-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EU7cH3E7ww4mwb5D7ME03Ejj0nMd4NLyQWwbcIfNsJp2xeYPyEppdFBwjc9JUrgB Vklf23VUJcHeRI9wH0jwrQ== 0000950168-00-000570.txt : 20000316 0000950168-00-000570.hdr.sgml : 20000316 ACCESSION NUMBER: 0000950168-00-000570 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000315 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: SEC FILE NUMBER: 000-03554 FILM NUMBER: 570585 BUSINESS ADDRESS: STREET 1: ONE FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 BUSINESS PHONE: 7043746565 MAIL ADDRESS: STREET 1: ONE FIRST UNION CENTER STREET 2: 301 S TRYON ST CITY: CHARLOTTE STATE: NC ZIP: 28288-0137 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 CORP. 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT") for the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT for the transition period from __________ to ____________ Commission file number 1-10000 FIRST UNION CORPORATION (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0898180 (State of incorporation) (I.R.S. Employer Identification No.) ONE FIRST UNION CENTER CHARLOTTE, NC 28288-0013 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (704) 374-6565 Securities registered pursuant to Section 12(b) of the Exchange Act: TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED ------------------- ------------------------------------ Common Stock, $3.33 1/3 par value New York Stock Exchange, Inc. (including rights attached thereto) (the "NYSE") Securities registered pursuant to Section 12(g) of the Exchange Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] (APPLICABLE ONLY TO CORPORATE REGISTRANTS) As of January 31, 2000, there were 984,981,528 shares of the registrant's common stock outstanding, $3.33 1/3 par value per share, and based on the last reported sale price of $33.5625 per share on the NYSE on such date, the aggregate market value of the registrant's common stock held by those persons deemed by the registrant to be nonaffiliates was approximately $32.8 billion. DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K ---------------------- -------------------------------- 1. Certain portions of the Corporation's Annual Part I -- Items 1 and 2; Part II -- Items 5, 6, 7, 7A Report to Stockholders for the year ended and 8. December 31, 1999 ("Annual Report"). 2. Certain portions of the Corporation's Proxy Part III -- Items 10, 11, 12 and 13. Statement for the Annual Meeting of Stockholders to be held on April 18, 2000 ("Proxy Statement").
PART I FIRST UNION CORPORATION (THE "CORPORATION") MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN THE CORPORATION'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS HERETO AND THERETO), IN ITS REPORTS TO STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE CORPORATION, WHICH ARE MADE IN GOOD FAITH BY THE CORPORATION PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, STATEMENTS WITH RESPECT TO THE CORPORATION'S BELIEFS, PLANS, OBJECTIVES, GOALS, EXPECTATIONS, ANTICIPATIONS, ESTIMATES AND INTENTIONS THAT ARE SUBJECT TO SIGNIFICANT RISKS AND UNCERTAINTIES AND ARE SUBJECT TO CHANGE BASED ON VARIOUS FACTORS (MANY OF WHICH ARE BEYOND THE CORPORATION'S CONTROL). THE WORDS "MAY", "COULD", "SHOULD", "WOULD", "BELIEVE", "ANTICIPATE", "ESTIMATE", "EXPECT", "INTEND", "PLAN" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE CORPORATION'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THAT EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE CORPORATION CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (THE "FEDERAL RESERVE BOARD"); INFLATION; INTEREST RATE, MARKET AND MONETARY FLUCTUATIONS; THE TIMELY DEVELOPMENT OF COMPETITIVE NEW PRODUCTS AND SERVICES BY THE CORPORATION AND THE ACCEPTANCE OF SUCH PRODUCTS AND SERVICES BY CUSTOMERS; THE WILLINGNESS OF CUSTOMERS TO SUBSTITUTE COMPETITORS' PRODUCTS AND SERVICES FOR THE CORPORATION'S PRODUCTS AND SERVICES AND VICE VERSA; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); TECHNOLOGICAL CHANGES; FUTURE ACQUISITIONS; THE GROWTH AND PROFITABILITY OF THE CORPORATION'S NONINTEREST OR FEE INCOME BEING LESS THAN EXPECTED; UNANTICIPATED REGULATORY OR JUDICIAL PROCEEDINGS; CHANGES IN CONSUMER SPENDING AND SAVING HABITS; AND THE SUCCESS OF THE CORPORATION AT MANAGING THE RISKS INVOLVED IN THE FOREGOING. THE CORPORATION CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS NOT EXCLUSIVE. THE CORPORATION INCORPORATES BY REFERENCE THOSE FACTORS INCLUDED IN THE CORPORATION'S PREVIOUSLY FILED CURRENT REPORTS ON FORM 8-K. THE CORPORATION DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE CORPORATION. ITEM 1. BUSINESS. GENERAL The Corporation was incorporated under the laws of North Carolina in 1967 and is registered as a financial holding company and a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Pursuant to a corporate reorganization in 1968, a predecessor of First Union National Bank ("FUNB") and First Union Mortgage Corporation, a mortgage banking firm acquired by such predecessor in 1964, became subsidiaries of the Corporation. The Corporation provides a wide range of commercial and retail banking and trust services through full-service banking offices in Connecticut, Delaware, Florida, Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C. Such offices are operated by FUNB, based in Charlotte, North Carolina, except in Delaware, where such offices are operated by First Union Bank of Delaware. The Corporation also provides various other financial services, including mortgage banking, credit card, investment banking, investment advisory, home equity lending, asset-based lending, leasing, insurance, international and securities brokerage services, through other subsidiaries. The Corporation's principal executive offices are located at One First Union Center, Charlotte, North Carolina 28288-0013 (telephone number (704) 374-6565). Since the 1985 Supreme Court decision upholding regional interstate banking legislation, the Corporation has concentrated its efforts on building a large, diversified financial services organization, primarily doing business in the eastern region of the United States. Since November 1985, the Corporation has completed over 80 banking-related acquisitions. In 1999, the Corporation acquired EVEREN Capital Corporation ("EVEREN"), a Chicago-based broker dealer. Additional information with respect to the EVEREN acquisition and certain other acquisitions is set forth in Note 2 on pages C-11 through C-15 in the Annual Report and incorporated herein by reference. 2 The Corporation is continually evaluating acquisition opportunities and frequently conducts due diligence activities in connection with possible acquisitions. As a result, acquisition discussions and, in some cases, negotiations frequently take place and future acquisitions involving cash, debt or equity securities can be expected. Additional information relating to the business of the Corporation and its subsidiaries is included in the information set forth on pages 13 through 19, Table 2 on pages T-2 through T-7 and in Note 9 on pages C-24 through C-26 in the Annual Report and incorporated herein by reference. Information relating to the Corporation only is set forth in Note 16 on pages C-37 through C-40 in the Annual Report and incorporated herein by reference. COMPETITION The Corporation's subsidiaries face substantial competition in their operations from banking and nonbanking institutions, including savings and loan associations, credit unions, money market funds and other investment vehicles, mutual fund advisory companies, brokerage firms, insurance companies, leasing companies, credit card issuers, mortgage banking companies, investment banking companies, finance companies and other types of financial services providers. SUPERVISION AND REGULATION THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE REGULATORY FRAMEWORK APPLICABLE TO FINANCIAL HOLDING COMPANIES AND BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO THE CORPORATION. THE REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION OF DEPOSITORS AND THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR THE PROTECTION OF SECURITY HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF THE CORPORATION. GENERAL As a financial holding company and a bank holding company, the Corporation is subject to regulation under the BHCA and its examination and reporting requirements. The earnings of the Corporation's subsidiaries, and therefore the earnings of the Corporation, are affected by general economic conditions, management policies and the legislative and governmental actions of various regulatory authorities, including the Federal Reserve Board, the Comptroller of the Currency (the "Comptroller") and the Federal Deposit Insurance Corporation (the "FDIC"). In addition, there are numerous governmental requirements and regulations which affect the activities of the Corporation and its subsidiaries. PAYMENT OF DIVIDENDS The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. A major portion of the revenues of the Corporation result from amounts paid as dividends to the Corporation by its national bank subsidiaries. The prior approval of the Comptroller is required if the total of all dividends declared by a national bank in any calendar year will exceed the sum of such bank's net profits for that year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends which would be greater than the bank's undivided profits after deducting statutory bad debt in excess of the bank's allowance for loan losses. Under the foregoing dividend restrictions and certain restrictions applicable to certain of the Corporation's nonbanking subsidiaries, as of December 31, 1999, the Corporation's subsidiaries, without obtaining affirmative governmental approvals, could pay aggregate dividends of $1.5 billion to the Corporation during 2000. In 1999, the Corporation's subsidiaries paid $2.6 billion in cash dividends to the Corporation. In addition, the Corporation and its banking subsidiaries are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a bank's capital base to an inadequate level would be an unsound and unsafe banking practice and that banking organizations should generally pay dividends only out of current 3 operating earnings. BORROWINGS BY THE CORPORATION There are also various legal restrictions on the extent to which the Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit from its banking subsidiaries. In general, these restrictions require that any such extensions of credit must be secured by designated amounts of specified collateral and are limited, as to any one of the Corporation or such nonbank subsidiaries, to ten percent of the lending bank's capital stock and surplus, and as to the Corporation and all such nonbank subsidiaries in the aggregate, to 20 percent of such lending bank's capital stock and surplus. CAPITAL ADEQUACY Under the risk-based capital requirements for bank holding companies, the minimum requirement for the ratio of capital to risk-weighted assets (including certain off-balance-sheet activities, such as standby letters of credit) is eight percent. At least half of the total capital is to be composed of common stockholders' equity, retained earnings, a limited amount of qualifying perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles ("tier 1 capital" and together with tier 2 capital "total capital"). The remainder of total capital may consist of mandatory convertible debt securities and a limited amount of subordinated debt, qualifying preferred stock and loan loss allowance ("tier 2 capital"). At December 31, 1999, the Corporation's tier 1 capital and total capital ratios were 7.08 percent and 10.87 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets less certain amounts ("leverage ratio") equal to three percent for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio of from at least four percent. The Corporation's leverage ratio at December 31, 1999, was 5.97 percent. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will continue to consider a "tangible tier 1 leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised the Corporation of any specific minimum leverage ratio or tier 1 leverage ratio applicable to it. Each of the Corporation's subsidiary banks is subject to similar capital requirements adopted by the Comptroller or other applicable regulatory agency. Neither the Comptroller nor such applicable regulatory agency has advised any of the Corporation's subsidiary banks of any specific minimum leverage ratios applicable to it. The capital ratios of the bank subsidiaries of the Corporation are set forth in Table 12 on page T-16 in the Annual Report and incorporated herein by reference. SUPPORT OF SUBSIDIARY BANKS The Federal Deposit Insurance Act, as amended ("FDIA"), among other things, imposes liability on an institution the deposits of which are insured by the FDIC, such as the Corporation's subsidiary banks, for certain potential obligations to the FDIC incurred in connection with other FDIC-insured institutions under common control with such institution. Under the National Bank Act, if the capital stock of a national bank is impaired by losses or otherwise, the Comptroller is authorized to require payment of the deficiency by assessment upon the bank's stockholders, pro rata, and to the extent necessary, if any such assessment is not paid by any stockholder after three months notice, to sell the stock of such stockholder to make good the deficiency. Under Federal Reserve Board policy, the Corporation is expected to act as a source of financial strength to each of its subsidiary banks and to commit resources to support each of such subsidiaries. This support may be required at times when, absent such Federal Reserve Board policy, the Corporation may not find itself able to provide it. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. PROMPT CORRECTIVE ACTION The FDIA, among other things, requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet minimum capital requirements. FDIA establishes five capital tiers: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". A depository institution's capital tier will depend upon where its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. Federal regulatory authorities have adopted regulations establishing relevant capital measures and relevant capital levels applicable to 4 FDIC-insured banks. The relevant capital measures are the total capital ratio, the tier 1 capital ratio and the leverage ratio. Under the regulations, an FDIC-insured bank will be: (i) "well capitalized" if it has a total capital ratio of ten percent or greater, a tier 1 capital ratio of six percent or greater and a leverage ratio of five percent or greater and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total capital ratio of eight percent or greater, a tier 1 capital ratio of four percent or greater and a leverage ratio of four percent or greater (three percent in certain circumstances) and is not "well capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less than eight percent, a tier 1 capital ratio of less than four percent or a leverage ratio of less than four percent (three percent in certain circumstances); (iv) "significantly undercapitalized" if it has a total capital ratio of less than six percent, a tier 1 capital ratio of less than three percent or a leverage ratio of less than three percent; and (v) "critically undercapitalized" if its tangible equity is equal to or less than two percent of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. As of December 31, 1999, all of the Corporation's deposit-taking subsidiary banks had capital levels that qualify them as being "well capitalized" under such regulations. The FDIA generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be "undercapitalized". "Undercapitalized" depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to five percent of the depository institution's total assets at the time it became "undercapitalized", and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized". "Significantly undercapitalized" depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately capitalized", requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. "Critically undercapitalized" institutions are subject to the appointment of a receiver or conservator. A bank that is not "well capitalized" is subject to certain limitations relating to so-called "brokered" deposits. DEPOSITOR PREFERENCE STATUTE Under federal law, deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver. INTERSTATE BANKING AND BRANCHING LEGISLATION The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "IBBEA"), authorized interstate acquisitions of banks and bank holding companies without geographic limitation beginning one year after enactment. In addition, it authorized, beginning June 1, 1997, a bank to merge with a bank in another state as long as neither of the states opted out of interstate branching between the date of enactment of the IBBEA and May 31, 1997. In addition, a bank may establish and operate a DE NOVO branch in a state in which the bank does not maintain a branch if that state expressly permits DE NOVO branching. It was pursuant to authority from IBBEA that the Corporation reorganized certain of its subsidiary banks in 1997 and in February 1998, as a result of which FUNB, based in Charlotte, North Carolina, operates in 11 states and Washington, D.C. FINANCIAL MODERNIZATION ACT OF 1999 The Gramm-Leach-Bliley Financial Modernization Act of 1999 was enacted on November 12, 1999. The Modernization Act: o allows bank holding companies meeting management, capital and CRA standards to engage in a substantially broader range of nonbanking activities than was permissible prior to enactment, including insurance underwriting and making merchant banking investments in commercial and financial companies; o allows insurers and other financial services companies to acquire banks; o removes various restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies; and o establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations. This part of the Modernization Act became effective on March 11, 2000. The Federal Reserve Board has notified the Corporation that, effective March 13, 2000, the Corporation is authorized to operate as a financial holding company and therefore is eligible to engage in 5 the broader range of activities that are permitted by the Modernization Act. The Modernization Act will also modify other current financial laws, including laws related to financial privacy and community reinvestment. The new financial privacy provisions will generally prohibit financial institutions, including First Union, from disclosing nonpublic personal financial information to nonaffiliated third parties unless customers have the opportunity to "opt out" of the disclosure. ADDITIONAL INFORMATION Additional information related to certain accounting and regulatory matters is set forth on page 28 in the Annual Report and incorporated herein by reference. ITEM 2. PROPERTIES. As of December 31, 1999, the Corporation and its subsidiaries owned 1,287 locations and leased 3,402 locations in 48 states, Washington, D.C., and 29 foreign countries from which their business is conducted, including a multi-building office complex in Charlotte, North Carolina, which serves as the administrative headquarters of the Corporation and most of its subsidiaries. Additional information relating to the Corporation's lease commitments is set forth in Note 14 on page C-35 in the Annual Report and incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS. The Corporation and certain of its subsidiaries have been named as defendants in various legal actions arising from their normal business activities in which varying amounts are claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, based upon the opinions of counsel, any such liability will not have a material effect on the consolidated financial position of the Corporation and its subsidiaries. A number of purported class actions were filed in June through August 1999 against the Corporation in the United States District Courts for the Western District of North Carolina and for the Eastern District of Pennsylvania. These actions name the Corporation and certain of its executive officers as defendants and are purported to be on behalf of persons who purchased shares of the Corporation's common stock from August 14, 1998 through May 24, 1999. These complaints allege various violations of federal securities law, including violations of Section 10(b) of the Exchange Act, and that the defendants made materially misleading statements and/or material omissions which artificially inflated prices for the Corporation's common stock. Plaintiffs seek a judgment awarding damages and other relief. The Corporation believes the allegations contained in these actions are without merit and will vigorously defend them. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Corporation's common stock is listed on the NYSE. Table 4 on page T-9 in the Annual Report sets forth information relating to the quarterly prices of, and quarterly dividends paid on, the common stock for the two-year period ended December 31, 1999, and incorporated herein by reference. Prices shown represent the high, low and quarter-end sale prices of the common stock as reported on the NYSE Composite Transactions tape for the periods indicated. As of December 31, 1999, there were 168,989 holders of record of the common stock. Subject to the prior rights of holders of any outstanding shares of the Corporation's preferred stock or Class A preferred stock, holders of common stock are entitled to receive such dividends as may be legally declared by the Board of Directors of the Corporation (the "Board") and, in the event of dissolution and liquidation, to receive the net assets of the Corporation remaining after payment of all liabilities, in proportion to their respective holdings. Additional information concerning certain limitations on the payment of dividends by the Corporation and its subsidiaries is set forth above under "Business -- Supervision and Regulation; Payment of Dividends" and in Note 16 on page C-37 in the Annual Report and incorporated herein by reference. Each outstanding share of common stock currently has attached to it one right (a "Right") issued pursuant to an Amended and Restated Shareholder Protection Rights Agreement (the "Rights Agreement"). Each Right entitles its registered holder to purchase one one-hundredth of a share of a junior participating series of the Corporation's Class A preferred stock designed to have economic and voting terms similar to those of one share of common stock, for $105.00, subject to adjustment (the "Rights Exercise Price"), but only after the earlier to occur (the "Separation Time") of: (i) the tenth business day (subject to extension) after any person (an "Acquiring Person") (x) commences a tender or exchange offer, which, if consummated, would result in such person becoming the beneficial 6 owner of 15 percent or more of the outstanding shares of common stock, or (y) is determined by the Federal Reserve Board to "control" the Corporation within the meaning of the BHCA, subject to certain exceptions; and (ii) the tenth business day after the first date (the "Flip-in Date") of a public announcement by the Corporation that a person has become an Acquiring Person. The Rights will not trade separately from the shares of common stock unless and until the Separation Time occurs. The Rights Agreement provides that a person will not become an Acquiring Person under the BHCA control test described above if either (i) the Federal Reserve Board's control determination would not have been made but for such person's failure to make certain customary passivity commitments, or such person's violation of such commitments made, to the Federal Reserve Board, so long as the Federal Reserve Board determines that such person no longer controls the Corporation within 30 days (or 60 days in certain circumstances), or (ii) the Federal Reserve Board's control determination was not based on such a failure or violation and such person (x) obtains a noncontrol determination within three years, and (y) is using its best efforts to allow the Corporation to make any acquisition or engage in any legally permissible activity notwithstanding such person's being deemed to control the Corporation for purposes of the BHCA. The Rights will not be exercisable until the business day following the Separation Time. The Rights will expire on the earliest of: (i) the Exchange Time (as defined below); (ii) the close of business on December 28, 2000; and (iii) the date on which the Rights are redeemed or terminated as described below (in any such case, the "Expiration Time"). The Rights Exercise Price and the number of Rights outstanding, or in certain circumstances the securities purchasable upon exercise of the Rights, are subject to adjustment upon the occurrence of certain events. In the event that prior to the Expiration Time a Flip-in Date occurs, the Corporation will take such action as shall be necessary to ensure and provide that each Right (other than Rights beneficially owned by an Acquiring Person or any affiliate, associate or transferee thereof, which Rights shall become void) shall constitute the right to purchase, from the Corporation, shares of common stock having an aggregate market price equal to twice the Rights Exercise Price for an amount in cash equal to the then current Rights Exercise Price. In addition, the Board may, at its option, at any time after a Flip-in Date, elect to exchange all of the then outstanding Rights for shares of common stock, at an exchange ratio of two shares of common stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the Separation Time (the "Rights Exchange Rate"). Immediately upon such action by the Board (the "Exchange Time"), the right to exercise the Rights will terminate, and each Right will thereafter represent only the right to receive a number of shares of common stock equal to the Rights Exchange Rate. If the Corporation becomes obligated to issue shares of common stock upon exercise of or in exchange for Rights, the Corporation, at its option, may substitute therefor shares of junior participating Class A preferred stock upon exercise of each Right at a rate of two one-hundredths of a share of junior participating Class A preferred stock upon the exchange of each Right. The Rights may be canceled and terminated without any payment to holders thereof at any time prior to the date they become exercisable and are redeemable by the Corporation at $0.01 per right, subject to adjustment upon the occurrence of certain events, at any date between the date on which they become exercisable and the Flip-in Date. The Rights have no voting rights and are not entitled to dividends. The Rights will not prevent a takeover of the Corporation. The Rights, however, may cause substantial dilution to a person or group that acquires 15 percent or more of the common stock (or that acquires "control" of the Corporation within the meaning of the BHCA) unless the Rights are first redeemed or terminated by the Board. Nevertheless, the Rights should not interfere with a transaction that is in the best interests of the Corporation and its stockholders because the Rights can be redeemed or terminated, as hereinabove described, before the consummation of such transaction. The complete terms of the Rights are set forth in the Rights Agreement. The foregoing description of the Rights and the Rights Agreement is qualified in its entirety by reference to such document. A copy of the Rights Agreement can be obtained upon written request to the Rights Agent, First Union National Bank, 1525 West W. T. Harris Blvd., 363, Charlotte, North Carolina 28288-1153. Additional information relating to the Corporation's common stock is set forth in Note 8 on pages C-21 through C-23 in the Annual Report and incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. In response to this Item, the information set forth in Table 1 on page T-1 in the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. In response to this Item, the information set forth on pages 10 through 31 and pages T-1 through T-27 in the Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 7 In response to this Item, the information set forth on pages 24 through 27, pages T-17 through T-24 and pages C-33 through C-35 in the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. In response to this Item, the information set forth in Table 4 on page T-9 and on pages C-1 through C-40 in the Annual Report is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Corporation are elected to their offices for one year terms at the meeting of the Board in April of each year. The terms of any executive officers elected after such date expire at the same time as the terms of the executive officers elected on such date. The names of each of the executive officers of the Corporation in office on December 31, 1999, their ages, their positions with the Corporation on such date, and, if different, their business experience during the past five years, are as follows: Edward E. Crutchfield (58). Chairman and Chief Executive Officer. Also, a director of the Corporation. Mr. Crutchfield is resigning as Chief Executive Officer, effective as of the Annual Meeting of Stockholders on April 18, 2000, due to illness. Mr. Crutchfield will continue to hold the office of Chairman. G. Kennedy Thompson (49). President, since December 1999. Previously, Vice Chairman, from October 1998 to December 1999, Executive Vice President, from November 1996 to October 1998, and President, First Union-Florida, prior to November 1996. Also, a director of the Corporation. Mr. Thompson will also be Chief Executive Officer, effective as of the Annual Meeting of Stockholders on April 18, 2000. Donald A. McMullen, Jr. (51). Vice Chairman, since August 1999. Previously, Executive Vice-President. Benjamin P. Jenkins, III (55). Vice Chairman, since August 1999. Previously, President, First Union-Florida, from June 1999 to August 1999, and President, First Union-VA/MD/DC, prior to June 1999. B. J. Walker (69). Vice Chairman. Robert T. Atwood (59). Executive Vice President and Chief Financial Officer. Mark C. Treanor (53). Executive Vice President, Secretary and General Counsel, since August 1999. Previously, Senior Vice President and Senior Deputy General Counsel, August 1998 to August 1999, and senior partner, Treanor, Pope & Hughes, prior to August 1998. In addition to the foregoing, the information set forth in the Proxy Statement under the heading "General Information and Nominees", and under the subheading "Section 16(a) Beneficial Ownership Reporting Compliance" under the heading "Other Matters Relating to Executive Officers and Directors " is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. In response to this Item, the information set forth in the Proxy Statement under the heading "Executive Compensation", excluding the information under the subheadings "HR Committee Report on Executive Compensation" and "Performance Graph", is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. In response to this Item, the information set forth in the Proxy Statement relating to the ownership of Common Stock by the directors, executive officers and principal stockholders of the Corporation under the headings "Voting Securities and Principal Holders" and "General Information and Nominees" is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 8 In response to this Item, the information set forth in the Proxy Statement under the subheadings "General" and "Certain Relationships" under the heading "Other Matters Relating to Executive Officers and Directors" is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The consolidated financial statements of the Corporation, including the notes thereto and independent auditors' report thereon, are set forth on pages C-1 through C-40 of the Annual Report, and are incorporated herein by reference. All financial statement schedules are omitted since the required information is either not applicable, is immaterial or is included in the consolidated financial statements of the Corporation and notes thereto. A list of the exhibits to this Form 10-K is set forth on the Exhibit Index immediately preceding such exhibits and is incorporated herein by reference. (b) During the quarter ended December 31, 1999, no Current Reports on Form 8-K, were filed by the Corporation with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST UNION CORPORATION Date: March 15, 2000 BY: /S/ JAMES H. HATCH ----------------------- JAMES H. HATCH SENIOR VICE PRESIDENT Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date indicated.
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 EDWARD E. BARR* Director --------------- EDWARD E. BARR G. ALEX BERNHARDT* Director ------------------ G. ALEX BERNHARDT ERSKINE B. BOWLES* Director ------------------ ERSKINE B. BOWLES W. WALDO BRADLEY* Director ----------------- W. WALDO BRADLEY ROBERT J. BROWN* Director ---------------- ROBERT J. BROWN A. DANO DAVIS * Director ------------- A. DANO DAVIS NORWOOD H. DAVIS, JR.* Director ---------------------- NORWOOD H. DAVIS, JR. R. STUART DICKSON* Director ------------------ R. STUART DICKSON
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SIGNATURE CAPACITY --------- -------- B. F. DOLAN* Director ------------ B. F. DOLAN RODDEY DOWD, SR.* Director ----------------- RODDEY DOWD, SR. ______________________ Director ARTHUR M. GOLDBERG WILLIAM H. GOODWIN, JR.* Director ------------------------ WILLIAM H. GOODWIN, JR. FRANK M. HENRY* Director --------------- FRANK M. HENRY JAMES E. S. HYNES* Director ----------------- JAMES E. S. HYNES ERNEST E. JONES* Director ---------------- ERNEST E. JONES HERBERT LOTMAN* Director ---------------- HERBERT LOTMAN RADFORD D. LOVETT* Director ------------------ RADFORD D. LOVETT MACKEY J. MCDONALD* Director ------------------- MACKEY J. MCDONALD PATRICIA A. MCFATE* Director ------------------- PATRICIA A. MCFATE __________________ Director JOSEPH NEUBAUER RANDOLPH N. REYNOLDS* Director --------------------- RANDOLPH N. REYNOLDS JAMES M. SEABROOK* Director ------------------ JAMES M. SEABROOK ______________ Director RUTH G. SHAW LANTY L. SMITH* Director --------------- LANTY L. SMITH G. KENNEDY THOMPSON* Director -------------------- G. KENNEDY THOMPSON *By Mark C. Treanor, Attorney-in-Fact /s/ MARK C. TREANOR ------------------- MARK C. TREANOR
Date: March 15, 2000 10 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- (3)(a) Restated Articles of Incorporation of the Corporation. Incorporated by reference to Exhibit (4) to the Corporation's 1998 Third Quarter Report on Form 10-Q. (3)(b) Bylaws of the Corporation, as amended. Incorporated by reference to Exhibit (3)(b) to the Corporation's 1995 Annual Report on Form 10-K. (4)(a) Instruments defining the rights of the holders of the * Corporation's long-term debt. (4)(b) The Corporation's Amended and Restated Shareholder Incorporated by reference to Exhibit(4) Protection Rights Agreement. to the Corporation's Current Report on Form 8-K dated October 16, 1996. (10)(a) The Corporation's Amended and Restated Management Incorporated by reference to Exhibit Incentive Plan. (10)(a) to the Corporation's 1995 Annual Report on Form 10-K. (10)(b) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit Officers. (10)(b) to the Corporation's 1988 Annual Report on Form 10-K. (10)(c) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit Non-Employee Directors. (10)(c) to the Corporation's 1989 Annual Report on Form 10-K. (10)(d) The Corporation's Contract Executive Deferred Incorporated by reference to Exhibit Compensation Plan. (10)(d) to the Corporation's 1997 Annual Report on Form 10-K. (10)(e) The Corporation's Supplemental Executive Long-Term Incorporated by reference to Exhibit Disability Plan. (10)(d) to the Corporation's 1988 Annual Report on Form 10-K. (10)(f) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit (10)(f) to the Corporation's 1988 Annual Report on Form 10-K. (10)(g) The Corporation's Retirement Plan for Non-Employee Incorporated by reference to Exhibit Directors. (10)(g) to the Corporation's 1988 Annual Report on Form 10-K. (10)(h) The Corporation's 1988 Master Stock Compensation Incorporated by reference to Exhibit (28) Plan. to the Corporation's Registration Statement No. 33-47447. (10)(i) The Corporation's 1992 Master Stock Compensation Incorporated by reference to Exhibit (28) Plan. to the Corporation's Registration Statement No. 33-47447. (10)(j) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10)(k) Edward E. Crutchfield. to the Corporation's 1994 Annual Report on Form 10-K. (10)(k) Management Restricted Stock Award Agreement. Incorporated by reference to Exhibit (10) to the Corporation's 1997 Second Quarter Report on Form 10-Q. (10)(l) The Corporation's Management Long-Term Cash Incorporated by reference to Exhibit Incentive Plan. (10)(m) to the Corporation's 1992 Annual Report on Form 10-K. (10)(m) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10) John R. Georgius. to Amendment No. 1 to the Corporation's Registration Statement No. 33-60835. (10)(n) The Corporation's Elective Deferral Plan. Incorporated by reference to Exhibit (4) to the Corporation's Registration Statement No. 33-60913.
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EXHIBIT NO. DESCRIPTION LOCATION ----------- ----------- -------- (10)(o) The Corporation's 1996 Master Stock Compensation Incorporated by reference to Exhibit (10) Plan. to the Corporation's 1996 First Quarter Report on Form 10-Q. (10)(p) The Corporation's 1998 Stock Incentive Plan. Incorporated by reference to Exhibit (10) to the Corporation's 1998 Second Quarter Report on Form 10-Q. (10)(q) Employment Agreement between the Corporation Filed herewith. and G. Kennedy Thompson. (10)(r) Form of Employment Agreement between the Filed herewith. Corporation and certain officers of the Corporation (including Austin A. Adams, Robert T. Atwood, Benjamin P. Jenkins, III, Donald A. McMullen, Jr., and Mark C. Treanor). (12) Computations of Consolidated Ratios of Earnings to Filed herewith. Fixed Charges. (13) The Corporation's 1999 Annual Report to Filed herewith. Stockholders.** (21) List of the Corporation's subsidiaries. Filed herewith. (23) Consent of KPMG LLP. Filed herewith. (24) Power of Attorney. Filed herewith. (27) The Corporation's Financial Data Schedule.*** (99) Business Segments for each of the eight quarters ended Filed herewith. December 31, 1999.
