercial loan increases also include $1.2 billion from acquisitions. In 1994, we redesigned our commercial lending processes based on customer demands for speed, efficiency and flexibility, as well as improved service. Our goal is to increase our market penetration by providing appropriate financial solutions and improved service to our customers, even as we compete with 6 ... (FIRST UNION logo) more nonbank and other competitors from outside our region. We have the "home court" advantage in already being established in our region, which is home to 90,000 companies each with annual sales over $3 million and 18,000 companies each with sales over $20 million. To meet customer and marketplace demands, we have organized our commercial lending strategies around the distinct service and product needs of four different market segments: Corporate (companies with sales of $100 million and more); Middle-market (sales of $20 million to $100 million); Commercial Banking (sales of $3 million to $20 million); and Small Business (sales of $1 million to $3 million). Each market segment has distinct needs, products and business development strategies. At First Union, commercial banking is driven by a relationship team approach, rather than being transaction-oriented. The team is guided by the relationship manager, who is charged with developing business opportunities, gaining a thorough knowledge of customers' businesses, and offering ideas and products to meet customers' financing needs. The relationship manager is supported by an underwriting team of credit professionals who direct loan due diligence firsthand, and a portfolio management team that services the loans and keeps documentation up-to-date. We reengineered commercial lending in 1994, reducing a process that often took three to five weeks and 26 steps - many of them bottlenecks in the process that added little value. The loan application and credit approval processes were streamlined, with multiple, redundant layers removed. Our goal now is to provide an answer to a loan request within three days while retaining high credit quality standards. Perhaps the most dramatic change in our commercial lending process has been in the Small Business segment. There are more companies with annual sales below $3 million in our region than in any other segment. However, our branch sales focus primarily had been on direct consumer loans and residential mortgages -we did little small-business lending before redesigning our lending process. Our research told us that the things small-business customers most valued were speed, convenience and responsiveness. So we changed our approach to this business, and now we use the branches as the marketing and referral arm for centralized underwriting units. These units are staffed by experienced commercial lenders and underwriters. Customers can make one toll-free phone call, and receive an answer to a loan request within 24 hours. The potential impact of this change can be seen in that one additional small-business loan per branch per month would generate $1.6 million in new loans per branch annually. That would translate into about $62 million in additional net interest income. During our start-up year in 1994, we originated 1,646 small-business loans, which averaged about $92,000 per loan, compared with virtually nothing the year before. This new lending process began in the Tampa Bay, Florida, area in April 1994, followed by North Carolina in October 1994, and was instituted in all of our states by the end of November 1994. CAPITAL MARKETS OVERVIEW We also have developed a relationship team approach in our Capital Markets area. In 1994, we built a strong track record in private placements, loan syndications, asset securitizations, commercial mortgage securitizations and lease securitizations. We also created risk management programs for our clients using foreign exchange and interest rate swaps, caps and options. This capital markets initiative resulted from changes in First Union and from changes in the industry that converged at about the same time: (Bullet) First, we had attained the critical mass that enabled us to recruit staff and offer the corporate financing alternatives referred to as capital markets products and services; and (Bullet) Second, our corporate customers also have grown, and many were using or needed to use the alternative financing and risk management products and services that we have grouped together under the Capital Markets umbrella. In this initiative, the primary customer focus has been on the middle market and upper middle market range ($20 million to $500 million in annual sales). First Union already has relationships with 25 percent of the more than 100,000 corporations and entrepreneurs in our region for whom alternative financing and risk management solutions may be appropriate. For example, during 1994, we assisted a 25-year customer of our Georgia bank by placing with private investors a $100 million issue of preferred stock and by syndicating a $160 million loan with domestic and international banks. Additionally, a commercial customer of our South Carolina bank received long- term capital for its acquisition strategy and to fund its working capital requirements from rapid growth. Our Capital Partners merchant banking unit structured and purchased $15 million of senior subordinated notes in this transaction, and we later provided a $25 million senior working capital and acquisition loan facility. In another transaction, we provided a combined $73 million in investment equity and a bank credit facility to a longtime customer of our Florida bank for the development of affordable housing projects. PRIMARY BANKING MARKET IN SOUTH ATLANTIC U.S. (Map appears here with the following legend:) KEY Darker color indicates the areas of GREATEST concentration of First Union Bank branch locations Lighter color indicates the areas of LOWEST concentration of First Union Bank branch locations 7 ... (FIRST UNION logo) STRATEGIES AND MARKETS ASSET GROWTH (DOLLARS IN BILLIONS) *DOES NOT INCLUDE PENDING ACQUISITIONS WITH $7 BILLION IN ASSETS. 1990 1991 1992 1993 1994 54.6 59.3 63.8 70.8 77.3* HOW WE APPROACH THIS BUSINESS Our seasoned relationship managers are charged with knowing the customer, the customer's business, and the dynamics of the marketplace. We support relationship managers with industry specialists and capital markets specialists who are attuned to markets, rates and financial structures. In other words, First Union's approach is based on long-term relationship building, not on individual transactions. We find the right financing solution for a company's individual needs, whether that need is for a traditional senior loan or access to the capital markets. During 1994, First Union: (Bullet) Executed 38 loan syndication transactions amounting to almost $30 billion in volume; (Bullet) Completed 15 asset securitizations and was a market leader in lease-backed securitizations; (Bullet) Completed more than 650 interest rate swap or cap transactions primarily to protect corporate customers in a rising interest rate environment; and (Bullet) Originated 11 private placement transactions amounting to $677 million, ranging from a $13 million placement of senior debt to a $100 million convertible preferred stock placement. In addition to these products and services, we expect by mid-year 1995 to receive federally approved, expanded "Section 20" powers to underwrite debt securities. We are recruiting professionals with experience in high-yield securities to complete our expanded Section 20 subsidiary, First Union Capital Markets Corp. Our Capital Markets Group also encompasses First Union's longstanding specialized industries and corporate banking units. First Union recognizes the importance of serving clients through industry specialization and offers experienced teams focused on health care; media/communications; leasing, finance and transportation; mortgage banking; and insurance and financial institutions. We added an energy unit in 1993, followed in 1994 by a new sports finance group that recognizes the nationwide growth of professional sports, particularly in our banking states. In 1994 we significantly increased the size and ability of our corporate banking unit to deliver custom-tailored corporate finance advice to our customers. Having built strength in the South Atlantic region, we are leveraging the expertise of our specialized and corporate banking units to benefit customers from coast to coast and around the world. First Union continues to expand its expertise in the international banking arena, primarily to meet the trade finance and foreign exchange needs of our corporate customers and to provide commercial banking and capital market products to the U.S. subsidiaries of foreign corporations - commonly known as reverse investment companies. The South Atlantic region has been an attractive investment market for foreign-owned companies. About 45 percent of all new and expanded foreign-based facilities in the United States over the past three years were in the South Atlantic region. Florida and North Carolina in particular have a high concentration of companies involved in international trade, but our entire South Atlantic region has seen international trade grow at a significantly greater pace than the economy as a whole. First Union has developed a growing number of correspondent banking partnerships with established banks to facilitate trade in 140 countries throughout the world. We processed more than $4 billion in trade transactions over the past year. In addition, during 1994 First Union pioneered two new global partnerships. Ours was the first U.S. banking company since sanctions were lifted to sign an agreement for a credit facility with a South African bank, in conjunction with the Export-Import Bank of the United States. The credit facility with one of the country's largest banking groups, and guaranteed by the Ex-Im Bank, will be used to support U.S. companies in exporting capital goods such as construction and mining equipment to South Africa. Since year-end 1993, our International Division has handled more than $200 million in trade transactions from South African banks, as well as trade transactions for more than 250 U.S. exporters. The second partnership was a joint venture with The Hongkong Chinese Bank Ltd., to support U.S. companies with trade in Asia. The company, First Union HKCB Asia Ltd., is expected to process $1.0 billion annually in trade transactions by the end of the decade. Overall, our international fee income increased 44 percent in 1994 from 1993, to $29 million. ................................. SPECIALTY BUSINESSES Our branch network is complemented by several diversified units that we call "Specialty Businesses," including card products, mortgage lending and servicing, home equity lending, and investment products, as well as the capital markets products and services described previously. CARD PRODUCTS Volume and outstandings for the bankcard industry have increased substantially over the past ten years, and we expect this trend to continue. Our Card Products unit, which includes credit cards, debit cards and automated teller machine cards, has developed a fast-growing credit card portfolio through targeted, national market solicitations aimed at achieving geographical diversity and at attracting high-quality, revolving credit customers. This campaign increased receivables 8 ... (FIRST UNION logo) 98 percent to $4.0 billion and accounts 45 percent to 3 million at year-end 1994 compared to year-end 1993. Our goal is to become a leader in the credit card industry in profitability, credit quality and superior customer service. We plan to achieve this through controlled growth and by offering products of high value backed by knowledgeable personal service professionals. Purchase volume will also grow rapidly as new outlets such as grocery store and fast food locations are opened to alternative payment products. MORTGAGE LENDING First Union's mortgage lending strategy during 1994 focused on increased productivity, expense control and development of strategic niches. In a tough year for the mortgage industry, First Union produced $4.5 billion of residential mortgages and reduced expenses from 1993 levels. Our mortgage origination strategy is to increase production from our banking network and, nationally, to further develop affinity and corporate relocation relationships as well as our telemarketing strategies. In addition, the mortgage company has eight residential lending branches outside our South Atlantic banking franchise that focus on business development opportunities in key growth markets, such as Portland, Oregon; Seattle, Washington; and Phoenix, Arizona. In 1994, almost 50 percent of total loans originated were securitized and sold in the secondary market, with First Union Mortgage Corporation retaining the servicing rights. Our mortgage loan servicing portfolio stood at $34.2 billion at year-end 1994, ranking FUMC among the nation's top 20 mortgage servicers. HOME EQUITY LENDING We provide equity financing to nearly 90,000 homeowners through 184 offices in 42 states, as well as through our full-service bank branches. We also serve six additional states through a central processing center. Our home equity outstandings rose to $4.8 billion in 1994. We rank among the nation's top ten second mortgage lenders. Industry forecasts are for significant growth in 1995 and beyond as homeowners begin to tap their $3 trillion in estimated equity in the national housing market to pay for renovations, higher education and other need-based expenses. Our origination strategy emphasizes quality customer service, including two- day loan approval. Loans are originated largely through small, efficient offices based near major metropolitan areas, as well as through key affinity relationships with partners such as USAA. In addition, in 1994 we launched a "key person" initiative in smaller towns and cities, in which an originator pursues and develops leads. All processing is handled through the central office, reducing overhead and increasing loan production. Loan production averaged $5 million per branch in 1994. Our goal, rather than dominant market share in the home equity industry, is high quality loan growth. We have demonstrated a long-term record of strong credit quality. Over the past five years, our home equity-related net charge- offs have averaged .11 percent. RETAIL INVESTMENT PRODUCTS For individual and institutional customers, we provide investment and asset management services through our Capital Management Group, which encompasses Trust, Private Banking, Proprietary Mutual Funds and Brokerage Services. We have responded to strong customer demand by offering a full line of proprietary mutual funds through registered representatives in our branch network. We entered the CONTRIBUTIONS TO OVERALL PROFITABILITY Based on regulatory reports filed December 31, 1994. Includes contributions embedded in our state banks from Capital Markets Group, Capital Management Group, Card Products and excludes other nonbank subsidiaries. 51% Florida 3% South Carolina 24% North Carolina 2% Tennessee 8% Virginia 2% Washington, D.C. 8% Georgia 2% Maryland mutual fund market for the long haul, believing mutual funds, even though they are uninsured, will become a staple financial product, like certificates of deposit and savings accounts. By the end of the first quarter of 1995, we expect a full complement of branch employees - two in nearly every full-service bank branch - to have their Series 6 and Series 63 brokerage licenses. These employees are supported by some 200 licensed Series 7 personal investment counselors and by a team of wholesalers who provide marketing and sales information. During 1994, these employees completed more than 16,000 transactions, generating $97 million in sales and nearly $3 million in commissions. We are encouraged by this achievement during our start-up year - a tough year for the brokerage industry in general - and this compares to virtually no sales through the branches in 1993. Our mutual fund family grew to $7.0 billion and is in the process of being renamed "The Evergreen Funds" 9 ... (FIRST UNION logo) STRATEGIES AND MARKETS as a result of the acquisition of the well-respected Lieber & Co. in 1994. Lieber is the investment adviser for the Evergreen Funds, with a total market value of $2.8 billion in assets. First Union now has more than 30 proprietary mutual fund offerings. First Union ranks eighth nationally among banking companies in total assets managed and third in retail fund management. Also on the personal financial planning front, we have had excellent response to our asset management account, which we call the "CAP Account." During 1994, CAP Account deposit balances more than tripled; investment balances doubled; and related fee income increased 200 percent. We expect this to be an excellent relationship product for us going forward. We also offer tax-deferred retirement plan services to employers of all sizes. Our Daily Retirement Services fee income doubled for the third consecutive year in 1994. In this service-driven business, First Union ranked number one in the Dalbar Financial Services 401(k) Market Analysis Survey for toll-free participant account services, including our 24-hour information services. We continue to enhance our service through the use of technology to provide customers access to information and the ability to implement decisions 24 hours a day. The Capital Management Group has $47.6 billion of assets under care, including $23.2 billion of assets under management. ................................. THE FUTURE In short, First Union is a company that is concentrating on its customers' needs as it focuses on the future, with advanced technology, state-of-the-art products and services, and a commitment to delighting our customers with speed, convenience and new financial products. Our goal is to provide our customers with the products they want, when they want them and in the way they want them. Today, the majority of customers over age 50 prefer using a branch office. In the future, customers will want to conduct more of their financial business through enhanced automated teller machines, interactive video screens, at home or another location through their own computers, telephones or television screens. First Union is pioneering alternative delivery methods, ranging from centralized telecommunications centers for "one-stop shopping" via toll-free numbers, to the development and introduction of card products using integrated computer chip circuitry. We believe our management commitment to using proven, cost-effective technology will keep us in the forefront of the financial services industry. In addition, First Union has opened its First Access Network "branch" on the Internet global computer network, with more than 120 pages of information including product and service offerings, consumer credit tips, career opportunity listings and corporate community involvement information. This information is available at the Internet address of URL:http://www.firstunion.com/; or via the electronic mail address of comments@firstunion.com. As technology develops to ensure account confidentiality, we will be able to execute financial transactions such as credit card purchases, bill paying and credit applications on-line. We intend to continue to lead the industry with innovative financial services that provide customers with the most convenient way to manage their finances - to be their "first access point" into the financial system. FULL-SERVICE BANKING UNITS FLORIDA Assets: $31.3 billion Branches: 552 Deposits: SHARE: 16%; RANK: 2nd Loans, Net: $21.3 billion Deposits: $25.9 billion GEORGIA Assets: $9.1 billion Branches: 154 Deposits: SHARE: 10%; RANK: 3rd Loans, Net: $6.4 billion Deposits: $7.2 billion SOUTH CAROLINA Assets: $2.4 billion Branches: 66 Deposits: SHARE: 6%; RANK: 4th Loans, Net: $1.7 billion Deposits: $1.9 billion WASHINGTON, D.C. Assets: $1.6 billion Branches: 33 Deposits: SHARE: 13%; RANK: 3rd Loans, Net: $507 million Deposits: $1.2 billion NORTH CAROLINA Assets: $23.1 billion Branches: 276 Deposits: SHARE: 19%; RANK: 1st Loans, Net: $16.2 billion Deposits: $18.0 billion VIRGINIA Assets: $8.3 billion Branches: 177 Deposits: SHARE: 10%; RANK: 3rd Loans, Net: $5.6 billion Deposits: $6.2 billion TENNESSEE Assets: $2.1 billion Branches: 54 Deposits: SHARE: 3%; RANK: 7th Loans, Net: $1.1 billion Deposits: $1.7 billion MARYLAND Assets: $1.3 billion Branches: 26 Deposits: SHARE: 2%; RANK: 10th Loans, Net: $596 million Deposits: $961 million SPECIALTY BUSINESSES CAPITAL MARKETS GROUP* Assets: $9.6 billion Loans, Net: $5.1 billion Offices: 26 CARD PRODUCTS* Loan Receivables: $4.0 billion FIRST UNION MORTGAGE CORPORATION Loans Serviced: $34.2 billion Origination Volume: $4.9 billion Locations: 18 States: 9 CAPITAL MANAGEMENT GROUP* Assets Under Care: $47.6 billion Assets Under Management: $23.2 billion Personal Trust Locations: 53 Full-Service Brokerage Locations: 104 Licensed Branch Employee Locations: 1,188 HOME EQUITY LENDING Loans, Net: $4.8 billion Locations: 184, plus 1,338 full-service banking locations. States: 42 *ASSET AND LOAN INFORMATION FOR THESE SPECIALTY BUSINESSES IS INCLUDED IN THE FULL-SERVICE BANKING UNITS LIST ABOVE BECAUSE THEIR OPERATIONS ARE INTEGRATED IN OUR FRANCHISE STATES. ASSETS AND DEPOSITS ARE BASED ON REGULATORY REPORTS FILED DECEMBER 31, 1994. DEPOSIT SHARE AND RANK ARE BASED ON ALL INSURED DEPOSITS IN DOMESTIC OFFICES ON SEPTEMBER 30, 1994. 10 ... (FIRST UNION logo) FINANCIAL REPORTS FIRST UNION CORPORATION AND SUBSIDIARIES
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CONTENTS Management's Analysis of Operations.............................................................12 Financial Tables................................................................................25 Six-Year Net Interest Income Summary............................................................52 Management's Statement of Financial Responsibility..............................................54 Independent Auditors' Report....................................................................54 Consolidated Balance Sheets.....................................................................55 Consolidated Statements of Income...............................................................56 Consolidated Statements of Changes in Stockholders' Equity.....................................................................57 Consolidated Statements of Cash Flows...........................................................58 Notes to Consolidated Financial Statements......................................................59 Glossary........................................................................................90 Boards of Directors.............................................................................91 Corporate Management Committee..................................................................91 Principal Subsidiaries..........................................................................93 Stockholder Information.........................................................................94 ................................. INDEX TO SPECIAL TOPICS Accounting Policies.........................................................................21, 59 Annual Meeting..................................................................................94 Capital Resources Risk-based Capital...................................................................19, 25, 42 Stockholders' Equity.......................................................1, 3, 18, 55, 57, 82 Common Stock Book Value.............................................................................1, 2, 26 Income Per Share...............................................................1, 3, 12, 26, 56 Market Price..........................................................................1, 26, 29 Description of Business...................................................................3, 6, 93 Dividends..................................................1, 2, 3, 19, 24, 25, 26, 29, 55, 57, 58 Earnings Performance...................................................................1, 2, 3, 56 Employees................................................................................3, 43, 76 Income Taxes................................................................13, 26, 56, 61, 79, 80 Interest Rate Risk Management...............................................................19, 85 Derivative Transactions .........................21, 45, 46, 47, 48, 49, 50, 51, 52, 53, 85, 86 Interest Rate Sensitivity Model......................................................19, 20, 44 Liquidity Debt Ratings.................................................................................94 Loans Asset Quality........................................................................15, 16, 37 Average Balances.............................................................................52 Charge-offs...................................................................1, 16, 17, 37, 70 Commercial Real Estate.......................................................15, 16, 17, 36, 68 Geographic Concentrations...................................................................17 Industry Classifications................................................................15, 16 Project Type............................................................................15, 16 Consumer Loan Portfolio..........................................................14, 15, 35, 68 Highly Leveraged Transactions...............................................................15 Loan Loss Allowance......................................................16, 37, 38, 55, 60, 70 Loan Loss Provision......................................................16, 26, 29, 37, 56, 70 Mix at Year-End..............................................................................14 Nonperforming Assets......................................................1, 12, 16, 25, 37, 70 Southeast Banks Segregated Assets............................................17, 23, 39, 55, 71 Net Interest Income.....................................................12, 13, 22, 26, 29, 53, 56 Net Interest Margin..............................................................1, 13, 22, 25, 52 Noninterest Expense.............................................................13, 26, 27, 29, 56 Noninterest Income .............................................................13, 26, 27, 29, 56 Preferred Stock......................................................1, 18, 26, 29, 55, 57, 58, 75 Quarterly Data..................................................................................29 Results of Operations.........................................................1, 3, 12, 26, 29, 56 Return on Average Assets ............................................................1, 12, 25, 28 Return on Average Stockholders' Equity...............................................1, 12, 25, 28 Securities Available For Sale....................................1, 14, 26, 29, 31, 32, 55, 56, 58, 64, 65 Investment............................................1, 14, 26, 29, 33, 34, 55, 56, 58, 66, 67 Shares, Number Outstanding...........................................................1, 55, 56, 57 Stockholders, Number of.........................................................................43 Trading Activities..............................................................................13
11 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES NET INCOME PER COMMON SHARE (DOLLARS PER SHARE) *BEFORE REDEMPTION PREMIUM. 1990 1991 1992 1993 1994* 1.68 2.24 2.23 4.73 5.22 RETURN ON AVERAGE COMMON EQUITY (IN PERCENT) *BEFORE REDEMPTION PREMIUM. 1990 1991 1992 1993 1994* 7.78 10.03 9.08 17.42 17.04 RETURN ON AVERAGE ASSETS (IN PERCENT) *BEFORE REDEMPTION PREMIUM. 1990 1991 1992 1993 1994* .50 .63 .63 1.20 1.27 EARNINGS HIGHLIGHTS First Union's net income applicable to common stockholders increased in 1994 to a record $900 million before redemption premium on preferred stock, an increase of 14 percent from $793 million in 1993. On a per common share basis, earnings before redemption premium were $5.22 in 1994, an increase of 10 percent from $4.73 in 1993. Fourth quarter 1994 net income applicable to common stockholders before redemption premium increased 18 percent to $225 million, from $190 million in the fourth quarter of 1993. On a per common share basis, fourth quarter 1994 earnings were $1.28 before redemption premium compared with $1.12 in the fourth quarter of 1993. After the redemption premium, net income applicable to common stockholders was a record $859 million, or $4.98 per common share in 1994, and $183 million, or $1.04, in the fourth quarter of 1994. The redemption premium is related to the redemption of the corporation's Series 1990 preferred stock on March 31, 1995. Key factors in our 1994 performance were: (Bullet) 9 percent growth in tax-equivalent net interest income; (Bullet) 15 percent loan growth; and (Bullet) Continued improvement in credit quality. Tax-equivalent net interest income also was a record - $3.1 billion in 1994, compared with $2.9 billion in 1993. Net loans increased by $7.2 billion (including $1.2 billion from acquisitions) since year-end 1993. Commercial loan growth was strong throughout First Union's banking states, led by Florida, North Carolina and Virginia. 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 since 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 First Union's net charge-offs remained low in 1994 at .33 percent of average net loans, compared with .58 percent in 1993. In 1994, we completed ten acquisitions amounting to $4.6 billion in assets; $1.2 billion in net loans; and $4.0 billion in deposits. These acquisitions included Lieber & Co., the investment adviser to the Evergreen family of mutual funds, Home Federal Savings Bank, American Bancshares, Inc., Jacksonville Federal, Citizens Federal, BancFlorida Financial Corporation, Cobb Federal, Hollywood Federal, and certain Florida branches of Chase Manhattan Bank of Florida, N.A. and Great Western Bank, FSB. The purchase accounting acquisition of BancFlorida, with $1.6 billion in assets, $847 million in net loans and $1.2 billion in deposits, was the most significant bank-related acquisition that was consummated in 1994. The pooling of interests accounting acquisitions of Dominion Bankshares Corporation, South Carolina Federal Corporation and DFSoutheastern, Inc., were completed in the first quarter of 1993, and in the second quarter of 1993, we completed the purchase accounting acquisitions of Georgia Federal Bank, FSB, and First American Metro Corp. Domestic banking operations, including trust operations, located in North and South Carolina, Georgia, Florida, Maryland, Tennessee, Virginia and Washington, D.C., and mortgage operations are our principal sources of revenues. Foreign banking operations are immaterial. The NET INTEREST INCOME section provides information about lost interest income related to nonaccrual and restructured loans and the ASSET QUALITY section includes further information about the loan loss provision. OUTLOOK We were pleased with our solid growth and record performance in 1994, as well as our ability to enhance our prospects for the future through investments designed to expand the capacity of our fundamental businesses and to develop new areas for growth. The strength in our underlying fundamentals gives us a great deal of optimism as we choose to make these discretionary investments, which we expect to result in growth in loans, net interest income and fee income. Consummation of the pending acquisitions of American Savings Bank of Florida, FSB, First Florida Savings Bank, FSB, and Coral Gables Fedcorp, Inc., in Florida and Ameribanc Investors Group, parent of Ameribanc Savings Bank, FSB, in Virginia, are expected to be completed by mid-1995. At December 31, 1994, the combined assets, net loans and deposits of these banks were $7.2 billion, $4.6 billion and $5.1 billion, respectively. We expect these acquisitions will have a minor impact on 1995 earnings and will be positive to earnings within 12 months of consummation. We continue to be alert to opportunities to enhance stockholder value, especially in view of recently adopted federal legislation that will permit the corporation to acquire banking organizations throughout the nation. We are evaluating acquisition opportunities, and teams of experienced bankers from all areas of the corporation frequently conduct due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and in some cases negotiations frequently take place, and future acquisitions involving cash, debt or equity securities may be expected. Acquisitions typically involve the payment of a premium over book and market values. Some dilution of First 12 ... (FIRST UNION logo) Union's book value and net income per common share may occur in connection with any future acquisitions. The ACCOUNTING AND REGULATORY MATTERS section provides information about various other legislative, accounting and regulatory matters that have recently been adopted or proposed. ................................. INCOME STATEMENT ANALYSIS NET INTEREST INCOME Loan growth and pricing discipline on loans and deposits contributed to record net interest income in 1994. 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 to these assets and included in income in 1994 was $6 million. However, a $358 million net decrease in nonperforming assets since year-end 1993 reduced the negative impact to interest income in 1994. 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 4.77 percent in 1994, compared with 4.78 percent in 1993. The margin is not our primary management focus or goal; our goal is to continue increasing net interest income, which has increased for 21 consecutive quarters. 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. 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 changing demographics and increased competition in the financial services industry with investments designed to enhance our prospects for future fee income growth. During 1994, we significantly broadened our product lines, particularly in the capital markets, financial planning and card product areas, to provide additional sources of fee income that complement our long-standing banking products and services. Noninterest income was $1.16 billion in 1994, compared with $1.20 billion in 1993, when the mortgage industry was more robust. Noninterest income included $84 million in 1994 and $48 million in 1993 from the disposition of First American segregated assets. TRADING ACTIVITIES Trading activities are undertaken to satisfy customers' risk management and investment needs and for the corporation's own account. All trading activities are conducted within risk limits established by the corporation's Funds Management Committee, and all trading positions are marked to market daily. Trading activities include fixed-income securities, money market instruments, foreign exchange, options, futures, forward rate agreements and swaps. At 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. In March of 1993, we established a derivatives products group to provide customers with the ability to use off-balance sheet derivative financial products to tailor risk management solutions to their specific management objectives. Included in trading profits are revenues from off-balance sheet dealer activities of $31 million in 1994, compared with $15 million in 1993. NONINTEREST EXPENSE Noninterest expense was $2.68 billion in 1994, compared with $2.52 billion in 1993. The increase reflects growth in personnel, advertising and other expenses related to our card products, financial planning and capital markets initiatives undertaken to improve prospects for revenue growth, as well as expenses related to acquisitions. Offsetting these increases was a decline in mortgage servicing amortization. Costs related to environmental matters were not material. INCOME TAXES Income taxes were $490 million in 1994, compared with $403 million in 1993. The increase resulted primarily from an increase in income before taxes. ................................. BALANCE SHEET ANALYSIS EARNING ASSETS In banking the primary types of earning assets are securities and loans. The earnings from these assets are subject to two kinds of risk, interest rate risk and credit risk. Interest rate risk could result if fixed rate sources of funds and fixed rate uses of funds were mismatched. Our Funds Management Committee manages interest rate risk under specific policy standards, which NET INTEREST INCOME (DOLLARS IN BILLIONS) TAX-EQUIVALENT. 1990 1991 1992 1993 1994 1.873 2.025 2.563 2.867 3.126 NONINTEREST INCOME (DOLLARS IN BILLIONS) 1990 1991 1992 1993 1994 .699 1.070 1.064 1.198 1.159 NONINTEREST EXPENSE (DOLLARS IN BILLIONS) 1990 1991 1992 1993 1994 1.681 1.906 2.527 2.522 2.677 13 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES YEAR-END EARNING ASSETS (DOLLARS IN BILLIONS) Loans, net Investment Securities Securities Available For Sale Other 1990 1991 1992 1993 1994 48.6 51.9 56.2 63.0 69.0 YEAR-END SECURITIES AVAILABLE FOR SALE 34% U.S. Government Agencies 28% U.S. Treasury Securities 18% Other Bonds 16% Collateralized Mortgage Obligations 4% Other YEAR-END LOANS 29% Commercial, Financial and Argicultural 27% Retail Real Estate-Mortgage 20% Installment Loans-Other 10% Commercial Real Estate-Mortgage 7% Installment Loans-Bankcard 4% Other 3% Commercial Real Estate-Construction and Other YEAR-END INVESTMENT SECURITIES 35% U.S. GOVERNMENT AGENCIES 33% MUNICIPAL SECURITIES 27% COLLATERALIZED MORTGAGE OBLIGATIONS 5% OTHER 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, non- performing or, ultimately, charged-off loans. We manage this risk primarily through credit approval standards, which are discussed in more detail in the LOANS section. Year-end 1994 earning assets were $69.0 billion, a 10 percent increase from $63.0 billion in 1993. Average earning assets in 1994 were $65.5 billion. This was a 9 percent increase from $59.9 billion in 1993. SECURITIES AVAILABLE FOR SALE Securities available for sale are used as a part of the corporation's interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity needs, the need to increase regulatory capital ratios and other factors. In accordance with the adoption of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", we began accounting for debt and equity securities on a market value basis as of January 1, 1994. 