* The Corporation agrees to furnish to the Securities and Exchange Commission upon request, copies of the instruments, including indentures, defining the rights of the holders of the long-term debt of the Corporation and its subsidiaries. ** Except for those portions of the Annual Report which are expressly incorporated by reference in this Form 10-K, the Annual Report is furnished for the information of the Securities and Exchange Commission only and is not to be deemed "filed" as part of such Form 10-K. *** Filing by Electronic Data Gathering, Analysis and Retrieval System only. 12 EX-10 2 EXHIBIT 10(Q)--EMPLOYMENT AGREEMENT EXHIBIT 10 (Q) EMPLOYMENT AGREEMENT -------------------- This EMPLOYMENT AGREEMENT, made and entered into as of this 15th day of November, 1999, by and between First Union Corporation (the "Company"), a North Carolina corporation, and G. KENNEDY THOMPSON (the "Executive"); WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued service of the Executive. The Board believes it is imperative to encourage the Executive's full attention and dedication to the Company, and to provide the Executive with compensation and benefits arrangements upon a termination of employment with the Company which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. NOW, THEREFORE, in order to accomplish the objectives set forth above and in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. Employment Period. (a) The "Effective Date" shall mean the date hereof. (b) The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company upon the terms and conditions set forth in this Agreement, for the period commencing on the Effective Date and ending on the fifth anniversary thereof (the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate five years from such Renewal Date, unless at least 90 days prior to the Renewal Date the Company or the Executive, respectively, shall give notice to the Executive or the Company, respectively, that the Employment Period shall not be so extended. Notwithstanding the foregoing, in the event a "Change in Control" (as defined herein) occurs, the Employment Period, unless previously terminated, shall be extended immediately prior to the Change in Control so that the Employment Period shall terminate no earlier than five years from such Change in Control. 2. Terms of Employment. (a) Positions and Duties. (i) During the Employment Period, the Company agrees to employ the Executive, and the Executive agrees to serve as an employee of the Company and as an employee of one or more of its subsidiaries, in such capacity and with such authority, duties and responsibilities as the Company's Chairman of the Board of Directors may from time to time designate. During the 1 Employment Period, the Executive also agrees to serve as a Director on the Company's Board of Directors, as well as a member of any committee of the Board of Directors to which the Executive may be elected or appointed. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote his full professional attention and time during normal business hours to the business and affairs of the Company and to perform the responsibilities assigned to the Executive hereunder. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement and are consistent with the Company's policies. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Salary and Bonus. For all services rendered by the Executive in any capacity under this Agreement, the Company shall pay the Executive during the Employment Period as compensation (i) an annual salary in an amount not less than the amount of the Executive's annual salary as of the Effective Date (the "Annual Base Salary") and (ii) such annual cash incentive bonus, if any, as may be awarded to him by the Board of Directors of the Company or by a Committee designated by the Board (the "Annual Bonus"). Such salary shall be payable in accordance with the Company's customary payroll practices, and any such bonus shall be payable in cash in accordance with the Company's incentive bonus plans from which the Annual Bonus is awarded. During the Employment Period prior to the Date of Termination, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. In the event the Executive's actual Annual Base Salary is increased above the then current Annual Base Salary during the Employment Period, such increased Annual Base Salary shall constitute "Annual Base Salary" for purposes of this Agreement. (ii) Employee Benefits. During the Employment Period prior to the Date of Termination, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in 2 employee benefit plans generally available to employees of the Company or its subsidiaries, including without limitation, employee stock purchase plans, savings plans, retirement plans, welfare benefit plans (including, without limitation, medical, prescription, dental, disability, life, accidental death, and travel accident insurance, but excluding severance plans) and similar plans, practices, policies and programs. In addition, during the Employment Period, the Executive shall be eligible to participate in the Company's stock-based incentive compensation plans then available to other peer executives of the Company with awards thereunder determined by the Board of Directors of the Company or by a Committee designated by the Board, in its sole discretion. (iii) Expenses. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at the time immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (iv) Fringe Benefits. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to fringe benefits including, without limitation, tax and financial planning services, payment of club dues, and if applicable, use of an automobile and payment of related expenses, in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at the time immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (v) Office and Support Staff. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to those provided to the Executive by the Company and its affiliated companies at the time immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Paid Time Off. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to paid time off in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at the time immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and 3 its affiliated companies. (vii) Indemnification/D&O Insurance. During the Employment Period for acts prior to the Date of Termination, the Executive shall be entitled to indemnification with respect to the performance of his duties hereunder, and directors' and officers' liability insurance, on the same terms and conditions as generally available to other peer executives of the Company and its affiliated companies. 3. Termination of Employment.(a) Retirement, Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death or Retirement (as defined herein) during the Employment Period. For purposes of this Agreement, "Retirement" shall mean either (i) voluntary termination of the Executive's employment upon satisfaction of the requirements for early retirement under the Company's tax-qualified defined benefit pension plan or (ii) voluntary termination of the Executive's employment upon satisfaction of the requirements for normal retirement under the terms of the Company's tax-qualified defined benefit pension plan. If the Company determines in good faith that Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued and willful failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Company which specifically identifies the manner in which the Company believes that the Executive has not substantially performed the Executive's duties and a reasonable time for such substantial performance has elapsed since delivery of such demand, or 4 (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chairman of the Board of Directors or a senior executive officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. Following a Change in Control (as defined herein), the Company's termination of the Executive's employment shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, in the absence of a written consent of the Executive which expressly refers to a provision of this Section 3(c): (i) prior to a Change in Control, the substantial diminution in the overall importance of the Executive's role, as determined by balancing (A) any increase or decrease in the scope of the Executive's management responsibilities against (B) any increase or decrease in the relative sizes of the businesses, activities or functions (or portions thereof) for which the Executive has responsibility; provided, however, that none of (I) a change in the Executive's title, (II) a change in the hierarchy, and (III) a change in the Executive's responsibilities from line to staff or vice versa, either individually or in the aggregate shall be considered Good Reason; (ii) any failure by the Company to comply with any material provision of this Agreement (including, without limitation, any provision of Section 2 of this Agreement), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and 5 which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; (iv) following a Change in Control, the relocation of the principal place of the Executive's employment to a location that is more than 35 miles from such principal place of employment immediately prior to the date the proposed Change in Control is publicly announced, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (v) following a Change in Control, the Company's requiring the Executive or all or substantially all of the employees of the Company who report directly to the Executive immediately prior to the date the proposed Change in Control is publicly announced to be based at any office or location other than such person's office or location on such date; (vi) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement; or (vii) following a Change in Control, assignment to the Executive of any duties inconsistent in any respect with the Executive's position as in effect immediately prior to the public announcement of the proposed Change in Control (including status, offices, titles and reporting requirements), authority, duties or responsibilities, or any other action by the Company which results in any diminution in such position, authority, duties or responsibilities. For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive (including any such determination when the Executive is then eligible for Retirement). In the event the Company challenges the Executive's determination of Good Reason, the Company shall continue to make the payments and provide the benefits to the Executive as set forth in Section 4(a). If it is finally judicially determined that the Executive's termination was not for Good Reason, the Executive shall reimburse the Company the amounts to which it is finally judicially determined to be entitled. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific 6 termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, the date of receipt of the Notice of Termination, unless the Company agrees to a later date no more than 30 days after such notice, as the case may be, (ii) if the Executive's employment is terminated by the Executive for Good Reason or Retirement, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (iii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination or any later date specified therein within 30 days of such notice, as the case may be, (iv) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be, and (v) if the Executive's employment is terminated by the Executive for other than Good Reason, death, Disability or Retirement, the date that is 60 days after the date of receipt of the Notice of Termination by the Company, provided, however, the Company may elect to waive such notice or place the Executive on paid leave for all or any part of such 60-day period during which the Executive will be entitled to continue to receive the Annual Base Salary but shall not receive any Annual Bonus or any other payment from the Company other than reimbursement for expenses as contemplated in Section 2(b)(iii) and continued participation in the employee benefit plans as contemplated in Section 2(b)(ii). (f) Change in Control. For purpose of this Agreement, a "Change in Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power 7 of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 3(f); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger, share exchange or consolidation or sale of other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from the Business Combination) 8 beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board immediately prior to the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 4. Obligations of the Company upon Termination. (a) Good Reason; other than for Cause, Death, Disability or Retirement. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death, Disability or Retirement or the Executive shall terminate employment for Good Reason, then in consideration for past services and in consideration for the undertakings set forth in Section 7 hereof: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) an Annual Bonus of an amount equal to the greater of (I) the highest annual cash incentive bonus paid by the Company to the Executive for the three calendar years prior to the Date of Termination or (II) the highest annual cash incentive bonus paid by the Company to the Executive for the three calendar years prior to the date of this Employment Agreement (the "Base Bonus"), and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, to the extent not theretofore paid (the "Pro Rata Bonus"), (3) any unpaid Annual Bonus for the prior year, (4) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and (5) any accrued paid time off, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), (3), (4) and (5) shall be hereinafter referred to as the "Accrued Obligations"); and (B) the amount equal to the product of (1) five and (2) the sum of the Executive's Annual Base Salary immediately prior to the Date of Termination and the Base Bonus. For purposes of determining the Base Bonus hereunder, the Company 9 shall exclude any special or one-time bonuses and any premium enhancements to bonuses but shall include any portions of bonuses (other than the excluded bonuses) which have been deferred by the Executive; (ii) the Company shall pay to the Executive, in the manner in which the Executive elects (which may be in a lump sum in cash), an amount equal to the actuarial equivalent (calculated using the actuarial assumptions and/or methodology utilized by the Company as of the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Company's Supplemental Retirement Plan (the "SERP") as of the Date of Termination; provided, however, if the Executive is not then vested in his retirement benefit pursuant to the terms of the SERP, the Company will accelerate the Executive's vesting and pay the Executive his retirement benefit accrued as of the Date of Termination as if the Executive had been fully vested on the Date of Termination; (iii) for five years after the Executive's Date of Termination (or for the remainder of the Executive's life if such Date of Termination is after a Change in Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue medical, dental and life insurance benefits to the Executive and/or the Executive's family on a substantially equivalent basis to those which would have been provided to them in accordance with the medical, dental and life insurance plans, programs, practices and policies described in Section 2(b)(iv) of this Agreement if the Executive's employment had not been terminated, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical, dental and/or life insurance benefits under another employer provided plan, the medical, dental and/or life insurance benefits described herein shall terminate. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have terminated employment with the Company on the Date of Termination; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (excluding any severance plan, program, policy or practice) through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the 10 Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations, Other Benefits, the payment pursuant to Section 4(a)(ii), and the payment of an amount equal to the Executive's Annual Base Salary. Accrued Obligations and cash payments pursuant to the preceding sentence shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, death benefits then applicable to the Executive. (c) Retirement. If the Executive's employment is terminated by reason of the Executive's Retirement during the Employment Period, this Agreement shall terminate without further obligations to the Executive under this Agreement, other than for payment of Accrued Obligations and Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall include, without limitation, and the Executive shall be entitled to receive, all retirement benefits then applicable to the Executive, including but not limited to any SERP benefits then applcable to the Executive. (d) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations, Other Benefits, the payment pursuant to Section 4(a)(ii), and the payment of an amount equal to the Executive's Annual Base Salary. Accrued Obligations and the cash payments pursuant to the preceding sentence shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(d) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits then applicable to the Executive. (e) Cause; Other than for Good Reason. If the Executive's employment shall be terminated by the Company for Cause or by the Executive without Good Reason during the Employment Period, this Agreement shall terminate without further obligations of the Company to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case only to the extent owing and theretofore unpaid. 5. Non-exclusivity of Rights. Nothing in this Agreement shall 11 prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify (excluding any severance plan or program of the Company), nor subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 6. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). Notwithstanding the foregoing, if it is finally judicially determined that the Executive brought any claims contemplated in the previous sentence in bad faith, the Executive shall reimburse the Company for such fees and expenses which are reasonably related to such bad faith claim. 7. Covenants. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their related businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies (or predecessors thereto). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. 12 (b) (i) While employed by the Company and for three years after the Date of Termination, the Executive shall not, directly or indirectly, on behalf of the Executive or any other person, solicit for employment by other than the Company or encourage to leave the employ of the Company, any person employed by the Company or its affiliated companies at any time prior to the Date of Termination. (ii) While employed by the Company and for two years after the Date of Termination, the Executive will not become a director or officer or consultant engaging in activities similar to those performed by a senior officer for any business which is in competition with any line of business of the Company or its affiliates and in which the Executive participated in a direct capacity while he was employed by the Company or its affiliates at any time within the one year period preceding the Effective Date and which has offices in any location in which the Executive had supervisory responsibility in the geographic footprint of First Union National Bank (including but not limited to, Florida, Georgia, South Carolina, Tennessee, North Carolina, Virginia, Maryland, Pennsylvania, New Jersey, Delaware, New York, Connecticut, and Washington, D.C. plus any other state or states added during the Employment Period) during that one year period. The Executive expressly acknowledges the reasonableness of such restrictions and such geographic area. Further, during such period, the Executive will not acquire an equity or equity-like interest in such an organization for his own account, except that he may acquire equity interests of not more than 5% of any such organization from time to time as an investment. Notwithstanding anything to the contrary contained herein, this Section 7(b)(ii) shall not apply if (A) the Executive terminates employment with the Company pursuant to Retirement, (B) the Company terminates the Executive's employment without Cause following a Change in Control, or (C) the Executive terminates his employment for Good Reason following a Change in Control. (c) In the event of a breach or threatened breach of this Section 7, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. Following the occurrence of a Change in Control, in no event shall an asserted violation of the provisions of this Section 7 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (d) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 7; provided, however, upon termination of this Agreement due to the Company's or the Executive's failure to extend the term of this Agreement pursuant to Section 1(b), Section 7(b)(ii) shall no longer apply to the Executive if the Executive's employment shall 13 terminate after the term of this Agreement expires. (e) The Executive hereby agrees that prior to accepting employment with any other person or entity during the Employment Period or during the three years following the Date of Termination, the Executive will provide such prospective employer with written notice of the existence of this Agreement and the provisions of Section 3(e) and this Section 7, with a copy of such notice delivered simultaneously to the Company in accordance with Section 11(c). The foregoing provision shall not apply if the Company terminates the Executive's employment without Cause following a Change in Control, or if the Executive terminates his employment for Good Reason following a Change in Control. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive following a Change in Control (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any successor statute) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG LLP or such other certified public accounting firm reasonably acceptable to the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 30 business days of the receipt of notice from the Company that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive by the due date for the payment of any Excise Tax, or, if earlier, 30 days after the receipt of the Accounting Firm's determination. Any determination by 14 the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in 15 connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) For purposes of this Section 8, any reference to the Executive shall be deemed to include the Executive's surviving spouse, estate and/or beneficiaries with respect to payments or adjustments provided by this Section 8. 9. Successors. (a) This Agreement is personal to the Executive and without the prior consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. 16 (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly in writing and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Arbitration. Except with respect to matters arising under Section 7 of this Agreement, any disputes or controversies arising under or in connection with this Agreement (including, without limitation, whether any such disputes or controversies have been brought in bad faith) shall be settled exclusively by arbitration in Charlotte, North Carolina in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 11. General Provisions. (a) Governing Law; Amendment; Modification. This Agreement shall be governed and construed in accordance with the laws of the State of North Carolina, without reference to principles of conflict of laws. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. (c) Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person (in the Company's case, to its Secretary) or forty-eight (48) hours after deposit thereof in the U.S. mail, postage prepaid, for delivery as registered or certified mail -- addressed, in the case of the Executive, to such Executive at his residential address, and in the case of the Company, to its corporate headquarters, attention of the Secretary, or to such other address as the Executive or the Company 17 may designate in writing at any time or from time to time to the other party. In lieu of notice by deposit in the U.S. mail, a party may give notice by telegram or telex. (d) Tax Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) Strict Compliance. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) Entire Understanding. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. (g) Conflicts with Plans. To the extent any plan, policy, practice or program of or contract or agreement with the Company (including, without limitation, the SERP) attempts to cap, restrict, limit or reduce payments to the Executive hereunder (including, without limitation, Section 4.7 of the SERP), such caps, restrictions, limitations or reductions are expressly modified to permit the payments contemplated hereby and the parties intend that the terms of this Agreement shall be construed as having precedence over any such caps, restricitions, limitations or reductions. 18 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Executive has signed this Agreement under seal, all as of the date and year first above written. FIRST UNION CORPORATION [SEAL] ATTEST: By:______________________ Name: Edward E. Crutchfield _________________________ Title: Chairman and Chief Mark C. Treanor Executive Officer Secretary __________________________ (SEAL) G. Kennedy Thompson 19 EX-10 3 EXHIBIT 10(R)--EMPLOYMENT AGREEMENT EXHIBIT 10(r) FORM OF EMPLOYMENT AGREEMENT ---------------------------- This EMPLOYMENT AGREEMENT, made and entered into as of this ______ day of ______________, 1999, by and between First Union Corporation (the "Company"), a North Carolina corporation, and ________________ (the "Executive"); WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued service of the Executive. The Board believes it is imperative to encourage the Executive's full attention and dedication to the Company, and to provide the Executive with compensation and benefits arrangements upon a termination of employment with the Company which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. NOW, THEREFORE, in order to accomplish the objectives set forth above and in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. Employment Period. (a) The "Effective Date" shall mean the date hereof. (b) The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company upon the terms and conditions set forth in this Agreement, for the period commencing on the Effective Date and ending on the third anniversary thereof (the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 90 days prior to the Renewal Date the Company or the Executive, respectively, shall give notice to the Executive or the Company, respectively, that the Employment Period shall not be so extended. Notwithstanding the foregoing, in the event a "Change in Control" (as defined herein) occurs, the Employment Period, unless previously terminated, shall be extended immediately prior to the Change in Control so that the Employment Period shall terminate no earlier than three years from such Change in Control. 2. Terms of Employment. (a) Positions and Duties. (i) During the Employment Period, the Company agrees to employ the Executive, and the Executive agrees to serve as an employee of the Company and as an employee of one or more of its subsidiaries, in such capacity and with such authority, duties and responsibilities as the Company's Chairman of the Board of Directors or President may from time to time 1 designate. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote his full professional attention and time during normal business hours to the business and affairs of the Company and to perform the responsibilities assigned to the Executive hereunder. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (C) manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement and are consistent with the Company's policies. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Salary and Bonus. For all services rendered by the Executive in any capacity under this Agreement, the Company shall pay the Executive during the Employment Period as compensation (i) an annual salary in an amount not less than the amount of the Executive's annual salary as of the Effective Date (the "Annual Base Salary") and (ii) such annual cash incentive bonus, if any, as may be awarded to him by the Board of Directors of the Company or by a Committee designated by the Board (the "Annual Bonus"). Such salary shall be payable in accordance with the Company's customary payroll practices, and any such bonus shall be payable in cash in accordance with the Company's incentive bonus plans from which the Annual Bonus is awarded. During the Employment Period prior to the Date of Termination, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. In the event the Executive's actual Annual Base Salary is increased above the then current Annual Base Salary during the Employment Period, such increased Annual Base Salary shall constitute "Annual Base Salary" for purposes of this Agreement. (ii) Employee Benefits. During the Employment Period prior to the Date of Termination, the Executive and/or the Executive's family, as the case may be, shall be eligible to participate in employee benefit plans generally available to employees of the Company or its subsidiaries, including without limitation, employee stock purchase plans, savings plans, retirement plans, welfare benefit plans 2 (including, without limitation, medical, prescription, dental, disability, life, accidental death, and travel accident insurance, but excluding severance plans) and similar plans, practices, policies and programs. In addition, during the Employment Period, the Executive shall be eligible to participate in the Company's stock-based incentive compensation plans then available to other peer executives of the Company with awards thereunder determined by the Board of Directors of the Company or by a Committee designated by the Board, in its sole discretion. (iii) Expenses. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at the time immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (iv) Fringe Benefits. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to fringe benefits including, without limitation, tax and financial planning services, payment of club dues, and if applicable, use of an automobile and payment of related expenses, in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at the time immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (v) Office and Support Staff. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to those provided to the Executive by the Company and its affiliated companies at the time immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Paid Time Off. During the Employment Period prior to the Date of Termination, the Executive shall be entitled to paid time off in accordance with the plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at the time immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 3 (vii) Indemnification/D&O Insurance. During the Employment Period for acts prior to the Date of Termination, the Executive shall be entitled to indemnification with respect to the performance of his duties hereunder, and directors' and officers' liability insurance, on the same terms and conditions as generally available to other peer executives of the Company and its affiliated companies. 3. Termination of Employment.(a) Retirement, Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death or Retirement (as defined herein) during the Employment Period. For purposes of this Agreement, "Retirement" shall mean either (i) voluntary termination of the Executive's employment upon satisfaction of the requirements for early retirement under the Company's tax-qualified defined benefit pension plan or (ii) voluntary termination of the Executive's employment upon satisfaction of the requirements for normal retirement under the terms of the Company's tax-qualified defined benefit pension plan. If the Company determines in good faith that Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued and willful failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Company which specifically identifies the manner in which the Company believes that the Executive has not substantially performed the Executive's duties and a reasonable time for such substantial performance has elapsed since delivery of such demand, or (ii) the willful engaging by the Executive in illegal 4 conduct or gross misconduct which is materially injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chairman of the Board of Directors or a senior executive officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. Following a Change in Control (as defined herein), the Company's termination of the Executive's employment shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, in the absence of a written consent of the Executive which expressly refers to a provision of this Section 3(c): (i) prior to a Change in Control, the substantial diminution in the overall importance of the Executive's role, as determined by balancing (A) any increase or decrease in the scope of the Executive's management responsibilities against (B) any increase or decrease in the relative sizes of the businesses, activities or functions (or portions thereof) for which the Executive has responsibility; provided, however, that none of (I) a change in the Executive's title, (II) a change in the hierarchy, and (III) a change in the Executive's responsibilities from line to staff or vice versa, either individually or in the aggregate shall be considered Good Reason; (ii) any failure by the Company to comply with any material provision of this Agreement (including, without limitation, any provision of Section 2 of this Agreement), other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 5 (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; (iv) following a Change in Control, the relocation of the principal place of the Executive's employment to a location that is more than 35 miles from such principal place of employment immediately prior to the date the proposed Change in Control is publicly announced, or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (v) following a Change in Control, the Company's requiring the Executive or all or substantially all of the employees of the Company who report directly to the Executive immediately prior to the date the proposed Change in Control is publicly announced to be based at any office or location other than such person's office or location on such date; (vi) any failure by the Company to comply with and satisfy Section 9(c) of this Agreement; or (vii) following a Change in Control, assignment to the Executive of any duties inconsistent in any respect with the Executive's position as in effect immediately prior to the public announcement of the proposed Change in Control (including status, offices, titles and reporting requirements), authority, duties or responsibilities, or any other action by the Company which results in any diminution in such position, authority, duties or responsibilities. For purposes of this Section 3(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive (including any such determination when the Executive is then eligible for Retirement). In the event the Company challenges the Executive's determination of Good Reason, the Company shall continue to make the payments and provide the benefits to the Executive as set forth in Section 4(a). If it is finally judicially determined that the Executive's termination was not for Good Reason, the Executive shall reimburse the Company the amounts to which it is finally judicially determined to be entitled. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and 6 circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, the date of receipt of the Notice of Termination, unless the Company agrees to a later date no more than 30 days after such notice, as the case may be, (ii) if the Executive's employment is terminated by the Executive for Good Reason or Retirement, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (iii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the date on which the Company notifies the Executive of such termination or any later date specified therein within 30 days of such notice, as the case may be, (iv) if the Executive's employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be, and (v) if the Executive's employment is terminated by the Executive for other than Good Reason, death, Disability or Retirement, the date that is 60 days after the date of receipt of the Notice of Termination by the Company, provided, however, the Company may elect to waive such notice or place the Executive on paid leave for all or any part of such 60-day period during which the Executive will be entitled to continue to receive the Annual Base Salary but shall not receive any Annual Bonus or any other payment from the Company other than reimbursement for expenses as contemplated in Section 2(b)(iii) and continued participation in the employee benefit plans as contemplated in Section 2(b)(ii). (f) Change in Control. For purpose of this Agreement, a "Change in Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company 7 Voting Securities"; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 3(f); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or contests by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger, share exchange or consolidation or sale of other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from the Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the 8 corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board immediately prior to the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 4. Obligations of the Company upon Termination. (a) Good Reason; other than for Cause, Death, Disability or Retirement. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death, Disability or Retirement or the Executive shall terminate employment for Good Reason, then in consideration for past services and in consideration for the undertakings set forth in Section 7 hereof: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (2) the product of (x) an Annual Bonus of an amount equal to the greater of (I) the highest annual cash incentive bonus paid by the Company to the Executive for the three calendar years prior to the Date of Termination or (II) the highest annual cash incentive bonus paid by the Company to the Executive for the three calendar years prior to the date of this Employment Agreement (the "Base Bonus"), and (y) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination, and the denominator of which is 365, to the extent not theretofore paid (the "Pro Rata Bonus"), (3) any unpaid Annual Bonus for the prior year, (4) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and (5) any accrued paid time off, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), (3), (4) and (5) shall be hereinafter referred to as the "Accrued Obligations"); and (B) the amount equal to the product of (1) three and (2) the sum of the Executive's Annual Base Salary immediately prior to the Date of Termination and the Base Bonus. For purposes of determining the Base Bonus hereunder, the Company shall exclude any special or one-time bonuses and any premium enhancements to bonuses but shall include any portions of bonuses 9 (other than the excluded bonuses) which have been deferred by the Executive; (ii) the Company shall pay to the Executive, in the manner in which the Executive elects (which may be in a lump sum in cash), an amount equal to the actuarial equivalent (calculated using the actuarial assumptions and/or methodology utilized by the Company as of the Effective Date) of the Executive's actual benefit (paid or payable), if any, under the Company's Supplemental Retirement Plan (the "SERP") as of the Date of Termination; (iii) for three years after the Executive's Date of Termination (or for the remainder of the Executive's life if such Date of Termination is after a Change in Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue medical, dental and life insurance benefits to the Executive and/or the Executive's family on a substantially equivalent basis to those which would have been provided to them in accordance with the medical, dental and life insurance plans, programs, practices and policies described in Section 2(b)(iv) of this Agreement if the Executive's employment had not been terminated, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical, dental and/or life insurance benefits under another employer provided plan, the medical, dental and/or life insurance benefits described herein shall terminate. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have terminated employment with the Company on the Date of Termination; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (excluding any severance plan, program, policy or practice) through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations, Other Benefits, the payment pursuant to Section 4(a)(ii), and the payment of an amount equal to the Executive's Annual Base Salary. Accrued Obligations and cash payments pursuant to the preceding sentence shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of 10 Other Benefits, the term Other Benefits as utilized in this Section 4(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, death benefits then applicable to the Executive. (c) Retirement. If the Executive's employment is terminated by reason of the Executive's Retirement during the Employment Period, this Agreement shall terminate without further obligations to the Executive under this Agreement, other than for payment of Accrued Obligations and Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(c) shall include, without limitation, and the Executive shall be entitled to receive, all retirement benefits then applicable to the Executive, including but not limited to any SERP benefits then applcable to the Executive. (d) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations, Other Benefits, the payment pursuant to Section 4(a)(ii), and the payment of an amount equal to the Executive's Annual Base Salary. Accrued Obligations and the cash payments pursuant to the preceding sentence shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 4(d) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits then applicable to the Executive. (e) Cause; Other than for Good Reason. If the Executive's employment shall be terminated by the Company for Cause or by the Executive without Good Reason during the Employment Period, this Agreement shall terminate without further obligations of the Company to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case only to the extent owing and theretofore unpaid. 5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify (excluding any severance plan or program of the Company), nor subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are 11 vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 6. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). Notwithstanding the foregoing, if it is finally judicially determined that the Executive brought any claims contemplated in the previous sentence in bad faith, the Executive shall reimburse the Company for such fees and expenses which are reasonably related to such bad faith claim. 7. Covenants. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their related businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies (or predecessors thereto). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) (i) While employed by the Company and for three years after the Date of Termination, the Executive shall not, directly or indirectly, on behalf of the Executive or any other person, solicit for employment by other than the Company or encourage to leave the employ of the Company, any person employed by the Company or its affiliated companies at any time prior to the Date of Termination. 12 (ii) While employed by the Company and for two years after the Date of Termination, the Executive will not become a director or officer or consultant engaging in activities similar to those performed by a senior officer for any business which is in competition with any line of business of the Company or its affiliates and in which the Executive participated in a direct capacity while he was employed by the Company or its affiliates at any time within the one year period preceding the Effective Date and which has offices in any location in which the Executive had supervisory responsibility in the geographic footprint of First Union National Bank (including but not limited to, Florida, Georgia, South Carolina, Tennessee, North Carolina, Virginia, Maryland, Pennsylvania, New Jersey, Delaware, New York, Connecticut, and Washington, D.C. plus any other state or states added during the Employment Period) during that one year period. The Executive expressly acknowledges the reasonableness of such restrictions and such geographic area. Further, during such period, the Executive will not acquire an equity or equity-like interest in such an organization for his own account, except that he may acquire equity interests of not more than 5% of any such organization from time to time as an investment. Notwithstanding anything to the contrary contained herein, this Section 7(b)(ii) shall not apply if (A) the Executive terminates employment with the Company pursuant to Retirement, (B) the Company terminates the Executive's employment without Cause following a Change in Control, or (C) the Executive terminates his employment for Good Reason following a Change in Control. (c) In the event of a breach or threatened breach of this Section 7, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledges that damages would be inadequate and insufficient. Following the occurrence of a Change in Control, in no event shall an asserted violation of the provisions of this Section 7 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (d) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 7; provided, however, upon termination of this Agreement due to the Company's or the Executive's failure to extend the term of this Agreement pursuant to Section 1(b), Section 7(b)(ii) shall no longer apply to the Executive if the Executive's employment shall terminate after the term of this Agreement expires. (e) The Executive hereby agrees that prior to accepting employment with any other person or entity during the Employment Period or during the three years following the Date of Termination, the Executive will provide such prospective employer with written notice of the existence of this Agreement and the provisions of 13 Section 3(e) and this Section 7, with a copy of such notice delivered simultaneously to the Company in accordance with Section 11(c). The foregoing provision shall not apply if the Company terminates the Executive's employment without Cause following a Change in Control, or if the Executive terminates his employment for Good Reason following a Change in Control. 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive following a Change in Control (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any successor statute) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by KPMG LLP or such other certified public accounting firm reasonably acceptable to the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 30 business days of the receipt of notice from the Company that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive by the due date for the payment of any Excise Tax, or, if earlier, 30 days after the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies 14 pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of 15 initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto) upon receipt thereof. If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) For purposes of this Section 8, any reference to the Executive shall be deemed to include the Executive's surviving spouse, estate and/or beneficiaries with respect to payments or adjustments provided by this Section 8. 9. Successors. (a) This Agreement is personal to the Executive and without the prior consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to 16 assume expressly in writing and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 10. Arbitration. Except with respect to matters arising under Section 7 of this Agreement, any disputes or controversies arising under or in connection with this Agreement (including, without limitation, whether any such disputes or controversies have been brought in bad faith) shall be settled exclusively by arbitration in Charlotte, North Carolina in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 11. General Provisions. (a) Governing Law; Amendment; Modification. This Agreement shall be governed and construed in accordance with the laws of the State of North Carolina, without reference to principles of conflict of laws. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. (c) Notices. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person (in the Company's case, to its Secretary) or forty-eight (48) hours after deposit thereof in the U.S. mail, postage prepaid, for delivery as registered or certified mail -- addressed, in the case of the Executive, to such Executive at his residential address, and in the case of the Company, to its corporate headquarters, attention of the Secretary, or to such other address as the Executive or the Company may designate in writing at any time or from time to time to the other party. In lieu of notice by deposit in the U.S. mail, a party may give notice by telegram or telex. (d) Tax Withholding. The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any 17 applicable law or regulation. (e) Strict Compliance. The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 3(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) Entire Understanding. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. (g) Conflicts with Plans. To the extent any plan, policy, practice or program of or contract or agreement with the Company (including, without limitation, the SERP) attempts to cap, restrict, limit or reduce payments to the Executive hereunder (including, without limitation, Section 4.7 of the SERP), such caps, restrictions, limitations or reductions are expressly modified to permit the payments contemplated hereby and the parties intend that the terms of this Agreement shall be construed as having precedence over any such caps, restricitions, limitations or reductions. 18 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Executive has signed this Agreement under seal, all as of the date and year first above written. FIRST UNION CORPORATION [SEAL] ATTEST: By:______________________ Name: Edward E. Crutchfield _________________________ Title: Chairman and Chief Mark C. Treanor Executive Officer Secretary __________________________ (SEAL) [Executive] 19 EX-12 4 CONS. RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT (12)
FIRST UNION CORPORATION AND SUBSIDIARIES COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES - ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ (IN MILLIONS) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- EXCLUDING INTEREST ON DEPOSITS Pretax income from continuing operations $ 4,831 3,965 3,793 3,534 3,409 Fixed charges, excluding capitalized interest 3,751 3,504 2,526 2,224 1,821 - ------------------------------------------------------------------------------------------------------------------------------- Earnings (A) $ 8,582 7,469 6,319 5,758 5,230 - ------------------------------------------------------------------------------------------------------------------------------- Interest, excluding interest on deposits $ 3,645 3,395 2,420 2,120 1,716 One-third of rents 106 109 106 104 105 Capitalized interest - - - 5 4 - ------------------------------------------------------------------------------------------------------------------------------- Fixed charges (B) $ 3,751 3,504 2,526 2,229 1,825 - ------------------------------------------------------------------------------------------------------------------------------- Consolidated ratios of earnings to fixed charges, excluding interest on deposits (A)/(B) 2.29 X 2.13 2.50 2.58 2.87 - ------------------------------------------------------------------------------------------------------------------------------- INCLUDING INTEREST ON DEPOSITS Pretax income from continuing operations $ 4,831 3,965 3,793 3,534 3,409 Fixed charges, excluding capitalized interest 7,805 7,820 6,674 6,255 5,837 - ------------------------------------------------------------------------------------------------------------------------------- Earnings (C) $ 12,636 11,785 10,467 9,789 9,246 - ------------------------------------------------------------------------------------------------------------------------------- Interest, including interest on deposits $ 7,699 7,711 6,568 6,151 5,732 One-third of rents 106 109 106 104 105 Capitalized interest - - - 5 4 - ------------------------------------------------------------------------------------------------------------------------------- Fixed charges (D) $ 7,805 7,820 6,674 6,260 5,841 - ------------------------------------------------------------------------------------------------------------------------------- Consolidated ratios of earnings to fixed charges, including interest on deposits (C)/(D) 1.62 X 1.51 1.57 1.56 1.58 - -------------------------------------------------------------------------------------------------------------------------------
EX-13 5 1999 ANNUAL REPORT FIRST UNION CORPORATION ANNUAL REPORT (FIRST UNION Logo appears here) 1999 About First Union INNOVATIVE BUSINESS MODEL First Union [NYSE: FTU], founded in 1908 as Union National Bank in Charlotte, North Carolina, has grown from the nation's 50th largest banking company with $7.3 billion in assets in 1984 into one of the nation's leading financial services companies. Not only are we the sixth largest banking company with $253 billion in assets at December 31, 1999, but over the past five years we have transformed ourselves into the eighth largest securities business, based on revenue, and sixth largest broker-dealer, with 6,600 registered representatives. We have grown into a major asset manager with $170 billion in assets under management (including $80 billion in mutual funds), the fourth largest manager of discretionary personal trust assets, and a leading provider of insurance products such as annuities. FULL PRODUCT ARRAY First Union's business model is well-positioned to meet customer demand for innovative products and new ways of doing business. Since 1994, we have expanded our products and services from the traditional deposit-taking and lending functions of a commercial bank to a full range of capital raising, market making and financial advisory services provided in our investment banking, brokerage and asset management operations. EXCELLENT TECHNOLOGY We also have created a broad, flexible and fully integrated distribution platform to enable our customers to interact with us however, wherever and whenever they want. Our goal is to be both "high tech" and "high touch" -- applying the latest technological advances to custom build individualized financial solutions for each client. MULTIPLE CHANNELS Our business strategy is to remain broadly diversified and to be fully integrated in our product and service array and distribution channels. But we are guided by one focus: to deliver the same high-touch value and quality service, whether our customers visit one of our 2,300 financial centers or 330 brokerage offices nationwide, or choose the convenience of banking at one of our 3,800 automated teller machines, calling our Direct Bank at 1-800-413-7898 or logging on to the Internet at firstunion.com. MARKET POWER Our efforts to diversify geographically have produced the largest domestic deposit share from Connecticut to Florida as we serve nearly 16 million customers. Now, with our October 1999 acquisition of EVEREN Capital Corporation, we are placing new innovative tools and product offerings in the hands of our 6,600 registered representatives in 41 states. Contents 3 Letter to Our Stockholders 9 Index to Special Topics 10 Management's Analysis of Operations 32 Glossary T-1 Financial Tables C-1 Management's Statement of Responsibility C-2 Independent Auditors' Report C-3 Audited Financial Statements FINANCIAL HIGHLIGHTS
Percent Years Ended December 31, Increase (Dollars in millions, except per share data) 1999 1998 (Decrease) - ------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS Net income before merger-related and restructuring charges (Operating earnings) $ 3,486 3,696 (6)% After-tax merger-related and restructuring charges 263 805 (67) - ------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges $ 3,223 2,891 11 % - ------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Diluted earnings Net income before merger-related and restructuring charges $ 3.60 3.77 (5)% Net income after merger-related and restructuring charges 3.33 2.95 13 Basic earnings Net income before merger-related and restructuring charges 3.63 3.81 (5) Net income after merger-related and restructuring charges 3.35 2.98 12 Cash dividends 1.88 1.58 19 Book value (a) 16.91 17.20 (2) Year-end price $ 32.9375 60.8125 (46) Dividend payout ratio (Based on operating earnings) 52.22% 41.24 -- Average shares (In thousands) Diluted 966,863 980,112 (1) Basic 959,390 969,131 (1) Actual shares (In thousands) 988,315 982,223 1 % - ------------------------------------------------------------------------------------------------------------------- PERFORMANCE HIGHLIGHTS Before merger-related and restructuring charges Return on average assets 1.51% 1.66 -- Return on average stockholders' equity (a) 21.60 22.70 -- Overhead efficiency ratio (a) 58.32 56.72 -- Net charge-offs as a percentage of average loans, net 0.52 0.48 -- Nonperforming assets to loans, net, and foreclosed properties (a) 0.79 0.63 -- Net interest margin 3.79% 3.81 -- - ------------------------------------------------------------------------------------------------------------------- CASH EARNINGS (Excluding goodwill and other intangible amortization) Before merger-related and restructuring charges Net income $ 3,817 3,982 (4)% Diluted earnings per share $ 3.94 4.06 (3) Return on average tangible assets 1.69% 1.82 -- Return on average tangible stockholders' equity (a) 34.67 32.62 -- Overhead efficiency ratio (a) 55.62% 54.20 -- % - ------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA Securities available for sale $ 51,277 37,434 37 % Investment securities 1,758 2,025 (13) Loans, net of unearned income (a) 135,566 134,149 1 Total assets (a) 253,024 237,087 7 Noninterest-bearing deposits 31,375 35,614 (12) Interest-bearing deposits 109,672 106,853 3 Long-term debt 31,975 22,949 39 Stockholders' equity (a) $ 16,709 16,897 (1)%
(a) Prior year amounts have been reclassified to conform to the presentation in 1999. 1 STATISTICAL INFORMATION SCOPE AND SCALE OF BUSINESS Banking Services Credit and deposit transaction services for all customers Managed Loan Portfolio (bar chart appears here with following plot points) 1997 $188 billion 1998 $221 billion 1999 $240 billion Number 1 -------------------- in domestic deposits on East Coast 3rd largest -------------------- cash management provider in the U.S. Securities Business Capital raising, market making and financial advisory services for corporate, institutional and individual clients First Union Securities Revenues (bar chart appears here with the following plot points) 1997 1998 1999 Capital Management $1.5 billion $2.2 billion $2.8 billion Capital Markets $1.9 billion $2.3 billion $3.1 billion ------------ ------------ ------------ $3.4 billion $4.5 billion $5.9 billion 6th largest ------------- broker-dealer $378 billion ------------------- in capital raised for clients in 1999 Asset Management Asset accumulation, preservation and financial planning for all clients (Bar charts appear here with the following plot points) 1997 1998 1999 Assets Under Management $80 billion $153 billion $170 billion Evergreen Mutual Funds $42 billion $ 69 billion $ 80 billion Trust/Other $38 billion $ 84 billion $ 90 billion Brokerage and Insurance (Bar charts appear here with the following plot points) 1998 1999 Brokerage Client Assets $78 billion $168 billion 1998 1999 Registered Representatives 4,346 6,638 1998 1999 Locations 23 states 41 states 4th largest -------------------------- personal trust accounts Top 20 -------------------------- mutual funds 2nd largest -------------------------- bank provider of annuities STRATEGIC GROWTH BUSINESSES Merger and Acquisition Advisory $4 billion -------------------------- in 1999 completions M&A engagements up 42 percent in 1999 No. 2 in deals under $250 million Merchant Banking $3 billion -------------------------- in 1999 commitments Top 10 ranking among bank holding companies making private equity and mezzanine investments 1999 investments reached record $1.4 billion Equity Underwriting, Sales and Trading $10 billion -------------------------- in 1999 volume Managed 45 equity offerings for clients Capital raised for clients increased fivefold in 1999 Loan Syndications (Agent-Only) $75 billion -------------------------- in leveraged and nonleveraged transactions, ranking No. 6 Ranked No. 4 in leveraged transactions (agent-only) Doubled value of leveraged deals in 1999 High Yield Debt $12 billion -------------------------- in 1999 originations Asset Securitization $32 billion -------------------------- in public and private issuance, ranking No. 11 Risk Management $42 billion -------------------------- notional value of derivatives structured for clients in 1999 Leading fixed income derivatives provider to the middle market Real Estate Capital Markets $3.5 billion -------------------------- in commercial mortgage-backed securitization (conduit and fusion) volume, ranking No. 1 Trust $90 billion -------------------------- in personal and institutional trust assets Evergreen Mutual Funds $80 billion -------------------------- in First Union-advised mutual funds, serving 3 million shareholders More than doubled 4- and 5-Star Morningstar ratings from 19 to 43 in 1999 E-Commerce 1.2 million -------------------------- online retail customers, up 200 percent in 1999 Online banking, brokerage and bill payment through a single point of access 2 LETTER TO OUR STOCKHOLDERS (Photo of First Union building appears here) Dear Stockholders, With all of the activity of the past few years, it is time to update you on our basic strategy and the way it translates into value for you and our customers. From the beginning, our strategy has been to build geographic diversity, scope and scale and to create a company ideally positioned to serve the changing needs of customers and create value for stockholders. In 1999, the framework came together as we envisioned: o We are the nation's sixth largest banking company, based on assets; o We are the nation's sixth largest broker-dealer, based on registered representatives, with brokerage offices in 41 states; o Our company is now well-balanced, with nearly 50 percent of our earnings stream coming from fee income and 50 percent from interest income. These initiatives have transformed our company. Recognizing this transformation, in late 1999 we launched First Union Securities, which brings together under one name the key engines of our growth, Capital Markets and Capital Management. We created a nationwide securities platform with the acquisition of EVEREN Capital Corporation. We stepped up development of new technology and multiple, synchronized delivery channels, including the Internet. We reorganized our state banking network under the General Bank to leverage our superior product array, including retail brokerage services and access to the capital markets. This groundwork has positioned your company to be among the financial industry's leaders in the future. While 2000 continues to be a transition year, we believe as the year progresses into 2001 that our stockholders will begin to reap the rewards of these initiatives. We are confident that our superior business model will enable us to create value for our stockholders and deliver strong results for our clients in the years ahead. In 1999, our operating earnings (excluding one-time items) were $3.3 billion, or $3.40 per share. Our return on stockholders' equity was 21.60 percent, which was among the best in the banking industry. However, 1999 was unquestionably a difficult year. The sheer number of initiatives we had under way lent a great deal of complexity to our business and our operating performance. In particular, the area of customer service was not up to our standards. We were also disappointed with our stock price underperformance. We take little solace that bank stocks in general declined significantly in 1999. Our goal is to outperform industry averages. 3 LETTER TO OUR STOCKHOLDERS We worked diligently throughout the year to address critical issues surrounding customer service and acquisition integration, and we believe many of the problems that surfaced in early 1999 have been resolved. Two complicating factors -- the final conversion of the former CoreStates (the largest merger in our history) on top of the implementation of a new model for retail banking -- were one-time events and are behind us. By year-end, we also saw improvement in The Money Store, where we have begun to centralize credit underwriting and to apply First Union's standards for credit quality and operational processes. Throughout our company, we have refocused attention on customer service standards. We have taken concrete steps to support the best efforts of employees by increasing staffing and training, enhancing systems capabilities to better track customer inquiries and instituting Executive Helplines to enable employees to quickly resolve difficult service problems. We revamped incentive plans to encourage quality service and sales equally. As a result, customer satisfaction scores have improved across the board. Our goal is to increase service quality to such a level that it creates a competitive advantage. THE RIGHT BUSINESS MODEL We began 2000 with confidence that we have established a transformational business model with the flexibility to evolve with our customers' needs. As we have been saying in this space for many years, the traditional bank asset-gathering model has matured. A new model for wealth management, investment banking and, in particular, a strategy for e-commerce is required to distinguish the financial industry leaders of the future. First Union Securities embodies this new model and positions First Union to benefit from two key trends -- first, the needs of visionary CEOs at growing companies who depend on industry knowledge, ideas and capital to execute their growth plans, and second, the increasing desire of individual clients for investment products such as stocks, mutual funds, insurance, financial planning and trust services. With First Union Securities, we have achieved a workable and working blend of the cultures of "bank" and "securities firm," which is helping us to execute our strategy in innovative ways. For example, First Investment Advisors, a part of our Capital Management Group, recently established a private equity fund-of-funds with $92 million in capital commitments. This new fund was created to provide our clients access to leading leveraged buyout and venture capital partnerships that emerge through the activities of investment bankers in our Capital Markets Group. These high-growth businesses have resulted in a growing proportion of our revenue coming from fee income, which provides a balance to the interest income generated through our General Bank. In 1999, 48 percent of our revenues came from fee and other income, excluding portfolio securities transactions, compared with 45 percent in 1998. First Union Securities is founded on, and is fed by, the long-term relationships in our General Bank. Our General Bank, which encompasses consumer and commercial banking operations in our East Coast marketplace, could hardly be called a "traditional bank" today. It is the result of years of initiatives to modernize, streamline and increase productivity through new products and services such as mutual funds and annuities, and a new corporate culture that actively emphasizes sales and service. In fact, I believe our foundation gives us a great deal of flexibility in the face of a rapidly changing financial landscape. There is no clearer example than what we have seen with the mushrooming growth of the Internet. INNOVATION IN E-COMMERCE Until the beginning of 1999, First Union's Internet strategy had been developmental, focused on using the Internet as an additional choice among multiple channels for reaching our customers. Throughout 1999, we stepped up Internet development, adding new functions, content and customers almost daily. Today, our customers can manage their checking, bill payment and brokerage activities through the convenience of a single access code. We also can originate deposit accounts, mortgage loans, home equity loans and credit cards online. For our commercial customers, our strategy is focused on building a complete payments capability that enables them to handle every facet of the payments process online -- from an initial order to billing, collections and inventory management. We ended the year with more than 1.2 million online retail customers, 29,000 online commercial customers and 20,000 brokerage clients -- all without significant advertising. During 2000, we will further develop all of these channels to help our financial specialists and brokers serve their clients more fully. E-COMMERCE INVESTMENTS AND JOINT VENTURES In addition, we are taking multiple paths in the development of e-commerce opportunities, including joint ventures, alliances and strategic equity investments in innovative "dot-com" companies. We believe one of our most significant projects -- both for us and for the industry -- is our joint venture called Spectrum. This online bill presentment and bill payment venture was developed at "Internet speed," from beginning 4 LETTER TO OUR SHAREHOLDERS discussions with our two partners in February 1999 to the formation of a limited liability company in October 1999. By November we were up and running. With 60 million buyers and 79,000 billers among the three partners at the onset and more banks signing on daily, this represents an enormous potential universe of users for Spectrum. Other projects include our equity interest in a small business portal, BrightLane.com, which is designed to provide purchasing power, expert advice and convenient services at a single online source. These services include recruiting, office products, payroll, benefits, web services, plus Customer Care coaches to provide support, and financial services, which First Union will provide. Our growing portfolio of strategic investments spans retail, wholesale and investment banking applications such as our 15 percent stake in virtual investment bank Capital.com. In summary, First Union is one of only a handful of financial services companies that has assembled the resources and capabilities to invest in the products, technology and intellectual capital needed to participate in this technological revolution. So, on the edge of a new century, we are optimistic about First Union's prospects. We have in place the very flexible, very entrepreneurial, very competitive company that we envisioned 15 years ago when our interstate expansion began. We are offering the broad-based financial services that customers demand today, and we will continue to evolve to meet customers' desires. Even as we grow and change, we remain committed to rewarding our long-term investors through stock buybacks, dividends and other corporate measures. In 1999, we completed the 22nd year of increased dividends. First Union, including its predecessor Union National Bank, has paid a dividend every year since 1910. Additionally, we repurchased 52 million shares of our stock in 1999, and our Board approved a new 50 million share buyback program in May 1999. Management and the Board continued to review and assess First Union's corporate governance policies. We are proud of these important policies, which we design to help build long-term stockholder value and to ensure that our management and the Board remain accountable to you, our stockholders. PEOPLE POWER None of this progress would have been possible without the hard work of our employees, the wise counsel of our directors and the support of our customers and stockholders. For that, we are very grateful. I would like to thank John Georgius, who retired at year-end 1999, for the determination and commitment that marked his nine-year tenure as president. (Photo of Edward E. Crutchfield appears here) Edward E. Crutchfield Chairman and Chief Executive Officer (Photo of G. Kennedy Thompson appears here) G. Kennedy Thompson President In mid-1999, Ken Thompson, a 23-year veteran of First Union with roots in corporate banking, the General Bank and Capital Markets, was named to succeed John as president of First Union. Ken and I spent a lot of our time in 1999 with groups of employees throughout our corporation. This may well have been the most fulfilling thing that we did in 1999, as we came away from these meetings inspired by the dedication and caring that our employees truly have for serving their customers. As I have said many times, I am in awe of the dedication of our employees. I am proud to be associated with a group of people who believe, as I do, that the more we do for our customers and our communities, the better off we will be as a company. On the following page, you may read more about First Union's community development and outreach programs. These are the kind of values that we believe set First Union apart in our quest to keep the humanity in our company, no matter how large we become. It is our fervent wish that First Union will continue to be regarded as a company where the most talented people want to work, where customers want to do business and where stockholders want to invest their money. Thank you, again, for your interest in First Union. Sincerely, /s/ Edward E. Crutchfield Edward E. Crutchfield Chairman and Chief Executive Officer February 22, 2000 5 COMMUNITY FOCUS "What you are doing in terms of volunteering and tutoring...it can turn this country around. It can help make every child at risk a child of promise, and we have no more important task before us." General Colin L. Powell, chairman, America's Promise - The Youth Alliance, addressing First Union's Senior Leadership Conference, September 24, 1999 With these words, General Colin Powell, chairman of America's Promise, helped First Union kick off one of the largest corporate literacy events in history, our Reading First campaign. This unique event characterized 1999, a year when new heights were reached in our commitment to the communities we serve. EDUCATION FIRST At First Union, we believe that helping build a firm foundation in education is the most important investment we can make in America's future. As a result, improving education continues to be our top community involvement priority, with a special focus on early childhood literacy. We feel that helping a child learn to read -- and love to read -- is the best way to improve that child's chance for success in school and in life. To celebrate the tenth anniversary of First Union's Education First program, our three-week Reading First campaign promoted the importance of reading aloud to children. Thousands of First Union employees and community partners visited more than 76,000 classrooms to read the Dr. Seuss classic Oh! The Places You'll Go to approximately 2 million children. Close to 100,000 books were donated to classrooms and school libraries. Due to the extraordinary efforts of our employees this year, we are on track to fulfill the pledge we made to America's Promise of contributing 2.4 million volunteer hours to education by the end of 2000. A particular point of pride came in October 1999 when the Points of Light Foundation cited First Union employees for making a difference in the lives of children through educational outreach. Employee volunteerism is a cornerstone of our company, grounded in our long-standing Time Away From Work policy, which offers employees four hours of paid time-off each month to volunteer in education. We also support our communities with financial resources. In 1999, First Union gave more than $55 million in charitable contributions through company, foundation and employee gifts to support hundreds of programs that have the potential to effect positive, long-lasting change in our communities. Our commitment to community development is no less passionate. We, along with our community partners, believe that a comprehensive approach to community development -- one that encompasses small business growth, affordable housing, urban renewal and personal empowerment -- is the most effective path to much-needed urban revitalization. INVESTING IN COMMUNITIES In 1999, our community development loans and investments exceeded $12 billion, the highest level in our history. We recognize the vast opportunity in the emerging community development market and will continue to elevate our presence in this key arena. Part of this growth is coming from our new Community Development Lending Unit, which applies profit-driven goals to accelerate the pace of revitalization and enhance social services in communities across our marketplace. Appreciating the critical role that small businesses and farms play in economic development, we provided $4.5 billion in loans, leases and other financial products for emerging entrepreneurs and their growing companies. We are also an industry leader in helping families realize their dream of home ownership. In 1999, we originated more than $5.5 billion in affordable home loans and investments that helped more than 78,000 families move into their own homes, many for the first time. RESPONSIBLE LENDING First Union is setting the standard for fair and responsible home equity lending. National and local community leaders recently endorsed The Money Store as a place where borrowers are treated fairly, applauding our ground-breaking efforts to align home equity loan pricing, products and underwriting within all of our home equity channels. We are very proud of the culture our people have built: one that encourages active involvement and investment in the communities that support us. At First Union, we believe that helping our communities prosper is more than a corporate responsibility...it's the right thing to do. 6 FIRST UNION ACROSS THE NATION First Union ranks number 1, 2 or 3 in deposit share in 20 of the East Coast's top 30 metropolitan areas. (Map appears here) o Financial Centers (square) First Union Securities (triangle) First Union Home Equity Bank, N.A. (star) First Union Mortgage Corporation (diamond) The Money Store BANKING UNITS Florida Branches: 468 ATMs: 874 Market Share: 16.62% Ranking: No. 2 Pennsylvania Branches: 333 ATMs: 563 Market Share: 13.73% Ranking: No. 2 New Jersey Branches: 314 ATMs: 614 Market Share: 12.28% Ranking: No. 2 North Carolina Branches: 203 ATMs: 433 Market Share: 13.26% Ranking: No. 4 Virginia Branches: 170 ATMs: 291 Market Share: 12.17% Ranking: No. 2 Georgia Branches: 119 ATMs: 382 Market Share: 9.47% Ranking: No. 4 Connecticut Branches: 80 ATMs: 118 Market Share: 6.39% Ranking: No. 4 Maryland Branches: 72 ATMs: 109 Market Share: 6.89% Ranking: No. 6 South Carolina Branches: 53 ATMs: 103 Market Share: 6.03% Ranking: No. 6 New York Branches: 47 ATMs: 98 Market Share: 1.93% Ranking: No. 14 Tennessee Branches: 41 ATMs: 60 Market Share: 2.67% Ranking: No. 7 Washington, D.C. Branches: 26 ATMs: 60 Market Share: 15.87% Ranking: No. 3 Delaware Branches: 20 ATMs: 50 Market Share: 1.98% Ranking: No. 9 Source: SNL Securities; market share data represents deposits at June 30, 1999. 7 HEADQUARTERS AND PRINCIPAL SUBSIDIARIES HEADQUARTERS First Union Corporation One First Union Center Charlotte, North Carolina 28288 704-374-6161 REGIONAL HEADQUARTERS First Union-Atlantic (Includes the states of Connecticut, New Jersey and New York) 190 River Road Summit, New Jersey 07901 973-565-3200 First Union-Florida 225 Water Street Jacksonville, Florida 32202 904-361-2265 First Union-Georgia 999 Peachtree Street Suite 1200 Atlanta, Georgia 30309 404-827-7399 First Union-Mid-Atlantic (Includes the states of Maryland, North Carolina, South Carolina, Tennessee, Virginia and Washington, D.C.) One First Union Center Charlotte, North Carolina 28288 704-374-6161 First Union-Penn/Del (Includes the states of Delaware and Pennsylvania) 1339 Chestnut Street Widener Building 13th Floor Philadelphia, Pennsylvania 19107 215-985-6000 PRINCIPAL SUBSIDIARIES Congress Financial Corporation Asset-based lending. 1133 Avenue of the Americas New York, New York 10036 212-545-4325 First Union Bank of Delaware Full-service commercial bank. One Rodney Square Tenth and King Streets Wilmington, Delaware 19801 302-888-7500 First Union Brokerage Services, Inc. Securities brokerage firm. One First Union Center Charlotte, North Carolina 28288 704-374-6927 First Union Capital Partners, Inc. Investment and merchant banking. One First Union Center Charlotte, North Carolina 28288 704-374-4656 First Union Commercial Corporation Equipment lease financing. One First Union Center Charlotte, North Carolina 28288 704-374-4900 First Union Direct Bank, N.A. Card products, including credit and debit cards, remote and electronic delivery channels. 699 Broad Street Augusta, Georgia 30903 800-413-7898 First Union Home Equity Bank, N.A. Home equity loans. 1000 Louis Rose Place Charlotte, North Carolina 28262 704-593-9300 First Union Mortgage Corporation Mortgage banking and insurance services. Two First Union Center Charlotte, North Carolina 28288 800-654-9322 First Union National Bank Full-service commercial bank. One First Union Center Charlotte, North Carolina 28288 704-374-6161 First Union Rail Corporation Railcar leasing. 6250 River Road Suite 5000 Rosemont, Illinois 60018 847-318-7575 First Union Securities, Inc. Investment banking, retail and institutional brokerage and securities products and services. One First Union Center Charlotte, North Carolina 28288 704-374-6161 The Money Store, Inc. Home equity, student and small business loans. 707 Third Street West Sacramento, California 95605 916-617-2000 FOREIGN BRANCHES Nassau, Bahamas Hong Kong, China (Restricted License Branch) London, England Tokyo, Japan Seoul, South Korea Taipei, Taiwan REPRESENTATIVE OFFICES Buenos Aires, Argentina Sydney, Australia Manama, Bahrain Sao Paulo, Brazil Santiago, Chile Beijing, China Hong Kong, China Shanghai, China Bogota, Colombia Guayaquil, Ecuador Cairo, Egypt London, England Paris, France Hamburg, Germany Mumbai, India Jakarta, Indonesia Milan, Italy Tokyo, Japan Kuala Lumpur, Malaysia Mexico City, Mexico Panama City, Panama Manila, Philippines Singapore Johannesburg, South Africa Seoul, South Korea Madrid, Spain Taipei, Taiwan Bangkok, Thailand Istanbul, Turkey Dubai, United Arab Emirates San Diego, California 8 Index to Special Topics GENERAL INFORMATION Annual Meeting.............................................................Back Page Board of Directors.................................................Inside Back Cover Community Focus....................................................................6 Description of Business.....................................Inside Front Cover, 2, 3 Employees........................................................................T-1 Headquarters and Principal Subsidiaries............................................8 Market Share..........................Inside Front Cover, 2, 3, 4, 7, 14, 15, 17, 18 Year 2000.........................................................................13 CAPITAL RESOURCES Regulatory Capital................................................23, 31, T-16, C-21 Stockholders' Equity........................................1, 23, 31, T-1, C-3, C-5 COMMON STOCK Book Value....................................................................1, T-1 Dividends......................................1, 5, 23, 31, T-1, T-8, C-4, C-5, C-6 Market Price.............................................................1, T-1, T-9 Shares, Number Outstanding.......................1, 23, 31, T-1, C-3, C-4, C-5, C-32 Stockholders, Number of..........................................................T-1 LIQUIDITY Debt Ratings...............................................................Back Page LOANS Average Balances..........15, 16, 17, 18, 19, 30, T-2, T-3, T-4, T-5, T-6, T-7, T-26 Commercial Real Estate....................................................20, 21, 30 Consumer Loan Portfolio.......................................16, 19, 30, T-10, C-16 Geographic Concentrations.........................................................21 Industry Concentrations.......................................................20, 21 Loan Loss Allowance...............................20, 30, T-12, T-13, C-3, C-9, C-17 Loan Loss Provision............20, 30, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, T-12, C-4, C-6, C-9, C-12, C-17, C-25, C-26, C-39, C-40 Mix at Year-End...............................................................19, 30 Net Charge-Offs............................................1, 10, 20, 30, T-12, C-17 Nonperforming Assets.........................................1, 10, 20, 21, 30, T-12 Project Type......................................................................20 PROFITABILITY Earnings Performance......1, 3, 10, 28, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, C-4, C-32, C-39 Fee and Other Income......1, 10, 11, 12, 14, 15, 16, 17, 18, 29, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, C-4, C-12, C-24, C-25, C-26, C-39 Income Per Share.........................................1, 3, 10, 28, T-1, T-9, C-4 Net Interest Income........12, 14, 15, 17, 18, 28, 29, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, T-26, C-4, C-39 Net Interest Margin..................................................1, 12, 29, T-26 Noninterest Expense.............10, 13, 15, 16, 17, 18, 29, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, C-4, C-12, C-25, C-26, C-27, C-39 Results of Operations.....1, 3, 10, 28, T-1, T-2, T-3, T-4, T-5, T-6, T-7, T-9, C-4, C-39 Return on Average Assets.........................................1, 10, 28, T-8, T-9 Return on Average Stockholders' Equity...1, 3, 10, 28, T-2, T-3, T-4, T-5, T-6, T-7, T-8, T-9 RISK MANAGEMENT Asset Quality............................................1, 20, 30, T-12, T-13, C-17 Derivative Transactions....................27, 31, T-17, T-22, T-23, T-24, C-8, C-33 Market Risk Management..................................................24, 31, C-33 SECURITIES Available For Sale......................1, 25, 31, T-1, T-9, T-17, T-18, T-25, T-26, C-3, C-4, C-6, C-7, C-16, C-36, C-39, C-40 Investment..............................1, 26, 31, T-1, T-9, T-17, T-20, T-25, T-26, C-3, C-4, C-6, C-16, C-36, C-38, C-39, C-40 Trading Activities.........15, 16, 27, 29, T-2, T-3, T-4, T-5, T-6, T-7, T-25, T-26, C-3, C-4, C-25, C-26, C-36, C-38, C-39, C-40
Contents 10 Management's Analysis of Operations T-1 Financial Tables T-26 Five-Year Net Interest Income Summaries C-1 Management's Statement of Responsibility C-2 Independent Auditors' Report C-3 Consolidated Balance Sheets C-4 Consolidated Statements of Income C-5 Consolidated Statements of Changes in Stockholders' Equity C-6 Consolidated Statements of Cash Flows C-7 Notes to Consolidated Financial Statements MANAGEMENT'S ANALYSIS OF OPERATIONS The following discussion and other portions of this Annual Report contain various forward-looking statements. Please refer to our 1999 Annual Report on Form 10-K for a discussion of various factors that could cause our actual results to differ materially from those expressed in such forward-looking statements. Earnings Highlights First Union's operating earnings in 1999 were $3.5 billion, or $3.60 per share, compared with operating earnings of $3.7 billion in 1998, or $3.77. Excluding nonrecurring gains amounting to 20 cents per share related to the sale of First Union's interest in Electronic Payment Services, Inc. and the sale of net assets associated with our factoring business, operating earnings in 1999 were $3.3 billion, or $3.40 per share. Operating earnings exclude merger-related and restructuring charges of $263 million after tax, or 27 cents per share, in 1999 and $805 million after tax, or 82 cents, in 1998. After merger-related and restructuring charges, net income in 1999 was $3.2 billion, or $3.33 per share, compared with $2.9 billion, or $2.95, in 1998. Operating earnings in 1999 represent a return on average stockholders' equity of 21.60 percent and a return on average assets of 1.51 percent. In the fourth quarter of 1999, operating earnings were $846 million, or 86 cents per share, compared with $993 million, or $1.00, in the fourth quarter of 1998. Operating earnings in the fourth quarter of 1999 exclude merger-related and restructuring charges of $4 million after tax, with no impact to earnings per share, compared with $136 million, or 13 cents per share, in the fourth quarter of 1998. After merger-related and restructuring charges, net income in the fourth quarter of 1999 was $842 million, or 86 cents per share, compared with $857 million, or 87 cents, in 1998. Fee and other income, excluding portfolio securities transactions, increased 15 percent to $7.0 billion in 1999 compared with $6.1 billion in 1998. The majority of the increase in fee income came from First Union Securities (encompassing Capital Markets and Capital Management), which generated a 37 percent increase in fee income to $4.1 billion compared with $3.0 billion in 1998. In addition to very strong internal growth, these results include approximately $190 million in brokerage fee income from EVEREN Capital Corporation. This acquisition, which was accounted for as a purchase, was completed on October 1, 1999, and created the nation's sixth (Pie chart appears here with the following plot points) BUSINESS SEGMENT CONTRIBUTIONS TO PROFITABILITY -- NET INCOME* (Percent) Capital Markets 30% Consumer 22% Capital Management 17% Commercial 16% Treasury/Nonbank** 15% * Before merger-related and restructuring charges. **Includes securities gains/losses. largest retail brokerage company. First Union has more than 6,600 registered representatives in 2,700 retail offices in 41 states and Washington, D.C. Noninterest expense, excluding merger-related and restructuring charges, amounted to $8.5 billion in 1999, compared with $7.8 billion in 1998. Expenses in 1999 include approximately $200 million related to EVEREN. Credit quality continued to be stable. Net charge-offs were 0.52 percent of average net loans, compared with 0.48 percent in the year-ago period. Nonperforming assets as a percentage of net loans and foreclosed properties were 0.79 percent in 1999 compared with 0.63 percent in 1998. OUTLOOK The scale and scope of our business has changed dramatically as we have realized our goal of creating a new kind of financial services company to achieve future growth. Today, customers want much broader and more sophisticated products and services, and they want a variety of new and different product delivery channels that emphasize convenience, speed and control. Fortunately, we have been laying the groundwork since 1994 for a new financial services business model that would address these needs, guided by our vision of a company that would generate about 50 percent of its income from its banking business and 50 percent from its securities business. On the banking side, we have transformed a traditional banking business into one with a multi-channel distribution strategy, an innovative product array and a focused sales and service culture. We have invested in advanced technology to serve our customers more effectively through our financial centers, brokerage offices, First Union Direct (our centralized sales and service call centers) and the Internet. Our Internet strategy consists of three dimensions: web enabling all of our products and services; making 10 MANAGEMENT'S ANALYSIS OF OPERATIONS selective investments in e-commerce companies to access technology and customers and achieve attractive returns on capital; and web enabling our internal infrastructure. The number of customers using our online services increased 200 percent from year-end 1998. We ended 1999 with more than 1.2 million online retail customers, 29,000 online commercial customers and 20,000 brokerage clients. On the securities side of our business, we have applied our resources toward building investment banking, brokerage and asset management capabilities. In 1999, we positioned our Capital Markets and Capital Management businesses under one name, First Union Securities. Our commercial and consumer products delivered through our state banking channels were folded into our General Bank. Within our General Bank, deposit and lending products are sold in our financial centers along with nontraditional financial products, enabling extensive cross-sell opportunities for the products and services offered by First Union Securities and the mortgage loans, home equity loans and other personal finance products offered by our Specialty Finance businesses. The high-growth businesses in which we have invested have resulted in a growing proportion of our revenue coming from fee-producing businesses. In 1999, 48 percent of our revenues came from fee and other income, excluding portfolio securities transactions, compared with 45 percent in 1998. The transformation to the new business model has resulted in increased choices in how, when and where our customers do business with us. In this significant undertaking, we have simultaneously transformed our branch delivery system to the new business model while integrating CoreStates Financial Corp, a pooling of interests merger, which was consummated in April 1998 and converted by November 1998. Through extensive training, the addition of staff at high volume offices, specific plans to maintain higher sales and service staffing levels, enhancements to key business processes and a revitalized focus on service delivery, we have improved results in our retail branch network. We are seeing encouraging trends in the performance measurements we use for evaluating service quality, new product sales volumes and the economic contribution of new product sales. While the transformation to the new business model poses some short-term risk to earnings, we believe that the failure to replace the traditional bank asset-gathering model poses greater long-term risks. As a result of this continuing investment in our new business model, including development of Internet capabilities, full staffing and training in our retail finan-cial centers and further development of First Union Securities, expense growth moderately outpaced revenue growth in 1999 and likely will continue to do so in 2000. It should be noted that an increasing percentage of our expense base is variable, and linked to increased revenue growth. The Accounting and Regulatory Matters section provides information about accounting and regulatory matters that have recently been adopted or proposed, as well as information on recent legislative develop- ments and the potential impact of permissible business activities for us. MERGER AND CONSOLIDATION ACTIVITY On October 1, 1999, we completed the acquisition of EVEREN Capital Corporation, a full-service brokerage and asset management firm based in Chicago, Illinois. This transaction provides First Union with a nationwide brokerage platform and augments our equity research, trading, underwriting and distribution capabilities. The acquisition, which was accounted for as a purchase, was an all-stock transaction providing for each share of EVEREN common stock to be exchanged for 0.8286 shares of First Union common stock, which valued the acquisition for accounting purposes at $31.00 per EVEREN share, or $1.1 billion. We recorded approximately $900 million of goodwill in connection with this acquisition. In addition, we estimate that we will incur approximately $80 million in merger-related charges, an increase from our original estimate of $60 million, consisting primarily of expenses related to systems conversion and integration. Of this amount, $20 million was recorded in 1999 and the rest is expected to be incurred in 2000. The amount of goodwill recorded at December 31, 1999, and the merger-related charges to be incurred in 2000 are preliminary estimates and are subject to refinements of certain fair value adjustments and integration strategies, which could result in significant changes to these estimates. In addition, in connection with the acquisition, approximately $87 million in restricted shares of First Union common stock was issued to certain EVEREN employees, primarily brokers. This is an employee retention pool that vests over a three-year period and the compensation cost will be charged to expense over the vesting period. 11 MANAGEMENT'S ANALYSIS OF OPERATIONS As of December 31, 1999, we had repurchased in the open market 13 million shares of First Union common stock in connection with this acquisition and we expect to repurchase shares equal to the remaining 18 million shares in 2000. The Liquidity and Funding Sources - Stockholders' Equity section provides further information related to our buyback programs. We continue to evaluate acquisition and investment opportunities that we believe would enhance our existing product capabilities and complement our long-term goals. Acquisition and investment discussions and in some cases negotiations may take place from time to time, and future transactions involving cash, debt or equity securities may be expected. CORPORATE RESULTS OF OPERATIONS NET INTEREST MARGIN Tax-equivalent net interest income was $7.6 billion in 1999 compared with $7.4 billion in 1998. The net interest margin, which is the difference between the tax-equivalent yield on earning assets and the rate paid on funds to support those assets, was 3.79 percent in 1999 compared with 3.81 percent in 1998. There was a decrease in the average rate on earning assets from 7.77 percent in 1998 to 7.64 percent in 1999. Our average rate paid on liabilities decreased from 4.59 percent to 4.42 percent year over year. The net interest margin was negatively affected by the funding cost associated with an increase in the level of net noninterest earning assets. This was somewhat offset by a lower average interest rate environment in 1999. Deposit divestitures in late 1998 related primarily to the CoreStates merger also contributed to a declining margin as lower cost deposit funding was replaced with higher cost borrowings. It should be noted that we focus on net income and economic contribution when evaluating corporate strategies and we place less importance on the net interest margin impact of these decisions. More information on the securities and off-balance sheet transactions we use to manage interest rate sensitivity is included in the Market Risk Management section. FEE AND OTHER INCOME We are continually developing products to meet the challenges of increasing competition, changing customer demands and demographic shifts. We have pursued strategic investments to build high-growth lines of business to increase fee income. For example, over the years we have significantly broadened our product lines, particularly in Capital Markets and Capital Management, to provide additional sources of fee income that complement our long-standing banking products and services. These investments were reflected in a 15 percent increase in fee and other income, exclud-ing portfolio securities transactions, to $7.0 billion in 1999 from $6.1 billion in 1998. Fee and other income from First Union Securities amounted to 58 percent of fee and other income, excluding portfolio securities transactions, in 1999. Led by strong results in investment banking and trading, Capital Markets fee and other income increased 50 percent to $1.7 billion in 1999 compared with 1998, which was a period of diminished trading activities due to significant turmoil in the global financial markets. Investment banking results included $578 million of merchant banking and other related gains in 1999 compared with $236 million in 1998. Capital Management fee and other income increased 28 percent to $2.3 billion in 1999 from $1.8 billion in 1998. These activities are discussed further in the Business Segments section. In addition, strong results in securitization activity contributed to the increase in fee and other income. Securitization income increased by $169 million to $417 million primarily from the securitization and sale of credit card receivables, SBA loans and student loans in 1999. Residential mortgage income of $405 million in 1999 included $126 million of gains from the securitization and sale of $4.2 billion of residential mortgage loans compared with $203 million of gains in 1998. In 1999, portfolio-related net securities losses were $62 million, which included a $79 million impairment loss on certain residual interests in securitizations. This write-down was the result of the impact of revised loss assumptions on the valuation of residual interests. More information related to residual interests is included in the Securities Available for Sale and Asset Securitizations sections. In 1998, we realized portfolio securities gains of $357 million, including a $7 million impairment loss, as we took advantage of market conditions to reposition the portfolio. Sundry income declined by $217 million to $656 million in 1999 compared with $873 million in 1998. Sundry income in 1999 included a gain of $109 million on the sale of net assets associated with our factoring business and a net gain of $177 million from the acquisition by Concord EFS, Inc. (Concord) of Electronic Payment Services, Inc., in which First Union held a 20 percent interest, and the 12 MANAGEMENT'S ANALYSIS OF OPERATIONS subsequent sale of the Concord shares. Sundry income also included branch sale gains amounting to $23 million in 1999. In 1998, branch sale gains amounted to $254 million, which included $117 million of CoreStates-related branch sale gains. In 1998, we also recognized previously deferred gains of $156 million in connection with two equity method investments. Also included in sundry income in 1998 was a $57 million gain on the sale of our merchant card business. There were no other individually significant items included in the change in sundry income in 1999 compared with 1998. NONINTEREST EXPENSE Noninterest expense was $8.9 billion in 1999 and $9.1 billion in 1998. Noninterest expense included EVEREN and The Money Store from the date these purchase accounting acquisitions closed on October 1, 1999, and June 30, 1998, respectively. In addition, 1999 expenses included $404 million of merger-related and restructuring charges compared with $1.2 billion in 1998. In 1999, this included merger-related expenses of $75 million related to CoreStates, $20 million related to EVEREN and a $347 million restructuring charge related to the restructuring plan we announced in March 1999. See Note 2: Acquisitions and Merger-Related and Restructuring Charges in the consolidated financial statements for more information. In addition to expenses associated with The Money Store and EVEREN and to the merger-related and restructuring charges, expenses in 1999 reflected higher personnel costs, primarily incentives associated with revenue growth in Capital Markets and Capital Management, and continued spending related to increased training and staffing in our retail financial centers. The operating overhead efficiency ratio before merger-related and restructuring charges was 58.32 percent in 1999 and 56.72 percent in 1998. The overhead efficiency ratio is likely to rise over time as we focus on building our securities business, which is an industry that inherently has higher overhead efficiency ratios. Amortization of intangible assets predominantly represents the amortization of goodwill and deposit base premium related to purchase accounting acquisitions. The increase in amortization expense in 1999 from 1998 was attributable to goodwill and other intangibles recorded in connection with the acquisition of The Money Store and EVEREN. We had $5.6 billion in goodwill and other intangible assets at December 31, 1999, and $5.0 billion at December 31, 1998. Noninterest expense included $35 million in 1999 and $21 million in 1998 related to the Year 2000 project. As of December 31, 1999, $61 million has been incurred since project inception, and we estimate that project costs incurred in 2000 will be nominal. We successfully completed the Year 2000 changeover with no significant customer service issues. We will continue to monitor all business processes throughout 2000 to address any issues that might arise and to ensure that all processes continue to function properly. We will also continue to monitor our customers, vendors and other third parties for Year 2000 related issues. INCOME TAXES Income taxes were $1.6 billion in 1999 and $1.1 billion in 1998. As a result of corporate reorganization decisions, we realized an after-tax benefit of $270 million in the fourth quarter of 1998. The effective tax rate increased to 33 percent in 1999 from 27 percent in 1998, and we believe that the rate in 1999 will be more representative of our effective tax rate in the future. Business Segments METHODOLOGY First Union's operations are divided into five business segments encompassing more than 60 distinct product and service units. These segments include Capital Markets, Capital Management, Consumer, Commercial and Treasury/Nonbank. Additional information can be found in Table 2. Our management reporting model measures business segment results. Because of the complexity of the corporation, we have used various estimates and allocation methodologies in the preparation of the Business Segments financial information. We continually evaluate our allocation methodologies as we refine our approach to measuring segment results. In early 1999, we made significant refinements to certain allocation methodologies and the prior period information has been restated to reflect these refinements. These refinements include the allocation of certain nonearning assets and liabilities and the related funding cost from Treasury/Nonbank to the other business segments; elimination of the tax-equivalization of net interest income such that the tax effect is now included in income tax expense; and adjustments to certain capital attribution formulas. These methodology refinements better reflect the way we manage our business. See Note 9: Business Segments in the consolidated financial statements for additional information. 