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. Table 8 provides information related to unrealized gains and losses and realized gains and losses on these securities. The average rate earned on securities available for sale in 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 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 related to premiums received on the call of certain securities, effectively accelerating the securities' maturity, and sales of securities downgraded in creditworthiness. Table 9 provides further information related to unrealized gains and losses and realized gains and losses on these securities. LOANS Our lending strategy stresses quality growth, diversified by product, geography and industry. A common credit underwriting structure is in place throughout the company, and a special real estate credit group reviews large commercial real estate loans before approval. Consistent with our long-time standard, we generally look for two repayment sources for commercial real estate loans: cash flows from the project and other resources of the borrower. Our commercial lenders focus principally on middle-market companies. A majority of our commercial loans are for less than $10 million. Our consumer lenders emphasize credit judgments that focus on a customer's debt obligations, ability 14 ... (FIRST UNION logo) and willingness to repay, and general economic trends. Net loans at December 31, 1994, were $54.0 billion, compared with $46.9 billion at year-end 1993. The fastest growth in our consumer loan portfolio is coming in higher-yielding credit card products. This is a result of a targeted, national solicitation effort that increased credit card outstandings 98 percent in 1994. Commercial loan growth came primarily from Florida, North Carolina and Virginia. The increase also includes $1.2 billion from our 1994 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 participations sold to other lenders amounted to $1.3 billion and 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 have lagged the increases in the prime rate. The ASSET QUALITY section provides information about geographic exposure in the loan portfolio and a loss-sharing arrangement with the Federal Deposit Insurance Corporation (FDIC) covering the Southeast Banks commercial and consumer loan portfolios acquired from the FDIC in 1991. COMMERCIAL REAL ESTATE LOANS 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. HIGHLY LEVERAGED TRANSACTIONS An HLT loan generally is defined as a loan amounting to more than $20 million involving a buyout, acquisition or recapitalization of an existing business, in which the loan substantially increases a company's debt-to-equity ratio. At December 31, 1994, outstanding HLT loans amounted to $971 million, compared with $786 million at December 31, 1993. ................................. ASSET QUALITY The following asset quality discussion is divided into two sections to reflect the loss-sharing arrangement between First Union and the FDIC in connection with the September 1991 Southeast Banks transaction. The first section relates to First Union's nonperforming assets, past due loans, net charge-offs and loan loss allowance, excluding those related to acquired Southeast Banks nonperforming assets. The second section relates solely to the same categories mentioned above segregated for the acquired Southeast Banks loan portfolio. Certain ratios related to First Union's non-performing assets and net charge-offs have been favorably affected because the Southeast Banks segregated assets portfolio has not been included in the determination of these ratios. Under the loss-sharing arrangement, the FDIC reimburses First Union for 85 percent of any losses associated with the acquired Southeast Banks commercial and consumer loan portfolio, except revolving consumer credit, for which reimbursement YEAR-END COMMERCIAL LOANS (INDUSTRY CLASSIFICATION) (IN MILLIONS) Manufacturing........... $ 2,599 Retail trade............ 1,376 Wholesale trade......... 1,106 Services................ 3,488 Financial services...... 1,404 Insurance............... 292 Real estate-related..... 1,210 Communications.......... 1,157 Transportation.......... 720 Public utilities........ 182 Agriculture............. 447 Construction............ 336 Mining.................. 298 Individuals............. 736 Public administration... 313 Other 1,858 Total $17,522 COMMERCIAL REAL ESTATE LOANS (PROJECT TYPE) (IN MILLIONS) OUTSTANDINGS NUMBER OF LOANS Apartments............... $ 870 1,348 Condominiums............. 75 189 Land-improved............ 545 998 Land-unimproved.......... 361 712 Lodging.................. 194 176 Office buildings......... 1,626 4,006 Industrial buildings..... 662 1,821 Retail sales buildings... 1,187 1,704 Single family............ 528 3,269 Other 1,124 2,197 Total $ 7,172 16,420 YEAR-END CONSUMER LOANS 36% Mortgage Loans to Individuals 27% Consumer Credit 13% Bankcards 8% Second Mortgages 8% Mortgage Warehouse and Securitized Mortgages 8% Sales Finance 15 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES NONPERFORMING ASSETS (PERCENT OF NET LOANS AND FORECLOSED PROPERTIES) EXCLUDES SEGREGATED ASSETS 1990 1991 1992 1993 1994 3.42 4.10 3.19 1.95 1.03 YEAR-END NONPERFORMING COMMERCIAL LOANS (INDUSTRY CLASSIFICATION) (IN MILLIONS) OUTSTANDINGS Manufacturing......... $ 8 Retail trade.......... 18 Wholesale trade....... 4 Services.............. 44 Financial services.... 5 Real estate-related... 18 Transportation........ 2 Agriculture........... 12 Construction.......... 6 Mining................ 1 Individuals........... 20 Other 18 Total $ 156 QUARTERLY NONPERFORMING ASSETS BY BUSINESS UNIT EXCLUDES ACQUIRED SOUTHEAST BANKS ASSETS. (DOLLARS IN MILLIONS) 4Q94 3Q94 2Q94 1Q94 4Q93 Florida........... $ 289 313 283 325 347 North Carolina.... 66 63 57 64 81 Georgia........... 39 81 91 119 134 Virginia.......... 58 73 93 118 161 South Carolina.... 14 31 38 41 43 Tennessee......... 6 10 10 13 29 Maryland.......... 12 17 18 28 29 Washington, D.C... 6 8 12 17 9 Other Units* 68 58 60 71 83 Total $ 558 654 662 796 916 *FIRST UNION MORTGAGE CORPORATION, FIRST UNION HOME EQUITY BANK, CAPITAL MARKETS GROUP AND OTHER UNITS. YEAR-END NONACCRUAL REAL ESTATE (PROJECT TYPE) INCLUDES FORECLOSED PROPERTIES. (IN MILLIONS) OUTSTANDINGS Apartments......... $ 15 Condominiums....... 3 Industrial......... 16 Land-improved...... 31 Land-unimproved.... 44 Lodging............ 12 Office buildings... 42 Retail............. 49 Single family...... 45 Other 143 Total $ 400 declines five percent per year to 65 percent by 1996. The FDIC also provides virtually cost-free funding for the acquired Southeast Banks nonperforming assets. This was initially accomplished through five-year revolving notes issued by First Union. Since the first quarter of 1992, in accordance with the FDIC assistance agreements, the FDIC has been paying a market rate of interest on the amount of additions to Southeast Banks segregated assets. FIRST UNION NONPERFORMING ASSETS At December 31, 1994, non-performing assets were at their lowest level since 1991 at $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: (Bullet) Seven loans or properties between $5 million and $10 million each accounted for $47 million; and (Bullet) Three loans or properties over $10 million each accounted for $46 million. Seventy-two percent of non-performing assets were collateralized by real estate at December 31, 1994, compared with 71 percent at year-end 1993. FIRST UNION PAST DUE LOANS In addition to these non-performing assets, at December 31, 1994, accruing loans 90 days past due were $140 million, compared with $71 million, at December 31, 1993. Of these, $27 million were related to commercial and commercial real estate loans, compared with $10 million at December 31, 1993. The increase in past due loans was attributable in part to our 1994 acquisitions. FIRST UNION NET CHARGE-OFFS Net charge-offs as a percentage of average net loans were .33 percent in 1994, compared with .58 percent in 1993. Net charge-offs increased slightly in the fourth quarter of 1994, reflecting bulk sales of nonperforming assets in Georgia and South Carolina. We expect moderate charge-off levels to continue throughout 1995. The dollar level will be higher in 1995 as credit card portfolios mature. Table 12 provides information on net charge-offs by category. FIRST UNION PROVISION AND ALLOWANCE FOR LOAN LOSSES The loan loss provision was $100 million in 1994, compared with $222 million in 1993. The decrease in the loan loss provision in 1994 was based primarily on current economic conditions, lower levels of non-performing assets, the maturity of the nonperforming assets portfolio, lower current charge-offs, and 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 loans and commercial real estate loans are based principally on loan grades, historical loss rates, borrowers' creditworthiness, underlying cash flows from the project and from borrowers, and analysis of other less quantifiable factors that might influence the portfolio. Reserves for consumer loans are based principally on delinquencies and historical loss rates. We analyze all loans in excess of $500,000 that are being monitored as potential credit problems to determine whether supplemental, specific reserves are necessary. For several quarters, the loan loss allowance as a percentage of net loans has declined and the allowance coverage of nonaccrual and restructured loans and nonperforming assets has increased, as indicated in Table 12. 16 ... (FIRST UNION logo) In 1994, this was primarily the result of loan growth and a net decline of $358 million in nonperforming assets from December 31, 1993. These percentages exclude the acquired Southeast Banks segregated assets. The SOUTHEAST BANKS SEGREGATED ASSETS section provides information related to a separate $22 million allowance for losses on segregated assets. Modeling and determination of reserve adequacy has evolved over the past several years to include a highly statistical analysis of loss potential in the portfolio, in addition to a loan-by-loan analysis of material nonperforming assets. Additionally, we evaluate macroeconomic trends, portfolio concentrations and other factors that might affect portfolio performance. As credit grades improved during 1992 and 1993, reserves allocated to specific credits declined, resulting in increases to the general unallocated reserve. Beginning in 1993, we refined our historical loss rates by adopting a statistical loss migration analysis model, which did not entail a change in any subjective assumptions about our loan portfolio or its performance. This change resulted in additional increases to the unallocated allowance. SOUTHEAST BANKS SEGREGATED ASSETS At December 31, 1994, acquired Southeast Banks segregated assets amounted to $187 million, or $165 million net of the $22 million allowance referred to above, compared with $380 million, or $347 million net of a $33 million allowance, at December 31, 1993. This segregated asset portfolio consists of nonaccrual loans and foreclosed properties, net of the allowance for segregated assets as indicated in Table 15. SOUTHEAST BANKS PAST DUE LOANS Accruing loans 90 days past due included in the acquired Southeast Banks performing loan portfolio were $22 million at December 31, 1994, and $28 million at December 31,1993. These loans are subject to the terms of the FDIC loss-sharing agreement. SOUTHEAST BANKS NET CHARGE-OFFS Net charge-offs of $10 million, representing First Union's approximately 15 percent share of the losses on acquired Southeast Banks loans, were deducted from the allowance for segregated assets in 1994, compared with $14 million in 1993. GEOGRAPHIC EXPOSURE The loan portfolio in the South Atlantic region of the United States is spread primarily across 61 metropolitan statistical areas with diverse economies. Washington, D.C.; Charlotte, North Carolina; Atlanta, Georgia; and Miami, Jacksonville, West Palm Beach and Tampa, Florida, are our largest markets, but no individual metropolitan market contains more than 7 percent of the commercial loan portfolio. Substantially all of the $7.2 billion commercial real estate portfolio at December 31, 1994, was located throughout our retail banking region. ................................. LIQUIDITY AND FUNDING SOURCES Liquidity planning and management are necessary to ensure that we maintain the ability to fund operations cost effectively and to meet current and future obligations. In this process, we focus on both assets and liabilities and the manner in which they combine to provide adequate liquidity to meet the corporation's needs. Funding sources primarily include customer-based core deposits but also include purchased funds and cash flows from operations. First Union is one of the nation's largest core deposit-funded banking institutions. Our large consumer deposit base, which is spread across the economically strong South Atlantic region, creates considerable funding diversity and stability. Further, recently acquired bank and thrift deposits have enhanced liquidity. Asset liquidity is maintained through maturity management and our ability to liquidate assets, primarily assets held for sale. Another significant source of asset liquidity is the potential to securitize assets such as credit card receivables and auto, home equity and mortgage loans. Off-balance sheet sources of liquidity exist as well, such as a mortgage servicing portfolio, for which the estimated market value exceeded book value by $369 million at December 31, 1994. CORE DEPOSITS 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 reflects deposits acquired from our 1994 acquisitions. Core deposits include savings, negotiable order of withdrawal (NOW), money market and noninterest-bearing accounts, and other consumer time deposits. In both 1994 and 1993, average noninterest-bearing deposits were 20 percent 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 35 percent at December 31, 1994, and 33 percent at year-end 1993. Other consumer time and other noncore deposits usually pay higher rates than savings and transaction accounts, but they generally are not available for immediate withdrawal and are less expensive to process. Average core deposit balances in 1994 increased $2.0 billion from 1993. Average balances in savings and NOW, money market and noninterest-bearing deposits were higher when compared with the previous year, while other NET CHARGE-OFFS (PERCENT OF AVERAGE NET LOANS) EXCLUDES SOUTHEAST BANKS-RELATED NET CHARGE-OFFS. 1990 1991 1992 1993 1994 .68 1.48 .86 .58 .33 NET CHARGE-OFFS BY LOAN TYPE (INDUSTRY CLASSIFICATION) AS A PERCENTAGE OF AVERAGE NET LOANS. (PERCENT) 1994 1993 Commercial, financial and agricultural..... .13 .73 Real estate...... .22 .38 Installment loans-Bankcard... 2.02 2.47 Installment loans-Other...... .39 .38 Total .33 .58 COMPARISON OF FUNDING SOURCES Deposits '92-86% '93-84% '94-84% Short-Term Borrowings '92-9% '93-11% '94-11% Long-Term Debt '92-5% '93%-5% '94-5% 1992 1993 1994 100% 100% 100% 17 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES STOCKHOLDERS' EQUITY TO ASSETS (PERCENT) * AFTER PREFERRED STOCK REDEMPTION. 1990 1991 1992 1993 1994* 6.05 6.51 6.99 7.36 6.98 consumer time deposits were lower. Core deposits were primarily affected by our 1994 acquisitions and were also affected by branch closings or consolidations, and the rates being offered for deposits compared to other investment opportunities. PURCHASED FUNDS Purchased funds at December 31,1994, were $13.3 billion compared with $10.1 billion at year-end 1993. These funds are used to fund securities portfolios, trading account securities and other short-term assets. 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 and commercial paper, and longer-term funding sources such as bank notes. Average purchased funds in 1994 were $12.6 billion, an increase of 19 percent from $10.6 billion in 1993. CASH FLOWS Net cash provided from operations results primarily 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. These items amounted to $627 million in 1994, compared with $683 million in 1993. This cash was available in 1994 to increase earning assets and 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 and $452 million to acquire First American. ................................. LONG-TERM DEBT 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 $150 million of 15-year, 6.375 percent subordinated debt, $150 million of 15-year, 8 percent subordinated debt, and $150 million of 10- year, 8.77 percent subordinated debt. On February 24, 1995, we issued $300 million of 3-year, floating rate notes. Proceeds from these debt issues were used for general corporate purposes. Under a shelf registration statement filed with the Securities and Exchange Commission, we currently have available for issuance $700 million of senior or subordinated debt securities. The sale of any additional debt securities will depend on future market conditions, funding needs and other factors. DEBT OBLIGATIONS We have a $350 million, three-year committed back-up line of credit that expires in June 1997. This credit facility contains financial covenants that require First Union to maintain a minimum level of tangible net worth, restrict double leverage ratios and require capital levels at subsidiary banks to meet regulatory standards. First Union is currently in compliance with these requirements and has not used this line of credit. In 1995, $200 million of long-term debt will mature. Maturing in 1996 is $523 million, which includes notes payable to the FDIC of $120 million. We expect the notes payable to the FDIC to decrease over the remaining period ending in September 1996 through cash flows generated by the acquired loans, the sale of the Southeast Banks segregated assets and FDIC reimbursements. During 1994, we redeemed $15 million of convertible subordinated debt that we assumed in the Banc-Florida acquisition, 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. This debt was called at par value plus accrued interest. The ASSET QUALITY section provides additional information related to the funding of the segregated assets. ................................. STOCKHOLDERS' EQUITY At December 31, 1994, common stockholders' equity was $5.40 billion, a 10 percent increase from $4.92 billion at December 31, 1993. Total stockholders' equity was $5.40 billion, compared with $5.21 billion at year-end 1993. Since year-end 1993, we have paid $175 million for the purchase in the open market of 4 million shares of common stock related to the BancFlorida acquisition and have issued an aggregate of 4 million shares of common stock related to the American Bancshares, Lieber and Home Federal pooling of interest acquisitions. From the third quarter of 1994 through February 14, 1995, we have paid $161 million for the purchase in the open market of 3.8 million shares of common stock related to the pending acquisition of American Savings Bank. These shares have been retired. In addition, the board of directors has authorized the repurchase from time to time of up to 9.2 million additional shares of common stock. On December 20, 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 will occur on March 31, 1995, at a redemption price of $51.50 per share. In 1995 and beyond, the preferred stock redemption is expected to have a positive impact on earnings of approximately 7 to 10 cents per share, based on the current number of com- 18 ... (FIRST UNION logo) INTEREST RATE SENSITIVITY ASSUMPTIONS mon shares outstanding. We recorded a redemption premium in the fourth quarter of 1994, representing the difference between the $44.96 book value of the preferred stock issue and the $51.50 redemption price. The redemption premium reduced 1994 earnings per share applicable to common stockholders by 24 cents. We paid $323 million in dividends to preferred and common stockholders in 1994. This included preferred stock cash dividends of 8.03 percent per annum, or $25 million. At December 31, 1994, stockholders' equity included a $214 million unrealized after-tax loss related to debt and equity securities. The SECURITIES AVAILABLE FOR SALE section provides additional information about the accounting for debt and equity securities. During 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. 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 $397 million available for dividends at December 31, 1994. Our subsidiaries paid $682 million in dividends to the corporation in 1994. RISK-BASED CAPITAL The minimum requirement for the ratio of total capital to risk-weighted assets (including certain off-balance sheet financial instruments, such as standby letters of credit and interest rate swaps) is currently 8 percent. At least half of the total capital is to be composed of common equity, retained earnings and a limited amount of qualifying preferred stock, less certain intangible assets (tier 1 capital). The rest may consist of a limited amount of subordinated debt, nonqualifying preferred stock and a limited amount of the loan loss allowance (together with tier 1 capital, total capital). At December 31, 1994, the corporation's tier 1 and total capital ratios were 7.76 percent and 12.94 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets equal to 3 percent for bank holding companies that meet specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of at least 4 to 5 percent. The corporation's leverage ratio at December 31, 1994, was 6.12 percent. The requirements also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve Board also has indicated it will continue to consider a tangible tier 1 leverage ratio (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised us of any specific minimum leverage ratio applicable to us. Each subsidiary bank is subject to similar capital requirements adopted by the OCC. Each subsidiary bank listed in Table 19 had a leverage ratio in excess of 5.68 percent at December 31,1994. 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, 1994, the subsidiary banks listed in Table 19 met the capital and leverage ratio requirements for "well capitalized" banks. We expect to maintain these banks' ratios at the required levels by the retention of earnings and, if necessary, the issuance of additional capital. 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 RISK-BASED CAPITAL TO ASSETS (PERCENT) 1994 Regulatory Minimum-Well Capitalized First Union Tier I Total Capital 6.00 7.76 10.00 12.94 19 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES desired interest rate sensitivity position and to limit exposure to interest rate risk. The inherent maturity and repricing characteristics of our lending and deposit activities create a naturally asset-sensitive structure. By using a combination of on- and off-balance sheet financial instruments we manage the sensitivity of earnings to changes in interest rates within our established policy guidelines. The Financial Management Committee of the corporation's board of directors reviews overall interest rate risk management activity. The corporation's Funds Management Committee, which includes the corporation's chief executive officer and president, and senior executives from our Capital Markets Group, credit and finance areas, oversees the interest rate risk management process and approves policy guidelines. Balance sheet management personnel monitor the day-to-day exposure to changes in interest rates in response to loan and deposit flows and make adjustments within established policy guidelines. We measure interest rate sensitivity by estimating the amount of earnings per share at risk based on the modeling of future changes in interest rates. Our model captures all assets and liabilities and off-balance sheet financial instruments, and combines various assumptions affecting rate sensitivity and changes in balance sheet mix into an earnings outlook that incorporates our view of the interest rate environment most likely over the next 24 months. Balance sheet management and finance personnel review and update continuously the underlying assumptions included in the earnings simulation model. The results of the model are reviewed by the Funds Management Committee. The model is updated at least monthly and more often as appropriate. Our interest rate sensitivity analysis is based on multiple interest rate scenarios, projected changes in 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. 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 base-line scenario currently assumes that federal funds rates rise through 1995 and fall modestly in 1996. The "high rate" and "low rate" scenarios assume 100 basis point shifts from the base-line scenario in the federal funds rate by the fourth succeeding month and that rates remain 100 basis points higher or lower through the rest of the 24-month period. Our estimate at December 31, 1994, of the most likely path for future short-term interest rates was that the federal funds rate would increase to 7 percent by year-end 1995, followed by a gradual decline to 6.50 percent by December 1996. We determine interest rate sensitivity by the change in earnings per share between the three scenarios over a 12-month policy measurement period. The earnings per share as calculated by the earnings simulation model under the base-line scenario becomes the standard. The measurement of interest rate sensitivity is the percentage change in earnings per share calculated by the model under high rate versus base-line and under low rate versus base-line. The policy measurement period begins with the fourth month forward and ends with the 15th month (i.e., the 12-month period.) Our policy limit for the maximum negative impact on earnings per share resulting from either the high rate or low rate scenario is 5 percent. Based on the February 1995 outlook, if interest rates were to rise to follow the high rate scenario, which means a full 100 basis point increase over the base-line (already a rising rate scenario), then earnings during the policy measurement period would be negatively affected by 2.7 percent. In addition to the three standard scenarios used to analyze rate sensitivity over the policy measurement period, we also analyze the potential impact of other interest rate scenarios on corporate earnings. These alternate scenarios include interest rate paths both higher, lower and more volatile than those used for policy measurement. While our interest rate sensitivity modeling assumes that management takes no action, we regularly assess the viability of strategies to reduce unacceptable risks to earnings resulting not only from the standard scenarios over which policy period sensitivity is measured, but also from the alternate scenarios. We took several actions in 1993 and 1994 to mitigate the negative effect on earnings of adverse changes in interest rates beyond the rate changes set forth by our policy measurement criteria. For example, during the second quarter of 1993, we purchased protection against higher interest rates during the last three quarters of 1994 in the form of $17.4 billion in eurodollar put option contracts. Similarly, during the fourth quarter of 1994, we purchased $27.2 billion in eurodollar put option protection to reduce rate sensitivity in the last half of 1995 that would result if interest rates rose above our high rate scenario. As new monthly forecast results INTEREST RATE SENSITIVITY ASSUMPTIONS Dec 94 Mar 95 Dec 95 Feb 96 Dec 96 Low Rate 5.50% 5.18% 6.00% 5.91% 5.50% Base Line 5.71% 6.18% 7.00% 6.91% 6.50% High Rate 5.92% 7.18% 8.00% 7.91% 7.50% 20 ... (FIRST UNION logo) 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 that the derivatives used for rate sensitivity management will have any significant unintended effect on corporate earnings. As a result of interest rate fluctuations, off-balance sheet transactions (and securities) will from time to time develop unrealized appreciation or depreciation in market values as compared with their cost. The impact on net interest income attributable to off-balance sheet transactions, all of which are linked to specific assets and liabilities as part of our overall interest rate risk management strategy, will generally be offset by the impact on net interest income of on-balance sheet assets and liabilities. Our asset sensitivity arises naturally, primarily because the repricing characteristics of our large core deposit base have a positive effect on net interest income in a rising rate environment and a negative effect on net interest income in a declining or low-rate environment. Conversely, our fixed- rate securities and off-balance sheet instruments have the opposite effect when rates go up or down. We mitigate our natural asset sensitivity by holding fixed- rate debt instruments in the available-for-sale securities portfolio or by holding off-balance sheet "asset proxies." These asset proxies consist of interest rate swaps that convert floating rate assets (primarily variable rate loans) to fixed rate assets. The unrealized appreciation and depreciation of these asset proxies generally offset the unrealized depreciation and appreciation of core deposits. The combination of securities and interest rate swaps enables us to achieve a desired level of interest rate sensitivity. Another common application of off-balance sheet instruments is the use of interest rate swaps to convert fixed rate debt into floating rate debt. This is accomplished by entering into interest rate swap contracts to receive a fixed rate of interest to the contractual maturity of the debt issued and to pay a variable rate, usually six-month LIBOR. These "liability swaps," all of which are linked to specific debt issuances, leave rate sensitivity unchanged, whereas the fixed rate debt issuance alone would have increased asset sensitivity or reduced liability sensitivity. The combination of the liability swaps and debt produces the desired LIBOR-based floating rate funding regardless of changes in interest rates. Our overall goal is to manage the corporation's rate sensitivity in ways that our earnings momentum is not adversely affected materially whether rates go up or down. The important consideration is not the shifting of unrealized appreciation or depreciation between and among on- and off-balance sheet instruments, but the prudent management of interest rate sensitivity so corporate earnings are not at significant risk as interest rates move up or down. The fair value depreciation of off-balance sheet derivative financial instruments used to manage our interest rate sensitivity was $422 mil-lion 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 was $15 million and $35 million, respectively, at December 31, 1994. These net losses will reduce net interest income by $18 million in 1995 and $2 million in 1996. The increased contribution to net interest income in a higher interest rate environment from on-balance sheet assets and liabilities is expected to substantially offset the potentially reduced contribution to net interest income reflected by the decline in market value of off-balance sheet derivative financial instruments. Although off-balance sheet derivative financial instruments do not expose the corporation to credit risk equal to the notional amount, we are exposed to credit risk equal to the extent of the fair value gain in an off-balance sheet derivative financial instrument if the counterparty fails to perform. We minimize the credit risk in these instruments by dealing only with high quality counterparties. Each transaction is specifically approved for applicable credit exposure. In addition, our policy 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 and derivatives used in our trading activities is delivered by either party when the credit risk associated with a particular transaction, or group of transactions to the extent netting exists, exceeds acceptable thresholds of credit risk. Thresholds are determined based on the strength of the individual counterparty and are bilateral. As of December 31, 1994, the total credit risk in excess of thresholds was $19 million. The fair value of collateral held was 97 percent of the total credit risk in excess of 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. ................................. ACCOUNTING AND REGULATORY MATTERS The Financial Accounting Standards Board (FASB) has issued Standard No. 114, "Accounting by Creditors for Impairment of a Loan", which requires that all creditors value all specifically reviewed loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, market price of the loan, if available, or value of the underlying collateral. Expected cash flows are required to be discounted at the loan's effective interest rate. We estimate the initial application of this Standard will not require an increase to the existing allowance for loan losses. This Standard is required for fiscal years beginning after December 15,1994. The FASB also has issued Standard No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures", that amends Standard No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan and by requiring additional disclosures about how a creditor recognizes interest income related to impaired loans. This Standard is to be implemented concurrently with Standard No. 114. The corporation will prospectively adopt both these Standards, and it is expected that the periodic effect on net income upon adoption of these Standards will not be material. The FASB has also issued FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts", 21 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES which defines right of set-off and sets forth the conditions under which that right may be applied. Specific guidance with respect to certain financial instruments such as forward, interest rate swap, currency swap, option and other conditional or exchange contracts and clarification of the circumstances in which it is appropriate to offset amounts recognized for those contracts in the statement of financial position is also included in this Interpretation. In addition, it permits offsetting of fair value amounts recognized for multiple forward, swap, option and other conditional or exchange contracts executed with the same counterparty under a master netting arrangement. This Interpretation is effective for financial statements issued for periods beginning after December 15, 1993. Currently the effects of the corporation's adoption of the provisions of this Interpretation have been immaterial. The FASB has also issued FASB Interpretation No. 41, "Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements", which modifies Interpretation No. 39 to permit offsetting in the statement of financial position of payables and receivables that represent repurchase agreements and reverse repurchase agreements, respectively, which have the same settlement date, are executed with the same counterparty in accordance with a master netting arrangement, involve securities that exist in "book entry" form, and settle on securities transfer systems that have the same key operating characteristics as the Fedwire Securities Transfer System. This Interpretation is effective for financial statements issued for periods ending after December 15, 1994. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), among other provisions, imposes liability on a bank insured by the FDIC for certain obligations to the FDIC incurred in connection with other insured banks under common control. The Federal Deposit Insurance Corporation Improvement Act, among other things, requires a revision of risk-based capital standards. The new standards are required to incorporate interest rate risk, concentration of credit risk and the risks of nontraditional activities and to reflect the actual performance and expected risk of loss of multifamily mortgages. The RISK-BASED CAPITAL section provides more information on risk assessment classifications. Legislation has been enacted providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA) authorizes interstate acquisitions of banks and bank holding companies without geographic limitation beginning September 27, 1995. In addition, beginning June 1, 1997, a bank may merge with a bank in another state as long as neither of the states opt out of interstate branching between the date of enactment of IBBEA and May 31, 1997. IBBEA further provides that a state may enact laws permitting interstate merger transactions before June 1, 1997. The Riegle Community Development and Regulatory Improvement Act of 1994 includes a list of regulatory relief items. The regulatory relief sections eliminate or modify many regulatory requirements under existing law. Various other legislative proposals concerning the banking industry are pending in Congress. Given the uncertainty of the legislative process, we cannot assess the impact of any such legislation on our financial condition or results of operations. ................................. EARNINGS AND BALANCE SHEET ANALYSIS (1993 COMPARED WITH 1992) The following 1993 and 1992 earnings and certain balance sheet amounts have been restated for the pooling of interests accounting acquisitions of South Carolina Federal Corporation and DFSoutheastern, Inc. on January 15, 1993, and Dominion Bankshares Corporation on March 1, 1993. The 1993 results also reflect the purchase accounting acquisitions of Georgia Federal Bank, FSB, from June 12, 1993, and First American Metro Corp. from June 23, 1993. First Union reported earnings applicable to common stockholders of $793 million in 1993, compared with $353 million in 1992. Net income per common share increased to $4.73 from $2.23. Key factors in First Union's 1993 earnings performance, including the contributions from the two second quarter 1993 purchase accounting acquisitions, were increases in tax-equivalent net interest income, reflecting loan, investment and off-balance sheet financial instruments growth; an increase in noninterest income, including increases in merchant banking, capital management and trading account income; lower credit-related costs, including a decline in the loan loss provision; and a slight decline in noninterest expense, which includes $74 million in additional mortgage servicing amortization related to increased refinancing activity in 1993 and $162 million in restructuring charges in 1992. Tax-equivalent net interest income was $2.9 billion in 1993, compared with $2.6 billion in 1992, largely reflecting additions to earning assets. The level of nonperforming loans offset some interest income growth because interest income from these loans was eliminated or sharply reduced. In 1993, $78 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 1993 was $24 million. However, $435 million of nonperforming assets returned to accrual status, contributing again to interest income, in 1993. The net interest margin was 4.78 percent in 1993, compared with 4.77 percent in 1992. The margin remained flat since year-end 1992 primarily because of the addition of acquired banks with lower margins; the addition of short-term securities, which contribute to net interest income although they reduce the margin while these assets are on our books; and the impact of refinancing activity. The average rate earned on earning assets was 7.77 percent in 1993, compared with 8.53 percent in 1992. The average rate paid on interest-bearing liabilities was 3.44 percent in 1993 and 4.25 percent in 1992. Noninterest income was $1.20 billion in 1993, compared with $1.06 billion in 1992. Noninterest income increased from 1992 primarily as a result of $52 million in gains from the sale of equity positions held by our merchant banking operations and $48 million from the disposition of First American segregated assets as well as increases in trading account profits, capital management income and discount gains. In addition, service charges on deposit accounts increased during this period primarily because of the addition of deposits from acquired banks. The 1993 results included the sale of acquired banks' securities portfolios, which accounted for most of the $33 million in securities gains, compared with $32 million in 1992. Derivative transactions for our customers produced revenues of $15 million in 1993. Trading account 22 ... (FIRST UNION logo) profits were $43 million in 1993, compared with $23 million in 1992. At December 31, 1993, trading account assets were $652 million compared with $169 million at year-end 1992. The increase from 1992 was primarily attributable to investments in U.S. government agency securities, Treasury notes and secondary market certificates of deposit. Noninterest expense was $2.52 billion in 1993, compared with $2.53 billion in 1992. Noninterest expense included an additional $74 million of mortgage servicing amortization in 1993 and $162 million in restructuring charges in 1992. The additional amortization was a result of an accelerated pace of refinancing activity in 1993 because of the low interest rate environment. In the fourth quarter of 1992, the corporation, South Carolina Federal, Decatur and Dominion each accrued restructuring charges of $36 million, $20 million, $40 million and $66 million, respectively, in contemplation of the first quarter 1993 mergers. The charges primarily related to severance contracts, data processing early termination fees, bad debt reserve recapture, duplicative facilities, investment banking fees and other costs associated with the mergers. At December 31, 1993, $17 million of the $162 million remained, of which $16 million was paid in 1994. Costs related to owned real estate decreased to $41 million in 1993, from $176 million in 1992, largely because of the sale of owned real estate, a reduced foreclosed properties provision and lower writedowns of foreclosed properties. Income taxes were $403 million in 1993, compared with $196 million in 1992. The increase came primarily from an increase in income before taxes. In addition, the Omnibus Budget Reconciliation Act, enacted in August 1993, increased the corporate tax rate by one percent, retroactive to January 1, 1993. As a result of the increase, income taxes in 1993 increased $10 million. This increase was offset by a $16 million one-time tax benefit resulting from the repricing of deferred tax assets and the elimination of deferred tax liabilities related to certain intangible assets. Average earning assets in 1993 were $59.9 billion. This was an 11 percent increase from $53.8 billion in 1992. Year-end 1993 earning assets were $63.0 billion, a 12 percent increase from $56.2 billion in 1992. The increase was primarily attributable to acquisitions. At December 31, 1993, we had $11.7 billion in securities available for sale, compared with $5.2 billion at year-end 1992. The market value of securities available for sale was $139 million above their book value at year-end 1993. Portfolio activity was largely merger-related. In addition, we added short-term Treasuries and collateralized mortgage obligations to counteract the effects of refinancing activity. The increase since 1992 also reflects a $4.6 billion reclassification primarily from the investment securities portfolio. Table 8 provides information related to unrealized and realized gains and losses. The average yield earned on securities available for sale in 1993 was 5.03 percent, compared with 6.46 percent in 1992. The average maturity of the portfolio was 2.32 years at December 31, 1993. First Union's investment securities amounted to $2.7 billion at December 31, 1993, and $6.6 billion at year-end 1992. The primary reason for the decrease since year-end 1992 was the reclassification of securities to the securities available for sale portfolio discussed above. The average yield earned on investment securities in 1993 was 7.07 percent, compared with 8.15 percent in 1992. The average maturity of the portfolio was 5.19 years at December 31, 1993. Net loans at December 31, 1993, were $46.9 billion, compared with $41.9 billion at year-end 1992. The increase primarily reflects loans acquired with the second quarter purchase accounting acquisitions, as well as increased lending activity. The loan portfolio at December 31, 1993, was composed of 47 percent commercial loans and 53 percent consumer loans. The portfolio mix and concentration have not changed significantly from year-end 1992. Consumer loans were $25.2 billion in 1993, compared with $22.0 billion at year-end 1992. Unused loan commitments related to commercial loans were $10.5 billion. Unused loan commitments related to consumer loans were $6.7 billion. Commercial and standby letters of credit were $1.4 billion. The average yield earned on loans in 1993 was 8.50 percent, compared with 9.02 percent in 1992. The average prime rate in 1993 was 6.00 percent, compared with 6.26 percent in 1992. Commercial real estate loans as a percentage of the total portfolio decreased to 16 percent at December 31, 1993, from 18 percent at year-end 1992. This portfolio included commercial real estate mortgage loans of $5.8 billion at December 31, 1993, and at year-end 1992. At December 31, 1993, outstanding HLT loans amounted to $786 million, compared with $856 million at year-end 1992. Nonperforming assets at December 31, 1993, were $916 million, or 1.95 percent of net loans and foreclosed properties, compared with $1.35 billion, or 3.19 percent, at December 31, 1992. Seventy-one percent of non-performing assets were secured by real estate at December 31, 1993, compared with 65 percent at year-end 1992. In addition to these nonperforming assets, at December 31, 1993, accruing loans 90 days past due were $71 million, compared with $86 million at December 31, 1992. Net charge-offs as a percentage of average net loans were .58 percent in 1993, compared with .86 percent in 1992. Table 12 provides information on net charge-offs by category. The loan loss provision was $222 million in 1993, compared with $415 million in 1992. The decrease in the loan loss provision was based primarily upon existing economic conditions, lower levels of nonperforming assets, the maturity of the nonperforming assets portfolio, and existing and projected lower charge- off levels. Discounted nonperforming assets and certain performing loans amounting to $288 million acquired with First American, which were designated for early disposition, declined by 51 percent, to $141 million at December 31, 1993. These acquired First American segregated assets were recorded at fair value at the date of acquisition in accordance with our plans for disposition. At December 31, 1993, acquired Southeast Banks segregated assets amounted to $380 million, or $347 million net of a $33 million allowance, compared with $576 million, or $531 million net of a $45 million allowance, at December 31, 1992. Accruing loans 90 days past due included in the acquired Southeast Banks performing loan portfolio decreased 29 percent from $40 million at December 31, 1992, to $28 million at December 31, 1993. Net charge-offs of $14 million, representing First Union's approximately 15 percent share of the losses on acquired Southeast Banks loans, were deducted from the allowance for segregated assets in 1993, compared with $29 million in 1992. Core deposits were $50.9 billion at December 31, 1993, compared with $47.0 billion at year-end 1992. The increase in core deposits primarily reflected deposits acquired in the acquisitions of Georgia Federal and First American in the second quarter of 1993. 23 ... (FIRST UNION logo) MANAGEMENT'S ANALYSIS OF OPERATIONS FIRST UNION CORPORATION AND SUBSIDIARIES Average noninterest-bearing deposits were 20 percent of average core deposits in 1993, compared with 18 percent in 1992. The portion of core deposits in higher-rate, other consumer time deposits decreased to 33 percent at December 31, 1993, from 38 percent at year-end 1992. Purchased funds at December 31,1993, were $10.1 billion, compared with $7.2 billion at year-end 1992. Average purchased funds in 1993 were $10.6 billion, an increase of 21 percent from 1992. Long-term debt was 59 percent of total stockholders' equity at December 31, 1993, and 71 percent at December 31, 1992. During 1993, we issued $250 million of five-year, 6.75 percent senior notes; $150 million of ten-year, 7.25 percent subordinated notes; $250 million of 12- year, 6.625 percent subordinated notes; $150 million of ten-year, floating rate subordinated notes; and $200 million of 15-year, 6.00 percent subordinated notes. Proceeds from these debt issues were designated for general corporate purposes. Also in 1993, we redeemed $134 million of floating rate debt. The debt was called at par value plus accrued interest. At December 31, 1993, common stockholders' equity was $4.92 billion, an 18 percent increase from year-end 1992. Total stockholders' equity was $5.21 billion, compared with $4.46 billion at year-end 1992. The increase in equity since year-end 1992 was pri-marily the result of retained earnings and capital raised through the dividend reinvestment and employee stock option and purchase plans. Series 1990 preferred stock cash dividends of 7.78 percent per annum were paid for the year ended December 31,1993. We paid $269 million in dividends to preferred and common stockholders in 1993. Our subsidiaries had $510 million available for dividends at December 31, 1993. During 1993, our subsidiaries paid $407 million in dividends to the corporation. At December 31, 1993, the corporation's tier 1, total capital and leverage ratios were 9.14, 14.64 and 6.13 percent, respectively. At December 31, 1993, the subsidiary national banks met FDIC capi-tal ratio and leverage ratio requirements for "well capitalized" banks. The notional amount of off-balance sheet derivative financial instruments used to manage our interest rate risk sensitivity amounted to $48.8 billion and $43.5 billion at December 31, 1993 and 1992, respectively. The related fair value of the off-balance sheet derivative financial instruments was $369 million and $192 million at December 31, 1993 and 1992, respectively. Net cash provided from operations amounted to $683 million in 1993, compared with $704 million in 1992. This cash was available during 1993 to increase earning assets and to reduce borrowings by $414 million, and to pay dividends of $269 million. 24 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 1 SELECTED STATISTICAL DATA YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990 1989 PROFITABILITY Net interest margin 4.77% 4.78 4.77 4.08 3.99 4.15 Net income per common share before 1994 redemption premium $ 5.22 4.73 2.23 2.24 1.68 2.62 Return on common stockholders' equity before 1994 redemption premium* 17.04% 17.42 9.08 10.03 7.78 12.78 Return on assets* 1.27 1.20 .63 .63 .50 .82 Overhead efficiency ratio** 62.47 62.03 69.66 61.59 65.38 66.48 Dividend payout ratio on common shares 34.54 31.71 49.34 46.18 65.92 39.09 CAPITAL ADEQUACY*** Tier 1 capital to risk-weighted assets 7.76 9.14 9.22 7.56 6.53 -- ASSET QUALITY**** Net charge-offs to loans, net* .33 .58 .86 1.48 .68 .39 Allowance for loan losses to loans, net 1.81 2.18 2.24 2.06 1.95 1.12 Allowance for loan losses to nonaccrual and restructured loans 245 147 96 72 77 131 Allowance for loan losses to nonperforming assets 175 111 70 50 56 89 Nonperforming assets to loans, net and foreclosed properties 1.03 1.95 3.19 4.10 3.42 1.25 ONE-YEAR GROWTH* Loans, net 12.43 5.72 10.60 4.00 21.59 14.91 Core deposits 4.14 9.45 20.89 14.22 23.38 7.80 Stockholders' equity 12.97 14.84 21.53 6.87 17.05 9.95 Internal capital 10.84% 11.34 4.24 4.88 2.40 7.74
* Based on average balances. ** 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. *** Capital ratios for 1990-1992 are not restated for 1993 pooling of interest acquisitions. **** Excluding Southeast Banks segregated assets. 25 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 2 CONSOLIDATED SUMMARIES OF INCOME, PER SHARE AND BALANCE SHEET DATA YEARS ENDED DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1992 1991 1990 CONSOLIDATED SUMMARIES OF INCOME Interest income $ 5,094,661 4,556,332 4,479,385 4,647,440 4,829,520 Interest income* $ 5,187,404 4,657,100 4,583,916 4,767,943 4,966,954 Interest expense 2,060,946 1,790,439 2,020,968 2,742,996 3,094,334 Net interest income* 3,126,458 2,866,661 2,562,948 2,024,947 1,872,620 Provision for loan losses 100,000 221,753 414,708 648,284 425,409 Net interest income after provision for loan losses* 3,026,458 2,644,908 2,148,240 1,376,663 1,447,211 Securities available for sale transactions (11,507) 25,767 34,402 -- -- Investment security transactions 4,006 7,435 (2,881) 155,048 7,884 Noninterest income 1,166,470 1,165,086 1,032,651 914,511 690,672 Noninterest expense 2,677,228 2,521,647 2,526,678 1,905,918 1,680,973 Income before income taxes* 1,508,199 1,321,549 685,734 540,304 464,794 Income taxes 490,076 403,260 196,152 71,070 64,993 Tax-equivalent adjustment 92,743 100,768 104,531 120,503 137,434 Net income 925,380 817,521 385,051 348,731 262,367 Dividends on preferred stock 25,353 24,900 31,979 34,570 33,868 Net income applicable to common stockholders before redemption premium 900,027 792,621 353,072 314,161 228,499 Redemption premium on preferred stock 41,355 -- -- -- -- Net income applicable to common stockholders after redemption premium $ 858,672 792,621 353,072 314,161 228,499 PER COMMON SHARE DATA Net income before redemption premium $ 5.22 4.73 2.23 2.24 1.68 Net income after redemption premium $ 4.98 4.73 2.23 2.24 1.68 Average common shares 172,543,467 167,691,739 158,683,206 140,003,166 135,621,838 Average common stockholders' equity** $ 5,282,412 4,550,048 3,889,256 3,131,716 2,937,441 Common stock price High 47 5/8 51 1/2 44 7/8 30 7/8 21 3/4 Low 39 3/8 37 7/8 29 1/2 13 3/4 13 7/8 Year-end $ 41 3/8 41 1/4 43 5/8 30 15 3/8 To earnings ratio*** 7.93X 8.72 19.61 13.39 9.15 To book value 135% 143 173 120 70 Cash dividends $ 1.72 1.50 1.28 1.12 1.08 Book value 30.66 28.90 25.25 23.23 21.81 PER PREFERRED SHARE DATA Series 1990 preferred stock price High 53 7/8 55 1/2 55 1/2 51 1/4 46 Low 51 1/8 52 51 39 1/8 41 1/8 Year-end 51 3/4 52 3/8 53 5/8 51 41 1/8 Cash dividends $ 4.0127 3.8876 4.3626 4.6252 4.6049 Dividend rate 8.03% 7.78 8.73 9.25 9.99 BALANCE SHEET DATA Assets $ 77,313,505 70,786,969 63,828,031 59,273,177 54,588,410 Long-term debt $ 3,428,514 3,061,944 3,151,260 2,630,930 1,850,860
(IN THOUSANDS EXCEPT PER SHARE DATA) 1989 CONSOLIDATED SUMMARIES OF INCOME Interest income 4,179,100 Interest income* 4,327,254 Interest expense 2,703,623 Net interest income* 1,623,631 Provision for loan losses 139,291 Net interest income after provision for loan losses* 1,484,340 Securities available for sale transactions -- Investment security transactions 19,018 Noninterest income 532,295 Noninterest expense 1,445,836 Income before income taxes* 589,817 Income taxes 87,840 Tax-equivalent adjustment 148,154 Net income 353,823 Dividends on preferred stock 1,380 Net income applicable to common stockholders before redemption premium 352,443 Redemption premium on preferred stock -- Net income applicable to common stockholders after redemption premium 352,443 PER COMMON SHARE DATA Net income before redemption premium 2.62 Net income after redemption premium 2.62 Average common shares 134,446,048 Average common stockholders' equity** 2,758,156 Common stock price High 26 3/4 Low 19 7/8 Year-end 20 5/8 To earnings ratio*** 7.87 To book value 101 Cash dividends 1.00 Book value 20.49 PER PREFERRED SHARE DATA Series 1990 preferred stock price High -- Low -- Year-end -- Cash dividends -- Dividend rate -- BALANCE SHEET DATA Assets 45,506,847 Long-term debt 1,514,834
* Tax-equivalent. ** Average common stockholders' equity excludes 1994 average net unrealized losses on debt and equity securities of $87,118,000. *** Based on net income per common share before redemption premium. 26 (FIRST UNION logo) ... ................................. TABLE 3 NONINTEREST INCOME
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 1991 1990 Trading account profits $ 41,583 43,007 22,908 20,053 13,599 Service charges on deposit accounts 435,212 420,285 386,118 293,075 248,891 Mortgage banking income 73,934 138,608 155,800 135,557 97,809 Gain on sale of mortgage servicing rights -- 973 10,637 39,186 9,823 Capital management income 224,525 201,875 177,375 133,126 104,864 Securities available for sale transactions (11,507) 25,767 34,402 -- -- Investment security transactions 4,006 7,435 (2,881) 155,048 7,884 Fees for other banking services* 69,252 52,836 33,845 -- -- Merchant discounts 62,840 55,732 54,703 48,126 47,987 Insurance commissions 45,071 43,876 44,047 46,081 46,748 Sundry income 214,053 207,894 147,218 199,307 120,951 Total $1,158,969 1,198,288 1,064,172 1,069,559 698,556 1989 Trading account profits 8,411 Service charges on deposit accounts 184,966 Mortgage banking income 68,695 Gain on sale of mortgage servicing rights 23,500 Capital management income 76,365 Securities available for sale transactions -- Investment security transactions 19,018 Fees for other banking services* -- Merchant discounts 40,859 Insurance commissions 36,957 Sundry income 92,542 Total 551,313
* Information not available prior to 1992. ................................. TABLE 4 NONINTEREST EXPENSE
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 1991 1990 Personnel expense Salaries $1,039,699 938,409 886,702 735,564 695,152 Other benefits 247,667 217,490 178,600 137,617 126,995 Total 1,287,366 1,155,899 1,065,302 873,181 822,147 Occupancy 238,128 229,118 238,728 213,424 178,338 Equipment rentals, depreciation and maintenance 228,372 189,589 167,063 132,858 123,026 Advertising 38,584 22,541 23,082 19,488 19,055 Telephone 58,331 53,023 51,000 43,470 46,557 Travel 53,521 42,330 33,937 25,084 25,017 Postage 48,874 39,538 40,747 35,616 29,251 Printing and office supplies 54,865 53,304 35,310 27,936 32,497 FDIC insurance 119,708 118,429 107,392 77,808 44,185 Other insurance 14,883 18,233 20,641 18,530 19,474 Professional fees 66,878 52,251 61,810 40,109 28,430 Data processing 24,499 41,440 31,906 20,419 19,149 Owned real estate expense 22,294 40,633 176,109 90,181 35,735 Mortgage servicing amortization 23,525 106,942 37,422 27,149 23,448 Other amortization 121,083 100,145 83,455 66,139 75,184 Sundry 276,317 258,232 352,774 194,526 159,480 Total $2,677,228 2,521,647 2,526,678 1,905,918 1,680,973 Overhead efficiency ratio* 62.47% 62.03 69.66 61.59 65.38 1989 Personnel expense Salaries 623,337 Other benefits 114,061 Total 737,398 Occupancy 146,791 Equipment rentals, depreciation and maintenance 99,392 Advertising 23,237 Telephone 38,913 Travel 21,813 Postage 26,063 Printing and office supplies 30,074 FDIC insurance 26,017 Other insurance 16,115 Professional fees 25,301 Data processing 33,361 Owned real estate expense 17,036 Mortgage servicing amortization 16,552 Other amortization 36,561 Sundry 151,212 Total 1,445,836 Overhead efficiency ratio* 66.48
* 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. 27 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 5 INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990 1989 INTERNAL CAPITAL GROWTH* Assets to stockholders' equity (a) 13.08X 14.07 14.51 15.89 16.07 15.59 X Return on assets 1.27% 1.20 .63 .63 .50 .82 Return on total stockholders' equity (a) 16.66% 16.89 9.14 10.06 8.09 12.76 X Earnings retained 65.07% 67.13 46.45 48.48 29.68 60.67 Internal capital growth 10.84% 11.34 4.24 4.88 2.40 7.74 DIVIDEND PAYOUT RATIO ON Common shares 34.54% 31.71 49.34 46.18 65.92 39.09 Preferred and common shares 34.93% 32.87 53.55 51.52 70.32 39.33 Return on common stockholders' equity before redemption premium** (a) 17.04% 17.42 9.08 10.03 7.78 12.78 Return on common stockholders' equity after redemption premium** (a) 16.26% 17.42 9.08 10.03 7.78 12.78
(a) The determination of these ratios exclude 1994 average net unrealized losses on debt and equity securities of $87,118,000. * Based on average balances and net income. ** Based on average balances and net income applicable to common stockholders. 28 (FIRST UNION logo) ... ................................. TABLE 6 SELECTED QUARTERLY DATA (UNAUDITED)
(IN THOUSANDS EXCEPT 1994 PER SHARE DATA) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND CONSOLIDATED NET INCOME Interest income $1,389,470 1,307,377 1,235,206 1,162,608 1,171,521 1,171,626 1,113,283 Interest expense 610,172 530,858 483,913 436,003 463,394 470,491 428,987 Net interest income 779,298 776,519 751,293 726,605 708,127 701,135 684,296 Provision for loan losses 25,000 25,000 25,000 25,000 49,973 50,001 61,450 Net interest income after provision for loan losses 754,298 751,519 726,293 701,605 658,154 651,134 622,846 Securities available for sale transactions (9,926) (2,946) (2,935) 4,300 2,804 4,142 1,505 Investment security transactions 411 2,286 694 615 3,049 815 3,571 Noninterest income 311,419 303,259 276,011 275,781 317,727 287,998 305,356 Noninterest expense 703,948 682,219 651,220 639,841 687,922 664,388 591,042 Income before income taxes 352,254 371,899 348,843 342,460 293,812 279,701 342,236 Income taxes 120,705 130,147 119,223 120,001 98,469 84,286 115,465 Net income 231,549 241,752 229,620 222,459 195,343 195,415 226,771 Dividends on preferred stock 6,831 6,595 6,201 5,726 5,489 6,240 6,167 Net income applicable to common stockholders before redemption premium 224,718 235,157 223,419 216,733 189,854 189,175 220,604 Redemption premium on preferred stock 41,355 -- -- -- -- -- -- Net income applicable to common stockholders after redemption premium $ 183,363 235,157 223,419 216,733 189,854 189,175 220,604 PER COMMON SHARE DATA Net income before redemption premium $ 1.28 1.35 1.32 1.27 1.12 1.12 1.32 Net income after redemption premium 1.04 1.35 1.32 1.27 1.12 1.12 1.32 Cash dividends .46 .46 .40 .40 .40 .40 .35 Common stock price High 45 1/4 47 1/4 47 5/8 43 3/4 48 1/8 49 5/8 51 1/2 Low 39 3/8 43 1/4 41 1/4 39 3/4 37 7/8 43 1/2 40 Quarter-end $ 41 3/8 43 1/4 46 1/8 41 5/8 41 1/4 47 5/8 48 1/2 PER PREFERRED SHARE DATA Series 1990 preferred stock price High $ 53 53 1/2 53 1/4 53 7/8 53 7/8 55 1/2 55 1/8 Low 51 1/8 52 52 52 1/8 52 53 1/4 53 1/8 Quarter-end 51 3/4 52 1/8 52 3/4 52 1/8 52 3/8 53 1/2 54 7/8 Cash dividends $ 1.0813 1.0438 .9813 .9063 .8688 .9875 .9750 Dividend rate 8.65% 8.35 7.85 7.25 6.95 7.90 7.80 SELECTED RATIOS* Return on assets** 1.22% 1.31 1.28 1.28 1.07 1.08 1.39 Return on common stockholders' equity before redemption premium*** 15.92 17.29 17.53 17.54 15.55 16.11 19.93 Return on common stockholders' equity after redemption premium*** 12.99 17.29 17.53 17.54 15.55 16.11 19.93 Stockholders' equity to assets 7.49% 7.62 7.39 7.60 7.10 6.92 7.23 1993 (IN THOUSANDS EXCEPT FIRST PER SHARE DATA) CONSOLIDATED NET INCOME Interest income 1,099,902 Interest expense 427,567 Net interest income 672,335 Provision for loan losses 60,329 Net interest income after provision for loan losses 612,006 Securities available for sale transactions 17,316 Investment security transactions -- Noninterest income 254,005 Noninterest expense 578,295 Income before income taxes 305,032 Income taxes 105,040 Net income 199,992 Dividends on preferred stock 7,004 Net income applicable to common stockholders before redemption premium 192,988 Redemption premium on preferred stock -- Net income applicable to common stockholders after redemption premium 192,988 PER COMMON SHARE DATA Net income before redemption premium 1.17 Net income after redemption premium 1.17 Cash dividends .35 Common stock price High 50 7/8 Low 42 1/4 Quarter-end 47 3/4 PER PREFERRED SHARE DATA Series 1990 preferred stock price High 55 3/8 Low 53 Quarter-end 53 Cash dividends 1.0563 Dividend rate 8.45 SELECTED RATIOS* Return on assets** 1.28 Return on common stockholders' equity before redemption premium*** 18.41 Return on common stockholders' equity after redemption premium*** 18.41 Stockholders' equity to assets 7.20
* 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 of $46,966,000, $(90,899,000), $(116,921,000) and $(184,746,000) in the first, second, third and fourth quarters of 1994 , respectively. 29 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 7 GROWTH THROUGH ACQUISITIONS (IN THOUSANDS) ASSETS LOANS, NET DEPOSITS December 31, 1988, as reported $41,446,746 28,131,626 29,480,568 Growth in operations 4,060,101 3,469,150 2,051,202 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
Acquisitions (those greater than $3.0 billion in acquired assets and/or deposits) include the purchase acquisitions of Florida National Banks of Florida, Inc. in 1990, and the Southeast Banks transaction in 1991; the pooling of interests acquisition of Dominion Bankshares Corporation in 1993; and the Georgia Federal Savings Bank, FSB and First American Metro Corp. purchase acquisitions in 1993. Stockholders' equity includes public offerings of common stock amounting to $234,934,000 in 1991 and $330,045,000 in 1992. 30 (FIRST UNION logo) ... ................................. TABLE 8 SECURITIES AVAILABLE FOR SALE
AFTER DECEMBER 31, 1994 1 YEAR 1-5 5-10 10 GROSS UNREALIZED AMORTIZED (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST MARKET VALUE U.S. Treasury $1,156,159 1,035,790 -- -- 2,191,949 -- 81,975 2,273,924 U.S. Government agencies 153,675 469,468 2,031,111 546 2,654,800 (404) 171,580 2,825,976 Collateralized mortgage obligations 90,066 1,091,930 58,524 -- 1,240,520 (49) 44,627 1,285,098 Other 84,757 1,282,076 20,299 278,078 1,665,210 (51,633) 56,017 1,669,594 Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592 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 Collateralized mortgage obligations 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 AVERAGE DECEMBER 31, 1994 MATURITY (IN THOUSANDS) IN YEARS MARKET VALUE U.S. Treasury 1.89 U.S. Government agencies 6.31 Collateralized mortgage obligations 2.96 Other 2.75 Total 3.82 MARKET VALUE Debt securities Sundry securities Total AMORTIZED COST Debt securities Sundry securities Total WEIGHTED AVERAGE YIELD U.S. Treasury U.S. Government agencies Collateralized mortgage obligations Other Consolidated
AFTER DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED MARKET (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE CARRYING VALUE U.S. Treasury $3,177,119 1,249,298 -- -- 4,426,417 3,609 (7,315) 4,422,711 U.S. Government agencies 114,531 1,646,429 1,494,136 555 3,255,651 43,814 (270) 3,299,195 Collateralized mortgage obligations 1,006,973 1,226,569 -- -- 2,233,542 13,389 (8,825) 2,238,106 Other 438,585 1,121,571 35,474 233,702 1,829,332 95,296 (255) 1,924,373 Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) 11,884,385 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 Collateralized mortgage obligations 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 AVERAGE DECEMBER 31, 1993 MATURITY (IN THOUSANDS) IN YEARS CARRYING VALUE U.S. Treasury 1.34 U.S. Government agencies 4.29 Collateralized mortgage obligations 1.33 Other 2.40 Total 2.32 CARRYING VALUE Debt securities Sundry securities Total MARKET VALUE Debt securities Sundry securities Total WEIGHTED AVERAGE YIELD U.S. Treasury U.S. Government agencies Collateralized mortgage obligations Other Consolidated
31 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1992 1 YEAR 1-5 5-10 AFTER 10 GROSS UNREALIZED (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS CARRYING VALUE U.S. Treasury $2,352,822 316,405 130 241 2,669,598 9,767 U.S. Government agencies 32,644 206,864 60,710 212,878 513,096 13,179 Collateralized mortgage obligations 299,755 501,431 40,217 31,562 872,965 1,812 State, county and municipal 50,708 240,672 -- 2,186 293,566 26,456 Other 220,913 416,013 98,380 118,813 854,119 11,408 Total $2,956,842 1,681,385 199,437 365,680 5,203,344 62,622 CARRYING VALUE Debt securities $2,956,842 1,681,385 199,437 257,139 5,094,803 57,706 Sundry securities -- -- -- 108,541 108,541 4,916 Total $2,956,842 1,681,385 199,437 365,680 5,203,344 62,622 MARKET VALUE Debt securities $2,964,538 1,714,200 199,863 265,438 5,144,039 Sundry securities -- -- -- 112,928 112,928 Total $2,964,538 1,714,200 199,863 378,366 5,256,967 WEIGHTED AVERAGE YIELD U.S. Treasury 3.63% 5.82 8.46 7.88 3.89 U.S. Government agencies 5.13 7.21 8.06 8.51 7.72 Collateralized mortgage obligations 6.17 4.73 7.09 7.95 5.45 State, county and municipal 13.08 13.03 -- 12.95 13.03 Other 5.05 7.72 7.57 9.29 7.23 Consolidated 4.18% 7.17 7.62 8.74 5.60 AVERAGE MARKET MATURITY (IN THOUSANDS) LOSSES VALUE IN YEARS CARRYING VALUE U.S. Treasury (763) 2,678,602 .56 U.S. Government agencies (905) 525,370 11.63 Collateralized mortgage obligations (2,260) 872,517 2.35 State, county and municipal (9) 320,013 2.24 Other (5,062) 860,465 2.80 Total (8,999) 5,256,967 2.41 CARRYING VALUE Debt securities (8,521) 5,143,988 Sundry securities (478) 112,979 Total (8,999) 5,256,967 MARKET VALUE Debt securities Sundry securities Total WEIGHTED AVERAGE YIELD U.S. Treasury U.S. Government agencies Collateralized mortgage obligations State, county and municipal Other Consolidated
Included in "Other" at December 31, 1994 , are $1,290,963,000 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, 1994 , these securities had a weighted average maturity of 2.62 years and a weighted average yield of 6.81 percent. The weighted average U.S. equivalent yield for comparative purposes of these securities was 5.87 percent based on a weighted average funding cost differential of (.94) percent. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The aging of mortgage-backed securities is based on their weighted average maturities at December 31, 1994 , 1993 and 1992. Average maturity in years excludes preferred and common stocks and money market funds. Weighted average yields are based on amortized costs or carrying value. Yields related to securities exempt from both federal and state income taxes (primarily state, county and municipal securities), 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 in 1994 and 1993 and 34 percent in 1992; a North Carolina state tax rate of 7.8275 percent in 1994 , 7.905 percent in 1993, and 7.9825 percent in 1992; 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 in 1994 and 1993; and a Washington, D.C. tax rate of 10.25 percent in 1994 and 1993, respectively. 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 and 1992, include the carrying value of $513,390,000 and $54,892,000, respectively, of securities which have been sold for future settlement. Related gains and losses are accounted for on a trade date basis. 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 gross gains and losses realized were $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 gross gains and losses realized were $6,570,000 and $68,000, respectively. Gross gains and losses realized on the sale of debt securities in 1992 were $42,014,000 and $7,419,000, respectively, and on sundry securities gross gains and losses realized were $230,000 and $423,000, respectively. 32 (FIRST UNION logo) ... ................................. TABLE 9 INVESTMENT SECURITIES
AFTER DECEMBER 31, 1994 1 YEAR 1-5 5-10 10 GROSS UNREALIZED MARKET (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE CARRYING VALUE U.S. Government agencies $ -- 100,853 1,201,803 14,474 1,317,130 5,528 (39,881) 1,282,777 Collateralized mortgage obligations -- 910,733 92,516 -- 1,003,249 -- (26,786) 976,463 State, county and municipal 369,189 267,835 151,533 437,523 1,226,080 78,676 (4,698) 1,300,058 Other -- 2,036 6,178 175,196 183,410 3,022 (3,196) 183,236 Total $369,189 1,281,457 1,452,030 627,193 3,729,869 87,226 (74,561) 3,742,534 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 Collateralized mortgage obligations -- 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 AVERAGE DECEMBER 31, 1994 MATURITY (IN THOUSANDS) IN YEARS CARRYING VALUE U.S. Government agencies 7.28 Collateralized mortgage obligations 3.70 State, county and municipal 7.06 Other 13.33 Total 6.34 CARRYING VALUE Debt securities Sundry securities Total MARKET VALUE Debt securities Sundry securities Total WEIGHTED AVERAGE YIELD U.S. Government agencies Collateralized mortgage obligations State, county and municipal Other Consolidated
AFTER DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED MARKET (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE CARRYING VALUE U.S. Treasury $ 550 -- -- -- 550 -- (1) 549 U.S. Government agencies 311,750 814,667 30,232 -- 1,156,649 44,054 (1,222) 1,199,481 State, county and municipal 80,863 508,477 242,072 511,523 1,342,935 183,230 (756) 1,525,409 Other -- -- 6,200 186,142 192,342 13,358 -- 205,700 Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) 2,931,139 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 AVERAGE DECEMBER 31, 1993 MATURITY (IN THOUSANDS) IN YEARS CARRYING VALUE U.S. Treasury .04 U.S. Government agencies 1.87 State, county and municipal 8.03 Other 8.00 Total 5.19 CARRYING VALUE Debt securities Sundry securities Total MARKET VALUE Debt securities Sundry securities Total WEIGHTED AVERAGE YIELD U.S. Treasury U.S. Government agencies State, county and municipal Other Consolidated
33 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1992 1 YEAR 1-5 5-10 AFTER 10 GROSS UNREALIZED (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES CARRYING VALUE U.S. Treasury $ 53,985 258,553 -- -- 312,538 1,451 (1,212) U.S. Government agencies 26,265 1,983,165 1,311,018 5,147 3,325,595 61,527 (4,541) Collateralized mortgage obligations 137,364 1,238,654 -- 3,527 1,379,545 6,708 (9,337) State, county and municipal 4,230 118,399 257,274 641,842 1,021,745 123,997 (1,181) Other 159,501 161,670 4,454 268,290 593,915 15,874 (1,558) Total $381,345 3,760,441 1,572,746 918,806 6,633,338 209,557 (17,829) CARRYING VALUE Debt securities $381,345 3,760,441 1,572,746 652,688 6,367,220 197,901 (16,447) Sundry securities -- -- -- 266,118 266,118 11,656 (1,382) Total $381,345 3,760,441 1,572,746 918,806 6,633,338 209,557 (17,829) MARKET VALUE Debt securities $379,517 3,814,483 1,617,925 736,749 6,548,674 Sundry securities -- -- -- 276,392 276,392 Total $379,517 3,814,483 1,617,925 1,013,141 6,825,066 WEIGHTED AVERAGE YIELD U.S. Treasury 3.99% 4.81 -- -- 4.67 U.S. Government agencies 6.47 8.36 8.06 6.66 8.22 Collateralized mortgage obligations 5.67 6.06 -- 7.43 6.03 State, county and municipal 9.55 12.09 11.55 12.24 12.04 Other 3.85 6.87 7.39 8.37 6.74 Consolidated 4.77% 7.41 8.63 11.06 8.05 AVERAGE MARKET MATURITY (IN THOUSANDS) VALUE IN YEARS CARRYING VALUE U.S. Treasury 312,777 2.02 U.S. Government agencies 3,382,581 4.88 Collateralized mortgage obligations 1,376,916 2.45 State, county and municipal 1,144,561 12.30 Other 608,231 1.76 Total 6,825,066 5.24 CARRYING VALUE Debt securities 6,548,674 Sundry securities 276,392 Total 6,825,066 MARKET VALUE Debt securities Sundry securities Total WEIGHTED AVERAGE YIELD U.S. Treasury U.S. Government agencies Collateralized mortgage obligations State, county and municipal Other Consolidated
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The aging of mortgage-backed securities is based on their weighted average maturities at December 31, 1994 , 1993 and 1992. Average maturity in years excludes preferred and common stocks and money market funds. Yields related to securities exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent in 1994 and 1993 and 34 percent in 1992; a North Carolina state tax rate of 7.8275 percent in 1994 , 7.905 percent in 1993, and 7.9825 percent in 1992; 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 in 1994 and 1993; and a Washington, D.C. tax rate of 10.25 percent in 1994 and 1993, respectively. There were no commitments to purchase or sell investment securities at December 31, 1994. Gross gains and losses realized on the sale of debt securities in 1994 were $1,440,000 and $44,000, respectively, and on sundry securities gross gains realized were $2,610,000. Gross gains and losses realized on the sale of debt securities in 1993 were $2,722,000 and $318,000, respectively, and on sundry securities $5,115,000 and $84,000, respectively. Gross gains and losses realized on the sale of debt securities in 1992 were $19,035,000 and $19,100,000, respectively, and on sundry securities $615,000 and $3,431,000, respectively. 34 (FIRST UNION logo) ... ................................. TABLE 10 LOANS
(IN THOUSANDS) 1994 1993 1992 1991 1990 FIRST UNION CORPORATION COMMERCIAL Commercial, financial and agricultural Taxable $15,198,651 12,509,283 10,532,842 10,854,321 9,946,557 Nontaxable 709,092 724,442 738,834 936,416 1,054,246 Total commercial, financial and agricultural 15,907,743 13,233,725 11,271,676 11,790,737 11,000,803 Real estate-construction and other 1,734,095 1,664,694 1,886,319 3,014,877 3,380,426 Real estate-mortgage 5,437,496 5,834,894 5,782,780 5,421,698 4,067,445 Lease financing 1,613,763 962,599 1,033,809 1,109,525 1,184,196 Foreign 415,857 304,267 274,800 233,601 190,621 Total commercial 25,108,954 22,000,179 20,249,384 21,570,438 19,823,491 RETAIL Real estate-mortgage 15,014,775 13,318,058 10,775,107 9,406,329 7,173,064 Installment loans-Bankcard* 3,959,657 1,995,568 -- -- -- Installment loans-other 10,618,696 9,896,431 11,260,708 10,850,557 9,485,633 Total retail 29,593,128 25,210,057 22,035,815 20,256,886 16,658,697 Total loans 54,702,082 47,210,236 42,285,199 41,827,324 36,482,188 UNEARNED INCOME Loans 145,691 129,830 186,173 247,016 245,363 Lease financing 526,639 204,229 175,259 196,728 186,106 Total unearned income 672,330 334,059 361,432 443,744 431,469 Loans, net $54,029,752 46,876,177 41,923,767 41,383,580 36,050,719 ACQUIRED SOUTHEAST BANKS LOANS** COMMERCIAL Commercial, financial and agricultural Taxable $ 263,412 532,388 775,016 1,240,007 -- Nontaxable 32,861 52,977 55,322 81,757 -- Total commercial, financial and agricultural 296,273 585,365 830,338 1,321,764 -- Real estate-construction and other 49,381 87,954 160,785 322,513 -- Real estate-mortgage 457,293 695,243 862,903 1,228,902 -- Foreign 9,103 1,448 21,578 56,364 -- Total commercial 812,050 1,370,010 1,875,604 2,929,543 -- RETAIL Real estate-mortgage 645,472 806,576 1,141,022 1,736,044 -- Installment loans 279,300 911,395 1,410,242 1,643,044 -- Total retail 924,772 1,717,971 2,551,264 3,379,088 -- Total loans 1,736,822 3,087,981 4,426,868 6,308,631 -- UNEARNED INCOME 190 1,757 10,104 59,755 -- Loans, net $ 1,736,632 3,086,224 4,416,764 6,248,876 -- DECEMBER 31, 1989 FIRST UNION CORPORATION COMMERCIAL Commercial, financial and agricultural Taxable 8,065,193 Nontaxable 1,072,448 Total commercial, financial and agricultural 9,137,641 Real estate-construction and other 2,732,422 Real estate-mortgage 4,431,718 Lease financing 1,143,820 Foreign 147,680 Total commercial 17,593,281 RETAIL Real estate-mortgage 6,245,386 Installment loans-Bankcard* -- Installment loans-other 8,101,924 Total retail 14,347,310 Total loans 31,940,591 UNEARNED INCOME Loans 173,467 Lease financing 166,348 Total unearned income 339,815 Loans, net 31,600,776 ACQUIRED SOUTHEAST BANKS LOANS** COMMERCIAL Commercial, financial and agricultural Taxable -- Nontaxable -- Total commercial, financial and agricultural -- Real estate-construction and other -- Real estate-mortgage -- Foreign -- Total commercial -- RETAIL Real estate-mortgage -- Installment loans -- Total retail -- Total loans -- UNEARNED INCOME -- Loans, net --
*Information not available prior to 1993. **For a five-year period which began September 19, 1991, the FDIC will reimburse First Union for 85 percent of all net charge-offs related to acquired Southeast Banks loans except installment loan reimbursements, which will decline 5 percent per year to 65 percent by 1996. 35 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 11 CERTAIN LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1994 COMMERCIAL, COMMERCIAL COMMERCIAL FINANCIAL REAL ESTATE: REAL AND CONSTRUCTION ESTATE: (IN THOUSANDS) AGRICULTURAL AND OTHER MORTGAGE FOREIGN TOTAL FIXED RATE 1 year or less $ 1,576,987 139,568 817,635 212,682 2,746,872 1-5 years 714,038 21,942 535,906 -- 1,271,886 After 5 years 32,131 -- 19,453 -- 51,584 Total 2,323,156 161,510 1,372,994 212,682 4,070,342 ADJUSTABLE RATE 1 year or less 9,388,084 1,167,446 2,389,560 199,970 13,145,060 1-5 years 4,195,410 405,139 1,674,930 3,205 6,278,684 After 5 years 1,093 -- 12 -- 1,105 Total 13,584,587 1,572,585 4,064,502 203,175 19,424,849 Total $15,907,743 1,734,095 5,437,496 415,857 23,495,191
36 (FIRST UNION logo) ... ................................. TABLE 12 ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS*