13 MANAGEMENT'S ANALYSIS OF OPERATIONS CAPITAL MARKETS Our Capital Markets products and services are designed to provide a full range of capital raising, market making and financial advisory services to meet the needs of corporate and institutional clients. We provide full execution including corporate finance, equity research, merger and acquisition advisory services, and debt and equity financing in 18 industry specializations. We have developed Capital Markets expertise as a natural extension of our commercial bank offerings. Our large General Bank franchise provides a strong platform for the delivery of Capital Markets products and services to meet client needs. Our relationship coverage begins in our East Coast banking markets, and it extends nationwide through industry expertise in automotive, banking, building and forest products, business and consumer services, defense, aerospace and technical services, diversified manufacturing, energy, furnishings and textiles, healthcare, insurance, media, real estate, retail and consumer products, specialty finance, technology, telecommunications, utilities, and private equity groups. In addition, our International unit continues to develop and utilize strong correspondent banking relationships overseas. Capital Markets has five lines of business: (1) Investment Banking, which includes merger and acquisition advisory services; merchant banking; loan syndication; investment grade debt; high yield debt; equity sales, trading, research and underwriting; fixed income sales and trading; municipal sales, trading and underwriting; fixed income and equity derivatives; foreign exchange; and asset securitization; (2) Real Estate Finance, primarily commercial real estate finance, structured product servicing and affordable housing investments; (3) Traditional Banking, which encompasses corporate lending activities for corporate clients with annual sales greater than $100 million and asset-based lending; (4) Commercial Leasing and Rail, which includes operating, finance and leveraged leasing, and the nation's second largest general purpose railcar leasing operation; and (5) International, whose mission is to meet the trade finance and foreign exchange needs of our domestic customers and correspondent financial institutions around the world, and to provide commercial banking products to financial institutions and corporate clients overseas. Capital Markets net income increased 52 percent to $1.0 billion in 1999 from $687 million in 1998. Net interest income increased 22 percent to $1.3 billion in 1999, with average loans up 12 percent and significant growth in cross-border leasing. Fee and other income increased 35 percent to $1.4 billion in 1999 compared with 1998. In addition to a modest contribution from EVEREN, this increase principally reflected strength in Investment Banking, which was driven by strong mer-chant banking gains. Also contributing to the significant increase in fee and other income in Investment Banking were third party asset securitizations, with a $54 million increase to $83 million, and loan syndications, with a $37 million increase to $116 million, as well as increasing contributions from merger and acquisition advisory services and high yield debt. Our merchant banking business, in which First Union makes principal investments in equity and mezzanine securities, is an integral part of our investment banking strategy. In 1999, we recognized $578 million of merchant banking and other related gains compared with $236 million in 1998. These gains were exceptionally strong in 1999, and we do not anticipate the same level of gains in 2000. See Note 1: Summary of Significant Accounting Policies in the consolidated financial statements for additional information related to these transactions. (Pie chart appears here with the following plot points) CAPITAL MARKETS Contributions to Group Profitability (Percent) Investment Banking 44% Commercial Leasing and Rail 20% Traditional Banking 20% International 9% Real Estate Finance 7% CAPITAL MARKETS RANKINGS o No. 2 M&A Advisory (Deals < $250 million) o Top 10 merchant banking among commercial banks o Leading fixed-income derivatives provider to the middle market o No. 4 Leveraged loan syndications (agent-only) o No. 1 Commercial mortgage-backed securities issues (conduit and fusion) and No. 11 asset securitizations o No. 13 High yield debt (lead and co-managed) o No. 5 International trade services 14 MANAGEMENT'S ANALYSIS OF OPERATIONS Trading account profits increased from $124 million in 1998 to $346 million in 1999. The 1998 results included the negative impact of the turmoil in the global financial markets that occurred in the last half of 1998. Several areas showed strong 1999 results including commercial mortgage-backed securities within Real Estate Finance, which contributed $151 million to the increase. Investment Banking also showed strong results in trading account profits, with equity sales and trading contributing $49 million, as well as significant contributions from fixed income and equity derivatives and foreign exchange. Trading account assets were $14.9 billion at December 31, 1999, compared with $9.8 billion at December 31, 1998. Trading activities are undertaken primarily to satisfy the investment and risk management needs of our customers and secondarily to enhance our earnings through profitable trading for the corporation's own account. Market making and position taking activities across a wide array of financial instruments add to our ability to optimally serve our customers. For our Real Estate Finance business, the economic benefit of the affordable housing business is primarily derived from tax credits, which reduce income tax expense. In reporting the Real Estate Finance results, the tax credits have been classified in fee and other income, where the amortization of the investment is reported. These tax credits are reclassified to income tax expense for purposes of reporting Capital Markets segment and consolidated results. The reclassification is presented in "Other." The revenues from Capital Markets businesses, particularly trading and merchant banking gains, are typically more volatile than revenues from more traditional banking businesses and can vary significantly with market conditions. Noninterest expense was $1.3 billion in 1999 compared with $1.1 billion in 1998. The increase in expenses from 1998 was largely due to higher personnel costs, including incentives associated with increased headcount and increased revenue. The increase also includes a modest impact from EVEREN, which is reflected in our results as of October 1, 1999. Average net loans were $37 billion in 1999 and $33 billion in 1998. Loan growth between the two periods was generated primarily in the corporate banking, commercial leasing and leveraged finance units. Capital Markets continues to expand its relationship banking efforts, including increased industry coverage and an expanded international presence. Because our international strategy is to support the trade finance needs of our domestic customers and correspondent financial institutions around the world rather than to lend to sovereign nations or foreign companies, we have limited credit exposure to emerging markets. CAPITAL MANAGEMENT Through the Capital Management Group (CMG), we have created a growing, diversified trust, investment management and brokerage organization, with products and services that provide the link between traditional banking and investing for retail and institutional customers. CMG is organized into five major lines of business: retail brokerage and insurance services, trust services, mutual funds, cap account and private client banking. CMG offers a full line of investment products and services distributed through multiple channels, including our national retail brokerage branch network, full-service retail financial centers in our East Coast marketplace and our online brokerage. CMG's assets under management increased 11 percent from year-end 1998 to $170 billion by December 31, 1999, including $80 billion in the Evergreen mutual funds and $90 billion in trust and institutional assets. Capital Management net income increased 37 percent to $584 million in 1999 compared with $426 million in 1998. Net interest income amounted to $526 million in 1999 compared with $412 million in 1998. Capital Management products and services primarily generate fee income. Capital Management fee and other income increased 28 percent to $2.3 billion in 1999 from $1.8 billion in 1998. Growth in fee and other income was strong across all business lines, with exceptional growth in Retail Brokerage and Insurance Services and CAP Account. CAPITAL MANAGEMENT RANKINGS o No. 6 Broker/Dealer o No. 20 Mutual fund complex o No. 2 Estate account provider o No. 4 Personal trust accounts o No. 5 Asset manage- ment accounts o Top Quartile customer service ranking among all fund companies rated by DALBAR 15 MANAGEMENT'S ANALYSIS OF OPERATIONS (Pie chart appears here with the following plot points) CAPITAL MANAGEMENT Contributions to Group Profitability (Percent) Trust Services and Mutual Funds 46% Retail Brokerage and Insurance Services 24% CAP Account 20% Private Client Banking 10% Noninterest expense in 1999 was $1.9 billion compared with $1.5 billion in 1998. This increase reflected higher personnel costs, primarily incentives associated with revenue growth, as well as the impact of EVEREN. Retail Brokerage and Insurance Services provides individuals with access to one of the widest arrays of financial products and services in the industry, ranging from stocks, bonds, mutual funds, private equity funds and annuities to retirement, trust and estate planning, and tax and investment strategies for insurance and risk management. Fee and other income from this line of business increased 46 percent in 1999 to $1.1 billion. In addition to very strong internal growth, retail brokerage results for 1999 included approximately $190 million in brokerage fee income from EVEREN. Client trading activity in retail brokerage increased 53 percent from 1998 and the market value of client assets increased to $168 billion at December 31, 1999. Bank annuity sales volume was $2.1 billion in 1999 compared with $1.6 billion in 1998. Our Trust Services business encompasses personal trust, corporate trust and benefit services, and institutional trust services. Trust fee and other income increased 11 percent in 1999 from 1998. Personal trust fees amounted to more than 50 percent of trust fees in 1999 and in 1998. Assets in the First Union-advised Evergreen mutual funds at December 31, 1999, were $80 billion compared with $69 billion at December 31, 1998. These funds may be purchased through First Union's financial centers, retail brokerage offices, the online brokerage, First Union Direct, trust services offices and through third party broker-dealers. Mutual fund fees increased 12 percent to $460 million in 1999 compared with 1998. The CAP Account is an asset management product that enables our customers to manage their securities trading and banking activities in a single, consolidated account. Income related to the CAP Account is therefore reflected in several of Capital Management's lines of business, including Retail Brokerage and Insurance Services and Mutual Funds. CAP Account amounts in Table 2 reflect CAP Account fees and the funding benefit attributed to the on-balance sheet deposits. CAP Account assets increased to $56 billion at December 31, 1999, compared with $38 billion at year-end 1998, and the number of CAP Accounts increased to 603,000 compared with 430,000 at year-end 1998. We are seeing increased investment activity through this product. As an example, the number of brokerage trades increased 68 percent in 1999 from 1998. Private Client Banking provides high net worth retail clients with a single point of access to First Union's investment products, mortgages, personal loans, trusts, financial planning, brokerage services and other products and services. Private Client Banking had $3.6 billion in average net loans in 1999 and 1998, and average deposits of $3.1 billion in 1999 compared with $2.7 billion in 1998. We are focusing a great deal of attention on our wealth management businesses to capture a growing share of the trend toward higher savings and investing as baby boomers move away from their heavy spending years and an enormous intergenerational wealth transfer takes place. We anticipate continued growth in all Capital Management business lines as we introduce products and services throughout our 41-state and Washington, D.C., network and as we enhance relationships with new and existing customers. CONSUMER Our retail delivery strategy is premised on building lifetime customer relationships by providing a full range of superior products, flexible delivery and quality customer service across all channels. Our multiple channels, including retail financial centers, direct telephone bank, call centers, ATMs and the Internet, are fully integrated, enabling customers to have a single view of their accounts. The Consumer segment includes First Union Mortgage (FUMC), our mortgage origination and servicing business; Home Equity, encompassing First Union Home Equity Bank (FUHEB) and The Money Store; Credit Cards, which includes the $1.9 billion owned credit card portfolio and the income from the $4.7 billion securitized portfolio; and Retail Branch Products, which includes our portfolio of first 16 MANAGEMENT'S ANALYSIS OF OPERATIONS CONSUMER RANKINGS o No. 1 East Coast deposit share o No. 1 Home equity originations o No. 2 SBA lender o No. 3 Branch network o No. 4 Automated teller network o No. 5 Debit and ATM card issuer o No. 6 Student loan originator o No. 15 Mortgage servicer mortgage loans, installment loans and the various consumer deposit products with the exception of the CAP Account, which is included in Capital Management. Consumer generated $766 million in net income in 1999 compared with $1.1 billion in 1998. The decrease in net income was the result of a decline in fee and other income to $1.7 billion from $1.9 billion in 1998 and an increase in noninterest expense. Net interest income was essentially unchanged at $3.4 billion in 1999 and 1998. Net interest income in Retail Branch Products was negatively affected by a decline in average balances primarily as a result of branch divestitures in late 1998 and the movement of deposits to our Capital Management products and services. In Credit Cards, net interest income was negatively affected by the securitization of $1.1 billion and $1.7 billion of credit card receivables in 1999 and 1998, respectively. These credit card securitizations resulted in gains of $77 million and $119 million in 1999 and 1998, respectively, and will provide ongoing fee income. FUMC net interest income declined due to lower originations resulting from the higher interest rate environment. Partially offsetting this decline in net interest income was an increase in the home equity businesses reflecting our decision in early 1999 to retain home equity loans as on-balance sheet loans. (Pie chart appears here with the following plot points) CONSUMER Contributions to Group Profitability (Percent) Retail Branch Products 72% Credit Cards 14% First Union Mortgage 11% Home Equity and The Money Store 3% The decline in fee and other income primarily resulted from the impact of branch divestitures in 1998 and lower securitization gains. Retail Branch Products fees were affected by decreased levels of mortgage loan securitization gains and lower service fees related to the divestiture of deposits in late 1998, and the movement of approximately $5.6 billion of deposits into our alternative customer investment products in 1999. Mortgage loan securitization or sale gains declined to $83 million in 1999 from $136 million in 1998. In addition, Credit Card fees declined due to lower securitization gains. In the home equity businesses, fee and other income decreased due to an impairment loss of $79 million related to residual interests on certain home equity securitizations, partially offset by the favorable impact of a full year of The Money Store. Home Equity securitization gains were $136 million in 1999 and $128 million in 1998. The gains in 1998 were related to subprime home equity loans. FUMC fees declined as a result of lower originations due to the higher interest rate environment. Further information is included in the Fee and Other Income, Securities Available for Sale and Asset Securitizations sections. Noninterest expense was $3.5 billion in 1999 compared with $3.3 billion in 1998. The increase in the year over year comparisons was largely related to the addition of The Money Store for a full year. Average consumer loans in 1999 were $43 billion compared with $50 billion in 1998. In addition to the impact from $298 million in loans sold in connection with CoreStates-related branch divestitures, the decrease in the consumer loan portfolio reflects the sale or securitization of $5.6 billion in mortgage and credit card loans in 1999 and $7.9 billion in 1998. We also securitized and retained as securities available for sale $7.3 billion in prime equity lines in 1999 and $2.9 billion in 1998 to facilitate funding flexibility. The Securities Available for Sale and Asset Securitizations sections provide further information, including a discussion of our business strategy for funding consumer loans. Table 5 provides information related to our total managed portfolio of consumer loans. Average consumer deposits were $71 billion in 1999 and $78 billion in 1998, largely reflecting the divestiture of $3.4 billion of deposits primarily in late 1998, $2.2 billion of which related to the CoreStates merger. The decline also reflects the movement of deposits into our alternative customer investment products. 17 MANAGEMENT'S ANALYSIS OF OPERATIONS COMMERCIAL Our wholesale delivery strategy is to provide a comprehensive array of financial solutions, including traditional commercial lending and cash management products, primarily focused on small-business customers (annual sales up to $10 million), commercial customers (annual sales of $10 million to $100 million) and corporate customers (annual sales of $100 million to $2 billion). The corporate customer relationships will be served in capital markets in 2000. We have an integrated relationship approach that leverages the strong relationships in our Commercial business with the capabilities of our Capital Markets business to provide complex financing solutions, risk management products and international services, and with the capabilities of our Capital Management business to provide property and casualty insurance, pension plans and 401(k) plans. The Commercial segment is divided into four lines of business: Small Business Banking, which represents only the lending done through our Small Business Banking Division (SBBD); Lending, which is all other commercial lending within our state delivery network and loans to small businesses originated within our state delivery network rather than through SBBD; Real Estate Banking, which is lending by our specialized real estate bankers; and Cash Management and Deposit Services. Small Business Administration (SBA) lending, which is primarily generated through The Money Store, is included in the Consumer segment. Commercial generated net income of $560 million in 1999 compared with $604 million in 1998. The decline largely reflected lower net interest income as a result of tightening spreads due to competitive pricing and lower loan balances. Net interest income was $1.6 billion in 1999 compared with $1.7 billion in 1998. Fee and other income increased 7 percent to $551 million in 1999, led by strong cash management results. (Pie chart appears here with the following plot points) COMMERCIAL Contributions to Group Profitability (Percent) Cash Management and Deposit Services 80% Real Estate Banking 10% Lending 5% Small Business Banking 5% Noninterest expense of $1.2 billion was unchanged from 1998. Key contributions to the Commercial segment came from Cash Management and Deposit Services. New product sales in Cash Management rose 17 percent in 1999 from 1998 as a result of strong sales efforts and online product offerings. Cash Management, which has been delivering products electronically for several years, stepped up development of Internet-based products in 1999 including electronic bill payment and present-ment, small business bill payment and wholesale lock- box image technology. Deposits were flat compared with 1998. Average loans related to Real Estate Banking declined 5 percent from 1998, largely due to our focus on off-balance sheet product offerings through Capital Markets and our focus on managing our real estate exposure. Average loans in Small Business Banking increased 6 percent to $2.7 billion in 1999 compared with 1998. Key initiatives in the Small Business Banking Division include the complete staffing of the Business Banking Call Center for sales and service designed to improve customer retention and deposit growth. Average commercial loans in 1999 declined to $33 billion from $36 billion in 1998. The decline primarily reflects our emphasis on providing capital markets financing alternatives for our clients and increasing the percentage of fee income in our earnings stream. As a result of these corporate strategies, we have been able to maintain our underwriting standards in competitive pricing environments. We had $10 billion in small business loans in 1999, including loans originated through the SBBD, The Money Store SBA loan program and through other origination channels. COMMERCIAL RANKINGS o Top 3 Middle-market lender o No. 3 Cash management provider o Top 10 Small business lender o No. 1 Retail lockbox and No. 3 wholesale lockbox o No. 2 Corporate check clearing o No. 5 Fed Wire transactions o No. 5 Automated clearinghouse o No. 5 Controlled disbursements 18 MANAGEMENT'S ANALYSIS OF OPERATIONS TREASURY/NONBANK SEGMENT The Treasury/Nonbank segment includes management of our securities portfolios, our overall funding requirements and our asset and liability management functions. The Treasury/Nonbank segment also contains the goodwill asset and the associated funding cost; certain nonrecurring revenue items discussed in Fee and Other Income; certain expenses that are not allocated to the business segments, including goodwill amortization; and corporate charges. In the fourth quarter of 1999, we reclassified our discontinued auto finance business to the Treasury/Nonbank segment. The Liquidity and Funding Sources and Market Risk Management sections provide information about our funding sources, asset and liability management functions and securities portfolios. Credit Risk Management LOANS The loan portfolio, which represents our largest asset, is a significant source of interest income and fee income. Elements of the loan portfolio are subject to differing levels of credit and interest rate risk. Our lend-ing strategy stresses quality growth and portfolio diversification by product, geography and industry. A common credit underwriting structure is in place throughout the corporation. The commercial loan portfolio includes general commercial loans, both secured and unsecured, and commercial real estate loans. Commercial loans are typically either working capital loans, which are used to finance the inventory, receivables and other working capital needs of commercial borrowers, or term loans, which are generally used to finance fixed assets or acquisitions. Commercial real estate loans are typically used to finance the construction or purchase of commercial real estate. Consistent with our longtime standard, we generally look for two repayment sources for commercial real estate loans: cash flows from the project and other resources of the borrower. Consumer lending through our full-service bank branches is managed using an automated underwriting system that combines statistical predictors of risk and industry standards for acceptable levels of customer debt capacity and collateral valuation. These guidelines are continually monitored for overall effectiveness and for compliance with fair lending practices. Net loans were $136 billion at December 31, 1999, and $134 billion at December 31, 1998. Commercial loans represented 57 percent and consumer loans 43 percent of the loan portfolio at December 31, 1999. Increases in loan originations in 1999 were partially offset by the securitization of certain consumer loans, primarily $7.3 billion in prime equity lines that were securitized and retained as securities available for sale in 1999. Average net loans were $132 billion in 1999 and in 1998. The average rate earned on loans was 8.22 percent in 1999 compared with 8.46 percent in 1998. At December 31, 1999, unused loan commitments related to commercial and consumer loans were $95 billion and $41 billion, respectively. Commercial and standby letters of credit were $12 billion and loan participations sold to other lenders amounted to $1.6 billion at December 31, 1999. (Pie charts appear here with the following plot points) YEAR-END LOANS (Percent) Commercial, Financial and Agricultural 37% Consumer Real Estate-Mortgage 21% Installment Loans-Other 18% Lease Financing 9% Commercial Real Estate 8% Foreign 3% Vehicle Leasing 3% Installment Loans-Bankcard 1% YEAR-END COMMERCIAL LOANS (Percent) Commercial, Financial and Agricultural 64% Lease Financing 16% Real Estate-Mortgage 11% Foreign 6% Real Estate-Construction and Other 3% YEAR-END MANAGED CONSUMER LOANS (Percent) Residential Mortgages 54% Home Equity Loans 24% Other Conumer Lending Products 12% Card Products 5% Student Loans 4% Auto Lending 1% 19 MANAGEMENT'S ANALYSIS OF OPERATIONS YEAR-END COMMERCIAL LOANS Industry Classification In Millions - ----------------------------------------------------- Manufacturing $ 11,753 Retail trade 3,348 Wholesale trade 4,845 Services 7,385 Healthcare 2,586 Financial services 7,515 Insurance 954 Real estate-related 2,879 Communication 2,055 Transportation 2,831 Public utilities 1,481 Agriculture 814 Construction 1,283 Mining 1,192 Individuals 4,072 Public administration 1,831 Other 12,592 - ----------------------------------------------------- Total $ 69,416 - ----------------------------------------------------- YEAR-END COMMERCIAL REAL ESTATE LOANS Number Project Type In Millions of Loans - ----------------------------------------------------- Apartments $ 1,991 1,073 Condominiums 147 156 Industrial 1,239 1,595 Land-improved 606 770 Land-unimproved 275 312 Lodging 213 136 Office building 1,824 1,797 Retail 1,759 1,318 Single family 441 1,697 Other 2,708 3,265 - ----------------------------------------------------- Total $ 11,203 12,119 - ----------------------------------------------------- Asset Quality NONPERFORMING ASSETS At December 31, 1999, nonperforming assets were $1.1 billion, or 0.79 percent of net loans and foreclosed properties, compared with $844 million, or 0.63 percent, at December 31, 1998. Weakness in parts of the healthcare industry due to changes in federal reimbursement policies contributed $54 million to the increase, and there is the potential for further increases in nonperforming assets related to this industry segment. The increase in installment loan nonperforming assets reflects our decision to hold The Money Store home equity loans in the loan portfolio rather than securitize them. The Money Store nonperforming assets were $138 million at December 31, 1999, an increase of $100 million from December 31, 1998. Over the same period, The Money Store loans increased by $1.9 billion to $5.6 billion. Nonperforming loans reduce interest income because the contribution from these loans is eliminated or sharply reduced. In 1999, $81 million in gross interest income would have been recorded if all nonaccrual and restructured loans had been performing in accordance with their original terms and if they had been outstanding throughout the entire period (or since origination if held for part of the period). The amount of interest income recorded on these assets in 1999 was $23 million. Past Due Loans Accruing loans 90 days past due were $188 million at December 31, 1999, compared with $346 million at December 31, 1998. Of these past due loans at December 31, 1999, $11 million were commercial loans or commercial real estate loans and $177 million were consumer loans, of which $13 million related to The Money Store. Net Charge-Offs Net charge-offs amounted to $688 million in 1999 and $638 million in 1998. Net charge-offs were 0.52 percent of average net loans in 1999 compared with 0.48 percent in 1998. Provision and Allowance for Loan Losses The loan loss provision was $692 million in 1999 compared with $691 million in 1998. The allowance for loan losses was $1.8 billion at December 31, 1999, and at December 31, 1998. The allowance as a percentage of loans was 1.30 percent at December 31, 1999, compared with 1.36 percent at year-end 1998. We consider the allowance for loan losses adequate to cover probable credit losses inherent in the loan portfolio. Our methodology for determining the allowance for loan losses establishes both an allocated and an unallocated component. The allocated portion of the allowance represents the results of analyses of individual commercial loans and pools of loans within the portfolio. The allocated portion of the allowance for commercial loans is based principally on current loan grades, historical loan loss rates adjusted to reflect current conditions, as well as analyses of other factors that may have affected the collectibility of loans in the portfolio. We analyze all commercial loans with 20 MANAGEMENT'S ANALYSIS OF OPERATIONS YEAR-END NONPERFORMING ASSETS EXCLUDING COMMERCIAL LOANS Industry Classification In Millions - ----------------------------------------------------- Apartments $ 3 Industrial 3 Land-improved 4 Land-unimproved 15 Office buildings 7 Retail 1 Single family 223 Other 259 - ----------------------------------------------------- Total $ 515 - ----------------------------------------------------- YEAR-END NONACCRUAL COMMERCIAL LOANS Industry Classification In Millions - ----------------------------------------------------- Manufacturing $ 74 Retail trade 14 Wholesale trade 29 Services 92 Healthcare 147 Financial services 45 Real estate-related 9 Transportation 19 Public utilities 1 Agriculture 9 Construction 4 Individuals 23 Other 85 - ----------------------------------------------------- Total $ 551 - ----------------------------------------------------- a principal balance in excess of $1 million that are being monitored as potential credit problems to determine whether such loans are impaired, with impairment measured by reference to the borrowers' collateral values and cash flows. The allocated portion of the allowance for consumer loans is based principally on loan payment status and historical loss rates adjusted to reflect current conditions. The unallocated portion of our allowance for loan losses represents the results of analyses that measure probable losses inherent in our portfolio that are not adequately captured in the allocated allowance analyses. These analyses include consideration of unidentified losses inherent in the portfolio resulting from changing underwriting criteria, including acquired loan portfolios, changes in the types and mix of loans originated, industry concentrations and evaluations, allowance levels relative to selected overall credit criteria and other economic indicators used to estimate probable incurred losses. Impaired loans, which are included in nonaccrual loans, amounted to $603 million at December 31, 1999, compared with $424 million at December 31, 1998. Included in the allowance for loan losses at December 31, 1999, was $106 million related to $526 million of impaired loans. The remaining impaired loans were recorded at or below fair value. In 1999, the average recorded investment in impaired loans was $518 million, and $25 million of interest income was recognized on impaired loans. This income was recognized using the cash-basis method of accounting. Geographic Exposure The loan portfolio in the East Coast region of the United States is spread primarily across 106 metropolitan areas with diverse economies. Our largest markets are: Atlanta, Georgia; Charlotte, North Carolina; Miami and Jacksonville, Florida; Newark, New Jersey; New York, New York; Philadelphia, Pennsylvania; and Washington, D.C. Substantially all of the $11 billion commercial real estate portfolio at December 31, 1999, was located in our East Coast banking region. Liquidity and Funding Sources Liquidity planning and management are necessary to ensure we maintain the ability to fund operations cost-effectively and to meet current and future obligations such as loan commitments and deposit outflows. In this process, we focus on both assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet the corporation's needs. Funding sources primarily include customer-based core deposits but also include purchased funds and cash flows from operations. First Union is one of the nation's largest core deposit-funded banking institutions. Our large deposit base, which is spread across the economically strong South Atlantic region and high per-capita income Middle Atlantic region, creates considerable funding diversity and stability. Liquidity is maintained through maturity management and through our ability to liquidate assets, primarily securities available for sale. Another significant source of asset liquidity is the ability to securitize assets such as credit card receivables and auto, student and mortgage loans. Other off-balance sheet sources of liquidity exist as well. 21 MANAGEMENT'S ANALYSIS OF OPERATIONS Core Deposits Core deposits were $122 billion at December 31, 1999, compared with $131 billion at December 31, 1998. The $8.6 billion decline since year-end 1998 primarily reflects the movement of noninterest-bearing and time deposits into alternative investment products. In response to growing customer demand for investment products as alternatives to deposit products, we began offering mutual funds, annuities and other investment products in 1994. Although this strategy reduces our deposit base, it also enables us to retain valuable customer relationships that might otherwise be lost to other financial services companies. We estimate that in 1999, core deposits of approximately $5.6 billion moved into those alternative customer investment products. The portion of core deposits in higher-rate, other consumer time deposits was 28 percent at December 31, 1999, and 27 percent at December 31, 1998. Other consumer time and other noncore deposits usually pay higher rates than savings and transaction accounts, but they generally are not available for immediate withdrawal. They are also less expensive to process. Average core deposit balances were $122 billion in 1999 and $126 billion in 1998. In 1998, we divested $3.4 billion of consumer deposits. These were primarily regulatory-required divestitures in connection with acquisitions. In 1999 and 1998, average noninterest-bearing deposits were 25 percent and 24 percent, respectively, of average core deposits. Average balances in savings and NOW and noninterest-bearing deposits were higher in 1999 when compared with 1998, while money market and other consumer time deposits were lower. Deposits can be affected by numerous factors, including branch closings and consolidations, seasonal factors and the rates being offered compared to other investment opportunities. The Net Interest Income Summaries table provides additional information about average core deposits. Purchased Funds Average purchased funds, which include wholesale borrowings with maturities of 12 months or less, were $55 billion in 1999 compared with $57 billion in 1998. This decline reflects our strategy to fund more of our balance sheet with long-term debt and wholesale borrowings with original maturities of greater than 12 months. Purchased funds at December 31, 1999, were $69 billion compared with $53 billion at year-end 1998. The December 31, 1999, balance was unusually high as a result of balance sheet positioning in preparation for potential Year 2000 issues. Conversely, purchased funds at December 31, 1998, were unusually low as a result of asset sales late in 1998, the proceeds from which were not reinvested until early 1999. LONG-TERM DEBT Long-term debt, which includes any wholesale borrowings with an original maturity in excess of 12 months, amounted to $32 billion at December 31, 1999, and $23 billion at year-end 1998. The level of long-term debt was increased to take advantage of favorable market conditions and to provide a funding alternative to purchased funds. At December 31, 1999, long-term debt included $2.0 billion of trust capital securities compared with $1.7 billion at December 31, 1998. Subsidiary trusts issued these capital securities and used the proceeds to purchase junior subordinated debentures from the corporation. These capital securities are considered tier 1 capital for regulatory purposes. In 1999, we issued $1.4 billion of senior notes. Under a shelf registration statement filed with the Securities and Exchange Commission, we had $450 million of senior or subordinated debt securities, common stock or preferred stock available for issuance as of December 31, 1999. The sale of any additional debt or equity securities will depend on future market conditions, funding needs and other factors. Our principal banking subsidiary, First Union National Bank, has available a global note program for the issuance of up to $20 billion of senior and subordinated notes. Under the program, $17 billion of the notes had been issued at December 31, 1999. In June 1999, First Union National Bank established an additional global note program for the issuance of up to $25 billion of senior and subordinated notes. At December 31, 1999, no notes had been issued under this program. The sale of any additional notes will depend on future market conditions, funding needs and other factors. In 2000, long-term debt of $13 billion will mature. Funds for the payment of long-term debt will come from operations and refinancings. Credit Lines We have $350 million in committed back-up lines of credit, $175 million of which expires in June 2000 and the 22 remaining $175 million of which expires in July 2002. These credit facilities contain covenants that require First Union to maintain a minimum level of tangible net worth, restrict double leverage ratios and require capital levels at subsidiary banks to meet regulatory standards. First Union has not used these lines of credit. STOCKHOLDERS' EQUITY The management of capital in a regulated banking environment requires a balance between maximizing leverage and return on equity to stockholders while maintaining sufficient capital levels and related ratios to satisfy regulatory requirements. We have historically generated attractive returns on equity to stockholders while maintaining sufficient regulatory capital ratios. Stockholders' equity was $17 billion at December 31, 1999, and at December 31, 1998. Common shares outstanding amounted to 988 million at December 31, 1999, compared with 982 million at December 31, 1998. In 1999, we repurchased 39 million shares of First Union common stock at a cost of $2.1 billion, and in 1998, we repurchased 50 million shares at a cost of $3.1 billion (38 million shares related to The Money Store acquisition). In addition, as of December 31, 1999, we also had repurchased 13 million shares at a cost of $559 million (a total of approximately 31 million shares is expected to be repurchased) related to the EVEREN acquisition. Based on the Board authorizations for share repurchases in November 1998 and May 1999, each for 50 million shares, at December 31, 1999, we had authority to repurchase up to 51 million shares of our common stock, which is incremental to additional share repurchases related to the EVEREN acquisition. In early 1999, the Board authorized the use of forward equity sales transactions (equity forwards) in connection with our buyback programs. The use of equity forwards is intended to provide us with the ability to purchase shares under the buyback programs in the open market and then issue shares in private transactions to a counterparty in the amounts necessary to maintain targeted capital ratios. Under the terms of the equity forwards, we issued shares of common stock to an investment banking firm (the counterparty) at a specified price that approximated market value. Simultaneously, we entered into a forward contract with the same counterparty to repurchase the shares at the same price plus a premium (the forward price). The equity forwards mature at various times in 2000. The equity forwards can be extended by mutual consent of the counterparties. In 1999, we entered into equity forwards involving 17 million shares at a cost of $800 million. In addition to the equity forwards, we also entered into a forward purchase contract, involving 11 million shares. See Note 8: Common Stock and Capital Ratios in the consolidated financial statements for additional information related to these transactions. We paid $1.8 billion in dividends to common stockholders in 1999 compared with $1.5 billion in 1998. This represented a dividend payout ratio on operating earnings of 52.22 percent in 1999. At December 31, 1999, stockholders' equity was reduced by $930 million in accumulated other comprehensive income, net, substantially all of which was related to net unrealized losses on debt and equity securities. At December 31, 1999, deferred compensation amounts, which historically were included in other assets and which relate to the unvested portion of restricted stock awards, were reclassified as a reduction of stockholders' equity. All prior periods, including related ratios and other data, reflect this reclassification. Subsidiary Dividends First Union National Bank is the largest source of parent company dividends. Capital requirements established by regulators limit dividends that this subsidiary and certain other of our subsidiaries can pay. Under these and other limitations, which include an internal requirement to maintain all deposit-taking banks at the well-capitalized level, at December 31, 1999, our subsidiaries had $1.5 billion available for dividends that could be paid without prior regulatory approval. Our subsidiaries paid $2.6 billion in dividends to the parent company in 1999. In addition, the consolidation of our principal bank in our northern region with our North Carolina-based bank resulted in a reduction of its capital by $600 million, which was paid to the parent company in 1999. Regulatory Capital Federal banking regulations require that bank holding companies and their subsidiary banks maintain minimum levels of capital. These banking regulations measure capital using three formulas including tier 1 capital, total capital and leverage capital. The minimum level of tier 1 capital and total capital to risk-weighted assets, including certain off-balance sheet financial instruments, is currently 4 percent and 8 percent, respectively. At December 31, 1999, our tier 1 and total capital ratios were 7.08 percent and 23 MANAGEMENT'S ANALYSIS OF OPERATIONS 10.87 percent, respectively, compared with 6.81 percent and 10.99 percent at December 31, 1998. In addition, the minimum leverage ratio of tier 1 capital to adjusted average quarterly assets is 3 percent for bank holding companies that meet specified criteria, including having the highest regulatory rating. All other bank holding companies are generally required to maintain a leverage ratio of 4 percent. Our leverage ratio at December 31, 1999, was 5.97 percent and at December 31, 1998, 5.91 percent. The regulations also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve Board has indicated it will continue to consider a tangible tier 1 leverage ratio (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised us of any specific minimum leverage ratio applicable to us. Each subsidiary bank is subject to similar capital requirements. None of our subsidiary banks has been advised of any specific minimum capital ratios applicable to it. The regulatory agencies also have adopted regulations establishing capital tiers for banks. To be in the highest capital tier, or considered well capitalized, banks must have a leverage ratio of 5 percent, a tier 1 capital ratio of 6 percent and a total capital ratio of 10 percent. At December 31, 1999, our deposit-taking subsidiary banks met the capital and leverage ratio requirements for well capitalized banks. First Union Home Equity Bank, N.A., First Union Trust Company, N.A., and First Union Direct Bank, N.A., are not deposit-taking banks. Market Risk Management Interest Rate Risk Methodology Managing interest rate risk is fundamental to banking. The inherent maturity and repricing characteristics of our day-to-day lending and deposit activities create a naturally asset- sensitive structure. By using a combination of on- and off-balance sheet financial instruments, we manage the sensitivity of earnings to changes in interest rates within our established policy guidelines. The Credit/Market Risk Committee of the corporation's Board of Directors reviews overall interest rate risk management activity. The Funds Management Committee of the corporation oversees the interest rate risk management process and approves policy guidelines. Balance sheet management and finance personnel monitor the day-to-day exposure to changes in interest rates in response to loan and deposit flows. They make adjustments within established policy guidelines. Our methodology for measuring exposure to interest rate risk for policy measurement is intended to ensure we include a sufficiently broad range of rate scenarios and patterns of rate movements that we believe to be reasonably possible. Our methodology measures the impact that 200 basis point rate changes would have on earnings per share over the subsequent 12 months. Our earnings simulation model reflects a number of variables that we identify as being affected by interest rates. For example, our model captures rate of change differentials, such as federal funds rates versus savings account rates; maturity effects, such as calls on securities; and rate barrier effects, such as caps and floors on loans. It also captures changing balance sheet levels, such as securities, commercial and consumer loans (both floating and fixed rate) and noninterest-bearing deposits. In addition, our model considers leads and lags that occur in long-term rates as short-term rates move away from current levels; the elasticity in the repricing characteristics of savings and money market deposits; and the effects of prepayment volatility on various fixed-rate assets such as residential mortgages, mortgage-backed securities and consumer loans. These and certain other effects are evaluated in developing the scenarios from which sensitivity of earnings to changes in interest rates is determined. In analyzing interest rate sensitivity for policy measurement, we compare our forecasted earnings per share in both a "high rate" and "low rate" scenario to a base-line scenario. One base-line scenario is our estimated most likely path for future short-term interest rates over the next 24 months. The second base-line scenario holds short-term rates flat at their current level over our forecast horizon. The "high rate" and "low rate" scenarios assume gradual 200 basis point increases or decreases in the federal funds rate from the beginning point of each base-line scenario over the most current 12-month period. Our policy limit for the maximum negative impact on earnings per share resulting from "high rate" or "low rate" scenarios is 5 percent. The policy limit applies to both the "most likely rate" scenario and the "flat rate" scenario. The policy measurement period is 12 months in length, beginning with the first month of the forecast. 