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 1991 1990 ALLOWANCE FOR LOAN LOSSES Balance, beginning of year $1,020,191 940,804 851,830 702,685 355,442 Provision for loan losses 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 acquired loans and credit cards 21,520 109,321 50,141 83,770 173,660 Transfer to allowance for segregated asset losses -- -- (20,000) (13,000) -- Loan losses, net (162,916) (251,687) (355,875) (553,523) (244,057) Balance, end of year $ 978,795 1,020,191 940,804 851,830 702,685 (as % of loans, net) 1.81% 2.18 2.24 2.06 1.95 (as % of nonaccrual and restructured loans) 245 147 96 72 77 (as % of nonperforming assets) 175% 111 70 50 56 LOAN LOSSES Commercial, financial and agricultural $ 67,804 121,373 142,600 189,648 116,060 Real estate-construction and other 8,897 25,829 52,524 164,044 49,183 Real estate-mortgage 54,108 66,105 80,934 118,555 4,196 Installment loans-Bankcard** 65,760 55,610 -- -- -- Installment loans-other 58,358 60,643 130,493 124,536 108,117 Total 254,927 329,560 406,551 596,783 277,556 LOAN RECOVERIES Commercial, financial and agricultural 48,314 29,681 21,252 15,924 12,991 Real estate-construction and other 2,834 5,718 1,254 1,882 1,633 Real estate-mortgage 12,554 15,866 4,926 4,097 847 Installment loans-Bankcard** 9,605 7,160 -- -- -- Installment loans-other 18,704 19,448 23,244 21,357 18,028 Total 92,011 77,873 50,676 43,260 33,499 Loan losses, net $ 162,916 251,687 355,875 553,523 244,057 (as % of average loans, net) .33% .58 .86 1.48 .68 NONPERFORMING ASSETS Nonaccrual loans Commercial loans $ 155,752 242,241 407,583 494,649 300,334 Real estate loans 241,886 425,101 498,973 574,324 574,732 Total nonaccrual loans 397,638 667,342 906,556 1,068,973 875,066 Restructured loans 1,872 26,544 68,935 116,893 38,867 Foreclosed properties 158,464 222,503 375,559 530,524 330,984 Total nonperforming assets $ 557,974 916,389 1,351,050 1,716,390 1,244,917 (as % of loans, net and foreclosed properties) 1.03% 1.95 3.19 4.10 3.42 Accruing loans past due 90 days $ 140,081 71,307 85,513 144,075 194,605 1989 ALLOWANCE FOR LOAN LOSSES Balance, beginning of year 331,058 Provision for loan losses 139,291 Reversal of tax effect of acquired bank related net charge-offs included in the provision for loan losses -- Allowance of divested subsidiary and other sales (2,392) Allowance of acquired loans and credit cards 3,321 Transfer to allowance for segregated asset losses -- Loan losses, net (115,836) Balance, end of year 355,442 (as % of loans, net) 1.12 (as % of nonaccrual and restructured loans) 131 (as % of nonperforming assets) 89 LOAN LOSSES Commercial, financial and agricultural 56,153 Real estate-construction and other 17,009 Real estate-mortgage 6,034 Installment loans-Bankcard** -- Installment loans-other 64,472 Total 143,668 LOAN RECOVERIES Commercial, financial and agricultural 11,440 Real estate-construction and other 1,106 Real estate-mortgage 507 Installment loans-Bankcard** -- Installment loans-other 14,779 Total 27,832 Loan losses, net 115,836 (as % of average loans, net) .39 NONPERFORMING ASSETS Nonaccrual loans Commercial loans 122,407 Real estate loans 122,540 Total nonaccrual loans 244,947 Restructured loans 25,849 Foreclosed properties 126,531 Total nonperforming assets 397,327 (as % of loans, net and foreclosed properties) 1.25 Accruing loans past due 90 days 68,155
*Any loans classified by regulatory examiners as loss, doubtful, substandard or special mention that have not been disclosed hereunder, or under the "Loans" or "Asset Quality" narrative discussions do not (i) represent or result from trends or uncertainties that management expects will materially impact future operating results, liquidity or capital resources, or (ii) represent material credits about which management is aware of any information that causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. Southeast Banks segregated assets are not included herein. **Information not available prior to 1993. 37 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 13 ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, 1994 1993 1992 1991 LOANS LOANS LOANS LOANS % % % % TOTAL TOTAL TOTAL TOTAL (IN MILLIONS) AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS AMT. Commercial, financial and agricultural $223.4 29.1% $ 187.9 28.0% $316.5 26.7% $337.2 28.2% $254.4 Real estate-construction and other 58.1 3.2 73.5 3.5 139.5 4.5 147.9 7.2 195.1 Real estate-mortgage 175.3 37.3 199.9 40.6 198.9 39.2 164.4 35.4 96.9 Installment loans-Bankcard 133.2 7.2 76.1 4.2 -- -- -- -- -- Installment loans-other 106.7 19.4 149.3 21.0 142.3 26.6 123.8 25.9 111.3 Lease financing 2.4 3.0 1.7 2.1 2.1 2.4 3.1 2.7 2.2 Foreign 3.5 .8 .3 .6 .7 .6 .5 .6 .5 Unallocated 276.2 -- 331.5 -- 140.8 -- 74.9 -- 42.3 Total $978.8 100.0% $1,020.2 100.0% $940.8 100.0% $851.8 100.0% $702.7 1990 LOANS % TOTAL (IN MILLIONS) LOANS Commercial, financial and agricultural 30.2% Real estate-construction and other 9.3 Real estate-mortgage 30.8 Installment loans-Bankcard -- Installment loans-other 26.0 Lease financing 3.2 Foreign .5 Unallocated -- Total 100.0%
Beginning in 1993, the allocation of the allowance for loan losses is based on the Corporation's loss migration modelling process. The unallocated portion of the allowance for loan losses at December 31, 1992, would have been $178.4 million had the migration model been available in 1992. The allocation of the allowance for loan losses to the respective loan 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" discussions in Management's Analysis of Operations and in Note 1 to the consolidated financial statements. ................................. TABLE 14 INTANGIBLE ASSETS
DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 1991 1990 Mortgage servicing rights $ 84,898 87,350 183,196 196,796 173,915 Credit card premium $ 58,494 75,588 71,140 73,792 24,785 OTHER INTANGIBLE ASSETS Goodwill $ 754,417 712,485 643,978 676,046 685,602 Deposit base premium 437,025 255,359 175,707 179,152 176,043 Other 7,465 10,468 18,285 15,324 9,508 Total $1,198,907 978,312 837,970 870,522 871,153 1989 Mortgage servicing rights 140,065 Credit card premium 20,148 OTHER INTANGIBLE ASSETS Goodwill 260,800 Deposit base premium 117,188 Other 11,974 Total 389,962
38 (FIRST UNION logo) ... ................................. TABLE 15 SOUTHEAST BANKS SEGREGATED ASSETS
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 SEGREGATED ASSETS $ 186,405 380,515 576,257 ALLOWANCE FOR SEGREGATED ASSET LOSSES Balance, beginning of year 33,313 45,362 54,000 Initial allowance -- -- -- Transfer from allowance for loan losses -- -- 20,000 Transfer (to) from allowance for foreclosed properties (1,722) 1,998 -- Segregated asset losses, net (9,754) (14,047) (28,638) Balance, end of year 21,837 33,313 45,362 Segregated assets, net $ 164,568 347,202 530,895 SEGREGATED ASSET LOSSES Commercial, financial and agricultural $ 853 3,615 6,265 Real estate-construction and other 7 208 1,713 Real estate-mortgage 2,461 4,482 9,311 Installment loans 10,899 11,113 16,347 Total 14,220 19,418 33,636 SEGREGATED ASSET RECOVERIES Commercial, financial and agricultural 896 1,695 954 Real estate-construction and other -- -- -- Real estate-mortgage 428 634 371 Installment loans 3,142 3,042 3,673 Total 4,466 5,371 4,998 Segregated asset losses, net $ 9,754 14,047 28,638 SEGREGATED ASSETS Nonaccrual loans Commercial loans $ 34,220 67,064 145,324 Real estate loans 96,099 187,432 304,866 Total nonaccrual loans 130,319 254,496 450,190 Foreclosed properties 56,086 126,019 126,067 Total segregated assets 186,405 380,515 576,257 Less FDIC loss-sharing* (158,444) (323,438) (489,818) Total $ 27,961 57,077 86,439 Accruing loans past due 90 days $ 21,733 28,493 40,374 1991 (IN THOUSANDS) SEGREGATED ASSETS 694,832 ALLOWANCE FOR SEGREGATED ASSET LOSSES Balance, beginning of year -- Initial allowance 50,000 Transfer from allowance for loan losses 13,000 Transfer (to) from allowance for foreclosed properties -- Segregated asset losses, net (9,000) Balance, end of year 54,000 Segregated assets, net 640,832 SEGREGATED ASSET LOSSES Commercial, financial and agricultural 3,595 Real estate-construction and other 859 Real estate-mortgage 1,521 Installment loans 4,261 Total 10,236 SEGREGATED ASSET RECOVERIES Commercial, financial and agricultural 218 Real estate-construction and other -- Real estate-mortgage 23 Installment loans 995 Total 1,236 Segregated asset losses, net 9,000 SEGREGATED ASSETS Nonaccrual loans Commercial loans 352,201 Real estate loans 313,774 Total nonaccrual loans 665,975 Foreclosed properties 28,857 Total segregated assets 694,832 Less FDIC loss-sharing* (590,607) Total 104,225 Accruing loans past due 90 days 215,248
* For a five-year period that began September 19, 1991, the FDIC will reimburse First Union for 85 percent of all net charge-offs related to acquired Southeast Banks loans except installment loan reimbursements, which will decline 5 percent per year to 65 percent by 1996. 39 (FIRST UNION logo) ... FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 16 ALLOWANCE FOR FORECLOSED PROPERTIES*
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 Foreclosed properties $193,290 278,694 478,887 Allowance for foreclosed properties, beginning of year 56,191 103,328 30,952 Provision for foreclosed properties 4,503 23,730 111,260 Transfer from (to) allowance for segregated assets 1,722 (1,998) -- Dispositions, net (27,590) (68,869) (38,884) Allowance for foreclosed properties, end of year 34,826 56,191 103,328 Foreclosed properties, net $158,464 222,503 375,559 1991 (IN THOUSANDS) Foreclosed properties 561,476 Allowance for foreclosed properties, beginning of year 799 Provision for foreclosed properties 36,467 Transfer from (to) allowance for segregated assets -- Dispositions, net (6,314) Allowance for foreclosed properties, end of year 30,952 Foreclosed properties, net 530,524
*Excludes Southeast Banks segregated assets. 40 (FIRST UNION logo) ... ................................. TABLE 17 DEPOSITS
DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 1991 1990 CORE DEPOSITS Noninterest-bearing $10,523,538 10,861,207 9,213,646 7,836,183 6,267,894 Savings and NOW accounts 13,991,987 12,010,636 9,825,918 7,954,985 5,633,720 Money market accounts 10,118,963 11,131,334 9,930,789 8,832,272 6,950,226 Other consumer time 18,544,324 16,897,062 18,014,195 19,181,341 14,856,718 Total core deposits 53,178,812 50,900,239 46,984,548 43,804,781 33,708,558 Foreign 4,069,587 1,240,448 249,429 125,159 642,592 Other time 1,709,874 1,601,724 1,916,988 3,246,283 3,843,118 Total deposits $58,958,273 53,742,411 49,150,965 47,176,223 38,194,268 1989 CORE DEPOSITS Noninterest-bearing 5,060,239 Savings and NOW accounts 4,739,910 Money market accounts 6,057,247 Other consumer time 11,443,744 Total core deposits 27,301,140 Foreign 593,861 Other time 3,636,769 Total deposits 31,531,770
................................. TABLE 18 TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
DECEMBER 31, 1994 TIME OTHER (IN THOUSANDS) CERTIFICATES TIME MATURITY OF 3 months or less $1,935,089 76,972 Over 3 months through 6 months 881,354 -- Over 6 months through 12 months 832,106 -- Over 12 months 871,122 -- Total $4,519,671 76,972
41 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 19 CAPITAL RATIOS
DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 1991 1990 CONSOLIDATED CAPITAL RATIOS* QUALIFYING CAPITAL Tier 1 capital $ 4,466,670 4,342,664 3,189,276 2,441,839 1,901,657 Total capital 7,450,602 6,960,671 4,948,156 3,799,073 3,153,733 Adjusted risk-based assets 57,593,799 47,529,159 34,573,794 32,314,244 29,121,464 Adjusted leverage ratio assets $73,011,243 70,785,664 48,671,501 45,955,064 38,833,477 RATIOS Tier 1 capital 7.76% 9.14 9.22 7.56 6.53 Total capital 12.94 14.64 14.31 11.76 10.83 Leverage 6.12 6.13 6.55 5.31 4.90 STOCKHOLDERS' EQUITY TO ASSETS Year-end 6.98 7.36 6.99 6.51 6.05 Average 7.52% 7.11 6.89 6.29 6.22 BANK CAPITAL RATIOS* TIER 1 CAPITAL First Union National Bank of North Carolina 7.32% 8.24 7.22 6.45 6.87 South Carolina 7.88 7.55 7.88 6.85 6.46 Georgia 8.26 9.58 8.14 6.06 6.51 Florida 7.95 9.13 9.38 8.79 6.44 Washington, D.C. 16.75 14.23 -- -- -- Maryland 20.53 15.78 -- -- -- Tennessee 12.76 12.43 24.03 6.57 7.50 Virginia 9.21 10.77 -- -- -- First Union Home Equity Bank 7.60 -- -- -- -- TOTAL CAPITAL First Union National Bank of North Carolina 10.69 11.35 10.60 7.99 8.39 South Carolina 12.15 11.82 10.89 8.25 7.84 Georgia 11.18 12.62 11.05 7.62 8.23 Florida 10.76 10.83 11.10 10.61 8.56 Washington, D.C. 18.03 15.52 -- -- -- Maryland 21.81 17.07 -- -- -- Tennessee 14.02 13.69 25.29 7.84 8.55 Virginia 13.11 13.08 -- -- -- First Union Home Equity Bank 12.10 -- -- -- -- LEVERAGE First Union National Bank of North Carolina 6.10 5.52 5.46 4.91 4.97 South Carolina 5.77 5.56 5.93 5.39 4.82 Georgia 5.69 5.67 6.58 4.91 4.78 Florida 5.91 5.79 5.62 4.91 4.91 Washington, D.C. 8.33 6.06 -- -- -- Maryland 12.82 9.04 -- -- -- Tennessee 8.47 8.05 25.10 7.34 8.22 Virginia 7.10 6.89 -- -- -- First Union Home Equity Bank 7.22% -- -- -- -- 1989 CONSOLIDATED CAPITAL RATIOS* QUALIFYING CAPITAL Tier 1 capital -- Total capital -- Adjusted risk-based assets -- Adjusted leverage ratio assets -- RATIOS Tier 1 capital -- Total capital -- Leverage -- STOCKHOLDERS' EQUITY TO ASSETS Year-end 6.33 Average 6.41 BANK CAPITAL RATIOS* TIER 1 CAPITAL First Union National Bank of North Carolina -- South Carolina -- Georgia -- Florida -- Washington, D.C. -- Maryland -- Tennessee -- Virginia -- First Union Home Equity Bank -- TOTAL CAPITAL First Union National Bank of North Carolina -- South Carolina -- Georgia -- Florida -- Washington, D.C. -- Maryland -- Tennessee -- Virginia -- First Union Home Equity Bank -- LEVERAGE First Union National Bank of North Carolina -- South Carolina -- Georgia -- Florida -- Washington, D.C. -- Maryland -- Tennessee -- Virginia -- First Union Home Equity Bank --
* 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. 42 (FIRST UNION logo) ... ................................. TABLE 20 SELECTED SIX-YEAR DATA*
YEARS ENDED DECEMBER 31, (DOLLARS IN THOUSANDS) 1994 1993 1992 1991 1990 MORTGAGE LOAN PORTFOLIO PERMANENT LOAN ORIGINATIONS Residential Direct $ 3,569,451 6,276,720 4,549,392 2,206,796 1,832,758 Wholesale 933,214 2,431,455 2,641,656 2,657,534 2,092,646 Total 4,502,665 8,708,175 7,191,048 4,864,330 3,925,404 Income property 443,356 238,199 263,749 266,518 237,980 Total $ 4,946,021 8,946,374 7,454,797 5,130,848 4,163,384 VOLUME OF LOANS SERVICED Residential $32,677,000 32,786,000 22,528,000 22,161,000 17,878,000 Income property 1,537,000 1,972,000 1,848,000 1,951,000 1,534,000 Total $34,214,000 34,758,000 24,376,000 24,112,000 19,412,000 NUMBER OF OFFICES Banking North Carolina 276 266 269 269 272 South Carolina 66 67 53 53 56 Georgia 154 163 114 115 124 Florida 552 488 460 564 314 Washington, D.C. 33 30 -- -- -- Maryland 26 32 -- -- -- Tennessee 54 63 1 1 1 Virginia 177 193 -- -- -- Foreign 2 1 1 2 1 Total banking offices 1,340 1,303 898 1,004 768 Savings banks -- -- 45 -- -- First Union Home Equity Bank 184 151 130 144 158 Mortgage banking 18 53 43 47 54 Consumer finance -- -- -- 1 56 Other 20 18 17 17 17 Total offices 1,562 1,525 1,133 1,213 1,053 OTHER DATA ATMs 1,242 1,189 847 943 707 Employees 31,858 32,861 23,459 24,203 20,521 Common stockholders 54,236 58,670 37,955 33,456 34,951 1989 MORTGAGE LOAN PORTFOLIO PERMANENT LOAN ORIGINATIONS Residential Direct 1,372,353 Wholesale 1,655,153 Total 3,027,506 Income property 394,037 Total 3,421,543 VOLUME OF LOANS SERVICED Residential 13,854,000 Income property 1,444,000 Total 15,298,000 NUMBER OF OFFICES Banking North Carolina 269 South Carolina 56 Georgia 128 Florida 209 Washington, D.C. -- Maryland -- Tennessee 1 Virginia -- Foreign 2 Total banking offices 665 Savings banks -- First Union Home Equity Bank 166 Mortgage banking 51 Consumer finance 56 Other 9 Total offices 947 OTHER DATA ATMs 532 Employees 17,733 Common stockholders 36,166
* 1989-1992 not restated for pooling of interest acquisitions. Direct residential loan originations for 1990-1993 have been restated to include bank branch production. 43 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 21 INTEREST RATE GAP
DECEMBER 31, 1994 NON- SENSITIVE AND SENSITIVE INTEREST SENSITIVITY IN DAYS OVER FIVE (IN THOUSANDS) 1-90 91-180 181-365 TOTAL 1-2 YEARS 2-5 YEARS YEARS EARNING ASSETS Interest-bearing bank balances $ 945,026 -- 100 945,126 -- -- -- Federal funds sold and securities purchased under resale agreements 1,362,375 4,225 4,425 1,371,025 -- -- -- Trading account assets 1,206,675 -- -- 1,206,675 -- -- -- Securities available for sale 237,979 362,387 1,344,317 1,944,683 999,033 3,626,354 1,484,522 Investment securities 153,815 185,879 407,398 747,092 530,277 1,127,743 1,324,757 Loans* 29,749,876 2,217,492 4,097,983 36,065,351 3,747,475 6,764,437 7,452,489 Total earning assets 33,655,746 2,769,983 5,854,223 42,279,952 5,276,785 11,518,534 10,261,768 INTEREST-BEARING LIABILITIES Interest-bearing deposits 23,629,131 4,254,048 4,210,919 32,094,098 2,514,075 3,227,284 10,599,278 Short-term borrowings 7,530,581 1,762 -- 7,532,343 -- -- -- Long-term debt 435,117 4,639 159,006 598,762 367,775 698,557 1,763,420 Total interest-bearing liabilities 31,594,829 4,260,449 4,369,925 40,225,203 2,881,850 3,925,841 12,362,698 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS 5,912,116 (9,927,663) 12,766,140 8,750,593 (3,342,490) (3,583,103) (1,825,000) Total interest-bearing liabilities and off-balance sheet financial instruments 37,506,945 (5,667,214) 17,136,065 48,975,796 (460,640) 342,738 10,537,698 Interest rate gap $(3,851,199) 8,437,197 (11,281,842) (6,695,844) 5,737,425 11,175,796 Cumulative gap $(3,851,199) 4,585,998 (6,695,844) (6,695,844) (958,419) 10,217,377 Ratio of cumulative gap to total earning assets (5.55)% 6.61 (9.66) (9.66) (1.38) 14.74 (IN THOUSANDS) TOTAL EARNING ASSETS Interest-bearing bank balances 945,126 Federal funds sold and securities purchased under resale agreements 1,371,025 Trading account assets 1,206,675 Securities available for sale 8,054,592 Investment securities 3,729,869 Loans* 54,029,752 Total earning assets 69,337,039 INTEREST-BEARING LIABILITIES Interest-bearing deposits 48,434,735 Short-term borrowings 7,532,343 Long-term debt 3,428,514 Total interest-bearing liabilities 59,395,592 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- Total interest-bearing liabilities and off-balance sheet financial instruments 59,395,592 Interest rate gap Cumulative gap Ratio of cumulative gap to total earning assets
The information included herein should be read in conjunction with the discussion appearing under "Interest Rate Risk Management" and with Tables 22-24. *Loans are stated net of unearned income. This interest rate gap table has inherent limitations on its ability to accurately portray interest rate sensitivity, and therefore, it is only provided in conjunction with common banking industry practice. Additionally, in 1994 in conjunction with such practices savings and NOW accounts are included in the non-sensitive and sensitive over five years classification instead of the 1-90 day classification as was the case in 1993. Money market accounts were included in the 1-90 day classification for both 1994 and 1993. The 1993 ratios of cumulative gap to total earning assets for each of the periods indicated above would have been (1.05) percent, (.64) percent, (3.98) percent, (3.98) percent, 4.66 percent and 23.34 percent, respectively. 44 (FIRST UNION logo) ... ................................. TABLE 22 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
WEIGHTED ESTIMATED DECEMBER 31, 1994 NOTIONAL AVERAGE RATE 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) DECEMBER 31, 1994 (IN THOUSANDS) COMMENTS ASSET RATE CONVERSIONS Interest rate swaps Converts floating rate commercial loans to fixed rate. Adds to liability sensitivity. Similar characteristics to Carrying amount a fixed income security funded with variable rate liabilities. Unrealized gross gain Includes $2.1 billion of indexed amortizing swaps, all of which mature Unrealized gross loss within four years. Total Forward interest rate swaps Converts floating rates on commercial loans to fixed rates at higher than current yields for future periods. Carrying amount $200 million effective March 1995 and $1.0 billion effective Unrealized gross gain September 1995. Put options on forward swaps referenced under Unrealized gross loss "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 maturity of the swap to the debt issue. Rate Carrying amount sensitivity remains unchanged due to the linkage of the swap to the Unrealized gross gain debt issue. Unrealized gross loss Total Other financial instruments Miscellaneous purchased option-based products for liability management purposes include $35 million of options Carrying amount on swaps, $207 million eurodollar caps and $150 million of Unrealized gross gain eurodollar floors. These instruments were assumed as a result Unrealized gross loss of certain of the corporation's acquisitions. Total Total liability rate conversions
45 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 22 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
WEIGHTED ESTIMATED DECEMBER 31, 1994 NOTIONAL AVERAGE RATE MATURITY FAIR (IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE 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 LIABILITY 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 liability hedges $28,256,000 5.31% 8.05% .56 $41,136 DECEMBER 31, 1994 (IN THOUSANDS) COMMENTS ASSET HEDGE Short T-Bill futures Converts the maturity of $200 million U.S. Treasury bills in the available for sale portfolio from June 1995 to March 1995 and $1.0 billion U.S. Treasury bills from September Carrying amount 1995 to June 1995. Unrealized gross gain Unrealized gross loss Total Total asset hedge LIABILITY HEDGES Put options on eurodollar futures Paid a premium for the right to lock in the 3 month LIBOR reset rates on pay variable rate swaps and short-term liabilities. $1.7 billion effective March 1995; $12.5 billion Carrying amount effective June 1995; and Unrealized gross gain $13.0 billion effective September 1995. Unrealized gross loss Total Put options on forward swaps Paid a premium for the right to terminate $1.0 billion of forward interest rate swaps based on interest rates in effect in September Carrying amount 1995. Reduces liability sensitivity. Unrealized gross gain Unrealized gross loss Total Interest rate cap Purchased cap to convert floating rate liabilities to fixed rate if short-term rates rise above 8 percent. Carrying amount Unrealized gross gain Unrealized gross loss Total Long eurodollar futures Locks in the rate of the future placement of 3 month eurodollar deposits. Carrying amount Unrealized gross gain Unrealized gross loss Total Total liability hedges
46 (FIRST UNION logo) ... ................................. TABLE 22 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
WEIGHTED ESTIMATED DECEMBER 31, 1994 NOTIONAL AVERAGE RATE MATURITY FAIR (IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE 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 OFFSETTING POSITIONS Interest rate floors Consists of $800 million of interest rate floors, of which $400 million were purchased and offset by $400 million Carrying amount sold, locking in gains to be amortized over the remaining life of the Unrealized gross gain contracts. Unrealized gross loss Total Prime/federal funds cap In December 1994, the corporation offset an existing federal funds cap (purchased) and a prime rate cap (written) Carrying amount position by simultaneously purchasing a prime rate cap and Unrealized gross gain writing a federal funds cap at strikes of 6.00 percent and 3.25 Unrealized gross loss percent, respectively. The notional amount of each cap is $1.0 billion. Locks in losses to Total be amortized over the remaining life of the contracts. Total offsetting positions
*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 set at the time the contract was transacted. Carrying amount includes accrued interest receivable/payable and unamortized premiums paid/received. 47 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 22 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
WEIGHTED ESTIMATED DECEMBER 31, 1993 NOTIONAL AVERAGE RATE MATURITY FAIR (IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE ASSET RATE CONVERSIONS Interest rate swaps $12,029,540 5.63% 3.52% 1.59 Carrying amount $ 27,205 Unrealized gross gain 178,339 Unrealized gross loss (15,063) Total 190,481 Forward interest rate swaps 3,200,000 5.13 -- 1.90 Carrying amount -- Unrealized gross gain 12,153 Unrealized gross loss (1,576) Total 10,577 Total asset rate conversions $15,229,540 5.52% 3.52% 1.66 $201,058 LIABILITY RATE CONVERSIONS Interest rate swaps $ 2,462,173 7.57% 3.46% 5.94 Carrying amount $ 44,071 Unrealized gross gain 110,626 Unrealized gross loss (12,072) Total 142,625 Other financial instruments 779,000 4.00 3.38 2.46 Carrying amount (3,250) Unrealized gross gain 5,651 Unrealized gross loss (116) Total 2,285 Total liability rate conversions $ 3,241,173 7.37% 3.46% 5.10 $144,910 BASIS PROTECTION Prime/federal funds caps $ 5,000,000 --% --% 2.25 Carrying amount $ 6,621 Unrealized gross gain 6,762 Unrealized gross loss -- Total 13,383 Forward prime/federal funds swap 500,000 -- -- 2.29 Carrying amount -- Unrealized gross gain 136 Unrealized gross loss -- Total 136 Forward prime/libor swaps 500,000 -- -- 2.47 Carrying amount -- Unrealized gross gain 295 Unrealized gross loss -- Total 295 Total basis protection $ 6,000,000 --% --% 2.27 $ 13,814 DECEMBER 31, 1993 (IN THOUSANDS) COMMENTS ASSET RATE CONVERSIONS Interest rate swaps Converts floating rate assets to fixed rate. Adds to liability sensitivity. Similar characteristics to a fixed income security. Carrying amount Includes $4.1 billion of indexed amortizing swaps of which $2.0 billion to mature Unrealized gross gain in 1994 if 3 month LIBOR remains below 7 percent and $2.1 billion to Unrealized gross loss mature within five years. Total Forward interest rate swaps Enables corporation to, in effect, extend maturities at higher than current yields for future periods; $1.0 billion Carrying amount effective March 1994, $2.0 billion effective December 1994 and $200 million Unrealized gross gain effective March 1995. Unrealized gross loss Total Total asset rate conversions LIABILITY RATE CONVERSIONS Interest rate swaps Converts fixed rate long-term debt to floating rate by matching maturity of the swap to the debt issue. Rate sensitivity remains Carrying amount unchanged. Unrealized gross gain Unrealized gross loss Total Other financial instruments Miscellaneous option-based products for liability management purposes include $280 million of written and purchased options on Carrying amount swaps, $349 million eurodollar caps and $150 million eurodollar Unrealized gross gain floors. Unrealized gross loss Total Total liability rate conversions BASIS PROTECTION Prime/federal funds caps Simultaneous purchase and sale of caps ($2.5 billion each) to protect against a narrowing in the spread between prime and Carrying amount federal funds. Protection occurs with prime rate greater than 6 percent Unrealized gross gain and federal Unrealized gross loss funds rate greater than 3.25 percent. Total Forward prime/federal funds swap Swap to hedge against a narrowing in the spread between the prime rate and federal funds; pay rate equals the average prime Carrying amount rate less 233 basis Unrealized gross gain points versus receiving the federal funds rate. Unrealized gross loss Total Forward prime/libor swaps Swap to hedge against a narrowing in the spread between the prime rate and 3 month LIBOR; pay rate equals the average prime Carrying amount rate less 212 Unrealized gross gain basis points versus receiving 3 month LIBOR. Unrealized gross loss Total (CONTINUED) Total basis protection
48 (FIRST UNION logo) ... ................................. TABLE 22 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS* (CONTINUED)
WEIGHTED ESTIMATED DECEMBER 31, 1993 NOTIONAL AVERAGE RATE MATURITY FAIR (IN THOUSANDS) AMOUNT RECEIVE PAY IN YEARS VALUE LIABILITY HEDGES Short eurodollar futures $ 4,000,000 --% 3.54% .33 Carrying amount $ -- Unrealized gross gain 1,363 Unrealized gross loss -- Total 1,363 Put options on eurodollar futures 17,368,000 -- 4.01 .38 Carrying amount 5,791 Unrealized gross gain -- Unrealized gross loss (2,073) Total 3,718 Put options on forward swaps 2,000,000 -- 5.14 .59 Carrying amount 5,058 Unrealized gross gain 386 Unrealized gross loss (1,138) Total 4,306 Interest rate cap 50,000 -- -- 2.16 Carrying amount 663 Unrealized gross gain -- Unrealized gross loss (662) Total 1 Long eurodollar futures 125,000 4.82 -- .70 Carrying amount -- Unrealized gross gain 207 Unrealized gross loss -- Total 207 Total liability hedges $23,543,000 4.82% 4.02% .40 $ 9,595 OFFSETTING POSITIONS Interest rate floors $ 800,000 4.94% 4.94% 2.45 Carrying amount $ (2,824) Unrealized gross gain 18,733 Unrealized gross loss (15,909) Total -- Total offsetting positions $ 800,000 4.94% 4.94% 2.45 $ -- DECEMBER 31, 1993 (IN THOUSANDS) COMMENTS LIABILITY HEDGES Short eurodollar futures Reduces liability sensitivity by locking in floating pay rate of the interest rate swaps; $2.0 billion mature in each of the second and third quarters of Carrying amount 1994. Unrealized gross gain Unrealized gross loss Total Put options on eurodollar futures Paid a premium for the right to lock in the 3 month LIBOR reset rates on receive fixed interest rate swaps; $7.7 billion effective March 1994; $7.2 billion effective June 1994; $2.5 billion effective Carrying amount September 1994. Beneficial Unrealized gross gain in rising short-term rate environment. Unrealized gross loss Total Put options on forward swaps Paid a premium for the right to terminate $2.0 billion of forward interest rate swaps based on interest rates at settlement date. Reduces liability Carrying amount sensitivity. Unrealized gross gain Unrealized gross loss Total Interest rate cap Purchased cap to convert floating rate liabilities to fixed rate if short-term rates rise above 8 percent. Carrying amount Unrealized gross gain Unrealized gross loss Total Long eurodollar futures Locks in the rate of the future placement of 3 month eurodollar deposits. Carrying amount Unrealized gross gain Unrealized gross loss Total Total liability hedges OFFSETTING POSITIONS Consists of $800 million of interest rate floors, of which $400 million were purchased and offset by $400 million sold, locking in gains to be amortized Interest rate floors over the remaining life of the contracts. Carrying amount Unrealized gross gain Unrealized gross loss Total Total offsetting positions
*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, 1993. Weighted average receive rates are fixed rates set at the time the contract was transacted. Carrying amount includes accrued interest receivable/payable and unamortized premiums paid/received. 49 ... (FIRST UNION logo) FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES ................................. TABLE 23 OFF-BALANCE SHEET DERIVATIVES -- EXPECTED MATURITIES*
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 HEDGE Notional amount $ 1,200,000 -- -- -- -- 1,200,000 Weighted average receive rate --% -- -- -- -- -- Fair value $ 555 -- -- -- -- 555 LIABILITY 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)
DECEMBER 31, 1993 1 YEAR 1-2 2-5 5-10 AFTER 10 (IN THOUSANDS) OR LESS YEARS YEARS YEARS YEARS ASSET RATE CONVERSIONS Notional amount $ 7,002,246 2,647,719 5,569,575 10,000 -- Weighted average receive rate 5.65% 5.43 5.42 3.50 -- Estimated fair value $ 123,520 25,578 52,996 (1,036) -- LIABILITY RATE CONVERSIONS Notional amount $ 940,673 550,500 375,000 925,000 450,000 Weighted average receive rate 9.00% 7.80 7.11 6.96 6.10 Estimated fair value $ 18,060 11,154 32,335 93,109 (9,748) BASIS PROTECTION Notional amount $ -- -- 6,000,000 -- -- Weighted average receive rate --% -- -- -- -- Estimated fair value $ -- -- 13,814 -- -- LIABILITY HEDGES Notional amount $23,493,000 -- 50,000 -- -- Weighted average receive rate 4.82% -- -- -- -- Estimated fair value $ 9,594 -- 1 -- -- OFFSETTING POSITIONS Notional amount $ -- -- 800,000 -- -- Weighted average receive rate --% -- 4.94 -- -- Fair value $ -- -- -- -- -- DECEMBER 31, 1993 (IN THOUSANDS) TOTAL ASSET RATE CONVERSIONS Notional amount 15,229,540 Weighted average receive rate 5.52 Estimated fair value 201,058 LIABILITY RATE CONVERSIONS Notional amount 3,241,173 Weighted average receive rate 7.37 Estimated fair value 144,910 BASIS PROTECTION Notional amount 6,000,000 Weighted average receive rate -- Estimated fair value 13,814 LIABILITY HEDGES Notional amount 23,543,000 Weighted average receive rate 4.82 Estimated fair value 9,595 OFFSETTING POSITIONS Notional amount 800,000 Weighted average receive rate 4.94 Fair value --
*Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. Pay rates are generally based upon one to six month LIBOR and reset at predetermined reset dates. Current pay rates are not necessarily indicative of future pay rates and therefore have been excluded from the above table. Weighted average pay rates are indicated in Table 22. 50 (FIRST UNION logo) ... ................................. TABLE 24 OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
ASSET RATE LIABILITY RATE BASIS ASSET LIABILITY OFFSETTING (IN THOUSANDS) CONVERSIONS CONVERSIONS PROTECTION HEDGE HEDGES POSITIONS Balance, December 31, 1992 $13,534,883 2,328,807 -- -- 26,884,000 800,000 Additions 7,317,818 1,692,000 6,000,000 -- 26,520,000 -- Maturities/Amortizations (3,306,161) (579,634) -- -- (29,861,000) -- Terminations (2,317,000) (200,000) -- -- -- -- Balance, December 31, 1993 15,229,540 3,241,173 6,000,000 -- 23,543,000 800,000 Additions 2,200,000 455,000 -- 8,700,000 44,907,643 2,000,000 Maturities/Amortizations (7,007,424) (933,673) -- (3,000,000) (34,694,643) -- Offsets -- -- (2,000,000) -- -- 2,000,000 Terminations (2,200,000) -- (4,000,000) (4,500,000) (5,500,000) -- Balance, December 31, 1994 $ 8,222,116 2,762,500 -- 1,200,000 28,256,000 4,800,000 (IN THOUSANDS) TOTAL Balance, December 31, 1992 43,547,690 Additions 41,529,818 Maturities/Amortizations (33,746,795) Terminations (2,517,000) Balance, December 31, 1993 48,813,713 Additions 58,262,643 Maturities/Amortizations (45,635,740) Offsets -- Terminations (16,200,000) Balance, December 31, 1994 45,240,616
*Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. ................................. TABLE 25 INTEREST DIFFERENTIAL 1994 COMPARED TO 1993 1993 COMPARED TO 1992 VARIANCE VARIANCE ATTRIBUTABLE TO** ATTRIBUTABLE TO** INTEREST INTEREST INCOME/ INCOME/ EXPENSE EXPENSE (IN THOUSANDS) VARIANCE RATE VOLUME VARIANCE RATE EARNING ASSETS Interest-bearing bank balances $ 18,229 7,195 11,034 (20,617) (1,358) Federal funds sold and securities purchased under resale agreements 38,959 9,101 29,858 (26,705) (4,890) Trading account assets* 19,771 14,163 5,608 14,720 (6,866) Securities available for sale* 218,031 41,294 176,737 150,770 (71,520) Investment securities*: U.S. Government and other (270,052) 38,266 (308,318) (3,873) (57,476) State, county and municipal 18,231 (3,010) 21,241 (26,851) (3,620) Total (251,821) 35,256 (287,077) (30,724) (61,096) Loans* 487,135 61,739 425,396 (14,260) (244,015) Total earning assets $ 530,304 168,748 361,556 73,184 (389,745) INTEREST-BEARING LIABILITIES Deposits 117,990 55,563 62,427 (292,413) (305,807) Short-term borrowings 113,566 71,007 42,559 89,726 (21,654) Long-term debt 38,951 27,044 11,907 (27,842) (40,904) Total interest-bearing liabilities 270,507 153,614 116,893 (230,529) (368,365) Net interest income $ 259,797 15,134 244,663 303,713 (21,380) (IN THOUSANDS) VOLUME EARNING ASSETS Interest-bearing bank balances (19,259) Federal funds sold and securities purchased under resale agreements (21,815) Trading account assets* 21,586 Securities available for sale* 222,290 Investment securities*: U.S. Government and other 53,603 State, county and municipal (23,231) Total 30,372 Loans* 229,755 Total earning assets 462,929 INTEREST-BEARING LIABILITIES Deposits 13,394 Short-term borrowings 111,380 Long-term debt 13,062 Total interest-bearing liabilities 137,836 Net interest income 325,093
*Income related to securities and loans exempt from both federal and state income taxes, federal income taxes only or state income taxes only is stated on a fully tax-equivalent basis. It is reduced by the nondeductible portion of interest expense, assuming a federal income tax rate of 35 percent; a North Carolina state tax rate of 7.8275 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 10.25 percent, respectively. **Changes attributable to rate/volume are allocated to both rate and volume on an equal basis. 51 ... (FIRST UNION logo) SIX-YEAR NET INTEREST INCOME SUMMARY FIRST UNION CORPORATION AND SUBSIDIARIES
1994 1993 AVERAGE INTEREST RATES INTEREST AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ (IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE ASSETS Interest-bearing bank balances $ 757 39.5 5.22% $ 521 21.3 Federal funds sold and securities purchased under resale agreements 1,366 55.7 4.08 537 16.8 Trading account assets (a) 1,022 60.6 5.93 914 40.8 Securities available for sale (a) 10,268 565.5 5.51 6,912 347.5 Investment securities (a) U.S. Government and other 1,740 125.6 7.22 6,314 395.6 State, county and municipal 1,268 146.0 11.52 1,085 127.8 Total investment securities 3,008 271.6 9.03 7,399 523.4 Loans (a) (b) Commercial Commercial, financial and agricultural 13,804 1,123.3 8.14 11,742 926.0 Real estate-construction and other 1,608 129.2 8.03 2,084 124.7 Real estate-mortgage 5,828 463.0 7.94 5,333 399.6 Lease financing 659 62.6 9.51 532 55.2 Foreign 428 22.5 5.25 264 12.9 Total commercial 22,327 1,800.6 8.06 19,955 1,518.4 Retail Real estate-mortgage 13,810 1,020.0 7.39 10,893 839.5 Installment loans-Bankcard (c) 2,775 391.6 14.11 1,962 300.3 Installment loans-Other 10,143 982.3 9.69 10,821 1,049.1 Total retail 26,728 2,393.9 8.96 23,676 2,188.9 Total loans 49,055 4,194.5 8.55 43,631 3,707.3 Total earning assets 65,476 5,187.4 7.92 59,914 4,657.1 Cash and due from banks 3,046 3,341 Other assets 4,149 4,846 Total assets $ 72,671 $68,101 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 12,452 285.1 2.29 10,567 232.2 Money market accounts 10,576 254.9 2.41 10,321 232.4 Other consumer time 16,968 742.4 4.38 17,594 761.6 Foreign 1,626 75.9 4.67 577 20.9 Other time 1,607 82.9 5.16 1,650 76.1 Total interest-bearing deposits 43,229 1,441.2 3.33 40,709 1,323.2 Federal funds purchased and securities sold under repurchase agreements 7,271 317.2 4.36 7,215 267.8 Commercial paper 661 28.2 4.26 321 8.4 Other short-term borrowings 1,419 75.5 5.32 799 31.2 Long-term debt 3,214 198.8 6.19 3,007 159.8 Total interest-bearing liabilities 55,794 2,060.9 3.69 52,051 1,790.4 Noninterest-bearing deposits 10,016 9,540 Other liabilities 1,394 1,671 Stockholders' equity 5,467 4,839 Total liabilities and stockholders' equity $ 72,671 $68,101 Interest income and rate earned $5,187.4 7.92% $4,657.1 Interest expense and rate paid 2,060.9 3.15 1,790.4 Net interest income and margin (d) $3,126.5 4.77% $2,866.7 Tax-equivalent adjustment included in Trading account assets $ 3.4 $ 2.8 Securities available for sale 15.5 26.6 Investment securities 52.8 48.0 Commercial, financial and agricultural loans 18.6 20.9 Lease financing 2.4 2.5 Total $ 92.7 $ 100.8 AVERAGE RATES EARNED/ (IN MILLIONS) PAID ASSETS Interest-bearing bank balances 4.10% Federal funds sold and securities purchased under resale agreements 3.12 Trading account assets (a) 4.47 Securities available for sale (a) 5.03 Investment securities (a) U.S. Government and other 6.27 State, county and municipal 11.77 Total investment securities 7.07 Loans (a) (b) Commercial Commercial, financial and agricultural 7.89 Real estate-construction and other 5.98 Real estate-mortgage 7.49 Lease financing 10.38 Foreign 4.90 Total commercial 7.61 Retail Real estate-mortgage 7.71 Installment loans-Bankcard (c) 15.31 Installment loans-Other 9.69 Total retail 9.24 Total loans 8.50 Total earning assets 7.77 Cash and due from banks Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 2.20 Money market accounts 2.25 Other consumer time 4.33 Foreign 3.63 Other time 4.61 Total interest-bearing deposits 3.25 Federal funds purchased and securities sold under repurchase agreements 3.71 Commercial paper 2.60 Other short-term borrowings 3.91 Long-term debt 5.32 Total interest-bearing liabilities 3.44 Noninterest-bearing deposits Other liabilities Stockholders' equity Total liabilities and stockholders' equity Interest income and rate earned 7.77% Interest expense and rate paid 2.99 Net interest income and margin (d) 4.78% Tax-equivalent adjustment included in Trading account assets Securities available for sale Investment securities Commercial, financial and agricultural loans Lease financing Total
52 (FIRST UNION logo) ...