24 MANAGEMENT'S ANALYSIS OF OPERATIONS (Line chart appears here with the following plot points) INTEREST RATE SENSITIVITY ASSUMPTIONS Fed Funds Rate 10 9 8 8.50% 9.00% 7 Base Line + 200 6 6.50% 7.00% 5 5.50% Base Line 4 4.50% 5.00% 3 Base Line - 200 2 1 Policy Period --------------------------- Jan 00---------------Dec 00 Dec 01 Earnings Sensitivity Our "flat rate" scenario holds the federal funds rate constant at 5.50 percent through December 2001. Based on the January 2000 outlook, if interest rates were to follow our "high rate" scenario (i.e., a 200 basis point increase in short-term rates from our "flat rate" scenario), the model indicates that earnings during the policy measurement period would be negatively affected by 3.3 percent. Our model indicates that earnings would benefit by 3.9 percent in our "low rate" scenario (i.e., a 200 basis point decline in short-term rates from our "flat rate" scenario). For our "most likely rate" scenario, we currently believe that the market forward implied rate ("market rate") is the most appropriate. This scenario assumes that the federal funds rate gradually rises to 6.50 percent by the end of the year 2000. Sensitivity to the "market rate" scenario is measured using a gradual 200 basis point increase over a 12-month period. Our model indicates that earnings would be negatively affected by 3.7 percent in a "high rate" scenario relative to the "market rate" over the policy period. In addition to the standard scenarios used to analyze rate sensitivity over the policy measurement period, we regularly analyze the potential impact of other remote, more extreme interest rate scenarios. These alternate "what if" scenarios may include interest rate paths that are higher, lower and more volatile than those used for policy measurement. We also perform our analysis for time periods that reach beyond the 12-month policy period. For example, based on our January 2000 outlook, if interest rates in 2001 were 200 basis points higher than the "market rate" scenario, those earnings would be negatively affected by 6.0 percent. While our interest rate sensitivity modeling assumes that management takes no action, we regularly assess the viability of strategies to reduce unacceptable risks to earnings, and we implement such strategies when we believe those actions are prudent. As new monthly outlooks become available, we will continue to formulate strategies aimed at protecting earnings from the potential negative effects of changes in interest rates. Unrealized Gains (Losses) in Certain Financial Instruments Information related to unrealized gains and losses in the securities available for sale, investment securities and off-balance sheet derivative portfolios is in Table 13. Changes in the market value of the instruments in these three portfolios, and corresponding unrealized gains and losses, primarily result from changes in market interest rates. These three portfolios are the primary means we use to manage overall interest rate risk while enhancing corporate earnings. Changes in the market value of these portfolios offset changes in market value and future interest income or expense related to other balance sheet items, such as loans, deposits and borrowings. At December 31, 1999, these portfolios had a net unrealized loss of $1.2 billion. Securities Available for Sale The securities available for sale portfolio consists primarily of U.S. Treasury, U.S. Government agency, municipal and asset-backed securities. It also includes residual interests that resulted from our securitization transactions accounted for as sales as well as purchased residual interests. At December 31, 1999, we had securities available for sale with a market value of $51 billion compared with $37 billion at year-end 1998. Securities available for sale transactions resulted in net realized losses of $62 million in 1999, including a (Pie chart appears here with the following plot points) YEAR-END SECURITIES AVAILABLE FOR SALE (Percent) U.S. Government Agencies 47% Asset-Backed 33% Other 16% U.S. Treasury 4% 25 MANAGEMENT'S ANALYSIS OF OPERATIONS (Pie chart appears here with the following plot points) YEAR-END INVESTMENT SECURITIES (Percent) U.S. Government Agencies 59% State, County and Municipals 35% Collateralized Mortgage Obligations 3% Other 3% $79 million impairment loss on certain residual interests, compared with net realized gains of $353 million in 1998, including a $7 million impairment loss. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk and to take advantage of market conditions that create more economically attractive returns on these investments. The average rate earned on securities available for sale was 6.83 percent in 1999 and 6.60 percent in 1998. The average maturity of the portfolio was 8.36 years at December 31, 1999. Investment Securities The investment securities portfolio consists primarily of U.S. Government agency, corporate, municipal and mortgage-backed securities, and collateralized mortgage obligations. Our investment securities had a carrying value and a market value of $1.8 billion at December 31, 1999, and a carrying value of $2.0 billion and a market value of $2.2 billion at December 31, 1998. Included in portfolio securities gains in 1998 was $4 million real- ized on repurchase agreement underdeliveries and calls of investment securities. The average rate earned on investment securities was 8.19 percent in 1999 and 8.04 percent in 1998. The average maturity of the portfolio was 5.90 years at December 31, 1999. Asset Securitizations In an asset securitization transaction that meets the applicable criteria to be accounted for as a sale, loans are securitized and sold, a gain is recognized at the time of the sale, and for transactions in which First Union retains an interest in the cash flows of the assets sold, an interest- only or residual certificate (residual interest) is recorded. For student loans, SBA loans, credit card receivables and certain other consumer loans, asset securitization is our primary funding strategy. Residential mortgage loans may be either securitized and sold as they are originated or retained on-balance sheet, based on an analysis of various factors at the time of origination or purchase. In 1998, asset securitizations were the primary funding strategy for certain types of home equity loans. In early 1999, we reevaluated our business strategy for funding subprime home equity loan products and decided to retain them on our balance sheet. Included in securities available for sale at December 31, 1999, were residual interests with a market value of $583 million, which included net unrealized gains of $84 million. These residual interests resulted from securitizations of SBA, credit card, student, auto and home equity loans and lines of credit. At December 31, 1998, securities available for sale included residual interests with a market value of $379 million, which included net unrealized gains of $4 million. Residual interests with a market value of $1.2 billion were classified as trading account assets at December 31, 1998. In connection with the adoption of Statement of Financial Accounting Standards No. 134 on January 1, 1999, these residual interests were reclassified to securities available for sale. We use complex modeling techniques to estimate the fair value of residual interests. These modeling techniques estimate the amount and timing of cash flows over the estimated life of the residual interests using assumptions for discount rates, collateral prepayment, delinquency and loss trends, and servicing effectiveness. The determination of the appropriate assumptions to be used in the valuation model is subjective, and minor changes in assumptions can have a significant impact on the fair value of a residual interest and the timing of recognition of an impairment loss in earnings. In 1999, we transferred $744 million of mortgage-related residual interests and $8.7 billion of other mortgage-related securities to a trust in exchange for a new security representing substantially all of the interest in the assets transferred to the trust. Substantially all of the corporation's investment in mortgage-related residual interests was included in this transfer. The assets were transferred to the trust at their respective carrying values at the date of transfer, and the transfer did not result in recognition of any gain or loss. Prior to the transfer, we 26 MANAGEMENT'S ANALYSIS OF OPERATIONS recognized a $79 million impairment loss on certain residual interests. This transaction has the effect of reducing the leverage inherent in the residual interests that were transferred. Changes in future loss and prepayment assumptions on the transferred assets will be reflected in reduced yield on the new security. This new security is classified in securities available for sale, and at December 31, 1999, it had a market value of $8.8 billion, which included an unrealized gain of $196 million. Off-Balance Sheet Derivatives for Interest Rate Risk Management As part of our overall interest rate risk management strategy, we use off-balance sheet derivatives as a cost- and capital-efficient way to modify the repricing or maturity characteristics of on-balance sheet assets and liabilities. Our off-balance sheet derivative transactions used for interest rate risk management include various interest rate swap, futures and option structures with indices that relate to the pricing of specific financial instruments of the corporation. We believe we have appropriately controlled the risk so that derivatives used for interest rate risk management will not have any significant unintended effect on corporate earnings. The impact of derivative products on our earnings and rate sensitivity is fully incorporated in the earnings simulation model in the same manner as on-balance sheet instruments. The fair value of off-balance sheet derivatives used to manage our interest rate sensitivity was $213 million, based on a notional amount of $190 billion, at December 31, 1999, compared with $1.1 billion, based on a notional amount of $49 billion, at December 31, 1998. The increase in the notional amount of derivatives in 1999 primarily resulted from additional interest rate swaps and futures contracts. The aggregate outstanding notional amount of these positions will reduce substantially by December 31, 2000. From time to time, we re-balance our off-balance sheet positions to reflect current market conditions and management's assessment of desired balance sheet characteristics, and this can result in significant changes in derivative notional amounts. At December 31, 1999, deferred gains and losses related to terminated positions were not significant. Although off-balance sheet derivative financial instruments do not expose the corporation to credit risk equal to the notional amount, we are exposed to credit risk equal to the extent of the fair value gain in an off-balance sheet derivative financial instrument if the counterparty fails to perform. We minimize the credit risk in these instruments by dealing only with high-quality counterparties. Each transaction is specifically approved for applicable credit exposure. At December 31, 1999, the total mark-to-market related credit risk for derivative transactions in excess of counterparty thresholds was $759 million. The fair value of collateral held approximated the total mark-to-market related credit risk in excess of counterparty thresholds as of that date. For nondealer transactions, the need for collateral is evaluated on an individual transaction basis, and it is primarily dependent on the financial strength of the counterparty. Trading Risk Management Trading activities are undertaken primarily to satisfy the investment and risk management needs of our customers and secondarily to enhance our earnings through profitable trading for the corporation's own account. We trade a variety of debt securities and foreign exchange instruments, as well as financial and foreign currency derivatives, in order to provide customized solutions for the risk management challenges faced by our customers. We maintain diversified trading positions in both the fixed income and foreign exchange markets. Risk is controlled through the use of value-at-risk (VAR) limits and an active, independent monitoring process. We use the VAR methodology for measuring the market risk of the corporation's trading positions. This statistical methodology uses recent market volatility to estimate the maximum daily trading loss that the corporation would expect to incur, on average, 97.5 percent of the time. The model also estimates the effect of the interrelationships among the various trading instruments to determine how much risk is eliminated by offsetting positions. The VAR analysis is supplemented by stress testing on a daily basis. The analysis captures all financial assets and liabilities that are considered trading positions. The calculation uses historical data from the most recent 252 business days. The total VAR amount at December 31, 1999, was $6 million, compared with $19 million at December 31, 1998, substantially all of which related to interest rate risk. The high, low and average VARs in 1999 were $19 million, $6 million and $11 million, respectively, and in 1998, $26 million, $9 million and $15 million, respectively. 27 MANAGEMENT'S ANALYSIS OF OPERATIONS Accounting and Regulatory Matters Statement of Financial Accounting Standards No. 134, Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, conforms the accounting for securities retained after the securitization of mortgage loans with the accounting for securities retained after the securitization of other types of assets. Under this Standard, residual interests resulting from the securitization of mortgage loans held for sale are classified either in securities available for sale or in trading account assets based on intent. The corporation adopted this Standard on January 1, 1999, and as a result, we reclassified all interest-only and residual certificates to securities available for sale. Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Standards No. 137, establishes accounting and reporting standards for derivatives and hedging activities. This Standard requires that all derivatives be recognized as assets or liabilities in the balance sheet and that these instruments be measured at fair value through adjustments to either other comprehensive income or current earnings, depending on the purpose for which the derivative is held. This Standard significantly changes the accounting for hedge-related derivatives. For the corporation, the Standard is effective January 1, 2001. The corporation is in the process of assessing the impact of this Standard. Legislation has been enacted providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution are afforded a priority over other general unsecured claims against an institution, including federal funds and letters of credit, in the liquidation or other resolution of such an institution by any receiver. In 1999, the President signed into law the Gramm-Leach-Bliley Financial Modernization Act of 1999 (Modernization Act). The Modernization Act allows bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of nonbanking activities than was permissible before enactment, including underwriting insurance and making merchant banking investments in commercial and financial companies. It also allows insurers and other financial services companies to acquire banks; removes various restrictions that currently apply to bank holding company ownership of securities firms and mutual fund advisory companies; and establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations. This part of the Modernization Act will become effective on March 12, 2000. First Union currently believes it meets the requirements for the broader range of activities that will be permitted by the Modernization Act. The Modernization Act also modifies current law related to financial privacy and community reinvestment. The new privacy provisions will generally prohibit financial institutions, including First Union, from disclosing nonpublic personal financial information to nonaffiliated third parties unless customers have the opportunity to "opt out" of the disclosure. Earnings and Balance Sheet Analysis (1998 compared with 1997) First Union's operating earnings in 1998 were $3.7 billion, an increase of 27 percent from $2.9 billion in 1997. On a per share basis, operating earnings increased 25 percent to $3.77 in 1998 from $3.01 in 1997. These results represented a return on average stockholders' equity of 22.70 percent and a return on average assets of 1.66 percent. Operating earnings represent earnings before merger-related and restructuring charges of $805 million after tax in 1998 and $204 million after tax in 1997. These merger-related and restructuring charges in 1998 were primarily associated with the April 1998 pooling of interests acquisition of CoreStates Financial Corp. After these charges, earnings per share were $2.95 in 1998 and $2.80 in 1997. Tax-equivalent net interest income was $7.4 billion in 1998 compared with $7.9 billion in 1997. The decline reflects a changing earning asset mix, primarily related to the sale and securitization of certain higher-yielding consumer loans and to the investment of excess capital in lower-yielding securities. Nonperforming loans reduce interest income because the contribution from these loans is eliminated or sharply reduced. In 1998, $67 million in gross interest income would have been recorded if all nonaccrual and restructured loans had been performing in accordance with their original terms and if they had been outstanding throughout the period (or since origination if held for part of the period). The amount of interest income related to these assets and included in income in 1998 was $19 million. 28 MANAGEMENT'S ANALYSIS OF OPERATIONS The net interest margin was 3.81 percent in 1998 compared with 4.53 percent in 1997. The average rate on earning assets decreased from 8.29 percent in 1997 to 7.77 percent in 1998. Our average rate paid on liabilities increased from 4.43 percent to 4.59 percent over this same period. Fee and other income, excluding portfolio securities transactions, increased 42 percent to $6.1 billion in 1998 from $4.3 billion in 1997. Trading account profits were $124 million in 1998 compared with $237 million in 1997. Trading account assets were $9.8 billion at December 31, 1998, compared with $6.0 billion at December 31, 1997. Noninterest expense was $9.1 billion in 1998 compared with $7.2 billion in 1997. Noninterest expense included $1.2 billion of merger-related and restructuring charges compared with $284 million in 1997. In addition to merger-related and restructuring charges, expenses in 1998 reflected the purchase accounting acquisition of The Money Store; higher personnel costs, primarily incentives associated with revenue growth in Capital Markets and Capital Management; spending related to our retail delivery model implementation; and advertising expense related to our branding campaign. The operating overhead efficiency ratio before merger-related and restructuring charges was 56.72 percent in 1998 compared with 56.78 percent in 1997. The $1.2 billion of 1998 pre-tax merger-related and restructuring charges was associated primarily with the acquisition and the integration of CoreStates. This amount consisted of $798 million of restructuring charges and $414 million of other merger-related charges. Included in merger-related charges is a $185 million gain from regulatory-mandated branch sales. Substantially all of the unpaid restructuring charges of $398 million at year-end 1998 were paid in 1999. Income taxes were $1.1 billion in 1998 and in 1997. As a result of several years of effective tax planning, we realized an after-tax benefit of $270 million in the fourth quarter of 1998 and $264 million in the fourth quarter of 1997. The effective tax rate declined to 27 percent in 1998 from 29 percent in 1997. Capital Markets produced net income of $687 million in 1998 compared with $642 million in 1997. Net interest income increased 8 percent to $1.1 billion in 1998, with average loans up 24 percent. Fee and other income increased 50 percent to $1.0 billion in 1998. Trading profits declined from $237 million in 1997 to $124 million in 1998, reflecting a net $90 million mark-to-market writedown of commercial mortgages warehoused for securitization and the associated hedges. This reflects a writedown of $159 million in connection with the third quarter 1998 flight to quality, which was partially offset by a $69 million recovery in commercial real estate securitizations. Noninterest expense was $1.1 billion in 1998 compared with $929 million in 1997. Average net loans were $33 billion in 1998 compared with $26 billion in 1997. Capital Management produced net income of $426 million in 1998 compared with $321 million in 1997. Net interest income amounted to $412 million in 1998 compared with $342 million in 1997, with average loan growth of 20 percent, primarily from the Private Client Banking unit and Wheat First Union. Fee and other income in 1998 increased 56 percent to $1.8 billion, primarily related to the addition of Wheat First Union and to strong growth in retail brokerage, mutual funds and trust. Noninterest expense in 1998 was $1.5 billion compared with $977 million in 1997, primarily due to the addition of Wheat First Union. Consumer generated $1.1 billion in net income in 1998 compared with $971 million in 1997. Net interest income was $3.4 billion in 1998 compared with $3.9 billion in 1997. Fee and other income was $1.9 billion in 1998 compared with $1.5 billion in 1997. Noninterest expense was $3.3 billion in 1998 compared with $3.1 billion in 1997. Expenses in 1998 included the addition of The Money Store to our expense base, costs related to the implementation of our retail delivery strategy, and expenses related to increased mortgage volume. Average consumer loans in 1998 were $50 billion compared with $53 billion in 1997. The decrease in the consumer loan portfolio reflects the sale or securitization of certain loans. As part of our strategy in 1998, we securitized or sold $11 billion of consumer loans, including residential mortgages and adjustable rate mortgages (ARMs), home equity loans, student loans, community reinvestment loans, credit card receivables and other unsecured consumer loans. Commercial had net income of $604 million in 1998 compared with $571 million in 1997. Net interest income was $1.7 billion in 1998 compared with $1.8 billion in 1997. Fee and other income increased 8 percent to $515 million in 1998, led by increased cash management volume. Noninterest expense declined 8 percent to $1.2 billion in 1998. 29 MANAGEMENT'S ANALYSIS OF OPERATIONS Average commercial loans in 1998 declined 6 percent from 1997, due to reduced loan originations and renewals, as well as to the transfer of corporate customer relationships to Capital Markets. Net loans at December 31, 1998, were $134 billion compared with $132 billion at December 31, 1997. Average net loans were $132 billion in 1998 compared with $135 billion in 1997. Commercial loan originations in 1998 were led by Capital Markets lending. Consumer loan originations were strong in mortgages (including refinancings) and home equity. Origination volume was offset by the securitization and the sale of loans as part of our balance sheet management strategy to maximize our return on investment. The loan portfolio at December 31, 1998, was composed of 58 percent in commercial loans and 42 percent in consumer loans. The composition of our loan port- folio changed as a result of the sale and the securitization of certain assets such as residential mortgage and credit card loans when this strategy produced a better return than would be realized by holding these assets. At December 31, 1998, unused loan commitments related to commercial and consumer loans were $96 billion and $35 billion, respectively. Commercial and standby letters of credit were $11 billion at December 31, 1998. At December 31, 1998, loan participations sold to other lenders amounted to $4 billion. The average rate earned on loans was 8.46 percent in 1998 compared with 8.80 percent in 1997. The primary factor contributing to the decline was the restructuring of our unsecured consumer loan port- folio. This restructuring, in conjunction with a general downward trend in Treasury rates over this period, was only partially offset by growth in high-yielding leveraged leases. Commercial real estate loans amounted to 8 percent of the total portfolio at December 31, 1998, compared with 12 percent at December 31, 1997. This portfolio included commercial real estate mortgage loans of $9 billion at December 31, 1998, and $13 billion at December 31, 1997. The decline reflects amortization, payoffs resulting from customers obtaining term financing and reclassifications within the former CoreStates portfolio. At December 31, 1998, nonperforming assets were $844 million, or 0.63 percent of net loans and foreclosed properties, compared with $991 million, or 0.75 percent, at December 31, 1997. Accruing loans 90 days past due were $346 million at December 31, 1998, compared with $326 million at December 31, 1997. Of the past dues at December 31, 1998, $109 million were commercial loans or commercial real estate loans and $237 million were consumer loans. Net charge-offs amounted to $638 million in 1998 compared with $872 million in 1997. Net charge-offs were 0.48 percent of average net loans in 1998 compared with 0.65 percent in 1997. The loan loss provision was $691 million in 1998 compared with $1.1 billion in 1997. The allowance for loan losses was $1.8 billion at December 31, 1998, and at December 31, 1997. Impaired loans, which are included in nonaccrual loans, amounted to $424 million at December 31, 1998, compared with $485 million at December 31, 1997. Included in the allowance for loan losses at December 31, 1998, was $80 million related to $397 million of impaired loans. The remaining impaired loans were recorded at or below fair value. In 1998, the average recorded investment in impaired loans was $428 million, and $29 million of interest income was recognized on loans while they were impaired. This income was recognized using a cash-basis method of accounting. Core deposits were $131 billion at December 31, 1998, compared with $127 billion at December 31, 1997. The portion of core deposits in higher-rate, other consumer time deposits was 27 percent at December 31, 1998, and 29 percent at December 31, 1997. Average core deposit balances were $126 billion in 1998 and $124 billion in 1997. In 1998 and 1997, average noninterest-bearing deposits were 24 percent and 22 percent of average core deposits, respectively. Average balances in savings and NOW and noninterest-bearing deposits were higher when compared with 1997, while money market and other consumer time deposits were lower. Purchased funds at December 31, 1998, were $53 billion compared with $42 billion at year-end 1997, with the increase largely reflecting the effects of loan growth, branch sales, the acquisition of The Money Store, and the stock buyback program announced in November 1998. Our decision to hold certain assets on the balance sheet during the financial market turmoil in the third and fourth quarters of 1998 also contributed to the increase in purchased funds. Average purchased funds in 1998 were $57 billion compared with $39 billion in 1997. 30 MANAGEMENT'S ANALYSIS OF OPERATIONS Long-term debt amounted to $23 billion at December 31, 1998, and $13 billion at year-end 1997. At December 31, 1998 and 1997, long-term debt included $1.7 billion of trust capital securities. Stockholders' equity was $17 billion at December 31, 1998, and $15 billion at December 31, 1997. Common shares outstanding amounted to 982 million at December 31, 1998, compared with 961 million at December 31, 1997. In 1998, we repurchased 40 million shares of our common stock in the open market at a cost of $2.4 billion, all of which were repurchased in connection with purchase accounting acquisitions (38 million shares related to The Money Store). Additionally in November 1998, we announced a 50 million share buyback program, and by year-end 1998, we had repurchased 10 million shares at a cost of $617 million. We paid $1.5 billion in dividends to common stockholders in 1998 compared with $1.1 billion in 1997. This represented a dividend payout ratio on operating earnings of 41.24 percent in 1998. At December 31, 1998, stockholders' equity included a $407 million net unrealized after-tax gain related to debt and equity securities. At December 31, 1998, the tier 1 and total capital ratios were 6.81 percent and 10.99 percent, respectively, compared with 8.36 percent and 12.95 percent at December 31, 1997. The leverage ratio at December 31, 1998, was 5.91 percent and at December 31, 1997, it was 7.03 percent. At December 31, 1998, we had securities available for sale with a market value of $37 billion compared with $24 billion at year-end 1997. The market value of securities available for sale was $636 million above amortized cost at December 31, 1998. The average rate earned on securities available for sale in 1998 was 6.60 percent and 6.83 percent in 1997. The average maturity of the portfolio was 6.40 years at December 31, 1998. Our investment securities amounted to $2.0 billion at December 31, 1998, and $3.5 billion at December 31, 1997. The average rate earned on investment securities was 8.04 percent in 1998 and 7.97 percent in 1997. The average maturity of the portfolio was 5.08 years at December 31, 1998. The net fair value appreciation of off-balance sheet derivative financial instruments used to manage interest rate sensitivity was $1.1 billion at December 31, 1998, compared with fair value appreciation of $566 million at December 31, 1997. 31 GLOSSARY Asset Securitization A funding method whereby a pool of accumulated loans is sold, generally to a trust, which simultaneously sells interests in the underlying cash flows of the pool to third party investors. While the loans are sold, the seller often retains the servicing rights to the loans, generating an ongoing income stream over the life of the loans. Asset Sensitivity A situation in which a company's asset, liability and off-balance sheet financial instrument mix results in diminished net interest income in a declining inter- est rate environment. Collateralized Mortgage Obligation (CMO) A mortgage-backed bond that is divided into separate maturity classes called tranches. The cash flows for each tranche are paid out in a specific order to investors based on the prepayment characteristics of the under- lying mortgages. Debit Cards A method of payment that is tied to a customer's checking account. When used to make a purchase, the bank-issued debit card (which looks like a credit card) acts as a "plastic check," and money is deducted directly from the customer's checking account. Derivatives A term used to include a broad base of financial instruments that are, for the most part, "derived" from underlying securities traded in the cash markets. Examples include interest rate swaps, swaptions, options and futures contracts. Digital Cash A system that allows a person or company to pay for goods or services by transmitting a number from one computer to another, but unlike credit card systems, does not provide information about the buyer. Earnings Per Common Share - - Basic Net income, adjusted for preferred stock dividends, divided by average common shares outstanding. Earnings Per Common Share - - Diluted Net income, adjusted for preferred dividends, divided by the sum of aver- age common shares out- standing and common stock equivalents, including employee stock options and convertible securities. Electronic Commerce (E-Commerce) Conducting business online. This includes, for example, buying and selling products with digital cash and via the Electronic Data Interchange. Electronic Data Interchange (EDI) The transfer of data between different companies using networks such as the Internet. Fee and Other Income All income other than interest and dividend income. Futures Contract An agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date. Interest Rate Swap A contractual arrangement between two parties in which each agrees to exchange interest rate payments for a specified period of time. These payments are calculated on a "notional amount," and no exchange of principal occurs. Interest rate swaps are commonly used to manage the asset or liability sensitivity of a balance sheet by converting fixed rate assets or liabilities to float- ing rates, or vice versa. Internet The global association of computers that carries data and makes the exchange of information possible. Liability Sensitivity A situation in which a company's asset, liability and off-balance sheet financial instrument mix results in diminished net interest income in a rising interest rate environment. Loan Loss Provision The noncash expense item charged to earnings and added to the allowance for loan losses. Managed Loan Portfolio Owned and securitized loan receivables. Mark-To-Market A method of accounting for a corporation's assets or liabilities by recording them at their current market values, rather than at their historical costs. Mortgage Servicing Portfolio Mortgage loans owned by investors for which a company manages payment processing, remittance and escrow accounts. Net Charge-Offs The amount of loans written off as uncollectible, net of the recovery of loans previously written off as uncollectible. Net Interest Margin The difference between the tax-equivalent yield on earning assets and the rate paid on funds to support those assets, divided by average earning assets. Net Operating Revenue The sum of tax-equivalent net interest income and fee and other income. Nonperforming Assets Assets on which income is not being accrued for financial reporting purposes; restructured loans on which interest rates or terms of repayment have been materially revised; and other real estate that has been acquired through loan foreclosures, in-substance foreclosures or deeds received in lieu of loan payments. Notional Amount The principal amount of a financial instrument on which a derivative transaction is based. In an interest rate swap, for example, the "notional" amount is used to calculate the interest rate cash flows to be exchanged. No exchange of principal occurs. Option An agreement that allows, but does not require, a holder to buy (or sell) a commodity or financial instrument at a predetermined price for a specified time. Overhead Efficiency Ratio Noninterest expense divided by net operating revenue. Pooling Of Interests Accounting An accounting method that may restate historical financial information of the surviving company in a merger as if the two entities were always one, depending on the material sig- nificance of the acquired company to the acquiring company. Purchase Accounting An accounting method that adds the fair market value of assets and liabilities of the company acquired to those of the acquiror at the time of acquisition. Historical financial information of the acquiror is not restated. Return On Assets (ROA) Net income as a percentage of average assets. Return On Common Equity (ROE) Net income applicable to common stockholders as a percentage of average common stockholders' equity. Security Gains Or Losses A gain or loss resulting from the sale of a security at a price above or below the security's carrying value. Stockholders' Equity A balance sheet amount that represents the total invest- ment in the corporation by holders of preferred and common stock. 32
TABLE 1 CONSOLIDATED SUMMARIES OF INCOME, PER COMMON SHARE, BALANCE SHEET AND OTHER DATA - ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE AND OTHER DATA) 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ SUMMARIES OF INCOME Interest income $ 15,151 14,988 14,362 13,758 13,028 10,245 ==================================================================================================================================== Interest income (a) $ 15,269 15,105 14,461 13,876 13,177 10,405 Interest expense 7,699 7,711 6,568 6,151 5,732 3,739 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income (a) 7,570 7,394 7,893 7,725 7,445 6,666 Provision for loan losses 692 691 1,103 678 403 458 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses (a) 6,878 6,703 6,790 7,047 7,042 6,208 Securities transactions - portfolio (b) (62) 357 55 100 82 28 Fee and other income (c) 6,995 6,078 4,267 3,435 2,976 2,336 Merger-related and restructuring charges (d) 404 1,212 284 421 233 107 Other noninterest expense (c) 8,458 7,844 6,936 6,509 6,309 5,558 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes (a) 4,949 4,082 3,892 3,652 3,558 2,907 Income taxes 1,608 1,074 1,084 1,261 1,213 938 Tax-equivalent adjustment 118 117 99 118 149 160 - ------------------------------------------------------------------------------------------------------------------------------------ Net income 3,223 2,891 2,709 2,273 2,196 1,809 Dividends on preferred stock - - - 9 26 46 - ------------------------------------------------------------------------------------------------------------------------------------ Net income applicable to common stockholders before redemption premium 3,223 2,891 2,709 2,264 2,170 1,763 Redemption premium on preferred stock - - - - - 41 - ------------------------------------------------------------------------------------------------------------------------------------ Net income applicable to common stockholders after redemption premium $ 3,223 2,891 2,709 2,264 2,170 1,722 ==================================================================================================================================== PER COMMON SHARE DATA Basic $ 3.35 2.98 2.84 2.33 2.21 1.86 Diluted 3.33 2.95 2.80 2.30 2.17 1.83 Cash dividends $ 1.88 1.58 1.22 1.10 0.98 0.86 Average shares - Basic (IN THOUSANDS) 959,390 969,131 955,241 973,712 979,852 927,941 Average shares - Diluted (IN THOUSANDS) 966,863 980,112 966,792 982,755 1,001,145 946,969 Average common stockholders' equity (c) $ 15,932 15,878 14,327 13,726 12,902 11,367 Book value (c) 16.91 17.20 15.82 14.77 13.87 12.51 Common stock price High 65 1/16 65 11/16 52 7/8 38 1/2 29 3/8 23 3/4 Low 32 7/16 44 11/16 36 5/8 25 3/4 20 5/8 19 5/8 Year-end $ 32 15/16 60 13/16 51 1/4 37 27 3/4 20 5/8 To earnings ratio (e) 9.89 X 20.61 X 18.30 16.09 12.79 11.27 To book value (c) 195 % 353 % 324 251 200 165 BALANCE SHEET DATA Assets (c) $ 253,024 237,087 205,609 197,259 188,809 159,544 Long-term debt $ 31,975 22,949 13,487 11,604 9,586 6,405 OTHER DATA ATMs 3,778 3,690 3,701 3,458 3,165 2,039 Employees 71,659 71,486 65,943 67,793 68,978 54,479 Common stockholders 168,989 146,775 120,437 103,538 89,257 54,236 ====================================================================================================================================
(a) Tax-equivalent. (b) Securities transactions include investment securities gains of $171,000 in 1999; $4 million in 1998; $3 million in 1997; $4 million in 1996; $6 million in 1995; and $4 million in 1994. (c) Certain prior period amounts have been reclassified to conform to the presentation in 1999. (d) After-tax merger-related and restructuring charges amounted to $263 million in 1999; $805 million in 1998; $204 million in 1997; $272 million in 1996; $163 million in 1995; and $70 million in 1994. (e) Based on diluted earnings per share. T-1
TABLE 2 BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1999 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 141 77 702 251 156 - 1,327 Provision for loan losses 7 - 213 5 - - 225 Trading account profits 286 60 - - - - 346 Fee and other income 1,035 95 40 167 204 (148) 1,393 Noninterest expense 715 123 191 109 211 - 1,349 Income tax expense 279 37 129 94 57 (148) 448 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 461 72 209 210 92 - 1,044 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 45.11 % 34.00 7.72 94.65 15.63 - 21.93 Average loans, net $ 3,439 2,102 21,334 5,129 4,803 - 36,807 Average deposits 2,835 784 3,231 21 4,565 - 11,436 Average attributed stockholders' equity (b) $ 1,021 211 2,718 222 594 - 4,766 ==================================================================================================================================== RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data $ Net interest income 96 51 - 205 174 - 526 Provision for loan losses - - - - - - - Fee and other income 1,136 678 460 119 17 (94) 2,316 Noninterest expense 1,009 431 232 130 96 - 1,898 Income tax expense 85 114 87 74 36 (36) 360 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 138 184 141 120 59 (58) 584 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 34.75 % 77.83 64.12 72.50 22.99 - 49.32 Average loans, net $ - 140 - - 3,645 - 3,785 Average deposits - 2,658 - 14,201 3,120 - 19,979 Average attributed stockholders' equity (b) $ 396 236 160 165 255 (31) 1,181 ==================================================================================================================================== HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 76 558 219 2,503 3,356 Provision for loan losses 1 69 156 99 325 Fee and other income 317 195 348 886 1,746 Noninterest expense 253 639 243 2,400 3,535 Income tax expense 53 18 64 341 476 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 86 27 104 549 766 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 75.23 % 2.15 23.11 26.95 19.55 Average loans, net $ 1,542 12,636 2,242 26,737 43,157 Average deposits 1,196 152 11 69,597 70,956 Average attributed stockholders' equity (b) $ 114 1,324 448 2,040 3,926 ==================================================================================================================================== (CONTINUED)
T-2
TABLE 2 BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1999 ----------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 85 376 184 970 1,615 Provision for loan losses 4 67 24 - 95 Fee and other income - - - 551 551 Noninterest expense 41 304 68 794 1,207 Income tax expense 15 (24) 35 278 304 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 25 29 57 449 560 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 13.44 % 2.20 10.37 60.72 20.08 Average loans, net $ 2,749 22,167 8,571 - 33,487 Average deposits - - - 25,996 25,996 Average attributed stockholders' equity (b) $ 183 1,316 549 740 2,788 ==================================================================================================================================== FIRST CAPITAL CAPITAL UNION TREASURY/ (In millions) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (c) Income statement data Net interest income $ 1,327 526 1,853 3,356 1,615 628 7,452 Provision for loan losses 225 - 225 325 95 47 692 Trading account profits 346 - 346 - - 5 351 Fee and other income 1,393 2,316 3,709 1,746 551 576 6,582 Noninterest expense 1,349 1,898 3,247 3,535 1,207 873 8,862 Income tax expense 448 360 808 476 304 20 1,608 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 1,044 584 1,628 766 560 269 3,223 After-tax merger-related and restructuring charges - - - - - 263 263 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 1,044 584 1,628 766 560 532 3,486 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 21.93 % 49.32 27.38 19.55 20.08 16.26 21.60 Average loans, net $ 36,807 3,785 40,592 43,157 33,487 15,138 132,374 Average deposits 11,436 19,979 31,415 70,956 25,996 6,745 135,112 Average attributed stockholders' equity (b) $ 4,766 1,181 5,947 3,926 2,788 3,271 15,932 ==================================================================================================================================== (CONTINUED)
T-3
TABLE 2 BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 113 66 624 116 173 - 1,092 Provision for loan losses - - 112 6 12 - 130 Trading account profits 215 (91) - - - - 124 Fee and other income 554 86 78 188 212 (86) 1,032 Noninterest expense 551 113 181 108 189 - 1,142 Income tax expense 118 (20) 155 52 70 (86) 289 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 213 (32) 254 138 114 - 687 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 25.12 % (12.69) 11.92 91.61 19.96 - 17.36 Average loans, net $ 2,649 1,788 18,913 4,557 4,833 - 32,740 Average deposits 2,345 656 3,736 21 4,688 - 11,446 Average attributed stockholders' equity (b) $ 849 259 2,121 151 569 - 3,949 ==================================================================================================================================== RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 38 55 2 155 162 - 412 Provision for loan losses - - - - 5 - 5 Fee and other income 777 609 411 76 17 (85) 1,805 Noninterest expense 700 416 215 107 82 - 1,520 Income tax expense 44 95 76 48 35 (32) 266 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 71 153 122 76 57 (53) 426 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 26.69 % 71.19 60.12 71.25 22.86 - 44.87 Average loans, net $ - 113 - - 3,572 - 3,685 Average deposits - 2,316 - 11,671 2,727 - 16,714 Average attributed stockholders' equity (b) $ 267 215 145 108 247 (28) 954 ==================================================================================================================================== HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 93 310 328 2,698 3,429 Provision for loan losses 2 11 211 127 351 Fee and other income 346 223 394 982 1,945 Noninterest expense 311 398 259 2,323 3,291 Income tax expense 48 47 97 470 662 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 78 77 155 760 1,070 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 49.44 % 9.45 34.90 33.65 29.16 Average loans, net $ 2,203 7,554 3,461 37,269 50,487 Average deposits 1,339 82 12 76,563 77,996 Average attributed stockholders' equity (b) $ 156 805 447 2,257 3,665 ==================================================================================================================================== (CONTINUED)
T-4
TABLE 2 BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 86 463 211 977 1,737 Provision for loan losses 4 68 19 - 91 Fee and other income - - - 515 515 Noninterest expense 39 309 62 804 1,214 Income tax expense 16 14 50 263 343 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 27 72 80 425 604 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 15.83 % 5.10 12.85 60.77 20.78 Average loans, net $ 2,602 24,512 9,020 - 36,134 Average deposits - - - 25,904 25,904 Average attributed stockholders' equity (b) $ 168 1,414 629 699 2,910 ==================================================================================================================================== FIRST CAPITAL CAPITAL UNION TREASURY/ (In millions) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (c) Income statement data Net interest income $ 1,092 412 1,504 3,429 1,737 607 7,277 Provision for loan losses 130 5 135 351 91 114 691 Trading account profits 124 - 124 - - (1) 123 Fee and other income 1,032 1,805 2,837 1,945 515 1,015 6,312 Noninterest expense 1,142 1,520 2,662 3,291 1,214 1,889 9,056 Income tax expense 289 266 555 662 343 (486) 1,074 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 687 426 1,113 1,070 604 104 2,891 After-tax merger-related and restructuring charges - - - - - 805 805 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 687 426 1,113 1,070 604 909 3,696 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 17.36 % 44.87 22.70 29.16 20.78 20.66 22.70 Average loans, net $ 32,740 3,685 36,425 50,487 36,134 9,014 132,060 Average deposits 11,446 16,714 28,160 77,996 25,904 4,270 136,330 Average attributed stockholders' equity (b) $ 3,949 954 4,903 3,665 2,910 4,400 15,878 ==================================================================================================================================== (CONTINUED)
T-5
TABLE 2 BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1997 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 138 43 662 77 87 - 1,007 Provision for loan losses 2 - 25 3 2 - 32 Trading account profits 147 90 - - - - 237 Fee and other income 306 67 33 203 131 (50) 690 Noninterest expense 306 124 198 157 144 - 929 Income tax expense 103 32 180 38 28 (50) 331 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 180 44 292 82 44 - 642 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 32.22 % 29.09 17.09 57.10 11.70 - 21.83 Average loans, net $ 2,214 1,068 16,212 4,115 2,829 - 26,438 Average deposits 1,001 274 2,842 22 2,522 - 6,661 Average attributed stockholders' equity (b) $ 560 148 1,708 144 383 - 2,943 ==================================================================================================================================== RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 16 52 (4) 135 143 - 342 Provision for loan losses - - - - 4 - 4 Fee and other income 316 556 266 56 9 (45) 1,158 Noninterest expense 276 384 161 77 79 - 977 Income tax expense 22 86 38 43 26 (17) 198 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 34 138 63 71 43 (28) 321 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 33.04 % 69.03 43.24 68.69 20.98 - 46.40 Average loans, net $ - 94 - - 2,977 - 3,071 Average deposits - 2,233 - 10,289 2,228 - 14,750 Average attributed stockholders' equity (b) $ 105 200 93 101 202 (15) 686 ==================================================================================================================================== FIRST RETAIL UNION HOME CREDIT BRANCH (In millions) MORTGAGE EQUITY CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 47 130 614 3,075 3,866 Provision for loan losses 6 9 491 120 626 Fee and other income 214 91 238 909 1,452 Noninterest expense 247 75 376 2,420 3,118 Income tax expense 3 53 (5) 552 603 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 5 84 (10) 892 971 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 6.15 % 57.18 (1.31) 36.44 28.99 Average loans, net $ 1,268 4,529 6,410 40,879 53,086 Average deposits 880 1 11 79,444 80,336 Average attributed stockholders' equity (b) $ 81 149 679 2,445 3,354 ==================================================================================================================================== (CONTINUED)