1992 1991 1990 1989 AVERAGE AVERAGE AVERAGE INTEREST RATES INTEREST RATES INTEREST RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE BALANCES EXPENSE PAID BALANCES EXPENSE PAID BALANCES EXPENSE PAID BALANCES $ 981 41.9 4.28% $ 758 48.2 6.36% $ 351 29.5 8.41% $ 233 1,177 43.5 3.69 1,048 59.9 5.72 737 62.7 8.50 479 479 26.1 5.46 533 36.3 6.81 529 44.4 8.40 465 3,043 196.7 6.46 -- -- -- -- -- -- -- 5,520 399.5 7.24 8,152 701.3 8.60 7,557 673.9 8.92 6,341 1,280 154.6 12.08 1,745 208.4 11.94 1,946 229.1 11.77 2,100 6,800 554.1 8.15 9,897 909.7 9.19 9,503 903.0 9.50 8,441 11,162 883.4 7.91 11,106 1,035.3 9.32 10,421 1,109.1 10.64 8,914 2,560 158.5 6.19 3,146 238.4 7.58 3,222 314.2 9.75 2,444 5,407 435.1 8.05 4,479 423.4 9.45 4,866 519.4 10.67 4,358 793 61.9 7.80 892 91.9 10.30 928 97.9 10.56 927 205 11.1 5.41 179 10.6 5.94 166 10.0 6.05 144 20,127 1,550.0 7.70 19,802 1,799.6 9.09 19,603 2,050.6 10.46 16,787 9,455 838.8 8.87 7,340 714.1 9.73 6,547 663.9 10.14 5,349 -- -- -- -- -- -- -- -- -- -- 11,689 1,332.8 11.40 10,171 1,200.1 11.80 9,728 1,212.9 12.47 7,372 21,144 2,171.6 10.27 17,511 1,914.2 10.93 16,275 1,876.8 11.53 12,721 41,271 3,721.6 9.02 37,313 3,713.8 9.95 35,878 3,927.4 10.95 29,508 53,751 4,583.9 8.53 49,549 4,767.9 9.62 46,998 4,967.0 10.57 39,126 2,607 2,175 2,285 2,022 4,788 3,371 2,842 2,076 $ 61,146 $ 55,095 $ 52,125 $ 43,224 8,700 241.8 2.78 6,185 266.2 4.30 5,409 251.2 4.64 4,568 9,570 272.3 2.84 7,767 390.1 5.02 6,909 412.4 5.97 5,330 17,718 924.5 5.22 16,364 1,138.0 6.95 13,939 1,105.2 7.93 11,170 145 13.2 9.13 380 35.8 9.43 386 40.6 10.51 507 3,155 163.9 5.19 3,811 260.5 6.84 4,051 335.9 8.29 3,546 39,288 1,615.7 4.11 34,507 2,090.6 6.06 30,694 2,145.3 6.99 25,121 4,458 177.4 3.98 6,910 409.3 5.92 8,184 645.9 7.89 6,640 338 10.5 3.12 610 36.4 5.97 1,365 109.5 8.02 988 660 29.7 4.51 522 32.7 6.27 634 52.7 8.31 580 2,790 187.7 6.73 2,188 174.0 7.95 1,587 140.9 8.88 1,555 47,534 2,021.0 4.25 44,737 2,743.0 6.13 42,464 3,094.3 7.29 34,884 7,885 5,975 5,516 4,683 1,513 916 901 885 4,214 3,467 3,244 2,772 $ 61,146 $ 55,095 $ 52,125 $ 43,224 $4,583.9 8.53% $4,767.9 9.62% $4,967.0 10.57% 2,021.0 3.76 2,743.0 5.54 3,094.3 6.58 $2,562.9 4.77% $2,024.9 4.08% $1,872.7 3.99% AVERAGE INTEREST RATES INCOME/ EARNED/ EXPENSE PAID 21.3 9.16% 44.2 9.23 41.6 8.94 -- -- 565.8 8.92 248.3 11.83 814.1 9.64 1,017.0 11.41 283.5 11.60 498.3 11.43 100.5 10.84 8.9 6.18 1,908.2 11.37 546.4 10.21 -- -- 951.5 12.91 1,497.9 11.77 3,406.1 11.54 4,327.3 11.06 214.5 4.70 331.8 6.22 938.3 8.40 37.5 7.38 316.1 8.91 1,838.2 7.32 572.4 8.62 88.2 8.93 51.8 8.93 153.0 9.85 2,703.6 7.75 $4,327.3 11.06% 2,703.6 6.91 $1,623.7 4.15%
(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 1994 and 1993 and 34 percent in 1989 through 1992; a North Carolina state tax rate of 7.8275 percent in 1994 , 7.905 percent in 1993, 7.9825 percent in 1992, 8.06 percent in 1991 and 7 percent in 1990 and 1989; 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 in 1991 through 1994 and 3.3 percent in 1990 and 1989; a Maryland state tax rate of 7 percent in 1994 and 1993; and a Washington, D.C. tax rate of 10.25 percent in 1994 and 1993, respectively. Yields related to securities available for sale are based on amortized costs. (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) The net interest margin includes 28 basis points and 45 basis points for the years ended 1994 and 1993, respectively, related to net interest income from off-balance sheet derivative financial instruments related to interest rate risk management activities. 53 ... (FIRST UNION logo) 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 12, 1995 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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 1994, 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 12, 1995 54 (FIRST UNION logo) ... CONSOLIDATED BALANCE SHEETS FIRST UNION CORPORATION AND SUBSIDIARIES
DECEMBER 31, (IN THOUSANDS EXCEPT SHARE DATA) 1994 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 $8,054,592 in 1994; market value $11,884,385 in 1993) 7,752,479 Investment securities (market value $3,742,534 in 1994; $2,931,139 in 1993) 3,729,869 Loans, net of unearned income ($672,330 in 1994; $334,059 in 1993) 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 Southeast segregated assets 164,568 Other assets 2,034,670 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 Preferred stock Class A, authorized 40,000,000 shares Series A, 11% cumulative perpetual; $25.00 stated and liquidation value; none issued -- Series A, $2.50 cumulative convertible, no-par value; $25.00 stated and liquidation value; none issued -- Series B, none issued -- Series 1990 cumulative perpetual adjustable rate, no-par value; $5.00 liquidation value; authorized 10,000,000 shares, outstanding 6,318,350 shares in 1993 -- Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding 176,033,912 shares in 1994; 170,337,619 shares in 1993 586,779 Paid-in capital 1,433,422 Retained earnings 3,591,581 Unrealized loss on debt and equity securities (214,265) Total stockholders' equity 5,397,517 Total liabilities and stockholders' equity $77,313,505 1993 (IN THOUSANDS EXCEPT SHARE DATA) ASSETS Cash and due from banks 3,351,963 Interest-bearing bank balances 712,153 Federal funds sold and securities purchased under resale agreements 351,754 Total cash and cash equivalents 4,415,870 Trading account assets 652,470 Securities available for sale (amortized cost $8,054,592 in 1994; market value $11,884,385 in 1993) 11,744,942 Investment securities (market value $3,742,534 in 1994; $2,931,139 in 1993) 2,692,476 Loans, net of unearned income ($672,330 in 1994; $334,059 in 1993) 46,876,177 Allowance for loan losses (1,020,191) Loans, net 45,855,986 Premises and equipment 1,524,855 Due from customers on acceptances 246,095 Mortgage servicing rights 87,350 Credit card premium 75,588 Other intangible assets 978,312 Southeast segregated assets 347,202 Other assets 2,165,823 Total assets 70,786,969 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing deposits 10,861,207 Interest-bearing deposits 42,881,204 Total deposits 53,742,411 Short-term borrowings 7,254,178 Bank acceptances outstanding 246,095 Other liabilities 1,274,716 Long-term debt 3,061,944 Total liabilities 65,579,344 Stockholders' equity Preferred stock Class A, authorized 40,000,000 shares Series A, 11% cumulative perpetual; $25.00 stated and liquidation value; none issued -- Series A, $2.50 cumulative convertible, no-par value; $25.00 stated and liquidation value; none issued -- Series B, none issued -- Series 1990 cumulative perpetual adjustable rate, no-par value; $5.00 liquidation value; authorized 10,000,000 shares, outstanding 6,318,350 shares in 1993 31,592 Common stock, $3.33 1/3 par value; authorized 750,000,000 shares, outstanding 176,033,912 shares in 1994; 170,337,619 shares in 1993 567,791 Paid-in capital 1,591,275 Retained earnings 3,016,967 Unrealized loss on debt and equity securities -- Total stockholders' equity 5,207,625 Total liabilities and stockholders' equity 70,786,969
See accompanying Notes to Consolidated Financial Statements. 55 ... (FIRST UNION logo) CONSOLIDATED STATEMENTS OF INCOME FIRST UNION CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 INTEREST INCOME Interest and fees on loans $ 4,173,338 3,683,945 Interest and dividends on securities available for sale 549,996 320,860 Interest and dividends on investment securities Taxable income 122,968 391,364 Nontaxable income 95,835 84,043 Trading account interest 57,245 38,029 Other interest income 95,279 38,091 Total interest income 5,094,661 4,556,332 INTEREST EXPENSE Interest on deposits 1,441,248 1,323,258 Interest on short-term borrowings 420,917 307,352 Interest on long-term debt 198,781 159,829 Total interest expense 2,060,946 1,790,439 Net interest income 3,033,715 2,765,893 Provision for loan losses 100,000 221,753 Net interest income after provision for loan losses 2,933,715 2,544,140 NONINTEREST INCOME Trading account profits 41,583 43,007 Service charges on deposit accounts 435,212 420,285 Mortgage banking income 73,934 138,608 Capital management income 224,525 201,875 Securities available for sale transactions (11,507) 25,767 Investment security transactions 4,006 7,435 Fees for other banking services 69,252 52,836 Merchant discounts 62,840 55,732 Insurance commissions 45,071 43,876 Sundry income 214,053 208,867 Total noninterest income 1,158,969 1,198,288 NONINTEREST EXPENSE Personnel expense 1,287,366 1,155,899 Occupancy 238,128 229,118 Equipment rentals, depreciation and maintenance 228,372 189,589 Postage, printing and supplies 103,739 92,842 FDIC insurance 119,708 118,429 Professional fees 66,878 52,251 Owned real estate expense 22,294 40,633 Amortization 144,608 207,087 Sundry 466,135 435,799 Total noninterest expense 2,677,228 2,521,647 Income before income taxes 1,415,456 1,220,781 Income taxes 490,076 403,260 Net income 925,380 817,521 Dividends on preferred stock 25,353 24,900 Net income applicable to common stockholders before redemption premium 900,027 792,621 Redemption premium on preferred stock 41,355 -- Net income applicable to common stockholders after redemption premium $ 858,672 792,621 PER COMMON SHARE DATA Net income before redemption premium $ 5.22 4.73 Net income after redemption premium 4.98 4.73 Cash dividends $ 1.72 1.50 Average common shares 172,543,467 167,691,739 1992 (IN THOUSANDS EXCEPT PER SHARE DATA) INTEREST INCOME Interest and fees on loans 3,690,543 Interest and dividends on securities available for sale 185,488 Interest and dividends on investment securities Taxable income 391,556 Nontaxable income 102,232 Trading account interest 24,153 Other interest income 85,413 Total interest income 4,479,385 INTEREST EXPENSE Interest on deposits 1,615,671 Interest on short-term borrowings 217,626 Interest on long-term debt 187,671 Total interest expense 2,020,968 Net interest income 2,458,417 Provision for loan losses 414,708 Net interest income after provision for loan losses 2,043,709 NONINTEREST INCOME Trading account profits 22,908 Service charges on deposit accounts 386,118 Mortgage banking income 155,800 Capital management income 177,375 Securities available for sale transactions 34,402 Investment security transactions (2,881) Fees for other banking services 33,845 Merchant discounts 54,703 Insurance commissions 44,047 Sundry income 157,855 Total noninterest income 1,064,172 NONINTEREST EXPENSE Personnel expense 1,065,302 Occupancy 238,728 Equipment rentals, depreciation and maintenance 167,063 Postage, printing and supplies 76,057 FDIC insurance 107,392 Professional fees 61,810 Owned real estate expense 176,109 Amortization 120,877 Sundry 513,340 Total noninterest expense 2,526,678 Income before income taxes 581,203 Income taxes 196,152 Net income 385,051 Dividends on preferred stock 31,979 Net income applicable to common stockholders before redemption premium 353,072 Redemption premium on preferred stock -- Net income applicable to common stockholders after redemption premium 353,072 PER COMMON SHARE DATA Net income before redemption premium 2.23 Net income after redemption premium 2.23 Cash dividends 1.28 Average common shares 158,683,206
See accompanying Notes to Consolidated Financial Statements. 56 (FIRST UNION logo) ... CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FIRST UNION CORPORATION AND SUBSIDIARIES
UNREALIZED 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, 1991 10,851 $ 144,908 149,112 $497,038 929,532 2,289,319 -- Net income -- -- -- -- -- 385,051 -- Purchase of Class A Series A preferred stock (4,000) (100,000) -- -- -- -- -- Purchase of common stock -- -- (206) (686) (7,133) -- -- Common stock issued in public offering -- -- 9,775 32,583 297,462 -- -- Common stock issued for stock options exercised -- -- 1,442 4,806 32,938 -- -- Common stock issued through dividend reinvestment plan -- -- 3,779 12,595 128,227 -- -- Converted debentures -- -- 198 660 714 -- -- Pre-merger transactions of pooled banks (5) (134) 749 2,501 14,961 -- -- Cash dividends paid By First Union Corporation at 11% per Class A Series A preferred share -- -- -- -- -- (3,086) -- 8.73% per Series 1990 preferred share -- -- -- -- -- (27,564) -- $1.28 per common share -- -- -- -- -- (167,601) -- By acquired banks on Preferred shares -- -- -- -- -- (1,329) -- Common shares -- -- -- -- -- (6,599) -- 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 -- Unrealized gain on debt and equity securities, January 1, 1994 -- -- -- -- -- -- 93,427 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 -- -- -- -- -- -- (307,692) Balance at December 31, 1994 -- $ -- 176,034 $586,779 1,433,422 3,591,581 (214,265) (IN THOUSANDS EXCEPT PER SHARE DATA) TOTAL Balance at December 31, 1991 3,860,797 Net income 385,051 Purchase of Class A Series A preferred stock (100,000) Purchase of common stock (7,819) Common stock issued in public offering 330,045 Common stock issued for stock options exercised 37,744 Common stock issued through dividend reinvestment plan 140,822 Converted debentures 1,374 Pre-merger transactions of pooled banks 17,328 Cash dividends paid By First Union Corporation at 11% per Class A Series A preferred share (3,086) 8.73% per Series 1990 preferred share (27,564) $1.28 per common share (167,601) By acquired banks on Preferred shares (1,329) Common shares (6,599) 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 Unrealized gain on debt and equity securities, January 1, 1994 93,427 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 (307,692) Balance at December 31, 1994 5,397,517
See accompanying Notes to Consolidated Financial Statements. 57 ... (FIRST UNION logo) CONSOLIDATED STATEMENTS OF CASH FLOWS FIRST UNION CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 OPERATING ACTIVITIES Net income $ 925,380 817,521 Adjustments to reconcile net income to net cash provided (used) by operating activities Accretion and amortization of securities discounts and premiums, net (19,583) (4,297) Provision for loan losses 100,000 221,753 Provision for foreclosed properties 4,503 23,730 Gain on sale of mortgage servicing rights -- (973) Securities available for sale transactions 11,507 (25,767) Investment security transactions (4,006) (7,435) Depreciation and amortization 321,420 359,359 Deferred income taxes (benefits) 200,990 78,159 Trading account assets, net (554,205) (483,202) Mortgage loans held for resale 879,715 (312,090) Loss on sales of premises and equipment 9,387 7,764 Gain on sale of First American segregated assets (84,260) (48,147) Other assets, net 604,786 1,044,223 Other liabilities, net 248,520 (921,719) Net cash provided by operating activities 2,644,154 748,879 INVESTING ACTIVITIES Increase (decrease) in cash realized from Sales of securities available for sale 13,255,786 13,043,607 Maturities of securities available for sale 2,796,323 5,637,948 Purchases of securities available for sale (12,466,200) (18,384,416) Sales and calls of investment securities 39,437 244,473 Maturities of investment securities 485,993 2,414,793 Purchases of investment securities (886,589) (3,060,327) Origination of loans, net (7,237,982) (563,530) Sales of loans 250,804 -- Purchases of loans -- -- Sales of premises and equipment 66,635 65,255 Purchases of premises and equipment (432,022) (247,442) Sales of mortgage servicing rights -- 1,300 Purchases of mortgage servicing rights (7,561) (11,423) Other intangible assets, net 379,706 19,709 Purchases of banking organizations, net of acquired cash equivalents 1,974,853 22,493 Net cash used by investing activities (1,780,817) (817,560) FINANCING ACTIVITIES Increase (decrease) in cash realized from Purchases (sales) of deposits, net 1,189,487 (1,711,427) Securities sold under repurchase agreements and other short-term borrowings, net (5,606) 1,017,826 Issuances of long-term debt 572,287 1,044,657 Payments of long-term debt (212,126) (1,161,031) Sales of common stock 99,798 203,337 Purchases of preferred stock -- (138) Redemption of preferred stock (325,396) -- Purchases of common stock (217,554) (3,851) Cash dividends paid (323,255) (268,745) Net cash provided (used) by financing activities 777,635 (879,372) Increase (decrease) in cash and cash equivalents 1,640,972 (948,053) Cash and cash equivalents, beginning of year 4,415,870 5,363,923 Cash and cash equivalents, end of year $ 6,056,842 4,415,870 CASH PAID FOR Interest $ 2,026,740 1,775,759 Income taxes 227,379 398,705 NONCASH ITEMS Increase (decrease) in securities available for sale (400,314) 4,569,363 Increase (decrease) in investment securities 400,314 (4,536,780) Decrease in other assets -- 32,583 Increase in foreclosed properties and a decrease in loans 29,675 51,885 Conversion of preferred stock to common stock -- 13,044 Increase in other intangible assets and stockholders' equity for converted debentures 19,760 -- Effect on stockholders' equity of an unrealized loss on debt and equity securities included in Securities available for sale 302,113 -- Other assets (deferred income taxes) $ 87,848 -- 1992 (IN THOUSANDS) OPERATING ACTIVITIES Net income 385,051 Adjustments to reconcile net income to net cash provided (used) by operating activities Accretion and amortization of securities discounts and premiums, net 24,618 Provision for loan losses 414,708 Provision for foreclosed properties 111,260 Gain on sale of mortgage servicing rights (10,637) Securities available for sale transactions (34,402) Investment security transactions 2,881 Depreciation and amortization 252,271 Deferred income taxes (benefits) (73,953) Trading account assets, net (60,091) Mortgage loans held for resale (384,772) Loss on sales of premises and equipment 22,656 Gain on sale of First American segregated assets -- Other assets, net 383,446 Other liabilities, net 126,968 Net cash provided by operating activities 1,160,004 INVESTING ACTIVITIES Increase (decrease) in cash realized from Sales of securities available for sale 5,031,961 Maturities of securities available for sale 2,020,875 Purchases of securities available for sale (5,832,268) Sales and calls of investment securities 1,523,408 Maturities of investment securities 1,964,588 Purchases of investment securities (7,513,015) Origination of loans, net 563,419 Sales of loans 1,610,712 Purchases of loans (747,704) Sales of premises and equipment 29,344 Purchases of premises and equipment (392,952) Sales of mortgage servicing rights 1,500 Purchases of mortgage servicing rights (25,910) Other intangible assets, net (4,057) Purchases of banking organizations, net of acquired cash equivalents 1,404,564 Net cash used by investing activities (365,535) FINANCING ACTIVITIES Increase (decrease) in cash realized from Purchases (sales) of deposits, net (1,670,574) Securities sold under repurchase agreements and other short-term borrowings, net 638,347 Issuances of long-term debt 1,036,690 Payments of long-term debt (514,986) Sales of common stock 525,939 Purchases of preferred stock (100,000) Redemption of preferred stock -- Purchases of common stock (7,819) Cash dividends paid (206,179) Net cash provided (used) by financing activities (298,582) Increase (decrease) in cash and cash equivalents 495,887 Cash and cash equivalents, beginning of year 4,868,036 Cash and cash equivalents, end of year 5,363,923 CASH PAID FOR Interest 2,180,662 Income taxes 260,499 NONCASH ITEMS Increase (decrease) in securities available for sale 4,947,423 Increase (decrease) in investment securities (4,947,423) Decrease in other assets -- Increase in foreclosed properties and a decrease in loans 186,226 Conversion of preferred stock to common stock -- Increase in other intangible assets and stockholders' equity for converted debentures -- Effect on stockholders' equity of an unrealized loss on debt and equity securities included in Securities available for sale -- Other assets (deferred income taxes) --
See accompanying Notes to Consolidated Financial Statements. 58 (FIRST UNION logo) ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. 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, 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 revenues emanate from its domestic banking, including trust operations, and mortgage banking operations, located primarily in North and South Carolina, Georgia, Florida, Tennessee, Virginia, Maryland and Washington, D.C. Its foreign banking operations are immaterial. Certain amounts for 1993 and 1992 were reclassified to conform with statement presentation for 1994. These reclassifications have no effect on stockholders' equity or net income as previously reported. 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 on a trade date basis. 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. In 1993, securities available for sale were recorded at the lower of aggregate cost or market value. Securities available for sale will be 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. As more fully described in Note 3 to the consolidated financial statements, the Corporation has adopted the method of accounting for debt and equity securities set forth in Statement of Financial Accounting Standard No. 115. 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 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 assets and liabilities. 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. 59 (FIRST UNION logo) ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 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. 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 transferred to interest income using the constant yield or an accelerated method. Interest income on all other loans is recorded on an accrual basis. 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 card 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, except residential mortgage, are calculated by discounting estimated cash flows through expected maturity dates. These cash flows are discounted using estimated market yields that reflect the credit and interest rate risks inherent in each category of loans. Such market yields also reflect a component for the estimated cost of servicing the portfolio. A prepayment assumption is used as an estimate of the number of loans which will be repaid prior to their scheduled maturity. For performing residential mortgage loans, fair values are estimated by segmenting the loan portfolio into homogeneous pools based on loan types, coupon rates, maturities, prepayment assumptions and credit risk, and comparing the values of the individual pools to mortgage-backed securities with similar characteristics. 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. 60 ... (FIRST UNION logo) INTANGIBLE ASSETS Generally, goodwill is being amortized on a straight-line basis over a 25-year period. 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 a 6.3-year period using the sum-of-the-years' digits method. Deposit base premiums are generally 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 Mortgage servicing fees are recorded on an accrual basis. Acquisition costs of mortgage servicing contracts purchased are amortized over 10 years for loans with maturities of over 15 years and 7 years for loans with maturities of 15 years or less, or the remaining life of the related mortgages, whichever is shorter, in proportion to estimated net servicing income. Quarterly, an appropriate carrying value of the unamortized balance of such acquisition costs is determined by the Corporation, based principally on an aggregated discounted method. 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 loans, or if the related loan is held for resale, until the loan is sold. Mortgage-backed securities guaranteed by the Government National Mortgage Association under the provisions of the National Housing Act have been issued. In keeping with the economic substance of these transactions, the issuance of the mortgage-backed security and the simultaneous placement of the related mortgage pool in trust have been accounted for as a sale of the mortgages. The issued mortgage-backed securities and the related mortgage pools are not considered to be assets and liabilities of the Corporation. 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 15 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. 61 (FIRST UNION logo) ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. NOTE 2: ACQUISITIONS During 1994, various banking subsidiaries of the Parent Company acquired in the aggregate $4,595,762,000 in assets, $1,238,703,000 in net loans, and $4,026,375,000 in deposits. These transactions included (i) the pooling of interests mergers of (a) American Bancshares, Inc. (ABI), (b) Lieber & Company (Lieber), an investment management firm that is adviser to the Evergreen Funds with $3,392,000,000 in mutual fund assets, and (c) Home Federal Savings Bank (Home Federal), which in the aggregate 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; (ii) the purchase accounting acquisition of BancFlorida Financial Corporation (BFL) on August 1, 1994, which added $1,637,046,000 in assets, $843,592,000 in net loans and $1,180,548,000 in deposits and involved the issuance of 3,561,000 shares of the Parent Company's common stock at a cost of $161,071,000; (iii) the purchase of certain loans and deposits from Chase Manhattan Bank of Florida, N.A. and Great Western Federal Savings Bank in the aggregate amounts of $13,209,000 and $1,833,831,000, respectively, at a combined cost of $136,521,000; and (iv) the purchase of deposits of Jacksonville Federal Savings Association, Citizens Federal Savings Association, Cobb Federal Savings Association and Hollywood Federal Savings Bank in the aggregate amount of $639,943,000 from the Resolution Trust Corporation at a combined cost of $68,186,000. The Corporation's consolidated financial statements were not restated for prior periods to reflect the 1994 pooling of interests mergers. The Parent Company paid $174,684,000 for the purchase in the open market of 4,000,000 shares of its common stock related to the BancFlorida Financial Corporation acquisition. The 1994 purchase transactions indicated above resulted in an increase in 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. On January 15, 1993, the acquisitions of South Carolina Federal Corporation (SCF) and DFSoutheastern, Inc. (Decatur) were consummated, and on March 1, 1993, the acquisition of Dominion Bankshares Corporation (Dominion) was consummated. The following describes each of these acquisitions. The Parent Company entered into an Agreement and Plan of Merger on June 10, 1992, providing for the pooling of interests acquisition of SCF, a South Carolina-based savings and loan holding company, and the exchange of .76 shares of Parent Company common stock for each share of SCF common stock. At December 31, 1992, and for the year then ended, SCF had assets of $823,056,000, net loans of $675,355,000, deposits of $618,801,000, stockholders' equity of $41,632,000, a net loss of $10,375,000, and had outstanding 2,808,000 shares of common stock. The Parent Company entered into an Agreement and Plan of Merger on June 28, 1992, providing for the pooling of interests acquisition of Decatur, a Georgia-based savings and loan holding company, and the exchange of .82 shares of Parent Company common stock for each share of Decatur common stock. At December 31, 1992, and for the year then ended, Decatur had assets of $2,659,742,000, net loans of $2,017,452,000, deposits of $1,944,542,000, stockholders' equity of $116,226,000, a net loss of $10,932,000 and had outstanding 4,769,000 shares of common stock. The Parent Company entered into an Agreement and Plan of Merger on September 20, 1992, providing for the pooling of interests acquisition of Dominion, a Virginia-based bank holding company, and the exchange of .58 shares of Parent Company common stock for each share of Dominion common stock and one share of a new series of Series A $2.50 Cumulative Convertible Class A Preferred Stock, stated and liquidation value of $25.00 (the Convertible Preferred) for each share of Dominion convertible preferred stock. Dividends on the Convertible Preferred were paid quarterly at the annual rate of $2.50. The Convertible Preferred was redeemed by the Parent Company on June 18, 1993, at the redemption price of $25.00. Substantially all of the Convertible Preferred was converted into 2.2222 times .58 shares of Parent Company common stock. At December 31, 1992, and for the year then ended, Dominion had assets of $8,810,605,000, net loans of $5,864,223,000, deposits of $7,198,092,000, stockholders' equity of $472,662,000, a net loss applicable to common stockholders of $104,594,000 and had outstanding 527,000 shares of preferred stock and 39,228,000 shares of common stock. On June 12, 1993, Georgia Federal Bank, FSB, (GFB), a Georgia-based savings bank was purchased by the Parent Company for $153,870,000 in cash, after the payment of $115,000,000 in dividends from GFB to its parent company. Immediately prior to the acquisition, GFB had assets of $3,700,635,000, net loans of $2,064,157,000, deposits of $2,518,458,000, stockholders' equity of $182,139,000 and a net loss of $6,169,000. As a result of the GFB acquisition deposit base premium was increased by $51,481,000 and is being amortized over a 10-year period using the sum-of-the years' digits method. On June 23, 1993, First American Metro Corp. (FAMC), a Virginia-based bank holding company, was purchased by the Parent Company for $452,420,000 in cash. Immediately prior to the acquisition, FAMC had assets of $4,403,955,000, net loans of $2,604,610,000, deposits of $3,758,581,000, stockholders' equity of $364,701,000 and a net loss of $4,281,000. As a result of the FAMC acquisition, goodwill, deposit base premium and credit card premium were increased by $109,398,000, $79,241,000 and $23,000,000, respectively. These amounts are being amortized on a straight-line basis over 25 years, and over 10- and 6.3- year periods, respectively, using the sum-of-the-years' digits method. Included in noninterest sundry expense in 1992 are restructuring charges of $162,105,000 related to the SCF, Decatur and Dominion acquisitions. The information below indicates on a pro forma basis, amounts as if ABI, Lieber, Home Federal, BFL, GFB and FAMC had been acquired as of January 1, 1994 and 1993, and historical amounts as reported by the Corporation. 62 ... (FIRST UNION logo)
YEARS ENDED DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 (UNAUDITED) Interest income $5,150,707 4,940,131 Interest expense 2,095,618 2,009,071 Net interest income 3,055,089 2,931,060 Provision for loan losses 100,000 246,126 Net interest income after provision for loan losses 2,955,089 2,684,934 Securities available for sale transactions (12,460) 37,009 Investment security transactions 4,006 18,732 Noninterest income 1,173,160 1,251,562 Noninterest expense 2,707,713 2,768,876 Income before income taxes 1,412,082 1,223,361 Income taxes 489,397 405,672 Net income 922,685 817,689 Dividends on preferred stock 25,353 26,198 Net income available to common stockholders before redemption premium 897,332 791,491 Redemption premium on preferred stock 41,355 -- Net income applicable to common stockholders after redemption premium $ 855,977 791,491 Net income per common share before redemption premium $ 5.14 4.61 Net income per common share after redemption premium $ 4.90 4.61 CORPORATION AS REPORTED Net interest income $3,033,715 2,765,893 Net income 925,380 817,521 Net income applicable to common stockholders before redemption premium 900,027 792,621 Net income applicable to common stockholders after redemption premium 858,672 792,621 Net income per common share before redemption premium 5.22 4.73 Net income per common share after redemption premium $ 4.98 4.73
The following assumptions were applied in arriving at the above pro forma results; cost of funds of 3.68 percent and 3.12 percent for 1994 and 1993, 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. On October 3, 1994, First Union National Bank of Florida agreed to acquire First Florida Savings Bank of Miami, Florida, which had assets of $101,766,000 at December 31, 1994, for approximately $9,500,000 in cash. On October 11, 1994, the Parent Company agreed to acquire Ameribanc Investors Group of Annandale, Virginia, which had assets of $1,064,793,000 at December 31, 1994, for approximately $108,350,000 in cash. On December 5, 1994, the Parent Company agreed to acquire American Savings Bank of Florida FSB of Miami, Florida, which had assets of $3,570,459,000 at December 31, 1994. The Parent Company agreed to issue approximately 6,000,000 shares of Parent Company common stock, subject to adjustment under certain conditions. From the third quarter of 1994 through February 14, 1995, the Parent Company paid $161,480,000 for the purchase in the open market of 3,800,000 of the common shares expected to be issued in the acquisition. This acquisition is expected to be accounted for as a purchase. On January 3, 1995, First Union National Bank of Florida agreed to acquire Coral Gables Fedcorp, Inc. of Coral Gables, Florida, which had assets of $2,487,625,000 at December 31, 1994, for approximately $485,343,000 in cash. The Parent Company currently expects consummation of the four pending acquisitions in the first half of 1995, all subject to regulatory approvals and other conditions of closing. 63 (FIRST UNION logo) ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. NOTE 3: SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1994 1 YEAR 1-5 5-10 AFTER 10 GROSS UNREALIZED AMORTIZED (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST MARKET VALUE U.S. Treasury $1,156,159 1,035,790 -- -- 2,191,949 -- 81,975 2,273,924 U.S. Government agencies 153,675 469,468 2,031,111 546 2,654,800 (404) 171,580 2,825,976 Collateralized mortgage obligations 90,066 1,091,930 58,524 -- 1,240,520 (49) 44,627 1,285,098 Other 84,757 1,282,076 20,299 278,078 1,665,210 (51,633) 56,017 1,669,594 Total $1,484,657 3,879,264 2,109,934 278,624 7,752,479 (52,086) 354,199 8,054,592 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
AFTER DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES CARRYING VALUE U.S. Treasury $3,177,119 1,249,298 -- -- 4,426,417 3,609 (7,315) U.S. Government agencies 114,531 1,646,429 1,494,136 555 3,255,651 43,814 (270) Collateralized mortgage obligations 1,006,973 1,226,569 -- -- 2,233,542 13,389 (8,825) Other 438,585 1,121,571 35,474 233,702 1,829,332 95,296 (255) Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) CARRYING VALUE Debt securities $4,737,208 5,243,867 1,529,610 860 11,511,545 119,624 (16,445) Sundry securities -- -- -- 233,397 233,397 36,484 (220) Total $4,737,208 5,243,867 1,529,610 234,257 11,744,942 156,108 (16,665) 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 DECEMBER 31, 1993 MARKET (IN THOUSANDS) VALUE CARRYING VALUE U.S. Treasury 4,422,711 U.S. Government agencies 3,299,195 Collateralized mortgage obligations 2,238,106 Other 1,924,373 Total 11,884,385 CARRYING VALUE Debt securities 11,614,724 Sundry securities 269,661 Total 11,884,385 MARKET VALUE Debt securities Sundry securities Total
64 (FIRST UNION logo) ... Securities available for sale with an aggregate amortized cost of $5,616,733,000 at December 31, 1994, 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, 1994 and 1993. At December 31, 1994 and 1993, collateralized mortgage obligations had a weighted average yield based on amortized cost of 5.21 percent and 5.09 percent, respectively. Included in Other at December 31, 1994, are $1,290,963,000 of securities available for sale 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, 1994, these securities had a weighted average maturity of 2.62 years and a weighted average yield of 6.81 percent. The weighted average U.S. equivalent yield for comparative purposes of these securities was 5.87 percent based on a weighted average funding cost differential of (.94) percent. 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, do not include commitments to purchase $267,813,000 of additional securities that at December 31, 1993, had a market value of $267,969,000. 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. Related gains and losses are accounted for on a trade date basis. Gross gains and losses realized on the sale of debt securities during 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 during 1993 were $28,818,000 and $9,553,000, respectively, and on sundry securities $6,570,000 and $68,000, respectively. Gross gains and losses realized on the sale of debt securities during 1992 were $42,014,000 and $7,419,000, respectively, and on sundry securities $230,000 and $423,000, 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 is required for fiscal years beginning after December 15, 1993, and 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, 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. If this Standard had been adopted at December 31, 1993, stockholders' equity would have been increased by an after-tax amount of $93,427,000 based on appreciation in the securities available for sale portfolio of $139,443,000. Securities available for sale at December 31, 1993, include an increase of $4,569,363,000 related to the reclassification of securities from the investment securities portfolio and other assets. 65 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. NOTE 4: INVESTMENT SECURITIES
AFTER DECEMBER 31, 1994 1 YEAR 1-5 5-10 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
66 (FIRST UNION logo) ...
AFTER DECEMBER 31, 1993 1 YEAR 1-5 5-10 10 GROSS UNREALIZED (IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES CARRYING VALUE U.S. Treasury $ 550 -- -- -- 550 -- (1) U.S. Government agencies 311,750 814,667 30,232 -- 1,156,649 44,054 (1,222) State, county and municipal 80,863 508,477 242,072 511,523 1,342,935 183,230 (756) Other -- -- 6,200 186,142 192,342 13,358 -- Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) CARRYING VALUE Debt securities $393,163 1,323,144 278,504 511,530 2,506,341 227,730 (1,979) Sundry securities -- -- -- 186,135 186,135 12,912 -- Total $393,163 1,323,144 278,504 697,665 2,692,476 240,642 (1,979) 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 DECEMBER 31, 1993 MARKET (IN THOUSANDS) VALUE CARRYING VALUE U.S. Treasury 549 U.S. Government agencies 1,199,481 State, county and municipal 1,525,409 Other 205,700 Total 2,931,139 CARRYING VALUE Debt securities 2,732,092 Sundry securities 199,047 Total 2,931,139 MARKET VALUE Debt securities Sundry securities Total
Investment securities with an aggregate carrying value of $2,756,622,000 at December 31, 1994, 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, 1994 and 1993. At December 31, 1994, collateralized mortgage obligations had a weighted average yield of 6.52 percent. There were no commitments to purchase or sell securities at December 31, 1994 and 1993. Gross gains and losses realized on the sale of debt securities during 1994 were $1,440,000 and $44,000, respectively, and on sundry securities gross gains realized were $2,610,000. Gross gains and losses realized on the sale or call of debt securities during 1993 were $2,722,000 and $318,000, respectively, and on sundry securities $5,115,000 and $84,000, respectively. Gross gains and losses realized on the sale of debt securities during 1992 were $19,035,000 and $19,100,000, respectively, and on sundry securities $615,000 and $3,431,000, respectively. See Note 3 for information related to new accounting rules for debt and equity securities. 67 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. NOTE 5: LOANS
(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 (IN THOUSANDS) 1993 COMMERCIAL Commercial, financial and agricultural 13,233,725 Real estate-construction and other 1,664,694 Real estate-mortgage 5,834,894 Lease financing 962,599 Foreign 304,267 Total commercial 22,000,179 RETAIL Real estate-mortgage 13,318,058 Installment loans-Bankcard 1,995,568 Installment loans-other 9,896,431 Total retail 25,210,057 Total 47,210,236
68 (FIRST UNION logo) ... The carrying amounts and fair values of loans with similar financial characteristics at December 31, 1994 and 1993 are as follows:
DECEMBER 31, 1994 WEIGHTED AVERAGE ESTIMATED CARRYING AVERAGE MATURITY DISCOUNT (IN THOUSANDS) AMOUNT COUPON (YRS) (1) RATE (2) COMMERCIAL Adjustable $13,549,920 8.14% 3.37 7.45% Fixed 2,317,695 8.13 4.15 9.76 Allocated allowance for loan losses (223,352) -- -- -- REAL ESTATE Residential Adjustable 7,136,569 7.07 -- -- Fixed 7,844,849 8.13 -- -- Allocated allowance for loan losses (45,337) -- -- -- Commercial-mortgage Adjustable 4,057,056 8.72 4.56 7.95 Fixed 1,370,808 8.66 4.72 10.06 Allocated allowance for loan losses (129,924) -- -- -- Commercial-construction and other Adjustable 1,565,669 8.97 3.08 7.70 Fixed 160,800 7.51 4.75 9.24 Allocated allowance for loan losses (58,069) -- -- -- OTHER 1,502,981 -- -- -- Allocated allowance for loan losses (5,962) -- -- -- DIRECT AND INDIRECT INSTALLMENT LOANS Adjustable 3,698,456 9.84 5.68 10.19 Fixed 6,865,309 9.58 6.81 10.42 Revolving loans to individuals 3,959,640 13.72 -- 12.12 Allocated allowance for loan losses (239,916) -- -- -- Unallocated allowance for loans losses (276,235) --% -- --% Total $53,050,957 CALCULATED (IN THOUSANDS) FAIR VALUE COMMERCIAL Adjustable $13,669,907 Fixed 2,235,459 Allocated allowance for loan losses -- REAL ESTATE Residential Adjustable 6,857,806 Fixed 7,646,469 Allocated allowance for loan losses -- Commercial-mortgage Adjustable 4,105,826 Fixed 1,333,578 Allocated allowance for loan losses -- Commercial-construction and other Adjustable 1,597,853 Fixed 157,977 Allocated allowance for loan losses -- OTHER 1,502,726 Allocated allowance for loan losses -- DIRECT AND INDIRECT INSTALLMENT LOANS Adjustable 3,683,500 Fixed 6,659,394 Revolving loans to individuals 4,064,859 Allocated allowance for loan losses -- Unallocated allowance for loans losses -- Total $53,515,354
DECEMBER 31, 1993 WEIGHTED AVERAGE ESTIMATED CARRYING AVERAGE MATURITY DISCOUNT (IN THOUSANDS) AMOUNT COUPON (YRS) (1) RATE (2) COMMERCIAL Adjustable $11,385,498 5.89% 2.35 4.87% Fixed 1,815,023 7.71 4.20 6.57 Allocated allowance for loan losses (187,896) -- -- -- REAL ESTATE Residential Adjustable 6,714,057 6.78 -- -- Fixed 6,566,124 8.38 -- -- Allocated allowance for loan losses (58,445) -- -- -- Commercial-mortgage Adjustable 4,200,490 6.89 4.11 5.62 Fixed 1,627,390 8.39 4.32 7.18 Allocated allowance for loan losses (141,521) -- -- -- Commercial-construction and other Adjustable 1,494,439 6.59 2.17 5.54 Fixed 168,196 7.91 3.39 7.12 Allocated allowance for loan losses (73,442) -- -- -- OTHER 1,062,638 -- -- -- Allocated allowance for loan losses (1,981) -- -- -- DIRECT AND INDIRECT INSTALLMENT LOANS Adjustable 3,319,811 8.08 6.97 7.70 Fixed 6,047,796 9.51 6.56 8.57 Revolving loans to individuals 2,474,715 13.81 -- 10.54 Allocated allowance for loan losses (225,418) -- -- -- Unallocated allowance for loans losses (331,488) --% -- --% Total $45,855,986 CALCULATED (IN THOUSANDS) FAIR VALUE COMMERCIAL Adjustable $11,476,977 Fixed 1,872,778 Allocated allowance for loan losses -- REAL ESTATE Residential Adjustable 6,839,247 Fixed 6,713,341 Allocated allowance for loan losses -- Commercial-mortgage Adjustable 4,314,654 Fixed 1,659,192 Allocated allowance for loan losses -- Commercial-construction and other Adjustable 1,488,161 Fixed 176,825 Allocated allowance for loan losses -- OTHER 1,061,084 Allocated allowance for loan losses -- DIRECT AND INDIRECT INSTALLMENT LOANS Adjustable 3,329,282 Fixed 6,134,807 Revolving loans to individuals 2,578,423 Allocated allowance for loan losses -- Unallocated allowance for loans losses -- Total $47,644,771
(1) Average maturity represents in terms of years the expected average cash flow period, which in some instances is different than the stated maturity. (2) Management has made estimates of fair value discount rates that it believes to be reasonable. However, because there is no readily available market for many of these financial instruments, management has no basis to determine whether the fair value presented above would be indicative of the value negotiated in an actual sale. 69 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 The fair value estimate for credit card loans is based on the value of existing loans at December 31, 1994 and 1993. This estimate does not include the value that relates to estimated cash flows from new loans generated from existing cardholders over the remaining life of the portfolio, but is disclosed as unaudited supplemental information in Note 18. Directors and executive officers of the Parent Company and their related interests were indebted to the Corporation in the aggregate amounts of $278,351,000 and $301,636,000 at December 31, 1994 and 1993, respectively. From January 1 through December 31, 1994, directors and executive officers of the Parent Company and their related interests borrowed $255,914,000 and repaid $279,199,000. 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, 1994 and 1993, nonaccrual and restructured loans amounted to $399,510,000 and $693,886,000, respectively. Interest related to nonaccrual and restructured loans for the years ended December 31, 1994, 1993 and 1992 amounted to $47,626,000, $78,463,000 and $71,370,000, 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 $6,254,000, $24,281,000 and $14,481,000, respectively. Included in loans at December 31, 1994, are $1,736,632,000 of acquired Southeast Banks loans which, under the terms of the Assistance Agreement, are subject to FDIC assistance if such loans become nonaccrual before September 20, 1996. Such nonaccrual loans are reclassified to Southeast segregated assets as more fully described in Note 8. At December 31, 1994, the Corporation was closely monitoring 12 loans amounting to $30,051,000 in which borrowers were experiencing increased levels of financial stress. None of these loans were included in nonperforming assets at year-end 1994 or in accruing loans past due 90 days. The Financial Accounting Standards Board (FASB) has issued Standard No. 114, "Accounting by Creditors for Impairment of a Loan" which requires that all creditors value all specifically reviewed loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement at either the present value of expected cash flows, market price or value of collateral. This discounting would be done at the loan's effective interest rate. The Corporation estimates the initial adoption of this Standard in 1995 will not require an increase to the existing allowance for loan losses. This Standard is required for fiscal years beginning after December 15, 1994. The FASB also has issued Standard No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures", that amends FASB Standard No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan and by requiring additional disclosures about how a creditor recognizes interest income related to impaired loans. This Standard is to be implemented concurrently with Standard No. 114. The Corporation will prospectively adopt both these Standards, and it is expected that the periodic effect on net income upon adoption of these Standards will not be material. ................................. NOTE 6: ALLOWANCE FOR LOAN LOSSES
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 Balance, beginning of year $1,020,191 940,804 851,830 Provision for loan losses 100,000 221,753 414,708 Transfer to allowance for segregated asset losses -- -- (20,000) Allowance of acquired loans and credit cards 21,520 109,321 50,141 1,141,711 1,271,878 1,296,679 Less Loan losses 254,927 329,560 406,551 Less loan recoveries 92,011 77,873 50,676 Loan losses, net 162,916 251,687 355,875 Balance, end of year $ 978,795 1,020,191 940,804
................................. NOTE 7: PREMISES AND EQUIPMENT
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 Land $ 336,566 328,250 286,283 Buildings 1,071,738 985,010 865,177 Equipment 1,258,024 1,083,530 879,609 Capitalized leases 12,577 12,441 12,806 2,678,905 2,409,231 2,043,875 Less accumulated depreciation and amortization 922,608 884,376 709,370 Total $1,756,297 1,524,855 1,334,505 Net premises and equipment pledged as security for mortgage notes $ 69,621 83,761 59,546 Depreciation and amortization $ 176,812 152,273 129,945
70 (FIRST UNION logo) ... ................................. NOTE 8: SOUTHEAST SEGREGATED ASSETS On September 19, 1991, Southeast Bank, National Association, and Southeast Bank of West Florida (together, the Southeast Banks), the bank subsidiaries of Southeast Banking Corporation (Southeast), were closed by their primary banking regulators and the Federal Deposit Insurance Corporation (the FDIC) was appointed Receiver of the respective banks (the Bank Closing). Immediately following the Bank Closing, First Union National Bank of Florida (First Union Florida), a subsidiary of the Parent Company, purchased from the FDIC as Receiver $9,874,424,000 in assets and assumed $8,979,909,000 in deposits and certain other liabilities of the Southeast Banks (the Southeast Acquisition) pursuant to Assistance Agreements (together, the Assistance Agreement) between First Union Florida and the FDIC. First Union Florida paid $81,000,000 to the FDIC as a net premium for the Southeast Acquisition. As a result of the Southeast Acquisition, deposit base premium, credit card premium and other intangibles were increased by $18,739,000, $28,677,000 and $7,668,000, respectively. These amounts are being amortized over 10-, 6.3- and 15.1-year periods, respectively, using the sum-of-the-years' digits method. Segregated assets are those Southeast Banks loans acquired by First Union Florida as of Bank Closing that were or have become nonaccrual or a foreclosed property. All such loans are subject to the loss-sharing and funding provisions of the Assistance Agreement. Southeast segregated assets at December 31, 1994, were $164,568,000. This amount included gross segregated assets of $186,405,000 and an allowance for segregated assets of $21,837,000. From December 31, 1993, the allowance for segregated assets of $33,313,000 was decreased by a transfer to the allowance for foreclosed properties of $1,722,000 and by net charge-offs of $9,754,000. Southeast segregated assets at December 31, 1993, were $347,202,000. This amount included gross segregated assets of $380,515,000 and an allowance for segregated assets of $33,313,000. From December 31, 1992, the allowance for segregated assets of $45,362,000 was increased by a transfer from the allowance for foreclosed properties of $1,998,000 and decreased by net charge-offs of $14,047,000. Under the loss-sharing provisions of the Assistance Agreement, the FDIC will pay to First Union Florida with respect to assets acquired from the Southeast Banks, on a quarterly basis, 85 percent of all net charge-offs on acquired commercial loans and 85 percent of charge-offs on acquired consumer loans other than consumer revolving credit loans, during the five-year period commencing with Bank Closing. For consumer revolving credit loans (composed principally of credit card receivables and revolving home equity loans), the FDIC will reimburse First Union Florida for 85 percent of all charge-offs in the first year following Bank Closing, 80 percent in the second year, 75 percent in the third year, 70 percent in the fourth year and 65 percent in the fifth year. Such charge-offs include losses on sales of assets and foreclosed properties and accrued interest for up to 180 days. In addition, the FDIC will reimburse First Union Florida for 85 percent of the aggregate amount of the actual direct expenses that were charged against First Union Florida's income with respect to foreclosed properties derived from loans on the books of the Southeast Banks as of Bank Closing. During the sixth and seventh years following Bank Closing, First Union Florida will pay to the FDIC an amount equal to 85 percent of the gross amount of recoveries during such period on charge-offs of such commercial loans that occurred prior to the expiration of the first five years following Bank Closing. During the seven-year period following Bank Closing, First Union Florida will pay to the FDIC an amount equal to the sum of (i) 65 percent of any recoveries on charge-offs of such consumer loans, other than such residential mortgage loans, and (ii) 85 percent of any recoveries on charge-offs of such residential mortgage loans, in each case with respect to charge-offs that occurred prior to the expiration of the first five years after Bank Closing. First Union Florida will generally be required to administer assets entitled to loss-sharing protection in the same manner as assets held by First Union Florida as to which no loss sharing exists. ................................. NOTE 9: FORECLOSED PROPERTIES
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 Foreclosed properties $193,290 278,694 478,887 Allowance for foreclosed properties, beginning of year 56,191 103,328 30,952 Provision for foreclosed properties 4,503 23,730 111,260 Transfer from (to) allowance for segregated assets 1,722 (1,998) -- Dispositions, net (27,590) (68,869) (38,884) Allowance for foreclosed properties, end of year 34,826 56,191 103,328 Foreclosed properties, net $158,464 222,503 375,559
71 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. NOTE 10: 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, 1994, 1993 and 1992, and the related maximum amount outstanding at the end of any month during the periods:
MAXIMUM OUTSTANDING (IN THOUSANDS) 1994 1993 1992 1994 1993 1992 Securities sold under repurchase agreements $5,458,661 5,102,045 3,425,325 7,613,617 6,740,066 4,627,891 OTHER SHORT-TERM BORROWINGS Federal funds purchased $ 293,732 695,627 573,376 2,487,862 2,890,658 1,645,557 Interest-bearing demand deposits issued to the U.S. Treasury 377,526 843,069 632,557 723,891 875,642 908,841 Commercial paper 391,216 270,666 297,951 1,102,557 421,079 360,825 Other 1,011,208 342,771 136,128 1,703,899 451,317 319,337 Total $2,073,682 2,152,133 1,640,012
At December 31, 1994, 1993 and 1992, the weighted average interest rates for commercial paper were 5.41 percent, 2.70 percent and 2.62 percent, respectively. Weighted average maturities for commercial paper issued at December 31, 1994, 1993 and 1992, approximated 4, 5 and 4 days, respectively. At December 31, 1994, 1993 and 1992, the combined weighted average interest rates related to federal funds purchased and securities sold under repurchase agreements were 6.32 percent, 3.17 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 269 days. Included in "Other" are Federal Home Loan Bank borrowings of $497,247,000 and securities sold short of $445,361,000 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. 72 (FIRST UNION logo) ... ................................. NOTE 11: LONG-TERM DEBT
1994 1993 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 $11,381 in 1994 $ 15,619 14,551 15,619 15,716 Floating rate extendible notes, due June 15, 2005 100,000 100,000 100,000 100,000 11 percent notes, due May 1, 1996 18,360 19,099 18,360 21,355 Floating rate notes, due November 13, 1996 150,000 150,000 150,000 150,000 5.95 percent notes, due July 1, 1995 149,921 149,010 149,762 154,050 6 3/4 percent notes, due January 15, 1998 248,511 239,175 248,021 261,750 Fixed rate medium-term senior notes with varying rates and terms to 1996 32,700 32,741 72,200 75,120 Fixed rate medium-term subordinated notes with varying rates and terms to 2001 54,000 56,925 54,000 61,760 Floating rate subordinated notes, due July 22, 2003 149,101 149,101 149,003 149,003 11 percent and variable rate subordinated notes, due in 1996 17,951 18,585 17,954 20,939 8 1/8 percent subordinated notes, due December 15, 1996 100,000 99,700 100,000 107,910 9.45 percent subordinated notes, due June 15, 1999 250,000 259,369 250,000 290,700 9.45 percent subordinated notes, due August 15, 2001 147,535 155,865 147,164 181,500 8 1/8 percent subordinated notes, due June 24, 2002 248,475 242,425 248,271 278,000 8 percent subordinated notes, due November 15, 2002 223,037 216,833 222,788 248,175 7 1/4 percent subordinated notes, due February 15, 2003 148,733 137,595 148,671 157,965 6 5/8 percent subordinated notes, due July 15, 2005 247,999 215,075 247,807 249,725 6 percent subordinated notes, due October 30, 2008 197,028 155,700 197,115 185,400 6 3/8 percent subordinated notes, due January 15, 2009 147,495 120,150 -- -- 8 percent subordinated notes, due August 15, 2009 148,559 139,335 -- -- 8.77 percent subordinated notes, due November 15, 2004 148,430 148,890 -- -- DEBENTURES AND NOTES OF SUBSIDIARIES 9 7/8 percent subordinated capital notes, due May 15, 1999 74,404 78,608 74,267 87,709 9 5/8 percent subordinated capital notes, due June 15, 1999 74,945 77,970 74,931 88,231 10 1/2 percent collateralized mortgage obligations, due in 2014 60,010 61,510 72,115 75,000 Debentures and notes with varying rates and terms to 2002 7,275 6,726 7,400 7,847 3,160,088 3,044,938 2,765,448 2,967,855 OTHER DEBT Notes payable to the FDIC, net of discount of $2,935 in 1994 and $14,659 in 1993, due September 19, 1996 117,271 117,271 260,846 260,846 Advances from the Federal Home Loan Bank 4,696 3,728 4,453 4,578 Mortgage notes and other debt of subsidiaries with varying rates and terms 141,153 142,909 25,575 28,874 Capitalized lease obligations calculated at rates generally ranging from 7.5 percent to 15.2 percent 5,306 5,183 5,622 4,594 268,426 269,091 296,496 298,892 Total $3,428,514 3,314,029 3,061,944 3,266,747
73 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 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 7 1/2 percent debentures are redeemable at the option of the Parent Company. The floating rate (6.5625 percent to March 15, 1995) extendible notes are redeemable in whole or in part at the option of the Parent Company. The 11 percent notes may not be redeemed by the Parent Company prior to maturity. The floating rate (6 1/8 percent to February 27, 1995) notes are redeemable in whole or in part at the option of the Parent Company. The 5.95 percent notes (par value $150,000,000) and 6 3/4 percent notes (par value $250,000,000) may not be redeemed prior to maturity. 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, 1994, the Parent Company had issued medium-term senior and subordinated notes with fixed rates of interest ranging from 6.15 percent to 9.43 percent and from 9.49 percent to 9.93 percent, respectively. Medium-term senior notes of $39,500,000 matured in 1994. The notes are redeemable at the option of the Parent Company. In February 1995, $700,000,000 of senior or subordinated debt securities remained available for issuance under a shelf registration statement filed with the Securities and Exchange Commission. The floating rate (5.6875 percent to January 23, 1995) subordinated notes (par value $150,000,000) may not be redeemed prior to maturity. In 1996, $17,093,000 of the 11 percent subordinated notes and $858,000 of the variable rate (5.94 percent to March 31, 1995) subordinated notes are due, respectively. The 8 1/8 percent subordinated notes due December 15, 1996, may not be redeemed by the Parent Company prior to maturity. The 9.45 percent subordinated notes (combined par value $400,000,000), the 8 1/8 percent subordinated notes (par value $250,000,000) due June 24, 2002, the 8 percent subordinated notes (par value $225,000,000), the 7 1/4 percent subordinated notes (par value $150,000,000), the 6 5/8 percent subordinated notes (par value $250,000,000), the 6 percent subordinated notes (par value $200,000,000) and the 6 3/8 percent subordinated notes (par value $150,000,000) may not be redeemed prior to maturity. The 8 percent subordinated notes (par value $150,000,000) 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 (par value $150,000,000) are redeemable in whole or in part at the option of Parent Company on November 15, 1999. The 9 7/8 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 9 5/8 percent subordinated capital notes may not be redeemed prior to maturity, except upon the occurrence of certain events. The 10 1/2 percent collateralized mortgage obligations were issued by a wholly-owned subsidiary of an acquired savings bank. The obligations consist of Class A-4 bonds collateralized by mortgage participation certificates (FHLMC Certificates) issued by the Federal Home Loan Mortgage Corporation. Maturity of the bonds depends on the rate of payments made on the FHLMC Certificates. The bonds are redeemable upon the occurrence of certain events. Notes payable to the FDIC result from funding assistance for Southeast Banks segregated assets which is provided by the FDIC's acceptance of five-year revolving notes issued by First Union Florida. The annual rate of interest on the notes is 1/8th of 1 percent. In accordance with the funding assistance provisions of the Assistance Agreement, these notes at December 31, 1994, amounted to $120,206,000, less a discount of $2,935,000 based on an imputed interest rate of 8 3/4 percent, or a net amount of $117,271,000. At December 31, 1993, these notes amounted to $275,505,000, less a discount of $14,659,000 based on an imputed interest rate of 8 3/4 percent, or a net amount of $260,846,000. The discount amount will be accreted into interest expense under the interest method to September 19, 1996. The principal amount of the notes will reflect, and the FDIC will make a payment to First Union Florida in the amount of, the book value of (i) any loan on the books of the Southeast Banks as of the Bank Closing that is placed on nonaccrual status by First Union Florida during the five years following the Bank Closing; and (ii) foreclosed properties not on the books of the Southeast Banks as of the Bank Closing but that derives from a loan on the books of the Southeast Banks as of such date. In lieu of such notes, within 179 days from the Bank Closing, First Union Florida elected to receive a fee with respect to nonaccrual loans and foreclosed properties that become such after such 179-day period, in an amount equal to the three-month U.S. Treasury bill rate times the average balance of such loans and foreclosed properties, less any payments on such nonaccrual loans that are recorded as a payment of interest on the books of First Union Florida. In the event that any nonaccrual loan is sold, charged off or removed from nonaccrual status, First Union Florida will make a payment of principal on the notes in an amount equal to (i) the then current book value of such loan, in the case of a sale, (ii) the gross amount of any charge-offs, or (iii) the then current book value of such loan in the event it is removed from nonaccrual status. On the fifth anniversary of the Bank Closing, First Union Florida will pay the FDIC the outstanding principal amount of the notes, if any, together with any accrued and unpaid interest as of such date. The Corporation's acquired savings banks had aggregate advances from the Federal Home Loan Bank of $4,696,000 at December 31, 1994, with interest rates ranging from 2 percent to 7 percent and maturity dates to July 19, 2016. At December 31, 1992, the Corporation included in net income a loss of $6,351,000 (net of income tax benefit of $3,272,000) relating to the early extinguishment of advances from the Federal Home Loan Bank. The loss includes an accrual of early extinguishment penalties incurred in January 1993 relating to the prepayment of certain Federal Home Loan Bank advances outstanding at December 31, 1992. Mortgage notes and other debt of subsidiaries include floating rate global bank notes of $100,000,000, due in 1996, with an interest rate of 6.0175 percent to February 18, 1995. The weighted average rate paid for long-term debt in 1994, 1993 and 1992 was 6.19 percent, 5.32 percent and 6.73 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, 1994 is as follows: 1995, $199,876,000; 1996, $522,570,000; 1997, $15,128,000; 1998, $281,998,000; and 1999, $412,918,000. 74 (FIRST UNION logo) ... ................................. NOTE 12: 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. 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. The Series 1990 Preferred Stock has a liquidation preference of $5.00 per share, plus accrued and unpaid dividends. The Series 1990 Preferred Stock is redeemable at the Corporation's option, at $51.50 per share on any dividend payment date after January 29, 1995, and after January 29, 2000, at $50.00 per share, in each case plus accrued and unpaid dividends. The Series 1990 Preferred Stock is not convertible. On December 20, 1994, the Corporation elected to redeem all of the outstanding shares of its Series 1990 Preferred Stock. The redemption will occur on March 31, 1995, at the redemption price of $51.50 per share. A redemption premium of $41,355,000, representing the difference between a $44.96 per share book value and the $51.50 redemption price was deducted from net income applicable to common stockholders in 1994. At December 31, 1994, $325,396,000 was placed in trust with an affiliated bank. The Series 1990 Preferred Stock pays cumulative quarterly dividends, calculated on the basis of a price of $50.00 per share which are reset quarterly at a rate of one percent per annum above the highest of (i) a three-month U.S. Treasury bill rate, (ii) a U.S. Treasury 10-year constant maturity rate, or (iii) a U.S. Treasury 30-year constant maturity rate. In no event will such rate be less than 6.75 percent per annum or more than 13.75 percent per annum. The final dividend payable will be paid on March 31, 1995, to stockholders of record on March 15, 1995. On June 18, 1993, the Corporation redeemed all of the outstanding shares of Series A, $2.50 Cumulative Convertible Preferred Stock at the redemption price of $25.00 per share (plus accrued and unpaid dividends), substantially all of which were converted into 522,000 shares of common stock. The Class A Series A Preferred Stock was issued to the FDIC in connection with the Southeast Acquisition. The Class A Series A Preferred Stock was redeemable at the option of the Corporation at any time prior to September 26, 1992, at a redemption price of $25.00 per share, plus accrued and unpaid dividends. On November 21, 1991, the Corporation redeemed 2,000,000 shares of the 6,000,000 shares originally issued, at the redemption price of $25.00 per share, or $50,000,000, plus accrued and unpaid dividends. On April 10, 1992, the Corporation redeemed the remaining 4,000,000 shares at the redemption price of $25.00 per share, or $100,000,000, plus accrued and unpaid dividends. ................................. NOTE 13: COMMON STOCK
OPTION PRICES BALANCE, FORFEITURES BALANCE, OR MARKET BEGINNING GRANTS OR NEW EXERCISES AND OTHER END OF VALUES OF 1994 SHARES OR PURCHASES REDUCTIONS 1994 1969 PLAN Options granted $11.59 48 -- -- -- 48 Available 52,976 -- -- -- 52,976 1984 MASTER STOCK PLAN Options granted $20.25-$28.13 412,379 -- (81,012) -- 331,367 Available 507,669 -- -- -- 507,669 1988 MASTER STOCK PLAN Options granted $14.75-$35.88 1,278,665 -- (96,222) (360) 1,182,083 Restricted stock granted $14.75-$22.88 428,045 -- (181,244) (6,297) 240,504 Available 1,112,148 -- -- 360 1,112,508 1992 MASTER STOCK PLAN Options granted $44.88-$46.13 603,985 703,235 -- (10,560) 1,296,660 Restricted stock granted $44.88-$46.13 404,325 453,950 (87,473) (12,700) 758,102 Available 3,973,330 (1,157,185) -- 10,560 2,826,705 1992 EMPLOYEE PLAN $33.04 989,936 -- (803,578) (186,358) -- 1994 EMPLOYEE PLAN $38.36 -- 2,936,240 (355,215) (72,230) 2,508,795 DIVIDEND REINVESTMENT PLAN -- 5,591,571 -- (762,258) -- 4,829,313 OPTION PLANS OF ACQUIRED COMPANIES $5.98-$41.97 256,832 26,040 (50,961) (1) 231,910 EXERCISABLE 1969 PLAN Options granted 48 Available -- 1984 MASTER STOCK PLAN Options granted 331,367 Available -- 1988 MASTER STOCK PLAN Options granted 1,182,083 Restricted stock granted -- Available -- 1992 MASTER STOCK PLAN Options granted 597,025 Restricted stock granted -- Available -- 1992 EMPLOYEE PLAN -- 1994 EMPLOYEE PLAN 2,508,795 DIVIDEND REINVESTMENT PLAN -- OPTION PLANS OF ACQUIRED COMPANIES 231,910
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 75 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 prorated basis over a fifteen-year period, or a ten-year period if the options are incentive stock options. The exercise periods for options granted under the 1984, 1988 and 1992 Master Stock Plans are determined at the date of grant and are for periods no longer than ten years. Restricted stock may also be granted under the 1984, 1988 and 1992 Master Stock Plans. The stock is subject to certain restrictions over a five-year period, during which time the holder is entitled to full voting rights and dividend privileges. Employees, based on their eligibility and compensation, were granted options to purchase shares of common stock under the 1994 and 1992 Employee Stock Purchase Plans 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 1994 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. On April 9, 1992, the Parent Company received net proceeds of $330,045,000 from the public sale of 9,775,000 shares of its common stock, which were used to redeem the Class A Series A Preferred Stock and for general corporate purposes. 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. Each right (other than rights owned by such person or group) will entitle its holder to purchase one one-hundredth of a share of junior participating Class A preferred stock having economic and voting terms similar to those of one share of Parent Company common stock for an exercise price of $110. 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 14: PERSONNEL EXPENSE
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 Salaries $1,039,699 938,409 886,702 Pension cost 24,107 13,571 11,182 Savings plan 34,768 31,241 24,361 Other benefits 188,792 172,678 143,057 Total $1,287,366 1,155,899 1,065,302
The Corporation has a defined benefit pension plan covering substantially all of its employees with one year of service. The benefits are based on years of service, the employee's average compensation during the last five years of employment and the employee's primary Social Security benefit. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Additionally, certain defined pension plans of acquired institutions will be merged into the Corporation's plan during 1995. Accordingly, the following information combines the respective plans' financial information with the Corporation's plan for the three years ended December 31, 1994. At December 31, 1994, plan assets primarily include U.S. Government and Government agency securities and equity securities. Also included are 59,187 shares and 1,088,266 shares of the Parent Company's preferred and common stock, respectively. All plan assets are held by First Union National Bank of North Carolina (the Bank) in a Bank-administered trust fund. In 1994, 1993 and 1992, pension cost includes settlement gain (losses) of $(514,000), $(2,378,000) and $1,038,000, 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, 1994, 1993 and 1992, respectively: 76 (FIRST UNION logo) ...
DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS Accumulated benefit obligation including vested benefits of $304,842,000, 1994; $346,186,000, 1993; and $207,887,000, 1992 $ 324,329 379,868 229,147 Projected benefit obligation for service rendered to date $(454,623) (509,332) (334,126) Plan assets at fair value 553,255 555,196 374,383 Plan assets in excess of projected benefit obligation 98,632 45,864 40,257 Prior service cost 164 2,201 2,638 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 49,112 89,055 8,470 Unrecognized net assets (19,908) (22,867) (25,380) Prepaid pension cost included in other assets $ 128,000 114,253 25,985 ASSUMED RATES USED IN ACTUARIAL COMPUTATIONS Weighted-average discount rate 8.25% 7 8-8.5 Rate of increase in future compensation levels, depending on age 5 4.5 4.5-9.5 Long-term weighted average rate of return 8.5% 9.5 8-10
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 PENSION COST Service cost-benefits earned during the period $ 33,425 25,649 24,554 Interest cost on projected benefit obligation 35,364 29,128 24,193 Actual (return) loss on plan assets 10,986 (44,145) (38,353) Net amortization and deferral (56,182) 561 1,826 Settlement (gain) loss 514 2,378 (1,038) Net pension cost $ 24,107 13,571 11,182
77 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 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 in 1994, 1993 and 1992 was $59,210,000, $69,841,000 and $51,876,000, respectively. The cost of providing these benefits for 3,905 retirees in 1994, 3,411 retirees in 1993 and 2,779 retirees in 1992 is not separable from the cost of providing benefits for the 31,858 active employees in 1994, 32,861 active employees in 1993, and 29,750 active employees in 1992, respectively. In accordance with Financial Accounting Standards Board Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", in 1993 the Corporation began amortizing a transition obligation of $98,788,000 over a 20-year period on a straight-line basis. The Corporation's retirees are eligible to participate in postretirement benefits offered by the Corporation. 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, 1994 and 1993:
DECEMBER 31, (IN THOUSANDS) 1994 1993 ACTUARIAL PRESENT VALUE OF POSTRETIREMENT BENEFITS OBLIGATION Retirees $ 63,604 81,993 Fully eligible active participants 2,711 3,097 Other active participants 22,875 26,544 Accumulated postretirement benefit obligation $ 89,190 111,634 Projected benefit obligation in excess of plan assets $ 89,190 111,634 Unrecognized net transition obligation (63,914) (67,221) Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in assumptions 24,070 (6,993) Accrued postretirement benefit cost $ 49,346 37,420 ASSUMED RATES USED IN ACTUARIAL COMPUTATIONS Weighted average discount rate 8.25% 7 Rate of increase in future compensation levels, depending on age 5 4.5 Health care cost trend rate Prior to age 65 (for 1995, grading levelly to 7 percent in 2004) 12.25 12.83 After age 65 (for 1995, grading levelly to 6 percent in 2004) 11.25% 11.83 EFFECT OF ONE PERCENT INCREASE IN HEALTH CARE COST TREND RATE Service costs $ -- -- Interest costs 384 391 Accumulated postretirement benefit obligation $ 5,283 6,232 POSTRETIREMENT COSTS Service cost-benefits earned during the period $ 2,151 1,605 Interest cost on projected benefit obligation 6,784 6,646 Amortization of transition obligation 3,543 4,309 Net cost $ 12,478 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 recurring reduction of income before income taxes is expected to be insignificant. 78 (FIRST UNION logo) ... ................................. NOTE 15: INCOME TAXES The provision for income taxes charged to operations is as follows:
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 CURRENT INCOME TAXES Federal $238,362 276,379 224,759 State 50,724 48,722 45,346 Total 289,086 325,101 270,105 DEFERRED INCOME TAX EXPENSE (BENEFITS) Federal 185,590 74,002 (60,606) State 15,400 4,157 (13,347) Total 200,990 78,159 (73,953) Total $490,076 403,260 196,152
The federal income tax rates and amounts are reconciled with the effective income tax rates and amounts as follows:
YEARS ENDED DECEMBER 31, 1994 1993 1992 % OF % OF % OF PRE-TAX PRE-TAX PRE-TAX (IN THOUSANDS) AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME Income before income taxes $1,415,456 $1,220,781 $581,203 Tax at federal income tax rate $ 495,410 35.0% $ 427,273 35.0% $197,609 34.0% Reasons for difference in federal income tax rate and effective rate Tax-exempt interest, net of cost to carry (41,209) (2.9) (44,986) (3.7) (48,749) (8.4) State income taxes, net of federal tax benefit 42,981 3.0 34,371 2.8 21,119 3.6 Goodwill amortization 12,740 .9 11,873 1.0 10,397 1.8 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 1,889 .1 (3,604) (.3) 10,440 1.8 Other items, net (21,735) (1.5) (5,792) (.5) 5,336 1.0 Total $ 490,076 34.6% $ 403,260 33.0% $196,152 33.8%
79 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 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) 1994 1993 1992 DEFERRED INCOME TAX LIABILITIES Depreciation $ 47,296 48,710 55,479 Futures contracts 8,144 16,270 17,290 Intangible assets 54,903 72,943 49,671 Leasing activity 260,763 159,085 115,889 Prepaid insurance premiums 17,554 -- -- Loan products -- -- 4,031 Prepaid pension asset 50,868 44,757 8,593 Thrift loan loss reserve recapture 27,152 24,889 10,824 Purchase accounting adjustments (primarily loans and securities) 21,127 24,236 -- Other 23,280 23,105 21,430 Total deferred income tax liabilities 511,087 413,995 283,207 DEFERRED INCOME TAX ASSETS Provision for loan losses, net (366,049) (369,384) (336,360) Accrued expenses, deductible when paid (169,545) (125,506) (115,261) Unrealized loss on debt and equity securities (115,219) -- -- Foreclosed properties (26,627) (52,637) (54,106) Sale and leaseback transactions (18,825) (22,276) (23,430) Deferred income (16,731) (13,987) (11,184) Purchase accounting adjustments (primarily loans and securities) -- -- (17,932) Net operating loss carryforwards (50,795) (53,271) -- First American segregated assets (10,004) (76,003) -- Loan products (916) (11,940) -- Other (33,201) (30,476) (32,626) Total deferred income tax assets (807,912) (755,480) (590,899) Deferred tax assets valuation allowance 37,421 22,173 20,024 Net deferred income tax assets $(259,404) (319,312) (287,668)
Changes to the deferred tax assets valuation allowance are as follows:
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 Balance, beginning of year $ 22,173 20,024 9,584 Current year deferred provision, change in deferred tax valuation allowance 1,889 (3,604) 10,440 Purchase acquisitions 13,359 5,753 -- Deferred tax assets valuation allowance, end of year $ 37,421 22,173 20,024
A portion of the current year change in the net deferred tax asset relates to unrealized losses on debt and equity securities available for sale. Under Standard No. 115, the related 1994 deferred tax benefit of $115,219,000 has been recorded directly to stockholders' equity. Purchase acquisitions also increased the net deferred tax asset in the amount of $25,863,000 in 1994 and $109,803,000 in 1993. The realization of net 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 net deferred tax asset can be supported by carrybacks to federal taxable income in excess of $2,100,000,000 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 $19,112,000 is subsequently recognized, such income tax benefit will reduce goodwill. At December 31, 1994, the Corporation has net operating loss carryforwards of $122,000,000 that are available to offset future federal taxable income through 2007 subject to annual limitations. The Corporation also has net operating loss carryforwards of $200,000,000 that are available to offset future state taxable income through 2009. These carryforwards were primarily acquired with the acquisition of FAMC. Income tax expense (benefit) related to securities available for sale transactions was $(4,656,000), $9,559,000 and $11,668,000 in 1994, 1993 and 1992, respectively. Income tax expense (benefit) related to investment security transactions was $1,455,000, $2,658,000 and $(2,794,000) in 1994, 1993 and 1992, respectively. 80 (FIRST UNION logo) ... 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 insignificant effect of Standard No. 109 resulted in additional income tax expense of $8,519,000 and is reflected in the 1992 financial statements as a component of income taxes. 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 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 16: FIRST UNION CORPORATION (PARENT COMPANY) The Parent Company's principal assets are its investments in its subsidiaries, interest-bearing balances with a bank subsidiary, 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, 1994, the Parent Company was indebted to subsidiary banks in the amount of $200,000,000 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 a loan outstanding to a Parent Company nonbank subsidiary amounting to $115,929,000 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 $397,115,000 at December 31, 1994, for the payment of dividends to the Parent Company without such regulatory or other restrictions. Subsidiary net assets of $5,442,257,000 were restricted from being transferred to the Parent Company at December 31, 1994, under such regulatory or other restrictions. At December 31, 1994 and 1993, the estimated fair value of the Parent Company's loans was $1,755,517,000 and $1,224,833,000, respectively. 81 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 The Parent Company's condensed balance sheets as of December 31, 1994 and 1993, and the related condensed statements of income and cash flows for the three-year period ended December 31, 1994, are as follows: ................................. CONDENSED BALANCE SHEETS
(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 Trading account assets -- Securities available for sale (amortized cost $151,505 in 1994; market value $105,292 in 1993) 193,131 Loans, net of unearned income ($591 in 1994; $1,203 in 1993) 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 (IN THOUSANDS) 1993 ASSETS Cash and due from banks 225 Interest-bearing balances with bank subsidiary 1,252,740 Securities purchased under resale agreements -- Total cash and cash equivalents 1,252,965 Trading account assets 10,285 Securities available for sale (amortized cost $151,505 in 1994; market value $105,292 in 1993) 66,672 Loans, net of unearned income ($591 in 1994; $1,203 in 1993) 67,872 Allowance for loan losses (1,322) Loans, net 66,550 Loans due from subsidiaries Banks 450,500 Bank holding companies 290,784 Other subsidiaries 404,279 Investments in wholly-owned subsidiaries Arising from investments in equity in undistributed net income of subsidiaries Banks 1,245,411 Bank holding companies 4,045,885 Other subsidiaries 254,378 5,545,674 Arising from purchase accounting acquisitions 117,781 Total investments in wholly-owned subsidiaries 5,663,455 Other assets 172,128 Total assets 8,377,618 LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper 270,666 Other short-term borrowings 200,000 Other liabilities 162,591 Long-term debt 2,536,736 Stockholders' equity 5,207,625 Total liabilities and stockholders' equity 8,377,618
82 (FIRST UNION logo) ... ................................. CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 INTEREST INCOME Interest and fees on loans $ 72,350 55,379 49,060 Interest income on securities available for sale 4,139 2,377 1,311 Interest income on investment securities -- -- 1,221 Other interest income from subsidiaries 77,583 42,225 37,016 Total interest income 154,072 99,981 88,608 INTEREST EXPENSE Short-term borrowings 43,540 22,041 29,849 Long-term debt 163,072 110,956 88,317 Total interest expense 206,612 132,997 118,166 Net interest income (52,540) (33,016) (29,558) Provision for loan losses 1,408 3,665 42 Net interest income after provision for loan losses (53,948) (36,681) (29,600) Noninterest income Dividends from subsidiaries Banks 155,800 -- 57,000 Bank holding companies 526,212 406,682 50,000 Other subsidiaries 6 6 23,858 Securities available for sale transactions 5,525 -- -- Sundry income 194,396 156,612 135,750 Noninterest expense (185,932) (140,883) (141,202) Income before income tax benefits and equity in undistributed net income of subsidiaries 642,059 385,736 95,806 Income tax benefits (14,889) (6,700) (8,577) Income before equity in undistributed net income of subsidiaries 656,948 392,436 104,383 Equity in undistributed net income of subsidiaries 268,432 425,085 280,668 Net income 925,380 817,521 385,051 Dividends on preferred stock 25,353 24,900 31,979 Net income applicable to common stockholders before redemption premium 900,027 792,621 353,072 Redemption premium on preferred stock 41,355 -- -- Net income applicable to common stockholders after redemption premium $858,672 792,621 353,072
83 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992 OPERATING ACTIVITIES Net income $ 925,380 817,521 385,051 Adjustments to reconcile net income to net cash provided (used) by operating activities Equity in undistributed net income of subsidiaries (268,432) (425,085) (280,668) Provision for loan losses 1,408 3,665 42 Accretion and revaluation losses on securities available for sale (4,295) 2,431 2,374 Securities available for sale transactions (5,525) -- -- Depreciation and amortization 2,888 3,602 2,168 Deferred income taxes (benefits) (19,272) 1,382 (8,611) Trading account assets, net 10,285 8,811 (8,768) Other assets, net (40,501) (26,363) (22,011) Other liabilities, net 100,189 (33,570) 60,748 Net cash provided by operating activities 702,125 352,394 130,325 INVESTING ACTIVITIES Increase (decrease) in cash realized from Sales of securities available for sale 14,284 4,763 -- Purchases of securities available for sale (89,297) (1,153) -- Advances to subsidiaries, net (539,359) (198,771) (244,641) Investments in subsidiaries (134,583) (700,353) (132,588) Longer-term loans originated or acquired (68,999) (49,921) (18,250) Principal repaid on longer-term loans 62,675 7,746 15,470 Purchases of premises and equipment, net (6,248) (816) (1,960) Net cash used by investing activities (761,527) (938,505) (381,969) FINANCING ACTIVITIES Increase (decrease) in cash realized from Commercial paper 124,867 (71,126) 3,523 Other short-term borrowings, net 100,000 (6,215) (78,967) Issuances of long-term debt 444,403 989,975 641,229 Payments of long-term debt (38,000) (394,488) (18,520) Sales of common stock 99,798 203,337 525,939 Purchases of preferred stock -- (138) (100,000) Redemption of preferred stock (325,396) -- -- Purchases of common stock (217,554) (3,851) (7,819) Cash dividends paid (323,255) (268,745) (206,179) Net cash provided (used) by financing activities (135,137) 448,749 759,206 Increase (decrease) in cash and cash equivalents (194,539) (137,362) 507,562 Cash and cash equivalents, beginning of year 1,252,965 1,390,327 882,765 Cash and cash equivalents, end of year $1,058,426 1,252,965 1,390,327 CASH PAID FOR Interest $ 190,624 114,904 122,292 Income taxes 243,099 326,000 216,000 NONCASH ITEMS Effect on stockholders' equity of an unrealized gain (loss) on debt and equity securities included in Parent Company Securities available for sale 41,626 -- -- Other liabilities 14,569 -- -- Parent Company subsidiaries Securities available for sale (343,739) -- -- Other assets (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 $ 225,424 -- --
84 (FIRST UNION logo) ... ................................. NOTE 17: 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, 1994, the total credit risk in excess of threseholds was $18,717,000. The fair value of collateral held was 97 percent of the total credit risk in excess of the thresholds. For non-dealer transactions, the need for collateral is evaluated on a individual transaction basis and is primarily dependent on the financial strength of the counterparty. The carrying amount of financial instruments used for interest rate risk management includes amounts for deferred gains and losses. The amount of deferred gains and losses was $14,719,000 and $34,907,000, respectively, at December 31, 1994. These net losses will reduce net interest income by $17,781,000 in 1995 and $2,407,000 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 Standard is required for financial statements issued for fiscal years ending after December 15, 1994. The Corporation has adopted this Standard, and information related thereto can be found below and in Tables 22 through 24 on pages 45 through 51, which are incorporated herein by reference. At December 31, 1994 and 1993, off-balance sheet derivative financial instruments and their related fair values are as follows: 85 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992
1994 1993 ESTIMATED CONTRACT OR ESTIMATED CONTRACT OR CARRYING FAIR NOTIONAL CARRYING FAIR NOTIONAL (IN THOUSANDS) AMOUNT VALUE AMOUNT AMOUNT VALUE AMOUNT FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT CREDIT RISK Commitments to extend credit $ -- 76,786 24,280,571 -- 49,181 17,245,126 Standby and commercial letters of credit -- 20,423 2,123,312 -- 14,353 1,390,820 FINANCIAL INSTRUMENTS WHOSE CONTRACT OR NOTIONAL AMOUNTS EXCEED THE AMOUNT OF CREDIT RISK FORWARD AND FUTURES CONTRACTS Trading and dealer activities 800,375 800,375 5,064,618 24,369 24,369 12,384,621 Interest rate risk management Asset rate conversions -- (7,071) 1,200,000 -- 10,577 3,200,000 Basis protection -- -- -- -- 431 1,000,000 Asset hedge -- 555 1,200,000 -- -- -- Liability hedges -- (120) 25,000 -- 1,570 4,125,000 INTEREST RATE SWAP AGREEMENTS Trading and dealer activities 7,508 7,508 5,533,468 8,707 8,707 2,336,719 Interest rate risk management Asset rate conversions 5,784 (313,273) 7,022,116 27,205 190,481 12,029,540 Liability rate conversions 15,487 (143,023) 2,370,500 44,071 142,625 2,462,173 PURCHASED OPTIONS, INTEREST RATE CAPS, FLOORS, COLLARS AND SWAPTIONS Trading and dealer activities 18,288 18,288 1,622,279 9,054 10,173 1,715,436 Interest rate risk management Liability rate conversions 1,902 110 392,000 2,375 2,285 529,000 Basis protection -- -- -- 6,621 13,383 2,500,000 Liability hedges 25,601 41,256 28,231,000 11,512 8,025 19,418,000 Offsetting positions (124) (2,282) 2,400,000 1,199 19,932 400,000 WRITTEN OPTIONS, INTEREST RATE CAPS, FLOORS, COLLARS AND SWAPTIONS Trading and dealer activities (24,653) (24,653) 1,455,631 (8,168) (8,168) 3,242,889 Interest rate risk management Liability rate conversions -- -- -- (5,625) -- 250,000 Basis protection -- -- -- -- -- 2,500,000 Offsetting positions 60 1,796 2,400,000 (4,023) (19,932) 400,000 FOREIGN CURRENCY AND EXCHANGE RATE SWAP COMMITMENTS Trading and dealer activities (19,323) (19,323) 3,453,525 (9,893) (9,893) 3,000,502 Foreign currency risk management 18,680 18,680 1,679,905 25,997 25,997 2,052,494 COMMODITY SWAPS Trading and dealer activities (152) (152) 4,308 -- -- -- COMMITMENTS TO PURCHASE SECURITIES (842) (842) 780,418 -- 769 1,047,813 COMMITMENTS TO SELL SECURITIES $ 693 693 842,744 -- 851 2,246,147
86 (FIRST UNION logo) ... 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 $1,430,247,000 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. The Corporation has entered into certain sales transactions for which the buyers have recourse options. The return of these assets to the Corporation would not have a material impact on the Corporation's financial position. Substantially all time drafts accepted by December 31, 1994, met the requirements for discount with Federal Reserve Banks. Average daily Federal Reserve balance requirements for the year ended December 31, 1994, amounted to $1,047,533,000. Minimum operating lease payments due in each of the five years subsequent to December 31, 1994, are as follows: 1995, $113,860,000; 1996, $108,261,000; 1997, $100,279,000; 1998, $93,832,000; and 1999, $87,391,000; and subsequent years, $758,977,000. Rental expense for all operating leases for the three years ended December 31, 1994, was $150,894,000, 1994; $151,242,000, 1993; and $154,711,000, 1992. 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. 87 ... (FIRST UNION logo) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FIRST UNION CORPORATION AND SUBSIDIARIES DECEMBER 31, 1994, 1993 AND 1992 ................................. NOTE 18: CARRYING AMOUNTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS Information about the fair value of on-balance sheet financial instruments at December 31, 1994 and 1993, which should be read in conjunction with Note 17 and certain other notes to the consolidated financial statements presented elsewhere herein, is set forth below.
1994 1993 CARRYING ESTIMATED CARRYING ESTIMATED (IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE FINANCIAL ASSETS Cash and cash equivalents $ 6,056,842 6,056,842 4,415,870 4,415,870 Trading account assets 1,206,675 1,206,675 652,470 652,470 Securities available for sale 7,752,479 7,752,479 11,744,942 11,884,385 Investment securities 3,729,869 3,742,534 2,692,476 2,931,139 Loans, net of unearned income 54,029,752 53,515,354 46,876,177 47,644,771 Allowance for loan losses (978,795) -- (1,020,191) -- Loans, net 53,050,957 53,515,354 45,855,986 47,644,771 Segregated assets 108,482 108,482 221,183 221,183 Other assets $ 1,167,401 1,183,604 1,396,515 1,424,977 FINANCIAL LIABILITIES Deposits Noninterest-bearing deposits 10,523,538 10,523,538 10,861,207 10,861,207 Interest-bearing deposits Savings and NOW accounts 13,991,987 13,991,987 12,010,636 12,010,636 Money market accounts 10,118,963 10,118,963 11,131,334 11,131,334 Other consumer time 18,544,324 18,594,249 16,897,062 17,152,717 Foreign 4,069,587 4,069,587 1,240,448 1,240,448 Other time 1,709,874 1,715,877 1,601,724 1,606,787 Total deposits 58,958,273 59,014,201 53,742,411 54,003,129 Short-term borrowings 7,532,343 7,532,343 7,254,178 7,254,178 Other liabilities 1,450,496 1,450,496 1,022,467 1,022,467 Long-term debt $ 3,428,514 3,314,029 3,061,944 3,266,747
Nonperforming loans of less that $1,000,000 each, which amounted to $120,120,000 and $248,580,000 at December 31, 1994 and 1993, 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, 1994 and 1993. The fair value of fixed-maturity certificates of deposit is estimated based on the discounted value of contractual cash flows using the rates currently offered for deposits of similar remaining maturities. The fair value estimates 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. 88 (FIRST UNION logo) ... In respect of the foregoing, the Corporation has decided to voluntarily disclose certain nonfinancial instrument relationships, which are not intended to indicate the fair value of the Corporation, as follows:
(UNAUDITED) ESTIMATED FAIR VALUE (IN THOUSANDS) 1994 1993 Mortgage servicing $ 364,537 240,168 Credit card relationships 363,085 214,851 Core deposits $2,615,803 1,740,000
The fair value of mortgage servicing related to loans that the Corporation does not own, including rights for purchased servicing, is estimated on a discounted cash flow basis. The calculation is based on loan types, coupon rates, current interest rates, prepayment assumptions, service fees, service cost and late fees. The fair value attributable to the ongoing credit cardholder relationships has been estimated on a discounted cash flow basis after taking into consideration estimated portfolio income and expense to be realized over the life of the relationships, charge-off rates and the cost of alternative funds. The value related to the recorded cost of acquired credit cardholder relationships is also included therein. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 89 ... (FIRST UNION logo) GLOSSARY ................................. ASSET SENSITIVITY: When a company's asset, liability and off-balance sheet financial instruments mix leans toward assets that would diminish net interest income in a flat or declining interest rate environment. ................................. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS): A group of mortgage pass-through securities that have been bundled, with the cash flows paid out in a specific order or preference to different buyers. ................................. DERIVATIVES: A term used to cover a broad base of financial instruments that are, for the most part, "derived" from underlying securities traded in the cash markets. Common examples include interest rate swaps, options and futures contracts. ................................. EARNINGS PER COMMON SHARE: Net income, adjusted for preferred stock dividends, divided by the average number of common shares outstanding. ................................. FUTURES CONTRACT: A contract to buy or sell a particular type of security or commodity to (or from) the futures exchange at a specified future period of time. It is used to, in effect, "lock in" net interest income over quarterly future periods. ................................. GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA): A U.S. Government-owned corporation that guarantees timely payment of principal and interest on specified mortgage-backed certificates. ................................. INDEX AMORTIZING INTEREST RATE SWAP: An interest rate swap in which the maturity date may extend and the notional amount may decrease based upon changes in certain interest rate indices. ................................. INTEREST RATE SWAP: A contractual transaction between two parties in the over-the-counter markets in which each agrees to exchange interest rate payments for a specified period of time. These payments are calculated on a "notional amount" and no exchange of principal occurs. Such a transaction is commonly used to manage the asset or liability sensitivity of a balance sheet by converting fixed rate assets or liabilities to floating rates, or vice versa. ................................. LIABILITY SENSITIVITY: When a company's asset, liability and off-balance sheet financial instruments mix leans toward liabilities that would diminish net interest income in a rising interest rate environment. ................................. MARK-TO-MARKET: A method of accounting for a corporation's assets or liabilities by recording them at their current market values, rather than at their historical costs. ................................. MORTGAGE BANKING INCOME: Noninterest income related to mortgage banking activity. ................................. MORTGAGE SERVICING PORTFOLIO: Mortgage loans owned by others for which a company provides mortgage servicing. ................................. NET CHARGE-OFFS: The amount of loans written off as uncollectible, net of the recovery of loans previously written off as uncollectible. ................................. NET INTEREST MARGIN: The difference between the tax-equivalent yield on earning assets and the rate paid on funds to support those assets, divided by average earning assets. ................................. NET OPERATING REVENUE: The sum of tax-equivalent net interest income and noninterest income. ................................. NONINTEREST EXPENSE: All expenses other than interest. ................................. NONINTEREST INCOME: All income other than interest and dividend income. ................................. NONPERFORMING ASSETS: Assets on which income is not being accrued for financial reporting purposes; restructured loans on which interest rates or terms of repayment have been materially revised; and other real estate that has been acquired through loan foreclosures, in-substance foreclosures or deeds received in lieu of loan payments. ................................. NOTIONAL AMOUNT: The principal amount of the financial instrument on which a derivative transaction is based. In an interest rate swap, for example, the "notional amount" is used to calculate the interest rate cash flows to be exchanged. No exchange of principal occurs. ................................. OPTIONS: A contractual agreement that allows but does not require a holder to buy (or sell) a financial instrument at a predetermined price before a specified time. Options may be traded through the exchanges or over-the-counter. ................................. OVERHEAD EFFICIENCY RATIO: Noninterest expense divided by net operating revenue. ................................. POOLING OF INTERESTS: An accounting method that generally, following a merger, restates historical financial information of the surviving company as if the two entities were always one. ................................. PURCHASE ACCOUNTING: An accounting method that adds the fair market value of assets and liabilities acquired to those of the acquiror at the time of acquisition. Historical financial information of the acquiror is not restated. ................................. RETURN ON ASSETS (ROA): Net income as a percentage of average assets. ................................. RETURN ON COMMON EQUITY (ROE): Net income applicable to common stockholders as a percentage of average common stockholders' equity, excluding unrealized gains or losses on debt securities. ................................. SECURITY GAIN OR LOSS: A gain or loss resulting from the sale of a security at a price above or below the security's carrying value. ................................. STOCKHOLDERS' EQUITY: A balance sheet amount that represents the total investment in the corporation by holders of preferred and common stock. ................................. SWAPTIONS: Options on swaps. 90 ... (FIRST UNION logo) BOARDS OF DIRECTORS AND CORPORATE MANAGEMENT COMMITTEE FIRST UNION CORPORATION AND FULL-SERVICE BANKING SUBSIDIARIES ................................. FIRST UNION CORPORATION G. Alex Bernhardt President and Chief Executive Officer, Bernhardt Furniture Company Lenoir, North Carolina W. Waldo Bradley Chairman, Bradley Plywood Corporation Savannah, Georgia Robert J. Brown Chairman, President and Chief Executive Officer, B&C Associates, Inc. High Point, North Carolina Edward E. Crutchfield Chairman and Chief Executive Officer, First Union Corporation Charlotte, North Carolina Robert D. Davis Chairman, D.D.I., Inc. Jacksonville, Florida R. Stuart Dickson Chairman of Executive Committee, Ruddick Corporation Charlotte, North Carolina B.F. Dolan Investor Charlotte, North Carolina Roddey Dowd Sr. Chairman, Charlotte Pipe & Foundry Co. Charlotte, North Carolina John R. Georgius President, First Union Corporation Charlotte, North Carolina William H. Goodwin Jr. Chairman, AMF Companies Richmond, Virginia Brenton S. Halsey Chairman Emeritus, James River Corporation Richmond, Virginia Howard H. Haworth President, The Haworth Goup Morganton, North Carolina Torrence E. Hemby Jr. President, Beverly Crest Corporation Charlotte, North Carolina Leonard G. Herring President and Chief Executive Officer, Lowe's Companies, Inc. North Wilkesboro, North Carolina Jack A. Laughery Chairman, The Bagel Group, Inc. Rocky Mount, North Carolina Max Lennon President and Chief Executive Officer, Eastern Foods, Inc. Atlanta, Georgia Radford D. Lovett Chairman, Commodores Point Terminal Corporation Jacksonville, Florida Henry D. Perry Jr. Physician Plantation, Florida Randolph N. Reynolds Vice Chairman, Reynolds Metals Company Richmond, Virginia Ruth G. Shaw Senior Vice President, Corporate Resources and Chief Administrative Officer, Duke Power Company Charlotte, North Carolina Lanty L. Smith Chairman and Chief Executive Officer, Precision Fabrics Group, Inc. Greensboro, North Carolina Dewey L. Trogdon Chairman, Cone Mills Corporation Greensboro, North Carolina John D. Uible Investor Jacksonville, Florida B.J. Walker Vice Chairman, First Union Corporation Jacksonville, Florida Kenneth G. Younger Transportation Consultant Gastonia, North Carolina ................................. COMMITTEES OF THE CORPORATE BOARD OF DIRECTORS Executive Committee B.F. Dolan, Chairman Edward E. Crutchfield Robert D. Davis R. Stuart Dickson Leonard G. Herring Radford D. Lovett Lanty L. Smith B.J. Walker Audit Committee W. Waldo Bradley, Chairman G. Alex Bernhardt, Vice Chairman Roddey Dowd Sr. Howard H. Haworth Henry D. Perry Jr. Randolph N. Reynolds Howard L. Arthur Jr. (staff) Robert T. Atwood (staff) Financial Management Committee Robert D. Davis, Chairman Lanty L. Smith, Vice Chairman Robert J. Brown John R. Georgius William H. Goodwin Jr. Jack A. Laughery Max Lennon Ruth G. Shaw John D. Uible Kenneth G. Younger Malcolm T. Murray Jr. (staff) Louis A. Schmitt Jr. (staff) Human Resources Committee R. Stuart Dickson, Chairman Leonard G. Herring, Vice Chairman B.F. Dolan Brenton S. Halsey Torrence E. Hemby Jr. Radford D. Lovett Dewey L. Trogdon Don R. Johnson (staff) Nominating Committee B.F. Dolan, Chairman R. Stuart Dickson, Vice Chairman Edward E. Crutchfield Leonard G. Herring Radford D. Lovett ................................. FIRST UNION CORPORATION EXECUTIVE OFFICERS Edward E. Crutchfield Chairman and Chief Executive Officer, First Union Corporation John R. Georgius President, First Union Corporation B.J. Walker Vice Chairman, First Union Corporation Robert T. Atwood Executive Vice President and Chief Financial Officer, First Union Corporation Marion A. Cowell Jr. Executive Vice President, Secretary and General Counsel, First Union Corporation ................................. FIRST UNION CORPORATION CORPORATE MANAGEMENT COMMITTEE Austin A. Adams Executive Vice President for Automation and Operations, First Union Corporation Robert T. Atwood Executive Vice President and Chief Financial Officer, First Union Corporation David M. Carroll President, First Union National Bank of Georgia Marion A. Cowell Jr. Executive Vice President, Secretary and General Counsel, First Union Corporation Edward E. Crutchfield Chairman and Chief Executive Officer, First Union Corporation Warner N. Dalhouse Chairman, First Union National Bank of Virginia, Washington, D.C., and Maryland Frank H. Dunn Jr. Chairman and Chief Executive Officer, First Union National Bank of North Carolina Malcolm E. Everett III President, First Union National Bank of North Carolina John R. Georgius President, First Union Corporation Harald R. Hansen Chairman and Chief Executive Officer, First Union National Bank of Georgia James H. Hatch Senior Vice President, Controller and Principal Accounting Officer, First Union Corporation Robert W. Helms Vice Chairman and General Banking Group Executive, First Union National Bank of Virginia Washington, D.C., and Maryland Byron E. Hodnett Chief Executive Officer, First Union National Bank of Florida Benjamin P. Jenkins III President and Chief Executive Officer, First Union National Bank of Virginia, Washington, D.C., and Maryland Don R. Johnson Executive Vice President for Human Resources, First Union Corporation Donald M. MacLeod Executive Vice President, General Banking Group, First Union National Bank of Tennessee Benjamin C. Maffitt III Senior Vice President, Commercial Banking Group, First Union Corporation Mark B. Mahoney Senior Vice President and Managing Director, Specialized Industries, First Union National Bank of North Carolina Barbara K. Massa Senior Vice President for Corporate Communications and Investor Relations, Director of Community Reinvestment, First Union Corporation Daniel W. Mathis Executive Vice President and Managing Director, Capital Markets Group, First Union Corporation James E. Maynor President, First Union Mortgage Corporation Steven R. McClellan Executive Vice President, General Banking Group First Union National Bank of South Carolina Donald A. McMullen Executive Vice President and Head of the Capital Management Group, First Union Corporation H. Burt Melton Executive Vice President for Consumer Credit and Bank Related Services, First Union Corporation John A. Mitchell III Chairman, First Union National Bank of Florida Malcolm T. Murray Jr. Executive Vice President and Chief Credit Officer First Union Corporation Robert L. Reid Chairman, President and Chief Executive Officer First Union National Bank of Tennessee Alvin T. Sale Senior Vice President for Marketing and Strategic Planning, First Union Corporation Louis A. Schmitt Jr. Executive Vice President and Managing Director, Capital Markets Group, First Union Corporation Kenneth R. Stancliff Senior Vice President and Treasurer, First Union Corporation Sidney B. Tate Chairman, President and Chief Executive Officer, First Union National Bank of South Carolina G. Kennedy Thompson President, First Union National Bank of Florida Richard K. Wagoner Executive Vice President, Capital Management Group, First Union Corporation B.J. Walker Vice Chairman, First Union Corporation Larry J. Wertz Executive Vice President and Chief Financial Officer, First Union National Bank of Florida ................................. FIRST UNION NATIONAL BANK OF NORTH CAROLINA Daniel T. Blue Jr. Attorney, Thigpen, Blue, Stephens and Fellers Raleigh, North Carolina B. Mayo Boddie Sr. Chairman and Chief Executive Officer, Boddie-Noell Enterprises, Inc. Rocky Mount, North Carolina Raymond A. Bryan Jr. Chairman and Chief Executive Officer, T.A. Loving Company Goldsboro, North Carolina 91 ... (FIRST UNION logo) BOARDS OF DIRECTORS AND PRINCIPAL SUBSIDIARIES FIRST UNION CORPORATION AND FULL-SERVICE BANKING SUBSIDIARIES John F.A.V. Cecil President, Biltmore Farms, Inc. Biltmore, North Carolina John W. Copeland President, Ruddick Corporation Charlotte, North Carolina John Crosland Jr. Chairman and President, The Crosland Group, Inc. Charlotte, North Carolina J. William Disher Chairman and Chief Executive Officer, Lance, Inc. Charlotte, North Carolina Frank H. Dunn Jr. Chairman and Chief Executive Officer, First Union National Bank of North Carolina Charlotte, North Carolina Malcolm E. Everett III President, First Union National Bank of North Carolina Charlotte, North Carolina James F. Goodmon President and Chief Executive Officer, Capitol Broadcasting Company, Inc. Raleigh, North Carolina Shelton Gorelick President, SGIC, Inc. Charlotte, North Carolina Charles L. Grace President, Cummins Atlantic, Inc. Charlotte, North Carolina James E.S. Hynes Chairman, Hynes Sales Company Charlotte, North Carolina Daniel W. Mathis Vice Chairman, First Union National Bank of North Carolina Charlotte, North Carolina Mackey J. McDonald President and Chief Operating Officer, VF Corporation Wyomissing, Pennsylvania Earl N. Phillips Jr. President and Chief Executive Officer, First Factors Corporation High Point, North Carolina J.G. Poole Jr. Chairman and President, Gregory Poole Equipment Company Raleigh, North Carolina John P. Rostan III General Partner, Heritage Investments Valdese, North Carolina Nelson Schwab III Chairman and Chief Executive Officer, Paramount