T-6
TABLE 2 BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1997 ----------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 77 590 254 922 1,843 Provision for loan losses 3 75 14 - 92 Fee and other income - - - 477 477 Noninterest expense 42 343 67 862 1,314 Income tax expense 12 60 66 205 343 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 20 112 107 332 571 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 13.17 % 7.59 15.59 50.55 19.19 Average loans, net $ 2,261 25,801 10,211 - 38,273 Average deposits - - - 24,247 24,247 Average attributed stockholders' equity (b) $ 148 1,482 687 656 2,973 ==================================================================================================================================== FIRST CAPITAL CAPITAL UNION CONSUMER COMMERCIAL TREASURY/ (In millions) MARKETS MGT. SECURITIES BANK BANK NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (c) Income statement data Net interest income $ 1,007 342 1,349 3,866 1,843 736 7,794 Provision for loan losses 32 4 36 626 92 349 1,103 Trading account profits 237 - 237 - - 15 252 Fee and other income 690 1,158 1,848 1,452 477 293 4,070 Noninterest expense 929 977 1,906 3,118 1,314 882 7,220 Income tax expense 331 198 529 603 343 (391) 1,084 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 642 321 963 971 571 204 2,709 After-tax merger-related and restructuring charges - - - - - 204 204 - ------------------------------------------------------------------------------------------------------------------------------------ Net incomes before merger-related and restructuring charges $ 642 321 963 971 571 408 2,913 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 21.83 % 46.40 26.54 28.99 19.19 9.33 20.29 Average loans, net $ 26,438 3,071 29,509 53,086 38,273 13,649 134,517 Average deposits 6,661 14,750 21,411 80,336 24,247 6,853 132,847 Average attributed stockholders' equity (b) $ 2,943 686 3,629 3,354 2,973 4,371 14,327 ====================================================================================================================================
(a) Business Segment information reflects the April 1998 pooling of interests merger with CoreStates. The information also reflects the 1998 divestiture of $3.4 billion of deposits, $2.2 billion of which related to the CoreStates merger. Information related to the purchase accounting acquisitions of The Money Store and EVEREN on June 30, 1998, and October 1, 1999, respectively, is included from the date the acquisitions occurred. See the "Business Segments" discussion in Management's Analysis of Operations for further information about the methodology and assumptions used in presenting this information. (b) Average attributed stockholders' equity excludes merger-related and restructuring charges. The return on average attributed stockholders' equity for the Capital Management Mutual Funds unit is net of the amount included in Other. (c) In the consolidated data, First Union Securities represents the total of Capital Markets and Capital Management. T-7
TABLE 3 SELECTED PERFORMANCE, DIVIDEND PAYOUT AND OTHER RATIOS - -------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE RATIOS (a) Assets to stockholders' equity (b) 14.46 X 13.99 13.68 13.68 13.26 12.66 Return on assets (b) 1.40 % 1.30 1.38 1.20 1.26 1.20 Return on total stockholders' equity (b) 20.23 % 18.21 18.91 16.43 16.75 15.25 =============================================================================================================================== DIVIDEND PAYOUT RATIOS ON Operating earnings Common shares 52.22 % 41.24 39.18 39.18 36.13 38.30 Preferred and common shares 52.22 41.24 39.18 39.38 36.84 39.84 Net income Common shares 56.46 52.72 42.12 45.55 38.84 39.85 Preferred and common shares 56.46 % 52.72 42.12 45.76 39.57 41.41 =============================================================================================================================== OTHER RATIOS ON Operating earnings Return on assets 1.51 % 1.66 1.49 1.39 1.36 1.25 Return on common stockholders' equity (b) (c) 21.60 22.70 20.29 18.84 18.08 15.76 Net income Return on common stockholders' equity (b) (c) 20.23 % 18.21 18.91 16.50 16.82 15.15 ===============================================================================================================================
(a) Based on average balances and net income. (b) Prior year amounts have been reclassified to conform to the presentation in 1999. (c) Based on average balances and net income applicable to common stockholders. T-8
TABLE 4 SELECTED QUARTERLY DATA - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 --------------------------------------------------- ----------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST - ------------------------------------------------------------------------------------------------------------------------------------ Interest income $ 4,143 3,812 3,624 3,572 3,768 3,891 3,727 3,602 Interest expense 2,198 1,930 1,779 1,792 1,970 2,048 1,922 1,771 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income 1,945 1,882 1,845 1,780 1,798 1,843 1,805 1,831 Provision for loan losses 173 175 180 164 167 239 150 135 - ------------------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 1,772 1,707 1,665 1,616 1,631 1,604 1,655 1,696 Securities transactions - portfolio (7) (79) (1) 25 98 211 25 23 Fee and other income (a) 1,844 1,519 1,707 1,925 1,644 1,602 1,506 1,326 Merger-related and restructuring charges 6 - - 398 205 24 954 29 Noninterest expense (a) 2,354 1,940 2,053 2,111 2,282 1,898 1,855 1,809 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 1,249 1,207 1,318 1,057 886 1,495 377 1,207 Income taxes 407 405 445 351 29 500 128 417 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 842 802 873 706 857 995 249 790 ==================================================================================================================================== PER SHARE DATA Basic earnings $ 0.86 0.84 0.92 0.73 0.87 1.02 0.27 0.82 Diluted earnings 0.86 0.84 0.90 0.73 0.87 1.01 0.26 0.81 Cash dividends 0.47 0.47 0.47 0.47 0.42 0.42 0.37 0.37 Common stock price High 43 5/8 48 3/8 55 15/16 65 1/16 63 15/16 65 11/16 63 58 1/4 Low 32 7/16 35 5/16 42 1/16 48 5/8 44 11/16 47 9/16 55 1/4 47 1/16 Period-end $ 32 15/16 35 5/8 47 1/8 53 7/16 60 13/16 51 3/16 58 1/4 56 13/16 ==================================================================================================================================== SELECTED RATIOS (a) (b) Return on assets 1.37 % 1.39 1.56 1.28 1.48 1.73 0.46 1.52 Return on stockholders' equity 20.00 20.82 22.30 17.85 20.22 24.01 6.82 20.53 Stockholders' equity to assets 6.85 % 6.68 7.01 7.15 7.30 7.19 6.69 7.41 ==================================================================================================================================== SELECTED RATIOS (a) (c) Return on assets 1.38 % 1.39 1.56 1.74 1.71 1.75 1.62 1.56 Return on stockholders' equity 19.78 % 20.47 21.94 24.32 22.49 23.42 23.89 21.01 ====================================================================================================================================
(a) Prior year amounts have been reclassified to conform to the presentation in 1999. (b) Based on average balances and net income. (c) Based on average balances and net income excluding after-tax merger-related and restructuring charges. T-9
TABLE 5 - ------------------------------------------------------------------------------------------------------------------------------------ LOANS - ON-BALANCE SHEET AND TOTAL MANAGED PORTFOLIO DECEMBER 31, ----------------------------------------------------------------------------- (IN MILLIONS) 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ ON-BALANCE SHEET COMMERCIAL Commercial, financial and agricultural $ 51,683 53,961 46,117 41,489 40,959 35,220 Real estate - construction and other 2,435 2,628 3,037 3,474 3,350 2,651 Real estate - mortgage 8,768 8,565 13,160 14,300 15,071 14,533 Lease financing 12,742 9,730 8,610 6,348 4,556 2,278 Foreign 4,991 4,805 3,885 2,842 1,675 1,121 - ------------------------------------------------------------------------------------------------------------------------------------ Total commercial 80,619 79,689 74,809 68,453 65,611 55,803 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL Real estate - mortgage 29,296 21,729 28,998 33,181 32,782 26,615 Installment loans - Bankcard (a) 1,879 2,779 3,914 7,295 5,358 5,837 Installment loans - other (b) 24,814 27,816 22,271 23,855 22,493 18,153 Vehicle leasing 4,483 6,162 5,331 4,529 3,615 2,799 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail 60,472 58,486 60,514 68,860 64,248 53,404 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans 141,091 138,175 135,323 137,313 129,859 109,207 Unearned income 5,525 4,026 3,636 2,666 1,954 1,242 - ------------------------------------------------------------------------------------------------------------------------------------ Loans, net (ON-BALANCE SHEET) $ 135,566 134,149 131,687 134,647 127,905 107,965 ==================================================================================================================================== TOTAL MANAGED PORTFOLIO (INCLUDING ON- AND OFF-BALANCE SHEET PORTFOLIOS) - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL $ 112,878 100,001 84,583 71,430 67,174 57,294 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL Real estate - mortgage 68,330 63,672 64,595 62,946 60,283 42,939 Installment loans - Bankcard (a) 6,627 6,487 7,066 10,492 5,358 5,837 Installment loans - other (b) 47,338 44,611 26,733 26,050 23,188 18,708 Vehicle leasing 4,483 6,162 5,331 4,529 3,615 2,799 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail 126,778 120,932 103,725 104,017 92,444 70,283 - ------------------------------------------------------------------------------------------------------------------------------------ Total managed portfolio $ 239,656 220,933 188,308 175,447 159,618 127,577 ====================================================================================================================================
(a) Installment loans - Bankcard include credit card, instant cash reserve, signature and First Choice. (b) Certain prior period amounts have been reclassified to conform to the presentation in 1999. T-10
TABLE 6 CERTAIN COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES - -------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1999 --------------------------------------------------------------------------- REAL COMMERCIAL, ESTATE- FINANCIAL CONSTRUCTION REAL AND AND ESTATE- (IN MILLIONS) AGRICULTURAL OTHER MORTGAGE FOREIGN TOTAL - -------------------------------------------------------------------------------------------------------------------------------- FIXED RATE 1 year or less $ 1,914 84 326 3,188 5,512 1-5 years 3,842 117 1,532 15 5,506 After 5 years 2,476 75 752 - 3,303 - -------------------------------------------------------------------------------------------------------------------------------- Total 8,232 276 2,610 3,203 14,321 - -------------------------------------------------------------------------------------------------------------------------------- ADJUSTABLE RATE 1 year or less 16,855 694 842 1,542 19,933 1-5 years 23,178 1,183 3,279 238 27,878 After 5 years 3,418 282 2,037 8 5,745 - -------------------------------------------------------------------------------------------------------------------------------- Total 43,451 2,159 6,158 1,788 53,556 - -------------------------------------------------------------------------------------------------------------------------------- Total $ 51,683 2,435 8,768 4,991 67,877 ================================================================================================================================
T-11
TABLE 7 ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS - ----------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------ (IN MILLIONS) 1999 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES Balance, beginning of year $ 1,826 1,847 2,212 2,308 2,259 2,259 Provision for loan losses 692 691 1,103 678 403 458 Allowance relating to loans acquired, transferred to accelerated disposition or sold (73) (74) (596) 50 193 82 Loan losses, net (688) (638) (872) (824) (547) (540) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, end of year $ 1,757 1,826 1,847 2,212 2,308 2,259 =================================================================================================================================== as % of loans, net (a) 1.30 % 1.36 1.40 1.64 1.80 2.09 =================================================================================================================================== as % of nonaccrual and restructured loans 181 % 246 211 241 252 228 =================================================================================================================================== as % of nonperforming assets 165 % 216 186 211 201 170 =================================================================================================================================== LOAN LOSSES Commercial, financial and agricultural $ 355 281 172 221 187 276 Real estate - commercial construction and mortgage 24 15 49 98 64 123 Real estate - residential mortgage 20 27 54 60 97 123 Installment loans - Bankcard (b) 166 241 511 439 255 110 Installment loans - other and vehicle leasing 263 235 288 258 163 125 - ----------------------------------------------------------------------------------------------------------------------------------- Total 828 799 1,074 1,076 766 757 - ----------------------------------------------------------------------------------------------------------------------------------- LOAN RECOVERIES Commercial, financial and agricultural 63 65 74 120 103 101 Real estate - commercial construction and mortgage 9 11 23 33 24 20 Real estate - residential mortgage 3 1 9 12 22 23 Installment loans - Bankcard 10 16 35 40 23 18 Installment loans - other and vehicle leasing 55 68 61 47 47 55 - ----------------------------------------------------------------------------------------------------------------------------------- Total 140 161 202 252 219 217 - ----------------------------------------------------------------------------------------------------------------------------------- Loan losses, net $ 688 638 872 824 547 540 =================================================================================================================================== as % of average loans, net (b) 0.52 % 0.48 0.65 0.64 0.45 0.53 =================================================================================================================================== NONPERFORMING ASSETS Nonaccrual loans Commercial loans $ 551 362 384 324 514 569 Commercial real estate loans 55 67 135 218 - - Consumer real estate loans 150 184 233 240 - - Installment loans 212 128 124 123 131 - Real estate loans - - - - 260 397 - ----------------------------------------------------------------------------------------------------------------------------------- Total nonaccrual loans 968 741 876 905 905 966 Foreclosed properties (c) 98 103 115 142 243 362 - ----------------------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $ 1,066 844 991 1,047 1,148 1,328 =================================================================================================================================== as % of loans, net, and foreclosed properties (a) 0.79 % 0.63 0.75 0.78 0.90 1.23 =================================================================================================================================== Accruing loans past due 90 days $ 188 346 326 474 445 350 ===================================================================================================================================
(a) Certain prior period amounts have been reclassified to conform to the presentation in 1999. (b) Installment loans - Bankcard includes a 1996 one-time charge-off of $34 million related to a regulatory change that reduced the period that delinquent loans could be held before charge-off. This amount is not included in charge-off ratios. (c) Restructured loans are insignificant. T-12
TABLE 8 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES - ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, ------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------------- ---------------- ---------------- ----------------- --------------- LOANS LOANS LOANS LOANS LOANS % OF % OF % OF % OF % OF TOTAL TOTAL TOTAL TOTAL TOTAL (IN MILLIONS) AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS AMT. LOANS - ----------------------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $ 754 37 % $ 724 39 % $ 480 35 % $ 543 30 % $ 645 32 % Real estate - Construction and other 20 2 34 2 44 2 90 3 102 3 Mortgage 83 27 103 22 149 31 284 34 405 36 Installment loans - Bankcard 106 1 145 2 225 3 442 5 322 4 Other and vehicle leasing 252 21 207 25 227 20 309 21 334 20 Lease financing 15 9 5 7 46 6 73 5 37 4 Foreign 19 3 12 3 49 3 39 2 60 1 Unallocated 508 - 596 - 627 - 432 - 403 - - ----------------------------------------------------------------------------------------------------------------------------------- Total $ 1,757 100 % $ 1,826 100 % $ 1,847 100 % $ 2,212 100 % $ 2,308 100 % ===================================================================================================================================
T-13
TABLE 9 INTANGIBLE ASSETS - --------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, ------------------------------------------------------------------------------- (IN MILLIONS) 1999 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill $ 5,091 4,376 2,465 2,650 2,202 1,665 Deposit base premium 257 360 473 551 622 627 Origination network 274 294 - - - - Other 4 6 10 15 19 29 - --------------------------------------------------------------------------------------------------------------------------- Total $ 5,626 5,036 2,948 3,216 2,843 2,321 ============================================================================================================================ MORTGAGE AND OTHER SERVICING ASSETS $ 703 637 427 284 209 135 ============================================================================================================================ CREDIT CARD PREMIUM $ 6 14 24 35 46 62 ============================================================================================================================
T-14
TABLE 10 DEPOSITS - ------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, --------------------------------------------------------------------------------- (IN MILLIONS) 1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ CORE DEPOSITS Noninterest-bearing $ 31,375 35,614 31,005 29,713 27,706 24,542 Savings and NOW accounts 37,748 38,649 37,281 35,892 36,654 33,634 Money market accounts (a) 19,405 20,822 21,240 21,193 18,719 19,284 Other consumer time 33,812 35,809 37,324 42,457 42,857 36,671 - ------------------------------------------------------------------------------------------------------------------------------ Total core deposits 122,340 130,894 126,850 129,255 125,936 114,131 Foreign (a) 6,729 5,427 3,928 3,307 4,720 5,916 Other time 11,978 6,146 6,299 3,867 3,456 2,592 - ------------------------------------------------------------------------------------------------------------------------------ Total deposits $ 141,047 142,467 137,077 136,429 134,112 122,639 ============================================================================================================================== (a) Certain prior year amounts have been reclassified to conform to the presentation in 1999. TABLE 11 TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE (a) - ---------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1999 -------------------------- (IN MILLIONS) TIME CERTIFICATES - ---------------------------------------------------------------------------------------------------------------------- MATURITY OF 3 months or less $ 6,391 Over 3 months through 6 months 2,756 Over 6 months through 12 months 5,780 Over 12 months 2,802 - ---------------------------------------------------------------------------------------------------------------------- Total $ 17,729 ======================================================================================================================
(a) There were no deposits classified as other time deposits in amounts of $100,000 or more at December 31, 1999. T-15
TABLE 12 CAPITAL RATIOS - ---------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, ---------------------------------------------------------------------------------- (IN MILLIONS) 1999 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED CAPITAL RATIOS (a) (b) Qualifying capital Tier 1 capital $ 14,204 13,327 13,846 11,276 10,039 7,821 Total capital 21,810 21,518 21,459 17,976 16,043 12,157 Adjusted risk-weighted assets 200,704 195,757 165,676 143,467 136,215 94,377 Adjusted leverage ratio assets $ 238,082 225,534 196,962 168,384 163,625 116,612 Ratios Tier 1 capital 7.08 % 6.81 8.36 7.86 7.37 8.29 Total capital 10.87 10.99 12.95 12.53 11.78 12.88 Leverage 5.97 5.91 7.03 6.70 6.14 6.71 STOCKHOLDERS' EQUITY TO ASSETS (b) Year-end 6.60 7.13 7.36 7.37 7.27 7.50 Average 6.92 % 7.15 7.31 7.31 7.54 7.90 =================================================================================================================================== BANK CAPITAL RATIOS Tier 1 capital First Union National Bank 7.26 % 7.48 6.97 6.43 6.46 7.32 First Union Bank of Delaware 10.83 11.44 11.83 13.61 25.45 - First Union Home Equity Bank 22.32 11.91 10.95 8.40 7.50 7.60 Total capital First Union National Bank 10.22 10.38 10.20 10.20 10.15 10.69 First Union Bank of Delaware 11.89 12.82 13.09 14.87 26.74 - First Union Home Equity Bank 25.88 13.82 13.20 10.77 10.09 12.10 Leverage First Union National Bank 6.48 6.69 6.02 5.95 5.72 6.10 First Union Bank of Delaware 7.08 6.96 6.24 10.60 17.20 - First Union Home Equity Bank 15.42 % 10.86 10.16 7.84 6.48 7.22 ===================================================================================================================================
(a) Risk-based capital ratio guidelines require a minimum ratio of tier 1 capital to risk-weighted assets of 4.00 percent and a minimum ratio of total capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio of tier 1 capital to adjusted average quarterly assets is from 3.00 percent to 4.00 percent. (b) Prior year amounts have been reclassified to conform to the presentation in 1999. T-16
TABLE 13 UNREALIZED GAINS (LOSSES) IN CERTAIN FINANCIAL INSTRUMENTS - --------------------------------------------------------------------------------------------------------------------- DECEMBER 31, -------------------------- (In millions) 1999 1998 - --------------------------------------------------------------------------------------------------------------------- SECURITIES PORTFOLIOS (a) Securities available for sale (b) $ (1,431) 636 Investment securities 51 137 - --------------------------------------------------------------------------------------------------------------------- Net unrealized gains (losses) - securities portfolios (1,380) 773 Less unrealized gains (losses) in securities considered an economic hedge of mortgage servicing rights (79) 14 - --------------------------------------------------------------------------------------------------------------------- Unrealized gains (losses), net - securities portfolios (1,301) 759 - --------------------------------------------------------------------------------------------------------------------- OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a) Asset rate conversions (b) (504) 390 Liability rate conversions 338 472 Rate sensitivity hedges 4 (23) - --------------------------------------------------------------------------------------------------------------------- Net unrealized gains (losses) - off-balance sheet derivative financial instruments (162) 839 Less unrealized gains (losses) in interest rate swaps designated as offsets to fixed rate debt (262) 472 - --------------------------------------------------------------------------------------------------------------------- Net unrealized gains - off-balance sheet derivative financial instruments 100 367 - --------------------------------------------------------------------------------------------------------------------- Net unrealized gains (losses) $ (1,201) 1,126 =====================================================================================================================
(a) Additional information related to the securities portfolios can be found in Tables 14and 15. Additional information related to off-balance sheet derivative financial instruments can be found in Tables 16, 17 and 18. (b) At December 31, 1999, unrealized gains of $14 million associated with $8.3 billion of interest rate swaps that qualify as asset rate conversions of securities available for sale are included with the securities available for sale portfolio. T-17
TABLE 14 SECURITIES AVAILABLE FOR SALE - ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 1999 ---------------------------------------------------------------------------------------------- GROSS UNREALIZED AVERAGE 1 YEAR 1-5 5-10 AFTER 10 ----------------------- AMORTIZED MATURITY (IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS - ------------------------------------------------------------------------------------------------------------------------------------ MARKET VALUE U.S. Treasury $ 3 1 1,660 517 2,181 - 167 2,348 12.75 U.S. Government agencies 32 803 21,621 1,806 24,262 1 1,216 25,477 8.89 Asset-backed 378 10,295 5,821 568 17,062 290 409 17,181 6.31 State, county and municipal - 1 39 856 896 1 13 908 27.96 Sundry 1,032 741 2,845 2,258 6,876 223 141 6,794 7.10 - -------------------------------------------------------------------------------------------------------------------------- Total $ 1,445 11,841 31,986 6,005 51,277 515 1,946 52,708 8.36 ==================================================================================================================================== MARKET VALUE Debt securities $ 1,445 11,841 31,986 4,098 49,370 320 1,916 50,966 Equity securities - - - 1,907 1,907 195 30 1,742 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 1,445 11,841 31,986 6,005 51,277 515 1,946 52,708 - -------------------------------------------------------------------------------------------------------------------------- AMORTIZED COST Debt securities $ 1,389 11,681 33,544 4,352 50,966 Equity securities - - - 1,742 1,742 - --------------------------------------------------------------------------------------- Total $ 1,389 11,681 33,544 6,094 52,708 ======================================================================================= WEIGHTED AVERAGE YIELD U.S. Treasury 5.17 % 4.56 5.76 5.70 5.74 U.S. Government agencies 5.76 7.03 6.47 6.47 6.49 Asset-backed 8.63 8.16 6.87 10.66 7.79 State, county and municipal - 9.34 7.43 9.09 9.02 Sundry 5.33 6.71 7.55 3.90 5.98 Consolidated 6.10 % 7.99 6.60 6.28 6.86 ======================================================================================= DECEMBER 31, 1998 ---------------------------------------------------------------------------------------------- GROSS UNREALIZED AVERAGE 1 YEAR 1-5 5-10 AFTER 10 ----------------------- AMORTIZED MATURITY (IN MILLIONS) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES COST IN YEARS - ------------------------------------------------------------------------------------------------------------------------------------ MARKET VALUE U.S. Treasury $ 66 1 2,477 238 2,782 201 - 2,581 10.14 U.S. Government agencies 225 6,203 18,483 - 24,911 212 18 24,717 5.89 Asset-backed 315 2,545 4,311 49 7,220 95 46 7,171 6.42 State, county and municipal 4 2 19 56 81 1 - 80 15.92 Sundry 92 547 266 1,535 2,440 216 25 2,249 8.00 - --------------------------------------------------------------------------------------------------------------------------- Total $ 702 9,298 25,556 1,878 37,434 725 89 36,798 6.40 ==================================================================================================================================== MARKET VALUE Debt securities $ 702 9,298 25,556 604 36,160 520 87 35,727 Equity securities - - - 1,274 1,274 205 2 1,071 - -------------------------------------------------------------------------------------------------------------------------- Total $ 702 9,298 25,556 1,878 37,434 725 89 36,798 ========================================================================================================================== AMORTIZED COST Debt securities $ 690 9,209 25,216 612 35,727 Equity securities - - - 1,071 1,071 - --------------------------------------------------------------------------------------- Total $ 690 9,209 25,216 1,683 36,798 ======================================================================================= WEIGHTED AVERAGE YIELD U.S. Treasury 6.70 % 4.96 6.05 6.05 6.07 U.S. Government agencies 5.82 6.71 6.48 - 6.53 Asset-backed 8.77 7.52 6.64 7.85 7.05 State, county and municipal 9.29 7.15 7.23 7.28 7.38 Sundry 4.34 7.10 6.39 5.34 5.85 Consolidated 7.03 % 6.95 6.46 5.58 6.56 =======================================================================================
T-18 - -------------------------------------------------------------------------------- Securities available for sale with an aggregate amortized cost of $27.0 billion at December 31, 1999, are pledged to secure U.S. Government and other public deposits and for other purposes as required by various statutes or agreements. Included in U.S. Government agencies and Sundry securities at December 31, 1999, are $2.6 billion of securities denominated in currencies other than the U.S. dollar. At December 31, 1999, these securities had a weighted average maturity of 8.91 years and a weighted average yield of 7.24 percent. Included in Asset-backed securities at December 31, 1999, are interest-only and residual certificates with a market value of $583 million; gross unrealized gains and losses of $88 million and $4 million, respectively; and an amortized cost of $499 million. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Average maturity excludes equity securities and money market funds. Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates. At December 31, 1999 and 1998, there were forward commitments to purchase securities at a cost which approximates a market value of $22 million and $4.0 billion, respectively. At December 31, 1999, there were commitments to sell securities at a cost which approximates a market value of $46 million. Gross gains and losses realized on the sale of debt securities in 1999 were $69 million and $131 million, respectively, and gross gains and losses realized on equity securities were $147 million and $14 million, respectively. Gross gains and losses realized on the sale of debt securities in 1998 were $399 million and $62 million, respectively, and gross gains and losses realized on equity securities were $18 million and $2 million, respectively. Gross gains and losses realized on the sale of debt securities in 1997 were $54 million and $43 million, respectively, and gross gains and losses realized on equity securities were $52 million and $11 million, respectively. T-19
TABLE 15 INVESTMENT SECURITIES - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1999 ---------------------------------------------------------------------------------------------- GROSS UNREALIZED AVERAGE 1 YEAR 1-5 5-10 AFTER 10 ----------------- MARKET MATURITY (In millions) OR LESS YEARS YEARS YEARS TOTAL GAINS LOSSES VALUE IN YEARS - ----------------------------------------------------------------------------------------------------------------------------------- CARRYING VALUE U.S. Treasury $ 11 - 1 - 12 - - 12 0.63 U.S. Government agencies 41 148 854 1 1,044 7 23 1,028 5.31 CMOs 58 - 1 - 59 - - 59 0.65 State, county and municipal 49 142 277 147 615 68 1 682 7.64 Sundry 3 22 1 2 28 - - 28 2.95 - ---------------------------------------------------------------------------------------------------------------------- Total $ 162 312 1,134 150 1,758 75 24 1,809 5.90 ==================================================================================================================================== MARKET VALUE Debt securities $ 163 322 1,154 170 1,809 ========================================================================================== WEIGHTED AVERAGE YIELD U.S. Treasury 4.72 % - 4.74 - 4.72 U.S. Government agencies 6.86 7.17 6.60 5.26 6.69 CMOs 8.22 - 10.39 - 8.27 State, county and municipal 9.35 10.21 11.86 11.41 11.17 Sundry 7.52 7.02 7.60 6.61 7.07 Consolidated 7.95 % 8.54 7.89 11.33 8.31 =========================================================================================== DECEMBER 31, 1998 ---------------------------------------------------------------------------------------------- Gross Unrealized Average 1 Year 1-5 5-10 After 10 ------------------ Market Maturity (In millions) or Less Years Years Years Total Gains Losses Value in Years - ----------------------------------------------------------------------------------------------------------------------------------- CARRYING VALUE U.S. Treasury $ 5 7 - - 12 - - 12 1.23 U.S. Government agencies - 891 151 3 1,045 25 1 1,069 4.08 CMOs 100 65 - - 165 3 - 168 0.98 State, county and municipal 102 165 235 245 747 110 - 857 7.65 Sundry 24 27 2 3 56 - - 56 2.13 - ---------------------------------------------------------------------------------------------------------------------- Total $ 231 1,155 388 251 2,025 138 1 2,162 5.08 ==================================================================================================================================== MARKET VALUE Debt securities $ 234 1,190 434 304 2,162 ========================================================================================== WEIGHTED AVERAGE YIELD U.S. Treasury 4.78 % 4.70 - - 4.73 U.S. Government agencies - 6.95 6.51 8.43 6.89 CMOs 8.71 7.21 - - 8.12 State, county and municipal 9.97 9.95 11.41 11.96 11.07 Sundry 7.12 7.32 7.26 5.14 7.13 Consolidated 9.02 % 7.39 9.48 11.84 8.53 =========================================================================================
T-20 - -------------------------------------------------------------------------------- Investment securities with an aggregate amortized cost of $919 million at December 31, 1999, are pledged to secure U.S. Government and other public deposits and for other purposes as required by various statutes or agreements. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Yields related to securities exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates. There were no commitments to purchase or sell investment securities at December 31, 1999 and 1998. Gross gains realized on repurchase agreement underdeliveries and calls of investment securities were $171,000, $4 million and $3 million in 1999, 1998 and 1997, respectively. T-21
TABLE 16 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS (a) - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1999 ------------------------------------------------------------------------------ GROSS UNREALIZED AVERAGE NOTIONAL CARRYING --------------------------- MARKET MATURITY IN (In millions) AMOUNT AMOUNT (f) GAINS LOSSES VALUE YEARS (g) - ----------------------------------------------------------------------------------------------------------------------------------- ASSET RATE CONVERSIONS (b) Interest rate swaps $ 50,910 39 63 200 (98) 2.81 Options (c) 6,451 115 - 353 (238) 8.48 Futures 190 - - - - 0.25 - -------------------------------------------------------------------------------------------------------------------- Total asset rate conversions $ 57,551 154 63 553 (336) 3.44 ==================================================================================================================================== LIABILITY RATE CONVERSIONS (d) Interest rate swaps $ 62,988 18 661 437 242 5.65 Options (c) 11,170 31 115 1 145 1.56 - -------------------------------------------------------------------------------------------------------------------- Total liability rate conversions $ 74,158 49 776 438 387 5.04 ==================================================================================================================================== RATE SENSITIVITY HEDGES (e) Basis swaps $ 706 - - - - 3.11 Options (c) 9,743 158 1 30 129 1.19 Futures 46,122 - 33 - 33 0.25 Options on futures 2,000 - - - - 0.72 - -------------------------------------------------------------------------------------------------------------------- Total rate sensitivity hedges $ 58,571 158 34 30 162 0.46 ==================================================================================================================================== DECEMBER 31, 1998 ------------------------------------------------------------------------------ GROSS UNREALIZED AVERAGE NOTIONAL CARRYING ------------------------- MARKET MATURITY IN (In millions) AMOUNT AMOUNT (f) GAINS LOSSES VALUE YEARS (g) - ----------------------------------------------------------------------------------------------------------------------------------- ASSET RATE CONVERSIONS (b) Interest rate swaps $ 18,351 41 397 14 424 2.75 Options (c) 7,557 135 18 11 142 8.21 - -------------------------------------------------------------------------------------------------------------------- Total asset rate conversions $ 25,908 176 415 25 566 4.34 ==================================================================================================================================== LIABILITY RATE CONVERSIONS (d) Interest rate swaps $ 8,898 27 504 32 499 5.21 Options (c) 170 1 - - 1 4.57 - -------------------------------------------------------------------------------------------------------------------- Total liability rate conversions $ 9,068 28 504 32 500 5.20 ==================================================================================================================================== RATE SENSITIVITY HEDGES (e) Basis swaps $ 785 - - - - 4.10 Options (c) 12,169 34 - 29 5 1.32 Futures 1,500 - 6 - 6 0.25 - -------------------------------------------------------------------------------------------------------------------- Total rate sensitivity hedges $ 14,454 34 6 29 11 1.36 ====================================================================================================================================
(a) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. (b) Off-balance sheet derivative financial instruments with a notional amount of $49.3 billion and $25.9 billion at December 31, 1999 and 1998, respectively, primarily convert floating rate loans to fixed rate. The 1999 notional amount includes a $29.2 billion interest rate swap maturing in December 2000 that is extendible at the option of the counterparty as a $7.5 billion forward-starting swap that qualifies as an asset rate conversion and which matures in 2012. At December 31, 1999, interest rate swaps with a notional amount of $8.3 billion are rate conversions of securities available for sale. (c) Includes purchased interest rate floors, caps and collars and purchased options on swaps. (d) Off-balance sheet derivative financial instruments with a notional amount of $36.2 billion and $9.0 billion at December 31, 1999 and 1998, respectively, convert fixed rate liabilities, primarily CD's, long-term debt and bank notes, to floating rate. The 1999 notional amount of $36.2 billion includes a $26.2 billion interest rate swap that declines on a quarterly basis through December 2000, based on the estimated decline in the balance of the designated fixed rate liabilities, to $6.0 billion which matures in 2009. Off-balance sheet derivative financial instruments with a notional amount of $38.0 billion, of which $27.0 billion are forward-starting swaps at December 31, 1999, convert floating rate liabilities, primarily deposits and long-term debt, to fixed rate. (e) Off-balance sheet derivative financial instruments designated as rate sensitivity hedges are primarily used to modify the interest rate characteristics of pay-variable interest rate swaps under asset rate conversions or liability rate conversions. (f) Carrying amount includes accrued interest receivable or payable and unamortized premiums. (g) Estimated maturity approximates average life. T-22
TABLE 17 OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES (a) - --------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1999 --------------------------------------------------------------------------------- 1 YEAR 1 -2 2 -5 5 -10 AFTER 10 (In millions) OR LESS YEARS YEARS YEARS YEARS TOTAL - --------------------------------------------------------------------------------------------------------------------------------- ASSET RATE CONVERSIONS Notional amount - swaps $ 32,386 2,041 2,219 3,647 10,617 50,910 Notional amount - other 115 67 221 6,238 - 6,641 Weighted average receive rate (b) 6.91 % 6.36 6.28 6.47 7.04 6.86 Weighted average pay rate (b) 6.08 % 6.20 6.22 6.10 6.14 6.11 Estimated fair value $ 18 (3) (24) (289) (38) (336) - --------------------------------------------------------------------------------------------------------------------------------- LIABILITY RATE CONVERSIONS Notional amount - swaps $ 20,926 734 2,550 22,213 16,565 62,988 Notional amount - other - 11,000 170 - - 11,170 Weighted average receive rate (b) 6.61 % 7.30 6.75 6.49 7.37 6.63 Weighted average pay rate (b) 6.10 % 6.09 6.25 6.04 6.15 6.09 Estimated fair value $ (105) 150 (14) 258 98 387 - --------------------------------------------------------------------------------------------------------------------------------- RATE SENSITIVITY HEDGES Notional amount - swaps $ 82 87 355 182 - 706 Notional amount - other 55,622 2,243 - - - 57,865 Weighted average receive rate (b) 6.46 % 6.46 6.46 6.46 - 6.46 Weighted average pay rate (b) 5.58 % 5.58 5.58 5.58 - 5.58 Estimated fair value $ 144 18 - - - 162 ================================================================================================================================= DECEMBER 31, 1998 --------------------------------------------------------------------------------- 1 YEAR 1 -2 2 -5 5 -10 AFTER 10 (In millions) OR LESS YEARS YEARS YEARS YEARS TOTAL - --------------------------------------------------------------------------------------------------------------------------------- ASSET RATE CONVERSIONS Notional amount - swaps $ 3,616 9,861 3,763 711 400 18,351 Notional amount - other 1,032 - 231 6,294 - 7,557 Weighted average receive rate (b) 6.84 % 6.56 6.16 5.75 6.65 6.50 Weighted average pay rate (b) 5.38 % 5.22 5.44 5.45 5.24 5.31 Estimated fair value $ 57 218 96 146 49 566 - --------------------------------------------------------------------------------------------------------------------------------- LIABILITY RATE CONVERSIONS Notional amount - swaps $ 1,587 493 1,784 4,879 155 8,898 Notional amount - other - - 170 - - 170 Weighted average receive rate (b) 6.37 % 6.33 6.78 6.74 6.31 6.65 Weighted average pay rate (b) 5.30 % 5.64 5.38 5.43 5.73 5.41 Estimated fair value $ 41 5 95 349 10 500 - --------------------------------------------------------------------------------------------------------------------------------- RATE SENSITIVITY HEDGES Notional amount - swaps $ 79 82 330 294 - 785 Notional amount - other 11,426 - 2,243 - - 13,669 Weighted average receive rate (b) 5.56 % 5.56 5.56 5.56 - 5.56 Weighted average pay rate (b) 4.94 % 4.94 4.94 4.94 - 4.94 Estimated fair value $ 7 - 4 - - 11 =================================================================================================================================
(a) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. (b) Weighted average receive and pay rates include the impact of currently effective interest rate swaps and basis swaps only, and therefore, they exclude the impact of forward-starting interest rate swaps. Substantially all of the currently effective interest rate swaps are receive-fixed/pay-variable with pay rates generally based on one-to-six month LIBOR, and they are the pay rates in effect at December 31, 1999 and 1998. T-23
TABLE 18 OFF-BALANCE SHEET DERIVATIVES ACTIVITY (a) - --------------------------------------------------------------------------------------------------------------------------- ASSET LIABILITY RATE RATE RATE SENSITIVITY (IN MILLIONS) CONVERSIONS CONVERSIONS HEDGES TOTAL - --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $ 17,714 11,422 20,880 50,016 Additions 11,422 1,361 10,775 23,558 Maturities and amortizations (3,413) (2,348) (15,794) (21,555) Terminations and redesignations, net 185 (1,367) (1,407) (2,589) - --------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 25,908 9,068 14,454 49,430 Additions 39,631 69,045 85,659 194,335 Maturities and amortizations (6,559) (3,955) (35,793) (46,307) Terminations and redesignations, net (1,429) - (5,749) (7,178) - --------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ 57,551 74,158 58,571 190,280 ===========================================================================================================================
(a) Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. T-24
TABLE 19 INTEREST DIFFERENTIAL - --------------------------------------------------------------------------------------------------------------------------------- 1999 COMPARED TO 1998 1998 Compared to 1997 -------------------------------------------- --------------------------------- INTEREST VARIANCE Interest Variance INCOME/ ATTRIBUTABLE TO (c) Income/ Attributable to (c) EXPENSE --------------------------- Expense ---------------------- (In millions) VARIANCE RATE VOLUME Variance Rate Volume - --------------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Interest-bearing bank balances $ (95) (17) (78) (48) 1 (49) Federal funds sold and securities purchased under resale agreements (167) (26) (141) 227 (46) 273 Trading account assets (a) 54 (12) 66 214 (9) 223 Securities available for sale (a) 667 90 577 899 (63) 962 Investment securities (a) U.S. Government and other (43) (4) (39) (58) (5) (53) State, county and municipal (13) 4 (17) (17) 5 (22) - --------------------------------------------------------------------------------------------------------------------------------- Total investment securities (56) - (56) (75) - (75) - --------------------------------------------------------------------------------------------------------------------------------- Loans (a) (b) (295) (321) 26 (660) (448) (212) Other earning assets (b) 56 - 56 87 43 44 - --------------------------------------------------------------------------------------------------------------------------------- Total earning assets $ 164 (286) 450 644 (522) 1,166 ================================================================================================================================= INTEREST-BEARING LIABILITIES Deposits (262) (198) (64) 168 153 15 Short-term borrowings (354) (118) (236) 776 (45) 821 Long-term debt 604 (140) 744 199 (36) 235 - --------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities $ (12) (456) 444 1,143 72 1,071 ================================================================================================================================= Net interest income $ 176 170 6 (499) (594) 95 =================================================================================================================================
(a) Yields related to securities and loans exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates. Lease financing amounts include related deferred income taxes. (b) Certain prior year amounts have been reclassified to conform to the presentation in 1999. (c) Changes attributable to rate/volume are allocated to both rate and volume on an equal basis. T-25
FIRST UNION CORPORATION NET INTEREST INCOME SUMMARIES - --------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED 1999 YEAR ENDED 1998 ---------------------------------------- ----------------------------------- AVERAGE AVERAGE INTEREST RATES INTEREST RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ (IN MILLIONS) BALANCES EXPENSE PAID BALANCES EXPENSE PAID - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-bearing bank balances $ 835 39 4.58 % $ 2,331 134 5.76 % Federal funds sold and securities purchased under resale agreements 9,526 459 4.82 12,381 626 5.06 Trading account assets (a) (d) 9,638 609 6.32 8,598 555 6.46 Securities available for sale (a) (d) 43,767 2,989 6.83 35,177 2,322 6.60 Investment securities (a) (d) U.S. Government and other 1,163 78 6.73 1,727 121 6.99 State, county and municipal 700 75 10.62 867 88 10.12 - ----------------------------------------------------------------------------- ------------------------ Total investment securities 1,863 153 8.19 2,594 209 8.04 - ----------------------------------------------------------------------------- ------------------------ Loans (a) (b) (d) Commercial Commercial, financial and agricultural 52,710 4,197 7.96 50,080 3,926 7.84 Real estate - construction and other 2,648 202 7.63 2,912 245 8.42 Real estate - mortgage 8,468 663 7.82 9,663 821 8.50 Lease financing 4,967 629 12.65 4,454 502 11.28 Foreign 4,500 273 6.08 4,297 287 6.68 - ----------------------------------------------------------------------------- ------------------------ Total commercial 73,293 5,964 8.14 71,406 5,781 8.10 - ----------------------------------------------------------------------------- ------------------------ Retail Real estate - mortgage 25,306 1,788 7.07 26,114 1,968 7.54 Installment loans - Bankcard 2,293 305 13.30 3,634 566 15.56 Installment loans - other and vehicle leasing (c) 31,482 2,820 8.96 30,906 2,857 9.24 - ----------------------------------------------------------------------------- ------------------------ Total retail 59,081 4,913 8.32 60,654 5,391 8.89 - ----------------------------------------------------------------------------- ------------------------ Total loans 132,374 10,877 8.22 132,060 11,172 8.46 - ----------------------------------------------------------------------------- ------------------------ Other earning assets (c) 1,933 143 7.38 1,175 87 7.41 - ----------------------------------------------------------------------------- ------------------------ Total earning assets 199,936 15,269 7.64 194,316 15,105 7.77 ======================== ====================== Cash and due from banks 9,178 9,132 Other assets (c) 21,205 18,765 - ----------------------------------------------------------------- ----------- Total assets $ 230,319 $ 222,213 ================================================================= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 37,448 1,035 2.77 34,917 937 2.68 Money market accounts (c) 20,031 631 3.15 22,742 755 3.32 Other consumer time 33,557 1,675 4.99 37,291 1,987 5.33 Foreign (c) 5,553 259 4.66 4,429 238 5.38 Other time 7,528 454 6.03 6,342 399 6.29 - ----------------------------------------------------------------------------- ------------------------ Total interest-bearing deposits 104,117 4,054 3.89 105,721 4,316 4.08 Federal funds purchased and securities sold under repurchase agreements 30,046 1,452 4.83 33,121 1,676 5.06 Commercial paper 2,224 107 4.81 1,954 102 5.23 Other short-term borrowings 9,188 460 5.01 11,109 595 5.36 Long-term debt 28,738 1,626 5.66 16,268 1,022 6.28 - ----------------------------------------------------------------------------- ------------------------ Total interest-bearing liabilities 174,313 7,699 4.42 168,173 7,711 4.59 ======================== ====================== Noninterest-bearing deposits 30,995 30,609 Other liabilities 9,079 7,553 Stockholders' equity (c) 15,932 15,878 - ---------------------------------------------------------------- ----------- Total liabilities and stockholders' equity $ 230,319 $ 222,213 ================================================================= =========== Interest income and rate earned $ 15,269 7.64 % $ 15,105 $ 7.77 % Interest expense and equivalent rate paid 7,699 3.85 7,711 3.96 - ------------------------------------------------------------------------------------------ ------------------------ Net interest income and margin (e) $ 7,570 3.79 % $ 7,394 $ 3.81 % ========================================================================================== ========================