Parks Charlotte, North Carolina Charles M. Shelton Sr. General Partner, The Shelton Companies Charlotte, North Carolina George Shinn Chairman, Shinn Enterprises Inc. Charlotte, North Carolina Harley F. Shuford Jr. President and Chief Executive Officer, Century Furniture Industries Hickory, North Carolina ................................. FIRST UNION NATIONAL BANK OF FLORIDA Bob D. Allen President and Chief Executive Officer, Consolidated-Tomoka Land Company Daytona Beach, Florida William B. Bond Investor Jacksonville, Florida E. Bruce Bower President, The Florida Stock and Land Company Jacksonville, Florida A. Dano Davis Chairman and Principal Executive Officer, Winn-Dixie Stores, Inc. Jacksonville, Florida Alexander W. Dreyfoos Jr. Chairman and Owner, WPEC TV-12/Photo Electronics Corporation West Palm Beach, Florida J. Nelson Fairbanks President and Chief Executive Officer, United States Sugar Corporation Clewiston, Florida Byron E. Hodnett Chief Executive Officer, First Union National Bank of Florida Jacksonville, Florida Edward W. Lane III Attorney, Ulmer, Murchison, Ashby & Taylor, P.A. Jacksonville, Florida John F. Lowndes Attorney, Lowndes, Drosdick, Doster, Kantor & Reed, P.A. Orlando, Florida W.A. McGriff III Investor Jacksonville, Florida Jorge MasCanosa Chairman, MasTec, Inc. Miami Springs, Florida John A. Mitchell III Chairman, First Union National Bank of Florida Jacksonville, Florida Orrin D. Mitchell Orthodontist Jacksonville, Florida Ray C. Osborne Attorney, Osborne, Osborne & deClaire, P.A. Boca Raton, Florida Herbert H. Peyton President, Gate Petroleum Company Jacksonville, Florida William J. Schoen Chairman, President and Chief Executive Officer, Health Management Associates, Inc. Naples, Florida Mel Sembler Chairman, The Sembler Company St. Petersburg, Florida G. Kennedy Thompson President, First Union National Bank of Florida Jacksonville, Florida B.J. Walker Vice Chairman, First Union Corporation Jacksonville, Florida Carol Graham Wyllie Executive Vice President, The Graham Companies Miami Lakes, Florida ................................. FIRST UNION NATIONAL BANK OF GEORGIA Juanita P. Baranco Executive Vice President, Automotive, Inc. Decatur, Georgia W. Frank Blount Chief Executive Officer, Australian & Overseas Telecommunications Corporation Sydney, Australia Otis A. Brumby Jr. Publisher and Chief Executive Officer, The Marietta Daily Journal and Neighbor Newspapers Inc. Marietta, Georgia David M. Carroll President, First Union National Bank of Georgia Atlanta, Georgia John E. Cay III President, Palmer & Cay/Carswell, Inc. Savannah, Georgia Thomas W. Cole President, Clark Atlanta University Atlanta, Georgia Edwin M. Crawford Chairman, President and Chief Executive Officer, Charter Medical Corporation Atlanta, Georgia Jere A. Drummond President and Chief Executive Officer, BellSouth Telecommunications Inc. Atlanta, Georgia Harald R. Hansen Chairman and Chief Executive Officer, First Union National Bank of Georgia Atlanta, Georgia J. Madden Hatcher Jr. Attorney Columbus, Georgia James W. Key Investor Columbus, Georgia Wyck A. Knox Jr. Attorney, Kilpatrick and Cody Augusta, Georgia David L. Kolb Chairman and Chief Executive Officer, Mohawk Industries, Inc. Atlanta, Georgia Dr. J. Robert Logan Managing Partner and Vice President, Logan and Hoffman Savannah, Georgia Grover C. Maxwell Jr. Investor Greenville, North Carolina J. Greeley McGowin II Investor Savannah, Georgia Robert C. McMahan President and Chief Executive Officer, Golden Point Group, Inc. Tucker, Georgia C.V. Nalley III President and Chief Executive Officer, The Nalley Companies Atlanta, Georgia Walton K. Nussbaum Investor Savannah, Georgia Carl E. Sanders Attorney, Troutman, Sanders Atlanta, Georgia Henry C. Schwob President, Schwob Realty Company Columbus, Georgia Arnold M. Tenenbaum President, Chatham Steel Corporation Savannah, Georgia Dan M. Vaden Jr. President, Dan Vaden Chevrolet-Geo, Inc. Savannah, Georgia ................................. FIRST UNION NATIONAL BANK OF SOUTH CAROLINA Louis P. Batson Jr. Chairman and Chief Executive Officer, Louis P. Batson Company Greenville, South Carolina Peter C. Browning Executive Vice President, Sonoco Products Company Hartsville, South Carolina Rex L. Carter Attorney, Carter, Smith, Merriam, Rogers & Traxler Greenville, South Carolina George C. Fant Jr. Investor Columbia, South Carolina I.S. Leevy Johnson Attorney, Johnson, Toal & Battiste, P.A. Columbia, South Carolina James F. Kane Dean Emeritus and Professor of Business, University of South Carolina Columbia, South Carolina Harry M. Lightsey Jr. Attorney, McNair and Sanford, P.A. Columbia, South Carolina Steven R. McClellan, Executive Vice President, First Union National Bank of South Carolina Greenville, South Carolina Patrick W. McKinney President, Kiawah Island Real Estate Inc. Charleston, South Carolina F. Creighton McMaster Chief Executive Officer, Winnsboro Petroleum Company Winnsboro, South Carolina Ralph L. Ogden President, Liberty Insurance Group Greenville, South Carolina John D. Orr President, Orr Company Florence, South Carolina William L. Otis Jr. Chairman and Chief Executive Officer, Columbia Lumber and Manufacturing Co. Columbia, South Carolina Joseph P. Riley Jr. Mayor, City of Charleston Charleston, South Carolina Alfred B. Robinson President, Robinson Company, Inc. Easley, South Carolina Sidney B. Tate Chairman, President and Chief Executive Officer, First Union National Bank of South Carolina Greenville, South Carolina 92 ... (FIRST UNION logo) ................................. FIRST UNION NATIONAL BANK OF TENNESSEE T.B. Boyd III President and Chief Executive Officer, National Baptist Publishing Board Nashville, Tennessee Davis H. Carr Attorney, Boult, Cummings, Conners and Berry Nashville, Tennessee Haywood D. Cochrane Jr. President and Chief Executive Officer, Allied Clinical Laboratories, Inc. Nashville, Tennessee Colleen Conway-Welch Professor and Dean, School of Nursing, Vanderbilt University Nashville, Tennessee John P. Cooper Investor Nashville, Tennessee J. William Denny President, Nashville Gas Division of Piedmont Natural Gas Inc. Nashville, Tennessee Lloyd C. Elam Professor of Psychiatry, Meharry Medical College Nashville, Tennessee William M. Johnson Investor Sparta, Tennessee Donald M. MacLeod Executive Vice President, First Union National Bank of Tennessee Nashville, Tennessee Gail O. Neuman Vice President and General Counsel, Nissan Motor Manufacturing Corporation, U.S.A. Smyrna, Tennessee Richard W. Oliver Professor, Owen Graduate School of Management, Vanderbilt University Nashville, Tennessee Robert L. Reid Chairman, President and Chief Executive Officer, First Union National Bank of Tennessee Nashville, Tennessee James E. Robinson Chairman, Hodge-Hardy Agency, Inc. Newport, Tennessee Thomas J. Sherrard Founding Partner, Sherrard & Roe Nashville, Tennessee Jack B. Turner President, Jack B. Turner & Associates Inc. Clarksville, Tennessee George L. Yowell President, Tennessee Tomorrow, Inc. Nashville, Tennessee ................................. FIRST UNION NATIONAL BANK OF VIRGINIA George R. Aldhizer Jr. Attorney, Wharton, Aldhizer & Weaver, P.L.C. Harrisonburg, Virginia Donald S. Beyer Jr. Vice President, Don Beyer Volvo Falls Church, Virginia J. Richard Carling Vice Chairman, First Union National Bank of Virginia Roanoke, Virginia James B. Crawford Chairman and Chief Executive Officer, James River Coal Co., Inc. Richmond, Virginia Warner N. Dalhouse Chairman, First Union National Bank of Virginia Roanoke, Virginia Robert W. Helms Vice Chairman, First Union National Bank of Virginia Roanoke, Virginia James T. Holland President, O'Sullivan Corporation Winchester, Virginia Glenn A. Hunsucker President and Chief Operating Officer, Bassett Furniture Industries Inc. Bassett, Virginia Benjamin P. Jenkins III Chief Executive Officer and President, First Union National Bank of Virginia Roanoke, Virginia William E. Lavery President Emeritus, Virginia Polytechnic Institute and State University Blacksburg, Virginia Thomas L. Robertson President and Chief Executive Officer, Carilion Health System Roanoke, Virginia William G. Shenkir Professor, University of Virginia Charlottesville, Virginia Donald G. Smith Chairman and Chief Executive Officer, Roanoke Electric Steel Corporation Roanoke, Virginia Glenn O. Thornhill Jr. President and Chief Executive Officer, Maid Bess Corporation Salem, Virginia Paul E. Torgersen President, Virginia Polytechnic Institute and State University Blacksburg, Virginia ................................. PRINCIPAL SUBSIDIARIES First Union National Bank of Florida A full-service commercial bank with 552 offices. 225 Water Street Jacksonville, Florida 32202 904-361-2265 First Union National Bank of North Carolina A full-service commercial bank with 276 offices. One First Union Center Charlotte, North Carolina 28288 704-374-6161 First Union National Bank of Georgia A full-service commercial bank with 154 offices. 999 Peachtree Street, Suite 1200 Atlanta, Georgia 30309 404-827-7100 First Union National Bank of Virginia A full-service commercial bank with 177 offices. 213 South Jefferson Street Roanoke, Virginia 24040 703-563-7000 First Union National Bank of South Carolina A full-service commercial bank with 66 offices. Insignia Financial Plaza, One Insignia Place Greenville, South Carolina 29601 803-255-8000 First Union National Bank of Tennessee A full-service commercial bank with 54 offices. 150 Fourth Avenue North Nashville, Tennessee 37219 615-251-9200 First Union National Bank of Washington, D.C. A full-service commercial bank with 33 offices. 740 15th Street NW Washington, D.C. 20005 703-821-7777 First Union National Bank of Maryland A full-service commercial bank with 26 offices. Congressional Plaza Branch 110 Congressional Lane Rockville, Maryland 20852 703-821-7777 First Union Brokerage Services Inc. Securities brokerage firm. One First Union Center Charlotte, North Carolina 28288 704-374-6927 First Union Capital Markets Corp. Provides a wide range of securities services in accordance with Federal Reserve Board powers granted to subsidiaries of bank holding companies. One First Union Center Charlotte, North Carolina 28288 704-383-8757 First Union Home Equity Bank, N.A. Offers home equity loans through 184 offices in 42 states. 1000 Louis Rose Place Charlotte, North Carolina 28262 704-593-9300 First Union Mortgage Corporation Offers a variety of mortgage banking and insurance services through 18 offices in 9 states. Two First Union Center Charlotte, North Carolina 28288 704-374-6161 Foreign Offices Nassau Branch First Union National Bank of North Carolina Nassau, Bahamas First Union Bank and Trust (Cayman) Ltd. Cayman Islands FIRST UNION ACROSS THE NATION (Map appears here with the following legend:) KEY Darker color indicates the areas of greatest concentration of First Union Bank branch locations Lighter color indicates the areas of lowest concentration of First Union Bank branch locations First Union Mortgage Corporation First Union Home Equity Bank, N.A. 93 ... (FIRST UNION logo) STOCKHOLDER INFORMATION ................................. FINANCIAL INFORMATION Analysts, stockholders and other investors seeking financial information about First Union Corporation should contact Barbara Massa, senior vice president for Corporate Communications and Investor Relations, at 704-374-2555 or Sean Fox, vice president for Investor Relations, at 704-374-7060. Call 1-800- 283-6214 for the latest news announcements through FAX-On-Demand. INVESTOR RELATIONS Our Investor Relations staff at 704-374-6782 also can provide information about our dividend reinvestment program and direct deposit of dividends. Copies of our Form 10-K may be obtained from Investor Relations, Two First Union Center, Charlotte, North Carolina 28288-0206. STOCKHOLDER ACCOUNTS If you have questions concerning your stockholder account, please call our transfer agent, First Union National Bank of North Carolina, at 1-800-347-1246. MEDIA CONTACT News media seeking general information should contact R. Jeep Bryant, senior vice president for Media Relations, at 704-374-2957. FINANCIAL REPORT MAILING PROCEDURES Our goal is to reduce the expense associated with mailing financial reports to stockholders by receiving authorization to mail only one per address. This authorization is strictly voluntary. Please check the appropriate box on the postage paid Stockholder Information card that appears at the back of this annual report. ................................. ANNUAL MEETING The annual meeting of stockholders will be held at 9:30 a.m. Tuesday, April 18, 1995, in the auditorium on the 12th floor of Two First Union Center, Charlotte, North Carolina. ................................. STOCK LISTING First Union Corporation common stock is traded on the New York Stock Exchange under the symbol FTU. ................................. EQUAL OPPORTUNITY EMPLOYER First Union Corporation is an equal opportunity employer. All matters regarding recruiting, hiring, training, compensation, benefits, promotions, transfers and all other personnel policies will continue to be free from discriminatory practices. ................................. NIAC First Union Corporation is a corporate sponsor of NAIC (National Association of Investment Clubs) and participates in the Low-Cost Investment Plan. ................................. INTERNET ADDRESS Our Internet global computer address is URL:http://www.firstunion.com/ or via electronic mail, comments@firstunion.com. ................................. SECURITIES AND DEBT RATINGS STANDARD THOMSON (AS OF DECEMBER 31, 1994) MOODY'S & POOR'S BANKWATCH SECURITIES ISSUED BY FUNC SENIOR DEBT (Bullet) 7 1/2 percent debentures, due December 1, 2002 A2 A A+ (Bullet) Floating rate extendible notes, due June 15, 2005 A2 A A+ (Bullet)11 percent, due May 1, 1996 A2 A A+ (Bullet) Floating rate, due November 13, 1996 A2 A A+ (Bullet) 5.95 percent, due July 1, 1995 A2 A A+ (Bullet) 6 3/4 percent, due January 15, 1998 A2 A A+ (Bullet) Medium-term notes A2 A A+ SUBORDINATED NOTES (Bullet) Floating rate, due July 22, 2003 A3 A- A (Bullet) 11 percent, due 1996 A3 A- A (Bullet) 8 1/8 percent, due December 15, 1996 A3 A- A (Bullet) 9.45 percent, due June 15, 1999 A3 A- A (Bullet) 9.45 percent, due August 15, 2001 A3 A- A (Bullet) 8 1/8 percent, due June 24, 2002 A3 A- A (Bullet) 8 percent, due November 15, 2002 A3 A- A (Bullet) 7 1/4 percent, due February 15, 2003 A3 A- A (Bullet) 6 5/8 percent, due July 15, 2005 A3 A- A (Bullet) 6 percent, due October 30, 2008 A3 A- A (Bullet) 6 3/8 percent, due January 15, 2009 A3 A- A (Bullet) 8 percent, due August 15, 2009 A3 A- A (Bullet) 8.77 percent, due November 15, 2004 A3 A- A (Bullet) Medium-term notes A3 A- A COMMERCIAL PAPER P-1 A-1 TBW-1 DEBT ISSUED BY SUBSIDIARIES OF FUNC (Bullet) Bank notes issued by FUNB-NC Aa3 A+ - (Bullet) FUNC-VA senior debt - A - (Bullet) FUNC-VA subordinated debt A3 A- - (Bullet) FUNC-FL subordinated debt A3 A- - SHORT-TERM CERTIFICATES OF DEPOSIT ISSUED BY (Bullet) FUNB-NC P-1 A-1 TBW-1 (Bullet) FUNB-FL P-1 A-1 TBW-1 (Bullet) FUNB-GA P-1 - TBW-1 (Bullet) FUNB-VA P-1 A-1 TBW-1 LONG-TERM CERTIFICATES OF DEPOSIT ISSUED BY (Bullet) FUNB-NC Aa3 A+ - (Bullet) FUNB-FL A1 A+ - (Bullet) FUNB-GA A1 - - (Bullet) FUNB-VA A1 A+ - LETTERS OF CREDIT ISSUED BY FUNB-NC AND FUNB-FL (Bullet) Short-term P-1 A-1 - (Bullet) Long-term FUNB-NC Aa3 A+ - (Bullet) Long-term FUNB-FL A1 A+ - THOMSON BANKWATCH RATES FIRST UNION CORPORATION B. FUNC - FIRST UNION CORPORATION FUNB-NC - FIRST UNION NATIONAL BANK OF NORTH CAROLINA FUNB-FL - FIRST UNION NATIONAL BANK OF FLORIDA FUNC-FL - FIRST UNION CORPORATION OF FLORIDA FUNB-GA - FIRST UNION NATIONAL BANK OF GEORGIA FUNB-VA - FIRST UNION NATIONAL BANK OF VIRGINIA FUNC-VA - FIRST UNION CORPORATION OF VIRGINIA 94 ... (FIRST UNION logo) (First Union Logo) FIRST UNION CORPORATION Two First Union Center Charlotte, NC 28288-0570 EX-21 6 EXHIBIT 21 EXHIBIT (21) FIRST UNION CORPORATION LIST OF SUBSIDIARIES* Capitol Finance Group, Inc. First Union Capital Markets Corp. First Union Community Development Corporation Barrett Place Limited Partnership (99%) Parkchester Limited Partnership (99%) First Union Corporation of Florida ABCA, Inc. Citrus County Land Corp. Citrus County Service Corp. Davis Boulevard Service Corporation Melbourne Atlantic Venture Partners (20%) Naples Financial Services, Inc. Carlton Place, Ltd. BancFlorida Investment Services, Inc. First Union National Bank of Florida** Alden Pond, Inc. Bart, Inc. CIMC, Inc. First Union Bank and Trust Company (Cayman) Ltd. FNB Properties, Inc. Ft. Lauderdale Hotel Holding Company General Homes Corp. (9.205%)*** Horizon Appraisal Services, Inc. Jacksonville Affordable Housing, Ltd., (98%) O.R.E.O., Inc. Ravenwood of Kissimmee, Ltd. (99%) Taroc, Inc. Venice Service Corp. Bartow Operations, Inc. Mid-Island Service Corp. Port Charlotte Service Corp. Wiggins Service Corporations, Inc. Villa Biscayne of South Dade, Ltd. (99%) WSI, Inc. Meritor Service Corporation of Florida, Inc. NAFCO Equipment Corporation First Union Corporation of Georgia DFS Services, Inc. First Union National Bank of Georgia** Ashton of Richmond Hill, L.P. (99%) DF Southeastern Mortgage, Inc. GABK Holdings, Inc. GF Mortgage Corporation HHS Property Corporation The Atlanta Business Community Development Corporation (21.7%) Georgia Associated Services, Inc. Rainforest Associates (50%) GF Data Corporation GF Title Corporation The GF Group, Inc. FIRST UNION CORPORATION LIST OF SUBSIDIARIES* -- CONTINUED Associated Financial Corporation Grogan's Bluff Venture (50%) First Union Corporation of North Carolina First Union Corporation of South Carolina First Union National Bank of South Carolina** Business Development Corporation of South Carolina (8.7%) First Service Corporation of South Carolina Arrowwood Associates (50%) SCBK Holdings, Inc. First Union Corporation of Virginia**** Atlantic Venture Partners II, L.P. (5.44%) First Union Corporation of Tennessee First Union National Bank of Tennessee** ACB Services, Inc Professional Asset Management in Tennessee, Inc. First Union National Bank of Virginia** Arbor Glenn L.P. (99%) Dominion Investment Banking, Inc. Fairfax County Redevelopment and Housing Authority/HCDC One L.P. (99%) Fairfax County Redevelopment and Housing Authority/HCDC Two L.P. (99%) First Union Capital Partners, Inc. Atlantic Spinners, Inc. (12.5%) Chattem, Inc. (22.9%) HHI Holdings, Inc. (30.56%) Micromed Development Corporation (30.77%) Petstuff, Inc. (5.3%) Housing Equity Fund of Virginia, II, L.P. (38.5%) International Progress, Inc. (50%) Mountain Falls Park, Inc. Lafayette Family L.P. (99%) Shenandoah Valley Properties L.P. (99%) Craigmont II, L.P. (99%) Elkmont Partners, L.P. (99%) Grottoes Partners L.P. (99%) Willow Lake Partners, L.P. (99%) WNB Corporation First Union National Bank of Washington, D.C.** First Properties Associates, Inc. Maryland Bankshares, Inc. First Union National Bank of Maryland** First American Properties of Maryland, Inc. TRSTE, Inc. First Union Development Corporation CK-Southern Associates #2, Limited Partnership (33 1/3%) First Union Export Trading Company First Union Futures Corporation First Union Home Equity Bank, N.A. First Union Mortgage Corporation Farmington, Incorporated Ghent-Farmington Associates (50%) FIRST UNION CORPORATION LIST OF SUBSIDIARIES* -- CONTINUED First Union Title Corporation R.B.C. Corporation Slate Stone Hills, Incorporated The Fairfax Corporation Interchange Partners (50%) North Ridge, Inc. (50%) Real Estate Consultants of the South, Inc. First Union National Bank of North Carolina** 100 Block Associates Limited Partnership (93.75%) Evergreen Asset Management Corp. First Stratford Partnership (40%) First Union Brokerage Services, Inc. First Union Commercial Corporation First Wells Fargo Leasing Partnership (90%) Multiplex Leasing Partners (90%) First Union Commercial Leasing Group, L.L.C. (99% owned by First Union National Bank of North Carolina; 1% owned by First Union Commercial Corporation) First Union International Banking Corporation First Union HKCB Asia, Ltd. (50%) First Union Investment Corporation First Union Mortgage Securities, Inc. Gainsborough Corporation GGL, Inc.*** C4 Media Cable South, Limited Partnership (50%)*** Novaten Communications, Inc. (50%)*** Lieber I Corp. Lieber & Company (99% owned by Lieber I Corp.; 1% owned by Lieber II Corp.) Lieber II Corp. MHD, Inc.*** First Union Transportation Services, Inc. General Financial Life Insurance Company Internet, Inc. (9.4%) Queen City Special Company B Southeast Switch, Inc. (15%) Tryon Management, Inc. Washington Bankshares, Inc.**** * Wholly-owned unless otherwise indicated. ** Wholly-owned except for directors' qualifying shares. *** Interest acquired or subsidiary formed in connection with debts previously contracted other than those involving other real estated owned (OREO). **** Washington Bankshares, Inc. received 134 shares of Class B stock of First Union Corporation of Virginia in connection with the merger of its subsidiary, First American Bank, N.A., into Dominion Bank of Washington, N.A. (now First Union National Bank of Washington, D.C.). EX-23 7 EXHIBIT 23 EXHIBIT (23) CONSENT OF KPMG PEAT MARWICK LLP THE BOARD OF DIRECTORS First Union Corporation We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-42050); Form S-8 (No. 33-1721); Form S-8 (No. 33-11234); Form S-3 (No. 33-44660); Form S-8 (No. 33-47447); Form S-8 (No. 33-51964); Form S-8 (No. 33-54148); Form S-8 (No. 33-54274); Form S-3 (No. 33-50101); Form S-3 (No. 33-50103); Form S-8 (33-53103); Form S-8 (33-54739); Form S-8 (33-54905); Form S-3 (33-56927); and Form S-3 (33-57279) of First Union Corporation of our report dated January 12, 1995, relating to the consolidated balance sheets of First Union Corporation and subsidiaries as of December 31, 1994 and 1993, 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, 1994, which report appears in the Annual Report to Stockholders which is incorporated by reference in First Union Corporation's 1994 Form 10-K. KPMG PEAT MARWICK LLP Charlotte, North Carolina March 3, 1995 EX-24 8 EXHIBIT 24 EXHIBIT (24) FIRST UNION CORPORATION POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of FIRST UNION CORPORATION (the "Corporation") hereby constitute and appoint Marion A. Cowell, Jr. and Kent S. Hathaway, and each of them severally, the true and lawful agents and attorneys-in-fact of the undersigned with full power and authority in said agents and the attorneys-in-fact, and in any one of them, to sign for the undersigned and in their respective names as directors and officers of the Corporation, the Form 10-K Annual Report for the year ended December 31, 1994, to be filed by First Union Corporation with the Securities and Exchange Commission.
SIGNATURE CAPACITY EDWARD E. CRUTCHFIELD Chairman and Chief Executive Officer and Director EDWARD E. CRUTCHFIELD ROBERT T. ATWOOD Executive Vice President and Chief Financial Officer ROBERT T. ATWOOD JAMES H. HATCH Senior Vice President and Corporate Controller (Principal Accounting Officer) JAMES H. HATCH G. ALEX BERNHARDT Director G. ALEX BERNHARDT W. WALDO BRADLEY Director W. WALDO BRADLEY ROBERT J. BROWN Director ROBERT J. BROWN Director ROBERT D. DAVIS R. STUART DICKSON Director R. STUART DICKSON B. F. DOLAN Director B. F. DOLAN RODDEY DOWD, SR. Director RODDEY DOWD, SR. JOHN R. GEORGIUS Director JOHN R. GEORGIUS WILLIAM H. GOODWIN, JR. Director WILLIAM H. GOODWIN, JR. BRENTON S. HALSEY Director BRENTON S. HALSEY
SIGNATURE CAPACITY HOWARD H. HAWORTH Director HOWARD H. HAWORTH TORRENCE E. HEMBY, JR. Director TORRENCE E. HEMBY, JR. LEONARD G. HERRING Director LEONARD G. HERRING JACK A. LAUGHERY Director JACK A. LAUGHERY MAX LENNON Director MAX LENNON RADFORD D. LOVETT Director RADFORD D. LOVETT HENRY D. PERRY, JR. Director HENRY D. PERRY, JR. RANDOLPH N. REYNOLDS Director RANDOLPH N. REYNOLDS RUTH G. SHAW Director RUTH G. SHAW LANTY L. SMITH Director LANTY L. SMITH DEWEY L. TROGDON Director DEWEY L. TROGDON JOHN D. UIBLE Director JOHN D. UIBLE B. J. WALKER Director B. J. WALKER KENNETH G. YOUNGER Director KENNETH G. YOUNGER Dated: February 21, 1995 Charlotte, North Carolina EX-27 9 EXHIBIT 27
9 6-MOS 9-MOS 12-MOS JUN-30-1994 SEP-30-1994 DEC-31-1994 JUN-30-1994 SEP-30-1994 DEC-31-1994 2,809,958 3,212,888 3,740,691 1,387,532 632,206 945,126 1,909,486 1,771,643 1,371,025 933,011 1,303,453 1,206,675 9,709,341 8,226,530 7,752,479 2,995,102 3,179,763 3,729,869 3,104,804 3,269,641 3,742,534 49,252,202 52,174,944 54,702,082 (1,007,839) (1,004,298) (978,795) 72,604,401 74,243,118 77,313,505 53,772,260 53,687,051 58,958,273 8,959,378 9,988,596 7,532,343 1,260,203 1,541,549 1,778,009 3,129,444 3,269,363 3,428,514 575,989 585,948 586,779 0 0 0 31,592 31,592 0 4,781,000 5,005,091 4,810,738 72,604,401 74,243,118 77,313,505 1,945,762 3,022,845 4,173,338 389,725 580,314 768,799 38,558 63,464 95,279 2,397,814 3,705,191 5,094,661 651,866 1,020,284 1,441,248 919,916 1,450,774 2,060,946 1,477,898 2,254,417 3,033,715 50,000 75,000 100,000 2,674 2,014 (7,501) 1,291,061 1,973,280 2,677,228 691,303 1,063,202 1,415,456 452,079 693,831 925,380 0 0 0 0 0 0 452,079 693,831 925,380 2.59 3.94 5.22 2.59 3.94 5.22 4.78 4.80 4.77 523,291 494,742 397,638 85,948 115,903 140,081 2,730 674 1,872 0 0 0 1,020,191 1,020,191 1,020,191 110,584 182,704 254,927 47,623 72,587 92,011 1,007,839 1,004,298 978,795 637,300 695,972 699,025 0 3,172 3,535 370,539 305,154 276,235
EX-99 10 EXHIBIT 99(A) EXHIBIT (99)(A) FIRST UNION CORPORATION OF VIRGINIA AND SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION (UNAUDITED) In connection with the merger of Dominion Bankshares Corporation into First Union Corporation of Virginia ("FUNC-VA"), a wholly-owned subsidiary of First Union Corporation (the "Corporation"), on March 1, 1993, FUNC-VA assumed, and subsequently the Corporation guaranteed, FUNC-VA's publicly held 9 5/8% Subordinated Capital Notes Due 1999. Set forth below is summarized consolidated financial information for FUNC-VA and subsidiaries for the periods indicated. CONSOLIDATED STATEMENT OF INCOME DATA
YEAR ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 Net interest income................................................................................... $506,949 407,915 Income before income taxes............................................................................ 201,961 102,793 Net income............................................................................................ $131,423 76,676
CONSOLIDATED BALANCE SHEET DATA
DECEMBER 31, (IN THOUSANDS) 1994 1993 Assets......................................................................................... $13,327,766 13,944,799 Securities available for sale.................................................................. 2,410,244 2,490,663 Investment securities.......................................................................... 376,072 85,593 Loans, net of unearned income.................................................................. 7,820,643 7,124,476 Stockholder's equity........................................................................... $ 1,074,019 1,229,744
EX-99 11 EXHIBIT 99(B) EXHIBIT (99)(B) FIRST UNION CORPORATION PRO FORMA FINANCIAL INFORMATION PRO FORMA COMBINED CONDENSED INCOME STATEMENTS (UNAUDITED) The following unaudited pro forma combined condensed statements of income present the combined statements of income assuming the companies had been combined for each period presented on a purchase accounting basis (effective as of January 1, 1994).
FIRST UNION PURCHASE PRO FORMA PRO FORMA (IN THOUSANDS EXCEPT PER SHARE DATA) CORPORATION ACQUISITIONS ADJUSTMENTS COMBINED YEAR ENDED DECEMBER 31, 1994 Interest income........................................................ $5,094,661 544,564 (54,991) 5,584,234 Interest expense....................................................... 2,060,946 301,751 -- 2,362,697 Net interest income.................................................... 3,033,715 242,813 (54,991) 3,221,537 Provision for loan losses.............................................. 100,000 363 -- 100,363 Net interest income after provision for loan losses.................... 2,933,715 242,450 (54,991) 3,121,174 Securities available for sale transactions............................. (11,507 ) 2,085 -- (9,422 ) Investment security transactions....................................... 4,006 -- -- 4,006 Noninterest income..................................................... 1,166,470 40,575 -- 1,207,045 Noninterest expense.................................................... 2,677,228 197,446 37,015 2,911,689 Income before income taxes............................................. 1,415,456 87,664 (92,006) 1,411,114 Income taxes........................................................... 490,076 27,551 (28,905) 488,722 Net income............................................................. 925,380 60,113 (63,101) 922,392 Dividends on preferred stock........................................... 25,353 -- -- 25,353 Net income applicable to common stockholders before redemption premium.............................................................. 900,027 60,113 (63,101) 897,039 Redemption premium on preferred stock.................................. 41,355 -- -- 41,355 Net income applicable to common stockholders after redemption premium.............................................................. $ 858,672 60,113 (63,101) 855,684 Pro forma per common share data Net income available to common stockholders before redemption premium............................................................ $ 5.22 5.07 Net income available to common stockholders after redemption premium............................................................ $ 4.98 4.84 Average common shares (in thousands)................................. 172,543 176,835
See accompanying notes to pro forma financial information. FIRST UNION CORPORATION PRO FORMA FINANCIAL INFORMATION PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF DECEMBER 31, 1994 (UNAUDITED)
FIRST UNION PURCHASE PRO FORMA PRO FORMA (IN THOUSANDS) CORPORATION ACQUISITIONS ADJUSTMENT COMBINED ASSETS Cash and due from banks............................................. $ 3,740,691 94,799 (943,537) 2,891,953 Interest-bearing balances........................................... 945,126 2,812 -- 947,938 Federal funds sold and securities purchased under resale agreements........................................................ 1,371,025 81,568 -- 1,452,593 Total cash and cash equivalents................................... 6,056,842 179,179 (943,537) 5,292,484 Trading account assets.............................................. 1,206,675 -- -- 1,206,675 Securities available for sale....................................... 7,752,479 314,798 -- 8,067,277 Investment securities............................................... 3,729,869 1,931,631 (94,322) 5,567,178 Loans, net of unearned income....................................... 54,029,752 5,216,145 -- 59,245,897 Allowance for loan losses......................................... (978,795) (43,789) -- (1,022,584) Loans, net........................................................ 53,050,957 5,172,356 -- 58,223,313 Premises and equipment.............................................. 1,756,297 91,025 (22,725) 1,824,597 Due from customers on acceptances................................... 218,849 -- -- 218,849 Mortgage servicing rights........................................... 84,898 11,304 29,295 125,497 Credit card premium................................................. 58,494 -- -- 58,494 Other intangible assets............................................. 1,198,907 74,473 473,306 1,746,686 Segregated assets................................................... 164,568 -- -- 164,568 Other assets........................................................ 2,034,670 208,660 (13,571) 2,229,759 Total assets...................................................... $77,313,505 7,983,426 (571,554) 84,725,377 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing............................................... 10,523,538 290,444 -- 10,813,982 Interest-bearing.................................................. 48,434,735 5,410,881 -- 53,845,616 Total deposits................................................. 58,958,273 5,701,325 -- 64,659,598 Short-term borrowings............................................... 7,532,343 591,078 -- 8,123,421 Bank acceptances outstanding........................................ 218,849 -- -- 218,849 Other liabilities................................................... 1,778,009 126,897 10,204 1,915,110 Long-term debt...................................................... 3,428,514 852,758 -- 4,281,272 Total liabilities.............................................. 71,915,988 7,272,058 10,204 79,198,250 STOCKHOLDERS' EQUITY Preferred stock..................................................... -- 5,861 (5,861) -- Common stock........................................................ 586,779 44,296 (34,256) 596,819 Paid-in capital..................................................... 1,433,422 550,182 (430,612) 1,552,992 Retained earnings................................................... 3,591,581 175,679 (175,679) 3,591,581 Less: Treasury stock................................................ -- (51,283) 51,283 -- Unrealized loss on debt and equity securities....................... (214,265) (13,367) 13,367 (214,265) Total stockholders' equity..................................... 5,397,517 711,368 (581,758) 5,527,127 Total liabilities and stockholders' equity..................... $77,313,505 7,983,426 (571,554) 84,725,377
See accompanying notes to pro forma financial information. NOTES TO PRO FORMA FINANCIAL INFORMATION (1) The pro forma information presented is not necessarily indicative of the results of operations or the combined financial position that would have resulted had the acquisitions indicated in Note (2) been consummated at the beginning of the periods indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. (2) During 1994, First Union Corporation (the "Corporation") entered into various transactions which included (i) the pooling of interests acquisitions of American Bancshares, Inc., Lieber & Company and Home Federal Savings Bank with aggregate assets of $478 million as of the dates acquired and which involved the issuance of 4,169,000 shares of the Corporation's common stock, and the August 1994 purchase accounting acquisition of BancFlorida Financial Corporation with assets of $1.6 billion at a cost of $161 million, (ii) the pending purchase accounting acquisitions of First Florida Savings Bank, FSB, Ameribanc Investors Group, and Coral Gables Fedcorp, Inc., at an aggregate estimated cost of approximately $603 million in cash and the pending purchase accounting acquisitions of American Savings Bank of Florida, FSB ("American Savings") and United Financial Corporation of South Carolina, Inc. ("United Financial") for approximately 9.0 million shares of the Corporation's common stock valued at approximately $385 million, (iii) the December 1994 purchase of a DE MINIMUS amount of loans, and the purchase of deposits from Chase Manhattan Bank of Florida, N.A. ("Chase") and Great Western Federal Savings Bank ("Great Western"), which in the aggregate amounted to $1.8 billion, at an aggregate cost of approximately $137 million, and (iv) the purchase of deposits of Jacksonville Federal Savings Association, Citizens Federal Savings Association, Cobb Federal Savings Association and Hollywood Federal Savings Association from the Resolution Trust Corporation ("RTC") in the aggregate amount of $640 million, at an aggregate cost of $68 million. Purchases of deposits from Chase, Great Western and the RTC do not constitute a sufficient continuity of operations, and moreover, additional financial data is not available to develop meaningful and reliable pro forma income statement information with respect to such purchases. Beginning in the third quarter of 1994 and continuing through February 14, 1995, the Corporation paid $161 million to purchase 3.8 million shares of its common stock to be issued in connection with the American Savings acquisition. The Corporation expects to purchase 3.0 million shares of its common stock for approximately $132 million to be issued for the United Financial acquisition. Goodwill and deposit base premium of approximately $552 million and $326 million, respectively, are currently expected to result from all completed and pending purchase transactions. On a pooling of interests accounting basis, income and other financial statements of the Corporation issued after consummation of such pooling of interests transactions would normally be restated retroactively to reflect the consolidated combined financial position and results of operations of the Corporation as if such transactions had taken place prior to the periods covered by such financial statements; however, because of the relative immateriality of such transactions to the Corporation on a consolidated basis, such statements, will not be retroactively restated solely as a result of consummation of those acquisitions. (3) In determining the pro forma adjustment amounts related to the pro forma combined condensed statements of income, a 3.68 percent to 4.08 percent and 3.12 percent cost of funds for the years ended December 31, 1994 and 1993, respectively, a six-to-ten year straight-line life related to investment securities, a nine-year straight-line life related to loans, a 10-year straight-line life related to premises and equipment and mortgage servicing rights, a 10-year sum-of-the-years digits method related to deposit base premium, and a 25-year straight-line life related to goodwill, were used. (4) Certain insignificant reclassifications have been included herein to conform statement presentations. Transactions conducted in the ordinary course of business between the companies are immaterial and, accordingly, have not been eliminated. (5) The unaudited pro forma financial information does not include any material expenses or restructuring charges related to the acquisitions. (6) As indicated by the foregoing unaudited pro forma financial information and based solely on combined financial information as of December 31, 1994, upon consummation of the acquisitions, the Corporation's historical net income per common share for the year ended December 31, 1994, would have been dilutive by 2.9 percent. It should not necessarily be assumed, however, that the foregoing data will represent actual dilution with respect to the acquisitions. -----END PRIVACY-ENHANCED MESSAGE-----