(a) Yields related to securities and loans exempt from federal and state income taxes are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent and applicable state tax rates. Lease financing amounts include related deferred income taxes. (b) The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued. (c) Certain prior year amounts have been reclassified to conform to the presentation in 1999. T-26
- --------------------------------------------------------------------------------------------------------------------- YEAR ENDED 1997 YEAR ENDED 1996 YEAR ENDED 1995 ----------------------------------- ---------------------------------- --------------------------------- AVERAGE AVERAGE AVERAGE INTEREST RATES INTEREST RATES INTEREST RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCES EXPENSE PAID BALANCES EXPENSE PAID BALANCES EXPENSE PAID ------------------------------------------------------------------------------------------------------------------- $ 3,184 182 5.68 % $ 2,298 130 5.67 % $ 2,439 150 6.15 % 7,219 399 5.51 7,104 377 5.32 3,231 179 5.55 5,174 341 6.59 4,811 320 6.64 2,294 158 6.90 20,844 1,423 6.83 21,869 1,449 6.62 14,690 948 6.45 2,478 179 7.22 3,497 241 6.89 10,470 688 6.58 1,085 105 9.67 1,370 132 9.64 2,050 202 9.83 ------------------------ ----------------------- ----------------------- 3,563 284 7.97 4,867 373 7.66 12,520 890 7.11 ------------------------ ----------------------- ----------------------- 43,118 3,464 8.03 40,089 3,285 8.20 38,493 3,265 8.48 3,295 293 8.89 3,562 302 8.48 3,077 315 10.24 13,619 1,180 8.67 14,230 1,283 9.02 15,246 1,483 9.73 4,199 423 10.09 3,124 264 8.44 2,453 209 8.52 3,349 215 6.43 2,144 136 6.33 1,453 102 7.05 ------------------------ ----------------------- ----------------------- 67,580 5,575 8.25 63,149 5,270 8.35 60,722 5,374 8.85 ------------------------ ----------------------- ----------------------- 31,241 2,426 7.77 32,856 2,514 7.65 29,426 2,190 7.44 7,005 1,058 15.11 6,478 922 14.24 6,366 902 14.17 28,691 2,773 9.66 26,637 2,521 9.47 24,731 2,386 9.65 ------------------------ ----------------------- ----------------------- 66,937 6,257 9.35 65,971 5,957 9.03 60,523 5,478 9.05 ------------------------ ----------------------- ----------------------- 134,517 11,832 8.80 129,120 11,227 8.70 121,245 10,852 8.95 ------------------------ ----------------------- ----------------------- - - - - - - - - - ------------------------ ----------------------- ----------------------- 174,501 14,461 8.29 170,069 13,876 8.16 156,419 13,177 8.42 ====================== ===================== ===================== 8,695 8,620 8,306 12,784 10,525 9,214 ----------- ----------- ----------- $ 195,980 $ 189,214 $ 173,939 =========== =========== =========== 33,104 898 2.71 33,360 828 2.48 33,781 824 2.44 24,033 694 2.89 22,179 622 2.80 20,654 633 3.06 39,752 2,067 5.20 42,226 2,198 5.21 40,766 2,112 5.18 3,092 164 5.29 3,307 167 5.07 4,284 237 5.53 5,377 325 6.05 3,853 216 5.60 3,437 210 6.11 ------------------------ ----------------------- ----------------------- 105,358 4,148 3.94 104,925 4,031 3.84 102,922 4,016 3.90 22,759 1,147 5.04 22,815 1,133 4.97 14,599 831 5.69 1,948 112 5.76 1,865 98 5.27 2,104 123 5.83 5,680 338 5.96 4,228 234 5.53 3,376 202 6.00 12,596 823 6.53 10,443 655 6.27 8,334 560 6.72 ------------------------ ----------------------- ----------------------- 148,341 6,568 4.43 144,276 6,151 4.26 131,335 5,732 4.36 ====================== ===================== ===================== 27,489 26,351 24,822 5,823 4,753 4,669 14,327 13,834 13,113 ----------- ----------- ----------- $ 195,980 $ 189,214 $ 173,939 =========== =========== =========== $ 14,461 8.29 % $ 13,876 8.16 % $ 13,177 8.42 % 6,568 3.76 6,151 3.61 5,732 3.66 ---------------------- --------------------- --------------------- $ 7,893 4.53 % $ 7,725 4.55 % $ 7,445 4.76 % ====================== ===================== =====================
(d) Tax-equivalent adjustments included in trading account assets, securities available for sale, investment securities, commercial, financial and agricultural loans, commercial real estate - mortgage loans, and lease financing are (in millions): $9, $20, $24, $50, $0 and $15, respectively, in 1999; $9, $18, $27, $49, $0 and $14, respectively, in 1998; and $5, $11, $38, $32, $8 and $5, respectively, in 1997. (e) The net interest margin includes 21 basis points, 12 basis points and 6 basis points for the years ended 1999, 1998 and 1997, respectively, related to net interest income from off-balance sheet derivative transactions. T-27 FIRST UNION CORPORATION AND SUBSIDIARIES MANAGEMENT'S STATEMENT OF RESPONSIBILITY - -------------------------------------------------------------------------------- Management of First Union Corporation and its subsidiaries (the "Corporation") is committed to the highest standards of quality customer service and the enhancement of stockholder value. Management expects the Corporation's employees to respect its customers and to assign the highest priority to customer needs. The accompanying consolidated financial statements were prepared in conformity with generally accepted accounting principles and include, as necessary, best estimates and judgments by management. Other financial information contained in this annual report is presented on a basis consistent with the consolidated financial statements unless otherwise indicated. To ensure the integrity, objectivity and fairness of the information in these consolidated financial statements, management of the Corporation has established and maintains internal controls supplemented by a program of internal audits. The internal controls are designed to provide reasonable assurance that assets are safeguarded and transactions are executed, recorded and reported in accordance with management's intentions and authorizations and to comply with applicable laws and regulations. To enhance the reliability of internal controls, management recruits and trains highly qualified personnel, and maintains sound risk management practices. The consolidated financial statements have been audited by KPMG LLP, independent auditors, in accordance with generally accepted auditing standards. KPMG LLP reviews the results of its audit with both management and the Audit Committee of the Board of Directors of the Corporation. The Audit Committee, composed entirely of outside directors, meets periodically with management, internal auditors and KPMG LLP to determine that each is fulfilling its responsibilities and to support actions to identify, measure and control risks and augment internal controls. Edward E. Crutchfield Chairman and Chief Executive Officer Robert T. Atwood Executive Vice President and Chief Financial Officer January 14, 2000 C-1 FIRST UNION CORPORATION AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- Board of Directors and Stockholders First Union Corporation We have audited the consolidated balance sheets of First Union Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We have conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Union Corporation and subsidiaries at December 31, 1999 and 1998, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Charlotte, North Carolina January 14, 2000 C-2 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
DECEMBER 31, --------------------------- (In millions, except per share data) 1999 1998 - ------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 10,081 11,192 Interest-bearing bank balances 1,073 2,916 Federal funds sold and securities purchased under resale agreements 11,523 14,529 - ------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 22,677 28,637 - ------------------------------------------------------------------------------------------------------------- Trading account assets 14,946 9,759 Securities available for sale (amortized cost $52,708 in 1999; $36,798 in 1998) 51,277 37,434 Investment securities (market value $1,809 in 1999; $2,162 in 1998) 1,758 2,025 Loans, net of unearned income ($5,525 in 1999; $4,026 in 1998) 135,566 134,149 Allowance for loan losses (1,757) (1,826) - ------------------------------------------------------------------------------------------------------------- Loans, net 133,809 132,323 - ------------------------------------------------------------------------------------------------------------- Premises and equipment 5,180 5,067 Due from customers on acceptances 995 1,268 Goodwill and other intangible assets 5,626 5,036 Other assets 16,756 15,538 - ------------------------------------------------------------------------------------------------------------- Total assets $ 253,024 237,087 ============================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing deposits 31,375 35,614 Interest-bearing deposits 109,672 106,853 - ------------------------------------------------------------------------------------------------------------- Total deposits 141,047 142,467 Short-term borrowings 50,107 41,438 Bank acceptances outstanding 995 1,281 Other liabilities 12,191 12,055 Long-term debt 31,975 22,949 - ------------------------------------------------------------------------------------------------------------- Total liabilities 236,315 220,190 - ------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock, Class A, 40 million shares, no par value; 10 million shares, no par value; none issued - - Common stock, $3.33-1/3 par value; authorized 2 billion shares, outstanding 988 million shares in 1999; 982 million shares in 1998 3,294 3,274 Paid-in capital 5,980 4,029 Retained earnings 8,365 9,187 Accumulated other comprehensive income, net (930) 407 - ------------------------------------------------------------------------------------------------------------- Total stockholders' equity 16,709 16,897 - ------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 253,024 237,087 =============================================================================================================
See accompanying Notes to Consolidated Financial Statements. C-3 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, ---------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 10,812 11,109 11,787 Interest and dividends on securities available for sale 2,969 2,304 1,412 Interest and dividends on investment securities 129 182 246 Trading account interest 600 546 336 Other interest income 641 847 581 - ---------------------------------------------------------------------------------------------------------- Total interest income 15,151 14,988 14,362 - ---------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 4,054 4,316 4,148 Interest on short-term borrowings 2,019 2,373 1,597 Interest on long-term debt 1,626 1,022 823 - ---------------------------------------------------------------------------------------------------------- Total interest expense 7,699 7,711 6,568 - ---------------------------------------------------------------------------------------------------------- Net interest income 7,452 7,277 7,794 Provision for loan losses 692 691 1,103 - ---------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 6,760 6,586 6,691 - ---------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME First Union Securities Capital Markets Trading account profits 346 124 237 Securities transactions - equity investments 133 100 3 Investment banking and other Capital Markets income 1,260 932 687 - ---------------------------------------------------------------------------------------------------------- Total Capital Markets 1,739 1,156 927 Capital Management 2,316 1,805 1,158 - ---------------------------------------------------------------------------------------------------------- Total First Union Securities 4,055 2,961 2,085 Residential mortgage 405 533 315 Service charges on deposit accounts 1,106 1,099 1,087 Fees for other banking services 356 364 336 Securities transactions - portfolio (62) 357 52 Securitization 417 248 58 Sundry 656 873 389 - ---------------------------------------------------------------------------------------------------------- Total fee and other income 6,933 6,435 4,322 - ---------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE Salaries and employee benefits 4,716 4,250 3,550 Occupancy 546 561 544 Equipment 793 723 649 Advertising 234 223 141 Communications and supplies 481 480 393 Professional and consulting fees 287 311 386 Goodwill and other intangible amortization 391 348 315 Merger-related and restructuring charges 404 1,212 284 Sundry expense 1,010 948 958 - ---------------------------------------------------------------------------------------------------------- Total noninterest expense 8,862 9,056 7,220 - ---------------------------------------------------------------------------------------------------------- Income before income taxes 4,831 3,965 3,793 Income taxes 1,608 1,074 1,084 - ---------------------------------------------------------------------------------------------------------- Net income $ 3,223 2,891 2,709 ========================================================================================================== PER SHARE DATA Basic earnings $ 3.35 2.98 2.84 Diluted earnings 3.33 2.95 2.80 Cash dividends $ 1.88 1.58 1.22 AVERAGE SHARES (IN THOUSANDS) Basic 959,390 969,131 955,241 Diluted 966,863 980,112 966,792 ==========================================================================================================
See accompanying Notes to Consolidated Financial Statements. C-4 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - --------------------------------------------------------------------------------
Accumulated (Shares in thousands, Common Stock Other dollars in millions) ---------------------- Paid-in Retained Comprehensive Shares Amount Capital Earnings Income, Net Total - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 988,594 $ 3,295 1,773 9,449 29 14,546 - ------------------------------------------------------------------------------------------------------------------------ Comprehensive income Net income -- -- -- 2,709 -- 2,709 Net unrealized gain on debt and equity securities -- -- -- -- 257 257 - ------------------------------------------------------------------------------------------------------------------------ Total comprehensive income -- -- -- 2,709 257 2,966 Purchases of common stock (51,675) (172) (1,369) (819) -- (2,360) Common stock issued for Stock options and restricted stock 14,923 50 709 -- -- 759 Dividend reinvestment plan 1,525 5 51 -- -- 56 Public offering 7,500 25 333 -- -- 358 Purchase accounting acquisitions 117 -- 3 -- -- 3 Deferred compensation, net -- -- (44) -- -- (44) Cash dividends paid by First Union Corporation $1.22 per share -- -- -- (711) -- (711) Acquired companies -- -- -- (430) -- (430) - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1997 960,984 3,203 1,456 10,198 286 15,143 Comprehensive income Net income -- -- -- 2,891 -- 2,891 Net unrealized gain on debt and equity securities, net of reclassification adjustment -- -- -- -- 121 121 - ------------------------------------------------------------------------------------------------------------------------ Total comprehensive income -- -- -- 2,891 121 3,012 Purchases of common stock (49,738) (165) (384) (2,507) -- (3,056) Common stock issued for Stock options and restricted stock 19,271 64 787 -- -- 851 Dividend reinvestment plan 1,476 4 77 -- -- 81 Acquisitions 50,230 168 2,243 129 -- 2,540 Deferred compensation, net -- -- (150) -- -- (150) Cash dividends paid by First Union Corporation $1.58 per common share -- -- -- (1,423) -- (1,423) Acquired companies -- -- -- (101) -- (101) - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 982,223 3,274 4,029 9,187 407 16,897 Comprehensive income Net income -- -- -- 3,223 -- 3,223 Net unrealized loss on debt and equity securities, net of reclassification adjustment -- -- -- -- (1,337) (1,337) - ------------------------------------------------------------------------------------------------------------------------ Total comprehensive income -- -- -- 3,223 (1,337) 1,886 Purchases of common stock (35,508) (118) 533 (2,228) -- (1,813) Common stock issued for Stock options and restricted stock 8,644 29 379 -- -- 408 Dividend reinvestment plan 1,937 6 78 -- -- 84 Acquisitions 31,019 103 1,148 -- -- 1,251 Deferred compensation, net -- -- (187) -- -- (187) Cash dividends paid, $1.88 per share -- -- -- (1,817) -- (1,817) - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 988,315 $ 3,294 5,980 8,365 (930) 16,709 ========================================================================================================================
See accompanying Notes to Consolidated Financial Statements. C-5 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, -------------------------------------- (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 3,223 2,891 2,709 Adjustments to reconcile net income to net cash provided (used) by operating activities Accretion and amortization of securities discounts and premiums, net 281 249 40 Provision for loan losses 692 691 1,103 Securitization gains (417) (529) (154) Gain on sale of mortgage servicing rights (44) (22) (1) Securities available for sale transactions (71) (353) (52) Investment securities transactions - (4) (3) Depreciation, goodwill and other amortization 1,172 1,141 965 Deferred income taxes 1,079 624 553 Trading account assets, net (6,626) (380) (1,350) Mortgage loans held for resale 1,677 (1,464) (964) (Gain) loss on sales of premises and equipment (16) (11) 5 Other assets, net 439 (2,513) (609) Other liabilities, net (1,508) 3,090 933 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities (119) 3,410 3,175 - -------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Increase (decrease) in cash realized from Sales of securities available for sale 17,525 28,698 9,243 Maturities of securities available for sale 4,104 5,201 2,278 Purchases of securities available for sale (27,954) (47,477) (15,374) Calls and underdeliveries of investment securities - 387 4 Maturities of investment securities 523 1,480 1,500 Purchases of investment securities (263) (366) (840) Origination of loans, net (10,346) (872) (960) Sales of premises and equipment 280 475 160 Purchases of premises and equipment (957) (1,139) (648) Goodwill and other intangible assets, net (101) (179) (44) Purchase of bank-owned separate account life insurance (576) (359) (2,011) Cash equivalents acquired, net of purchases of banking organizations 168 366 6 - -------------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (17,597) (13,785) (6,686) - -------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase (decrease) in cash realized from Purchases (sales) of deposits, net (1,420) 5,139 620 Securities sold under repurchase agreements and other short-term borrowings, net 7,637 7,525 4,061 Issuances of long-term debt 17,612 11,493 3,676 Payments of long-term debt (8,586) (3,153) (1,797) Sales of common stock 143 700 728 Purchases of common stock (1,813) (3,056) (2,360) Cash dividends paid (1,817) (1,524) (1,141) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 11,756 17,124 3,787 - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (5,960) 6,749 276 Cash and cash equivalents, beginning of year 28,637 21,888 21,612 - -------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 22,677 28,637 21,888 - -------------------------------------------------------------------------------------------------------------------------------- CASH PAID FOR Interest $ 7,568 7,566 7,250 Income taxes 30 152 502 NONCASH ITEMS Increase in securities available for sale and a decrease in trading account assets 1,529 - - Increase in securities available for sale and a decrease in loans 8,259 - - Increase in trading account assets and a decrease in loans - 2,212 - Increase in assets held for sale and a decrease in loans - 133 3,200 Increase in foreclosed properties and a decrease in loans 9 3 17 Issuance of common stock for purchase accounting acquisitions $ 1,251 2,540 3 ===============================================================================================================================
See accompanying Notes to Consolidated Financial Statements. C-6 FIRST UNION CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 - -------------------------------------------------------------------------------- NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL First Union Corporation (the "Parent Company") is a bank holding company whose principal wholly owned subsidiaries are First Union National Bank, a national banking association; First Union Home Equity Bank, N.A., a national banking association; First Union Securities, Inc., an investment banking firm; First Union Mortgage Corporation, a mortgage banking firm; and First Union Brokerage Services, Inc., a securities brokerage firm. The accounting and reporting policies of First Union Corporation and subsidiaries (the "Corporation") are in accordance with generally accepted accounting principles, and they conform to general practices within the applicable industries. The consolidated financial statements include the accounts of the Parent Company and all its subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The Corporation is a diversified financial services company whose operations are principally domestic. Management of the Corporation has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and due from banks, interest-bearing bank balances and federal funds sold and securities purchased under resale agreements. Generally, both cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value. SECURITIES PURCHASED AND SOLD AGREEMENTS Securities purchased under resale agreements and securities sold under repurchase agreements are generally accounted for as collateralized financing transactions. They are recorded at the amount at which the securities were acquired or sold plus accrued interest. It is the Corporation's policy to take possession of securities purchased under resale agreements, which are primarily U. S. Government and Government agency securities. The market value of these securities is monitored, and additional securities are obtained when deemed appropriate. The Corporation also monitors its exposure with respect to securities sold under repurchase agreements, and a request for the return of excess securities held by the lender is made when deemed appropriate. SECURITIES Securities are classified at the date of commitment or purchase as trading account assets, securities available for sale or investment securities, based on management's intention. Gains or losses on the sale of securities are recognized on a specific identification, trade date basis. Trading account assets, primarily debt securities, trading derivatives and securities sold not owned, are recorded at fair value. Realized and unrealized gains and losses are included in trading account profits. Interest on trading account assets is recorded in interest income. Securities available for sale generally are used as a part of the Corporation's interest rate risk management strategy, and they may be sold in response to changes in interest rates, changes in prepayment risk and other factors. Securities available for sale are recorded at fair value with unrealized gains and losses recorded net of tax as a component of other comprehensive income. Equity securities classified as securities available for sale for which there are no readily determinable fair values are recorded at cost. Interest income on asset-backed securities is recognized using the level yield method. Current prepayment and loss assumptions are incorporated in calculating the level yield. Investment securities are stated at cost, net of the amortization of premium and the accretion of discount. The Corporation has the intent and the ability to hold these securities until maturity. The fair value of trading account assets and securities is based on quoted market prices or, if quoted market prices are not available, then the fair value is estimated using quoted market prices for similar securities, pricing models or discounted cash flow analysis. Securities available for sale and investment securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down treated as a realized loss. C-7 DERIVATIVES USED FOR RISK MANAGEMENT The Corporation uses interest rate swaps, futures, forwards, net purchased options (including caps and floors) and combinations thereof to manage interest rate risk by either altering the interest rate risk characteristics (rate conversions) of assets or liabilities or hedging certain exposures to risk. To qualify for rate conversion accounting, a derivative must be designated to specific assets, liabilities or pools of similar assets or liabilities and must effectively alter the interest rate characteristics of the designated assets or liabilities. To qualify as a hedge of interest rate exposure, a derivative must reduce overall interest rate risk, must be designated as a hedge of specific assets, liabilities or pools of similar assets or liabilities, and the interest rate indices on the derivative and the hedged item must be highly correlated at inception and over the life of the derivative. Instruments that do not meet these requirements at inception or fail to meet them thereafter are accounted for as trading account assets from inception or the date that the criteria are no longer met. The net interest settlement on derivatives designated as rate conversions or hedges is treated as an adjustment to the interest income or expense on the designated assets or liabilities. Premiums paid and realized gains or losses from the settlement or termination of the contracts are deferred and amortized as a yield adjustment over the shorter of the remaining term of the underlying assets or liabilities or the term of the derivative. Derivatives designated as rate conversions or hedges of securities available for sale are recorded at fair value with unrealized gains and losses recorded net of tax as a component of other comprehensive income. If rate converted or hedged assets or liabilities are sold or otherwise disposed of, deferred gains or losses on the derivatives are included in the calculation of the gain or loss on sale or disposal, and the derivative is either terminated, accounted for as trading account assets or re-designated to another asset, liability or pool of similar assets or liabilities. LOANS Loans are recorded at the principal balance outstanding net of deferred loan fees and costs. Loans held for sale are recorded at the lower of aggregate cost or market value by loan type as determined by quoted market prices, outstanding commitments from investors or current investor yield requirements. Loans held for sale are classified in Other Assets, and at December 31, 1999 and 1998, they amounted to $2.5 billion and $561 million, respectively. Gains or losses resulting from sales of loans are recognized when the proceeds are received. A loan is considered to be impaired when based on current information, it is probable the Corporation will not receive all amounts due in accordance with the contractual terms of a loan agreement. Discounted cash flow analyses using stated loan rates or the estimated fair value of collateral are used in determining the fair value of impaired loans. When the ultimate collectibility of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been foregone, and then they are recorded as recoveries of any amounts previously charged off. A loan is also considered impaired if its terms are modified in a troubled debt restructuring after January 1, 1995. For these accruing impaired loans, cash receipts are typically applied to principal and interest in accordance with the terms of the restructured loan agreement. The accrual of interest is generally discontinued on all loans, except consumer loans, that become 90 days past due as to principal or interest unless collection of both principal and interest is assured by way of collateralization, guarantees or other security. Generally, loans past due 180 days or more are placed on nonaccrual status regardless of security. Consumer loans and bankcard products that become approximately 120 days and 180 days past due, respectively, are generally charged to the allowance for loan losses. When borrowers demonstrate over an extended period the ability to repay a loan in accordance with the contractual terms of a loan the Corporation classified as nonaccrual, the loan is returned to accrual status. C-8 - -------------------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES The Corporation's methodology for determining the allowance for loan losses establishes both an allocated and an unallocated component. The allocated portion of the allowance represents the results of analyses of individual commercial loans and pools of loans within the portfolio. The allocated portion of the allowance for commercial loans is based principally on current loan grades, historical loan loss rates adjusted to reflect current conditions, as well as analyses of other factors that may have affected the collectibility of loans in the portfolio. The Corporation analyzes all commercial loans with principal balances in excess of $1 million that are being monitored as potential credit problems to determine whether such loans are impaired, with impairment measured by reference to the borrowers' collateral values and cash flows. The allocated portion of the allowance for consumer loans is based principally on loan payment status and historical loss rates adjusted to reflect current conditions. The unallocated portion of the allowance for loan losses represents the results of analyses that measure probable losses inherent in the portfolio that are not adequately captured in the allocated allowance analyses. These analyses include consideration of unidentified losses inherent in the portfolio resulting from changing underwriting criteria, including acquired loan portfolios, changes in the types and mix of loans originated, industry concentrations and evaluations, allowance levels relative to selected overall credit criteria and other economic indicators used to estimate probable incurred losses. Management believes the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's bank subsidiaries' allowances for loan losses. These agencies may require such subsidiaries to recognize changes to the allowance based on their judgments about information available to them at the time of their examination. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill is amortized on a straight-line basis generally over periods ranging from fifteen years to twenty-five years. Unamortized goodwill associated with disposed assets is included in the calculation of gain or loss on sale. Credit card premiums are amortized over the estimated period of benefit not to exceed ten years using the sum-of-the-years' digits method. Deposit base premiums are amortized principally over a ten-year period using accelerated methods. When deposits are sold, any related unamortized deposit base intangible is included in the determination of the gain on the sale of the deposits. The Corporation's unamortized goodwill and other intangibles are periodically reviewed to ensure that there have been no events or circumstances to indicate that the recorded amount is not recoverable from projected undiscounted net operating cash flows. If the projected undiscounted net operating cash flows are less than the carrying amount, a loss is recognized to reduce the carrying amount to fair value, and when appropriate, the amortization period is also reduced. OTHER ASSETS Equity Method Investments The Corporation recognizes gain or loss on transactions where a subsidiary or an equity method investee issues common stock. Recognition of a gain is subject to a determination that the gain is realizable and that there are no plans to reacquire the shares. Merchant Banking Investments Merchant banking investments are recorded at market value with realized and unrealized gains and losses included in Investment Banking and Other Capital Markets Income in the consolidated statements of income. For publicly traded securities, market value is based on quoted market prices, net of applicable discounts for trading restrictions and liquidity. Investments in non-public securities are recorded at management's estimate of market value which initially is generally the cost basis or, if the investee has raised additional debt or capital, the value implied by these financings adjusted for differences in the terms of the securities. C-9 - -------------------------------------------------------------------------------- Servicing Assets In connection with certain businesses in which the Corporation securitizes and sells originated or purchased loans with servicing retained, principally the mortgage banking business, servicing assets or liabilities are recorded based on the relative fair value of the servicing rights on the date the loans are sold. Servicing assets are amortized in proportion to and over the period of estimated net servicing income. At December 31, 1999 and 1998, servicing assets, which are included in Other Assets, were $703 million and $637 million, respectively. There were no servicing liabilities at December 31, 1999 and 1998. Servicing assets are periodically evaluated for impairment based on the fair value of those assets. If, by individual stratum, the carrying amount of servicing assets exceeds fair value, a valuation reserve is established. The valuation reserve is adjusted in subsequent periods as the fair value changes. For purposes of impairment evaluation and measurement, the Corporation stratifies servicing assets based on predominant risk characteristics of the underlying loans, including loan type, amortization type, loan coupon rate, and in certain circumstances, period of origination. The Corporation's servicing assets consist primarily of residential mortgage loans and home equity loans. The assumptions utilized in evaluating servicing assets for impairment include the specific cumulative net loss and prepayment rate on the underlying loans, and the discount rate. The range of assumptions for servicing assets on an aggregate basis at December 31, 1999, is summarized as follows: cumulative net losses, 0.6 percent to 16.9 percent; prepayment rate (annualized CPR), 5.6 percent to 35.7 percent; and discount rate, 9.5 percent to 13.0 percent. RECLASSIFICATIONS At December 31, 1999, deferred compensation amounts, which historically were included in Other Assets and which relate to the unvested portion of restricted stock awards, were reclassified as a reduction of Stockholders' Equity. All prior periods reflect this reclassification. In 1999, customer receivables from the Corporation's retail brokerage business were reclassified from Loans to Other Assets and prior period amounts included herein were reclassified to conform to the 1999 presentation. C-10 - -------------------------------------------------------------------------------- NOTE 2: ACQUISITIONS AND MERGER-RELATED AND RESTRUCTURING CHARGES ACQUISITIONS On October 1, 1999, the Corporation acquired EVEREN Capital Corporation ("EVEREN"), which at June 30, 1999, had assets of $2.9 billion, for 31 million shares of the Corporation's common stock, 13 million of which were repurchased in the open market at a cost of $559 million by December 31, 1999. With respect to this purchase accounting acquisition, the Corporation recorded approximately $900 million of goodwill based on a purchase price of $1.1 billion. The goodwill is being amortized over twenty years. The goodwill is a preliminary estimate subject to change based on refinements to certain fair value adjustments and other integration strategies. On June 30, 1998, the Corporation acquired The Money Store Inc. ("TMSI"), a consumer finance company, which at December 31, 1997, had assets of $3.1 billion, for 38 million shares of the Corporation's common stock, substantially all of which were repurchased in the open market at a cost of $2 billion. With respect to this purchase accounting acquisition, the Corporation recorded $1.9 billion of goodwill and an intangible asset related to TMSI's origination network of $304 million. This was based on TMSI's closing equity of $489 million and fair value adjustments, net of tax effects, related to certain interest-only and residual certificates related to asset-backed securities issued by TMSI of $207 million, long-term debt of $47 million, professional fees and other acquisition-related expenses of $23 million, deferred taxes related to the origination network intangible of $120 million and other miscellaneous adjustments amounting to $158 million. The amortization periods of the goodwill and the network intangible are twenty-five years and fifteen years, respectively. On April 28, 1998, the Corporation acquired CoreStates Financial Corp ("CoreStates"), a multi-bank holding company based in Pennsylvania. The merger was accounted for as a pooling of interests, and accordingly, all historical financial information for the Corporation was restated to include CoreStates historical financial information as if the combining companies had been consolidated for all periods presented herein. At December 31, 1997, CoreStates had assets of $48 billion, net loans of $35 billion, deposits of $34 billion, stockholders' equity of $3 billion and net income of $813 million. Each of the 204 million shares of CoreStates' common stock was exchanged for 1.62 shares of the Corporation's common stock. In January 1998, the Corporation acquired Covenant Bancorp, Inc. ("Covenant"), which at December 31, 1997, had assets of $415 million, for 1.6 million shares of the Corporation's common stock, substantially all of which were repurchased in the open market at a cost of $79 million. The Covenant acquisition was accounted for as a purchase. Also in January 1998, the Corporation acquired Wheat First Butcher Singer, Inc. ("Wheat First "), which at December 31, 1997, had assets of $1 billion and stockholders' equity of $171 million, for 10.3 million shares of the Corporation's common stock. The Wheat First acquisition was accounted for as a pooling of interests. Financial information related to Wheat First was not considered material to the historical results of the Corporation, and accordingly, the Corporation's financial statements were not restated. Certain pro forma financial information related to the Corporation and CoreStates, and which does not include information related to EVEREN, Covenant, Wheat First or TMSI, is presented below. C-11 - -------------------------------------------------------------------------------- FIRST UNION CORPORATION CORESTATES FINANCIAL CORP YEAR ENDED PROFORMA FINANCIAL INFORMATION DECEMBER 31, - ------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE DATA) 1997 - ------------------------------------------------------------------------------- (UNAUDITED) Interest income $ 14,362 Interest expense 6,452 Provision for loan losses 1,103 Fee and other income 4,322 Noninterest expense 7,336 Income taxes 1,084 - ------------------------------------------------------------------------------- Net income $ 2,709 =============================================================================== Basic earnings per share $ 2.84 Diluted earnings per share $ 2.80 =============================================================================== CORPORATION AS ORIGINALLY REPORTED Net interest income $ 5,677 Net income 1,896 Basic earnings per share 3.03 Diluted earnings per share $ 2.99 =============================================================================== On November 28, 1997, the Corporation acquired Signet Banking Corporation ("Signet"), a bank holding company based in Virginia. The merger was accounted for as a pooling of interests, and accordingly, all historical financial information for the Corporation was restated to include Signet historical information as if the combining companies had been consolidated for all periods presented herein. At September 30, 1997, Signet had assets of $11 billion, net loans of $7 billion, deposits of $8 billion and net income applicable to common stockholders of $73 million. In connection with the merger, each of the 61 million net outstanding shares of Signet common stock was converted into 1.10 shares of the Corporation's common stock. MERGER-RELATED AND RESTRUCTURING CHARGES Merger-related charges are those charges which are directly related to mergers but which do not qualify for recognition until they are incurred. Merger-related charges consist principally of transaction costs such as investment banker fees; expenses related to combining operations and instituting efficiencies such as systems conversions and integration costs; and in 1998, they include a $100 million charitable contribution that was required under the terms of the CoreStates merger agreement. Merger-related charges also include other items similar to those classified as restructuring charges but which did not qualify for accrual at the time the mergers were consummated. In 1999, the Corporation incurred merger-related charges of $75 million related to the CoreStates merger and $20 million related to the EVEREN acquisition. Over the past several years, the Corporation has experienced rapid growth through numerous acquisitions. These acquisitions have enabled the Corporation to expand into both new business markets and new geographic regions. In the first quarter of 1999, it became apparent that the Corporation was not realizing the full benefit of operational efficiencies envisioned in these combinations. As a result, the Corporation evaluated all facets of its operations, including such areas as current and projected staffing levels, locations of bank and sales branches, and office space requirements, including the impact that staff reductions would have on these requirements. A primary objective of the restructuring was to reduce operating expenses in the Corporation's non-core businesses and non-revenue producing functions. Based on this evaluation, in March 1999, the Corporation announced a restructuring plan that included reengineering numerous processes and functions throughout the Corporation, closing or consolidating branches, service centers and corporate office space, as well as exiting the indirect auto finance business. C-12 - -------------------------------------------------------------------------------- As a result of the restructuring plan, the Corporation displaced employees and recorded charges for the resulting employee termination benefits to be paid. In addition, the Corporation recorded occupancy-related charges that included write-downs to fair value (less cost to sell) of owned premises that were held for disposition as a result of the plan, and cancellation payments or the present values of the remaining lease obligations for leased premises, or portions thereof, that were associated with lease abandonments or restructurings. Other assets, primarily computer hardware and software, the value of which was considered to be impaired since they no longer would be used as a result of the branch and operation center closings or the reduction in workforce, were also written down to fair value (less cost to sell). Contract cancellation costs were also recorded representing the cost to buy out the remaining term or the present value of the remaining payments on contracts that provided no future benefit to the Corporation as a result of the restructuring. Employee termination benefits of $196 million included severance payments, which may be paid in a lump sum or over a defined period, and related benefits and outplacement services for 5,635 employees terminated in connection with the restructuring. The Corporation notified substantially all of the employees individually about their termination on or before March 31, 1999. Of the terminated employees, approximately 40 percent were from corporate staff units, 40 percent were from the Consumer segment and 10 percent were from the branch network. The remaining 10 percent were from non-critical areas within the Corporation's Capital Management and Capital Markets segments. Through December 31, 1999, $161 million in employee termination benefits had been paid, leaving $35 million for future payments. Occupancy charges of $54 million included $24 million related to the write-down of owned property as well as leasehold improvements and furniture and equipment. These write-downs resulted from excess space due to the reduction in the workforce and from branch closings. The amount of the write-down represents the difference between the carrying value of the property at the time that it was expected to be taken out of service and the estimated net proceeds expected to be received upon disposal. The fair value was estimated using customary appraisal techniques such as evaluating the real estate market conditions in the region and comparing market values to comparable properties. The other $30 million in occupancy charges represents the present value of future lease obligations or lease cancellation penalties in connection with the closure of approximately 104 branches and sales offices as well as certain other corporate space. Asset impairments, which were the direct result of the reduction in the workforce and certain other restructuring activities, amounted to $69 million. They consisted primarily of computer hardware write-offs of $64 million. Depreciation was discontinued at the time the assets were determined to be held for disposal. Also included in the restructuring charge was $25 million related to contract cancellations, $14 million of which related to the planned exit of the Corporation's indirect auto finance business. The plan called for immediately discontinuing the origination of indirect auto leases and the disposition of the existing portfolio by either attrition or sale. Substantially all of the $14 million charge relates to the Corporation's obligation pursuant to a pre-existing contract under which the Corporation transferred certain lease receivables to a securitization trust. This obligation represents the estimated amount the Corporation will be required to pay in lieu of delivering lease receivables into the trust, and it is a direct result of exiting the indirect auto finance business. The remaining $11 million charge represents costs to exit numerous system and service-related contracts. C-13 - -------------------------------------------------------------------------------- The restructuring plan produced pre-tax cost savings of approximately $400 million in 1999, as compared to originally projected expense levels. These savings were achieved through reduced personnel expenses of $198 million as a result of the reduction in the workforce, a reduction in depreciation expense of $19 million as a result of asset dispositions, and lower expenses of $7 million related to the cancellation of leases and contracts. The rest of the cost savings was achieved through personnel costs that will not be incurred because planned hirings were discontinued and through decreases in other operating expenses related to the reductions in staffing levels (e.g., lower training and travel costs) as well as through efficiencies gained from the reengineering of associated processes and functions. The amounts in this paragraph are unaudited. In the fourth quarter of 1999, a restructuring charge of $6 million related to TMSI was recorded to recognize costs related to the consolidation of certain operations. The costs primarily consist of employee termination benefits and lease cancellations. The restructuring charges of $353 million, as well as the merger-related expenses of $95 million recorded in 1999, were reflected in noninterest expense within the Treasury/Nonbank segment. If the Corporation were to allocate the restructuring charge to the various segments affected, using established segment allocation methodologies, $203 million and $57 million of the charges would have been allocated to the Consumer and Commercial segments, respectively. The rest of the charges would have been allocated to the Treasury/Nonbank segment and to the other business segments. In 1998, in connection with the acquisition of CoreStates, the Corporation recorded a $753 million restructuring charge. From the date of the acquisition through December 31, 1999, $661 million had been charged against the initial accrual representing payments of employee termination benefits, costs to close duplicate or excess facilities, write-offs of computer hardware and software no longer in use, and contract cancellation costs. Based on revised estimates, $46 million of the employee termination benefits accrual and $8 million of the investment banking accrual was reversed by a credit to the restructuring charge in the statements of income, $30 million of which was reversed in 1998 and $24 million of which was reversed in 1999. Employee termination benefits were less than original estimates as a result of several factors, including voluntary resignations and the termination of a higher proportion of employees with fewer years of service. The remaining balance of the accrual of $38 million at December 31, 1999, represents employee termination benefits to be paid over future periods, at the election of the employees (3,665 employees received or are receiving termination benefits) as well as the remaining payments due on property leases and service contracts that no longer provided benefit to the Corporation as a result of the restructuring. These accruals will continue to be assessed on a quarterly basis. In November 1997, the Corporation recorded a $252 million restructuring charge related to the acquisition of Signet Banking Corporation, of which $34 million remained in the restructuring accrual at December 31, 1999. Substantially all of the remaining accrual represents amounts due to key executives of Signet who were terminated as a result of the acquisition and whose employment contracts called for termination benefits to be paid over a specified period. In the fourth quarter of 1999, $18 million of the restructuring accrual was reversed based on revised estimates related to contract and lease cancellations and to disposals of fixed assets. C-14 - -------------------------------------------------------------------------------- Merger-related and restructuring charges for each of the years in the three-year period ended December 31, 1999, are presented below.
Years Ended December 31, --------------------------------------- (IN MILLIONS) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- MERGER-RELATED CHARGES Merger-related charges $ 95 599 17 Less gain on regulatory-mandated branch sales - (185) - - ----------------------------------------------------------------------------------------------------------- Total 95 414 17 - ----------------------------------------------------------------------------------------------------------- RESTRUCTURING CHARGES Employee termination benefits 200 310 121 Occupancy 55 242 25 Asset impairments 70 110 56 Contract cancellations 25 108 20 Other 3 58 30 - ----------------------------------------------------------------------------------------------------------- Total 353 828 252 Reversal of March 1999 restructuring charge, CoreStates and Signet accruals related primarily to employee termination benefits, occupancy and other (44) (30) - - ----------------------------------------------------------------------------------------------------------- Net restructuring charges 309 798 252 - ----------------------------------------------------------------------------------------------------------- Merger-related and restructuring charges of acquired companies - - 15 - ----------------------------------------------------------------------------------------------------------- Total $ 404 1,212 284 =========================================================================================================== After-tax merger-related and restructuring charges $ 263 805 204 ===========================================================================================================
A reconciliation of the unpaid restructuring accruals for each of the years in the three-year period ended December 31, 1999, is presented below.
MARCH 1999 RESTRUCTURING (In millions) Charge CoreStates Signet Other Total - ---------------------------------------------------------------------------------------------------------------------------- ACTIVITY IN THE RESTRUCTURING ACCRUALS Balance, December 31, 1996 $ - - - 33 33 Restructuring charges - - 252 - 252 Cash payments - - (57) (25) (82) Noncash write-downs - - (1) (3) (4) - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 - - 194 5 199 Restructuring charges - 753 31 44 828 Cash payments - (158) (55) (26) (239) Reversal of prior accruals related primarily to employee termination benefits, occupancy and other - (30) - - (30) Noncash write-downs - (279) (76) (5) (360) - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 - 286 94 18 398 Restructuring charges 347 - - 6 353 Cash payments (206) (167) (39) (22) (434) Reversal of prior accruals related primarily to employee termination benefits, occupancy and other (2) (24) (18) - (44) Noncash write-downs (55) (57) (3) 4 (111) - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $ 84 38 34 6 162 ============================================================================================================================
C-15 - -------------------------------------------------------------------------------- NOTE 3: SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES Information related to Securities Available for Sale and Investment Securities for each of the years in the two-year period ended December 31, 1999, is disclosed in Table 14 on pages T-18 and T-19, and in Table 15 on pages T-20 and T-21, respectively, which is incorporated herein by reference. Information related to asset securitizations and interest-only and residual certificates can be found in "Management's Analysis of Operations - Market Risk Management; Asset Securitizations" on pages 26 and 27, which is incorporated herein by reference. - -------------------------------------------------------------------------------- NOTE 4: LOANS DECEMBER 31, -------------------------- (IN MILLIONS) 1999 1998 - ------------------------------------------------------------------------------- COMMERCIAL Commercial, financial and agricultural $ 51,683 53,961 Real estate - construction and other 2,435 2,628 Real estate - mortgage 8,768 8,565 Lease financing 12,742 9,730 Foreign 4,991 4,805 - ------------------------------------------------------------------------------- Total commercial 80,619 79,689 - ------------------------------------------------------------------------------- RETAIL Real estate - mortgage 29,296 21,729 Installment loans - Bankcard 1,879 2,779 Installment loans - other 24,814 27,816 Vehicle leasing 4,483 6,162 - ------------------------------------------------------------------------------- Total retail 60,472 58,486 - ------------------------------------------------------------------------------- Total loans $ 141,091 138,175 =============================================================================== Directors and executive officers of the Parent Company and their related interests were indebted to the Corporation in the aggregate amounts of $3.5 billion and $3.1 billion at December 31, 1999 and 1998, respectively. From January 1, 1999, through December 31, 1999, directors and executive officers of the Parent Company and their related interests borrowed $1.4 billion and repaid $1.0 billion. In the opinion of management, these loans do not involve more than the normal risk of collectibility, nor do they include other features unfavorable to the Corporation. At December 31, 1999 and 1998, nonaccrual and restructured loans amounted to $970 million and $742 million, respectively. In 1999, 1998 and 1997, $81 million, $67 million and $72 million, respectively, in gross interest income would have been recorded if all nonaccrual and restructured loans had been performing in accordance with their original terms and if they had been outstanding throughout the entire period, or since origination if held for part of the period. Interest collected on these loans and included in interest income in 1999, 1998 and 1997 amounted to $23 million, $19 million and $36 million, respectively. At December 31, 1999 and 1998, impaired loans, which are included in nonaccrual loans, amounted to $603 million and $424 million, respectively. Included in the allowance for loan losses was $106 million related to $526 million of impaired loans at December 31, 1999, and $80 million related to $397 million of impaired loans at December 31, 1998. For the years ended December 31, 1999 and 1998, the average recorded investment in impaired loans was $518 million and $428 million, respectively; and $25 million and $29 million, respectively, of interest income was recognized on loans while they were impaired. At December 31, 1999 and 1998, there were no accruing impaired loans. C-16 - -------------------------------------------------------------------------------- NOTE 5: ALLOWANCE FOR LOAN LOSSES
YEARS ENDED DECEMBER 31, -------------------------------------- (IN MILLIONS) 1999 1998 1997 - ------------------------------------------------------------------------------------------- Balance, beginning of year $ 1,826 1,847 2,212 Provision for loan losses 692 691 1,103 Allowance relating to loans acquired, transferred to accelerated disposition or sold (73) (74) (596) - ------------------------------------------------------------------------------------------- Total 2,445 2,464 2,719 - ------------------------------------------------------------------------------------------- Loan losses (828) (799) (1,074) Loan recoveries 140 161 202 - ------------------------------------------------------------------------------------------- Loan losses, net (688) (638) (872) - ------------------------------------------------------------------------------------------- Balance, end of year $ 1,757 1,826 1,847 ===========================================================================================
C-17 NOTE 6: SHORT-TERM BORROWINGS Short-term borrowings of the Corporation at December 31, 1999, 1998 and 1997, which include securities sold under repurchase agreements and accrued interest thereon, and the related maximum amounts outstanding at the end of any month during such periods are presented below.
DECEMBER 31, MAXIMUM OUTSTANDING -------------------------- --------------------------- (In millions) 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- Securities sold under repurchase agreements $34,122 25,644 20,344 34,122 33,592 21,070 Federal funds purchased 1,909 2,267 3,418 4,611 7,965 3,865 Fixed and variable rate bank notes 435 4,262 1,114 3,671 4,768 2,076 Interest-bearing demand deposits issued to the U. S. Treasury 4,569 389 649 4,569 950 793 Commercial paper 2,364 1,904 1,737 2,871 2,190 2,467 Other 6,708 6,972 4,419 7,987 10,328 4,765 - ------------------------------------------------------------------------- Total $50,107 41,438 31,681 =======================================================================================================
At December 31, 1999, 1998 and 1997, the combined weighted average interest rates related to federal funds purchased and securities sold under repurchase agreements were 5.06 percent, 5.31 percent and 6.14 percent, respectively. Maturities related to these instruments in each of the years in the three-year period ended December 31, 1999, were not greater than 350 days. At December 31, 1999, 1998 and 1997, the weighted average interest rates for fixed and variable rate bank notes were 5.80 percent, 5.33 percent and 5.71 percent, respectively. Weighted average maturities related to these notes in each of the years in the three-year period ended December 31, 1999, were 48 days, 70 days and 153 days, respectively. At December 31, 1999, 1998 and 1997, the weighted average interest rates for commercial paper were 4.10 percent, 4.42 percent and 5.59 percent, respectively. Weighted average maturities related to commercial paper in each of the years in the three-year period ended December 31, 1999, were 7 days, 10 days and 4 days, respectively. Included in Other are Federal Home Loan Bank borrowings and securities sold short of $600 million and $4.5 billion, respectively, at December 31, 1999; $700 million and $5.7 billion, respectively, at December 31, 1998; and $286 million and $3.5 billion, respectively, at December 31, 1997. Substantially all short-term borrowings are due within 90 days, and accordingly, their carrying amounts are deemed to be a reasonable estimate of fair value. C-18 - -------------------------------------------------------------------------------- NOTE 7: LONG-TERM DEBT
DECEMBER 31, - ------------------------------------------------------------------------------------------------------- (In millions) 1999 1998 - ------------------------------------------------------------------------------------------------------- NOTES AND DEBENTURES ISSUED BY THE PARENT COMPANY Notes 6.60%, due 2000 (par value $250) (a) $ 250 250 6.625%, due 2004 (par value $400) (a) 398 - 7.10%, due 2004 (par value $350) (a) 348 - 6.95%, due 2004 (par value $600) (a) 596 - Floating rate, due 2004 (a) 90 - Floating rate extendible, due 2005 (b) 10 10 Subordinated notes 6.00% to 9.45%, due 2001 to 2009 (par value $150 to $300) (a) 2,661 2,908 7.18% to 8.00%, due 2009 to 2011 (par value $60 to $150) (c) 208 208 6.30%, Putable/Callable, due 2028 (par value $200) 200 200 8.77% - 149 Floating rate, due 2003 (par value $150) (a) 150 149 Subordinated debentures 6.55% to 7.57%, due 2026 to 2035 (par value $250 to $300) (d) 794 794 - ------------------------------------------------------------------------------------------------------- Total notes and debentures issued by the Parent Company 5,705 4,668 - ------------------------------------------------------------------------------------------------------- NOTES ISSUED BY SUBSIDIARIES Notes, varying rates and terms to 2006 (e) 18,196 11,414 Subordinated notes 5-7/8 % to 9-5/8%, due 2001 to 2006 (par value $100 to $200) (a) (f) 1,074 1,324 Bank, varying rates and terms to 2036 1,200 1,200 6-5/8 % to 7.95%, due 2002 to 2007 (par value $100 to $150) (a) 400 400 Subordinated capital notes, 9-5/8% to 9-7/8% - 150 - ------------------------------------------------------------------------------------------------------- Total notes issued by subsidiaries 20,870 14,488 - ------------------------------------------------------------------------------------------------------- OTHER DEBT Trust preferred securities 2,027 1,736 4.556% auto securitization financing, due September 30, 2008 (f) 945 1,023 Advances from the Federal Home Loan Bank 2,387 986 Capitalized leases, rates generally ranging from 7-1/2% to 15.20% 34 40 Mortgage notes and other debt of subsidiaries, varying rates and terms 7 8 - ------------------------------------------------------------------------------------------------------- Total other debt 5,400 3,793 - ------------------------------------------------------------------------------------------------------- Total $ 31,975 22,949 =======================================================================================================
(a) Not redeemable prior to maturity. (b) Redeemable in whole or in part at the option of the Parent Company only on certain specified dates. (c) Redeemable in whole and not in part at the option of the Parent Company only on certain specified dates. (d) Redeemable in whole and or in part at the option of the holders only on certain specified dates, otherwise not redeemable prior to maturity. (e) $561 million assumed by the Parent Company. (f) Assumed by the Parent Company. C-19 - -------------------------------------------------------------------------------- The interest rate on the floating rate notes is 6.32 percent to January 18, 2000. The interest rate on the floating rate extendible notes is 6.28 percent to March 15, 2000. The 6.30 percent putable/callable notes are subject to mandatory redemption on April 15, 2008, and under certain specified conditions, they may be put to the Parent Company by the trustee on or after this date. The interest rate on the floating rate subordinated notes is 6.17 percent to April 22, 2000. At December 31, 1999, bank notes of $16.6 billion had floating rates of interest ranging from 4.14 percent to 6.65 percent, and $1.6 billion of the notes had fixed rates of interest ranging from 5.25 percent to 10.00 percent. At December 31, 1999 and 1998, three statutory business trusts (the "Trusts") created by the Parent Company had outstanding with the Parent Company trust preferred securities with an aggregate par value of $1.3 billion and $1.0 billion, respectively. The trust preferred securities have interest rates ranging from 7.85 percent to 8.04 percent and maturities ranging from December 1, 2026, to November 15, 2029. The principal assets of the Trusts are $1.3 billion of the Parent Company's Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") with identical rates of interest and maturities as the trust preferred securities. Additionally, the Trusts have issued $30 million of common securities to the Parent Company. The estimated fair value of each of the trust preferred securities and the related Subordinated Debentures at December 31, 1999 and 1998, was $1.4 billion and $1.1 billion, respectively. The trust preferred securities, the assets of the Trusts and the common securities issued by the Trusts are redeemable in whole or in part beginning on or after December 1, 2006, or at any time in whole but not in part from the date of issuance on the occurrence of certain events. The obligations of the Parent Company with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Parent Company of the Trusts' obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Parent Company may elect from time to time to defer subordinated debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. Additionally, a bank subsidiary has outstanding trust preferred securities with a par value of $300 million and an 8 percent rate of interest, and a par value of $450 million and a LIBOR-indexed floating rate of interest. The related maturities range from December 15, 2026, to February 15, 2027. The related junior subordinated deferrable interest rate debentures all have terms substantially the same as the trust preferred securities and Subordinated Debentures issued by the Parent Company. The aggregate estimated fair values of these trust preferred securities at December 31, 1999 and 1998, were $762 million and $838 million, respectively. At December 31, 1999, $450 million of senior or subordinated debt securities or equity securities remained available for issuance under a shelf registration statement filed with the Securities and Exchange Commission. At December 31, 1999, First Union National Bank had $3 billion of senior or subordinated notes available for issuance under a $20 billion global note program, and no notes have been issued under an additional $25 billion global note program. The weighted average rate paid for long-term debt in 1999, 1998 and 1997 was 5.66 percent, 6.28 percent and 6.53 percent, respectively. See Note 14 for information on interest rate swaps entered into in connection with the issuance of long-term debt. Long-term debt maturing in each of the five years subsequent to December 31, 1999, is as follows (in millions): 2000, $13,335; 2001, $3,860; 2002, $2,441; 2003, $1,354; and 2004, $3,342. C-20 - -------------------------------------------------------------------------------- NOTE 8: COMMON STOCK AND CAPITAL RATIOS
1999 1998 1997 ---------------------- ---------------------- --------------------- WEIGHTED- Weighted- Weighted- AVERAGE Average Average (Options in thousands) NUMBER PRICE (a) Number Price (a) Number Price (a) - ---------------------------------------------------------------------------------------------------------------------------- STOCK OPTIONS Options outstanding, beginning of year 25,549 $ 37.56 24,728 $ 25.75 26,309 $ 19.96 Granted 18,508 41.12 12,279 50.72 8,215 36.15 Exercised (4,270) 25.23 (10,017) 23.27 (9,207) 18.00 Cancelled (1,130) 51.90 (1,441) 49.68 (589) 32.20 - ---------------------------------------------------------------------------------------------------------------------------- Options outstanding, end of year 38,657 $ 40.17 25,549 $ 37.56 24,728 $ 25.75 ============================================================================================================================ Options exercisable, end of year 25,459 $ 23.12 18,001 $ 29.01 17,988 $ 21.48 ============================================================================================================================ RESTRICTED STOCK Unvested shares, beginning of year 7,451 $ 46.30 4,725 $ 32.58 3,879 $ 25.73 Granted 7,133 48.19 4,525 55.38 2,229 40.62 Exercised (2,664) 44.54 (1,485) 31.30 (1,175) 26.01 Cancelled (124) 48.40 (314) 41.67 (208) 28.05 - ---------------------------------------------------------------------------------------------------------------------------- Unvested shares, end of year 11,796 $ 47.86 7,451 $ 46.30 4,725 $ 32.58 ============================================================================================================================ EMPLOYEE STOCK OPTIONS Options outstanding, beginning of year 8,170 $ 50.31 2,537 $ 27.26 6,923 $ 27.26 Granted 34,372 46.75 8,735 50.31 - - Exercised (503) 50.31 (3,007) 31.60 (4,210) 27.26 Cancelled (3,520) 48.22 (95) 27.26 (176) 27.26 - ---------------------------------------------------------------------------------------------------------------------------- Options outstanding, end of year 38,519 $ 47.32 8,170 $ 50.31 2,537 $ 27.26 ============================================================================================================================ Options exercisable, end of year 6,213 $ 50.31 8,170 $ 50.31 2,537 $ 27.26 ============================================================================================================================
(a) The weighted-average price for stock options and employee stock options is the weighted-average exercise price of the options, and for restricted stock, the weighted-average fair value of the stock at the date of grant. STOCK PLANS The Corporation has stock option plans under which incentive and nonqualified stock options may be granted periodically to key employees. The options are granted at an exercise price equal to the fair value of the shares at the date of grant, they generally vest one year following the date of grant, and they have a term of ten years. Restricted stock may also be granted under the stock option plans. The restricted stock generally vests over a five-year period, during which time the holder receives dividends and has full voting rights. Compensation cost recognized for restricted stock was $99 million, $57 million and $43 million in 1999, 1998 and 1997, respectively. The range of exercise prices and the related number of options outstanding at December 31, 1999, are as follows (shares in thousands): $2.99-$9.95, 1,522 shares; $10.07-$19.98, 4,305 shares; $20.73-$29.64, 6,358 shares; $30.13-$38.03, 5,805 shares; $40.13-$49.83, 6,064 shares; and $51.19-$62.13, 14,603 shares. The weighted average prices, remaining contractual maturities and weighted average exercise price of options currently exercisable for each exercise price range are as follows: $5.37, 5.1 years and $5.37; $15.99, 5.0 years and $15.99; $26.38, 6.3 years and $26.38; $34.65, 9.4 years and $33.70; $43.76, 7.6 years and $43.76; and $57.63, 8.9 years and $61.63, respectively. At December 31, 1999, the Corporation had 19.1 million additional shares of common stock reserved for issuance under the stock option plans. The Corporation also has employee stock plans. Under the terms of the 1999 plan, substantially all employees were granted options with an exercise price equal to the fair value of the Corporation's common stock on the date of grant of August 2, 1999. Twenty percent of the options vest on August 2, 2000. An additional 20 percent of the options vest annually on each March 1 from 2001 through 2004 if certain annual return on stockholders' equity goals are met. If the annual goal is not met in any one year, the options for the applicable 20 percent portion remain unvested until an annual goal is met at which time they vest. On April 30, 2004, any unvested options will automatically vest, and if they are not exercised by September 30, 2004, they will expire. C-21 - -------------------------------------------------------------------------------- Under the terms of the 1998 plan, substantially all employees were granted options with the number of options granted based on compensation. The options vested upon grant and have a two-year term. During the two-year term, the exercise price is equal to 85 percent of the fair value of the Corporation's common stock on the date of grant (an exercise price of $50.31 per share). At the end of the two-year period (the "Final Purchase Date"), the exercise price will be the lesser of 85 percent of the fair value on the date of grant or 85 percent of the fair value on the Final Purchase Date on June 30, 2000. As of December 31, 1999, the Corporation had 6.7 million additional shares of common stock reserved for issuance under the 1999 employee plan. The Corporation accounts for stock options using the intrinsic value method, and accordingly, no expense is recognized for options where the option price equals fair value of the shares on the date of grant. Pro forma net income and earnings per share information for each of the years in the three-year period ended December 31, 1999, calculated as if the Corporation had accounted for stock options at their respective fair values at the date of grant, are as follows: pro forma net income, $3.121 billion, $2.741 billion and $2.669 billion, respectively; and pro forma diluted earnings per share, $3.23, $2.80 and $2.76, respectively. The weighted average grant date fair values of the stock options were $10.24, $10.63 and $7.24 in 1999, 1998 and 1997, respectively. The weighted average grant date fair values of the employee stock plans were $7.90 and$11.10 in 1999 and 1998, respectively. There were no shares granted in 1997 under an employee stock plan. The Black-Scholes option pricing model was used to estimate the fair value of stock options. Option pricing models require the use of highly subjective assumptions, including expected stock price volatility, which when changed can materially affect fair value estimates. Accordingly, the model does not necessarily provide a reliable single measure of the fair value of the Corporation's stock options. The more significant assumptions used in estimating the fair value of stock options in 1999 and 1998 include risk-free interest rates of 4.63 percent to 6.12 percent and 5.34 percent to 6.72 percent, respectively; dividend yields of 4.22 percent and 3.26 percent, respectively; weighted average expected lives of the stock options of 4.7 years and 2.9 years, respectively; and volatility of the Corporation's common stock of 19 percent in both 1999 and 1998. Under the terms of the Dividend Reinvestment Plan, a participating stockholder's cash dividends and optional cash payments may be used to purchase the Corporation's common stock. Common stock issued under the Dividend Reinvestment Plan was (in thousands): 1,937 shares, 1,476 shares and 2,225 shares for the years ended December 31, 1999, 1998 and 1997, respectively. As of December 31, 1999, the Corporation had 3 million additional shares of common stock reserved for issuance under the Dividend Reinvestment Plan. TRANSACTIONS BY THE CORPORATION IN ITS COMMON STOCK The Corporation uses stock buybacks as a tool to manage leverage and return on equity to stockholders. In connection with a 50 million share buyback program announced in November 1998, the Corporation repurchased 10 million shares of the Corporation's common stock at a cost of $617 million by year-end 1998, and the Corporation repurchased an additional 39 million shares at a cost of $2.1 billion in 1999. In addition, in the second quarter of 1999, the Board of Directors of the Corporation authorized an additional 50 million share buyback program, which has not been utilized. Shares repurchased in connection with purchase accounting acquisitions disclosed in Note 2 are incremental to the buyback programs. In February 1999, the Board of Directors of the Corporation authorized the use of forward equity sales transactions ("equity forwards") in connection with the 1999 buyback program. The use of equity forwards is intended to provide the Corporation with the ability to purchase shares under the buyback program in the market and then to issue shares in private transactions to a counterparty in the amounts necessary to maintain targeted capital ratios. In 1999, the Corporation entered into equity forwards involving a total of 17 million shares. In addition to the equity forwards, the Corporation also entered into a forward contract involving 11 million shares that matures in July 2000. These transactions are being accounted for as equity transactions. Under the terms of the equity forwards, the Corporation issued shares of common stock to an investment banking firm (the "counterparty") at a specified price that approximated market value. Simultaneously, the Corporation entered into a forward contract with the same counterparty to repurchase the shares at the same price plus a premium (the "forward price"). C-22 - -------------------------------------------------------------------------------- From the dates the shares were issued to the counterparty, until such time as the Corporation repurchases the shares, the counterparty has all of the legal rights attendant to ownership of the underlying shares, including the right to vote the shares and the right to sell or pledge the shares at the counterparty's discretion. The counterparty will receive all dividends to which stockholders of record during the time covered by the term of the equity forwards are entitled. For purposes of the Corporation's earnings per share calculation, the shares are considered outstanding until repurchased. Under the terms of the equity forwards, the Corporation has the sole option of determining the method of settlement when the equity forwards mature from among the following options: gross physical settlement, net share settlement and net cash settlement. Net share settlement and net cash settlement could result in the sale of all underlying shares (and in certain circumstances additional shares) to third parties by the counterparty in public or private sales. The equity forwards mature at various times in 2000. The equity forwards can be extended by mutual consent of the parties. If the contracts are extended, the premium continues to accrue until the equity forward is settled. The Corporation can elect to terminate the equity forwards, in whole or in part, before their maturity by giving adequate notice to the counterparty and by paying a termination fee. In these circumstances, the Corporation retains the ability to select the settlement method from among the three methods outlined above. SHAREHOLDER PROTECTION RIGHTS AGREEMENT In accordance with a Shareholder Protection Rights Agreement dated December 18, 1990, as amended, the Corporation issued a dividend of one right for each share of the Corporation's common stock outstanding as of such date, and they continue to attach to all common stock issued thereafter. The rights will become exercisable if any person or group commences a tender or exchange offer that would result in their becoming the beneficial owner of 15 percent or more of the Corporation's common stock or that would result in any person being determined by the Federal Reserve Board to control the Corporation within the meaning of the Bank Holding Company Act of 1956, as amended. The rights will also become exercisable if a person or group acquires beneficial ownership of 15 percent or more of the Corporation's common stock. Each right (other than rights owned by such person or group) will entitle its holder to purchase, for an exercise price of $105.00, a number of shares of the Corporation's common stock (or at the option of the Board of Directors, shares of junior participating class A preferred stock) having a market value of twice the exercise price. If any person or group acquires beneficial ownership of between 15 percent and 50 percent of the Corporation's common stock, the Board of Directors may, at its option, exchange for each outstanding right (other than rights owned by such person or group) either two shares of common stock or two one-hundredths of a share of junior participating class A preferred stock having economic and voting terms similar to two shares of common stock. The rights are subject to adjustment if certain events occur, and they will expire on December 28, 2000, if not redeemed or terminated sooner. CAPITAL RATIOS Risk-based capital ratio guidelines require a minimum ratio of tier 1 capital to risk-weighted assets of 4 percent and a minimum ratio of total capital to risk-weighted assets of 8 percent. The minimum leverage ratio of tier 1 capital to adjusted average quarterly assets is from 3 percent to 4 percent. At December 31, 1999, the Corporation's tier 1 capital ratio, total capital ratio and leverage ratio were 7.08 percent, 10.87 percent and 5.97 percent, respectively. At December 31, 1998, the Corporation's tier 1 capital ratio, total capital ratio and leverage ratio were 6.81 percent, 10.99 percent and 5.91 percent, respectively. The Corporation does not anticipate or foresee any conditions that would reduce these ratios to levels at or below minimum or that would cause its deposit-taking banking affiliates to be less than well capitalized. Additional information related to the consolidated capital ratios of the Corporation for each of the years in the two-year period ended December 31, 1999, can be found in "Management's Analysis of Operations - Stockholders' Equity; Regulatory Capital" on pages 23 and 24, which is incorporated herein by reference. C-23 - -------------------------------------------------------------------------------- Note 9: BUSINESS SEGMENTS The Corporation has five operating segments ("business segments") all of which, by virtue of exceeding certain quantitative thresholds, are reportable segments. They include Capital Markets, Capital Management, Consumer, Commercial and Treasury/Nonbank. Each of these reportable segments offers a different array of products and services. The Capital Markets and Capital Management businesses are positioned under one name, First Union Securities. The accounting policies of these reportable segments are the same as those of the Corporation as disclosed in Note 1, except as noted below. There are no significant intersegment transactions, and there are no significant reconciling items between the reportable segments and consolidated amounts. Certain amounts are not allocated to reportable segments, and as a result, they are included in the Treasury/Nonbank segment as discussed below. Substantially all of the Corporation's revenues are earned from customers in the United States, and no single customer accounts for a significant amount of any reportable segment's revenues. The Corporation's management reporting model is used to measure business segment results. Because of the complexity of the Corporation, various estimates and allocation methodologies are used in preparing business segment financial information. The management reporting model isolates the net income contribution and measures the return on capital for each business segment by allocating equity, funding credit and expense, and certain corporate charges to each segment. A risk-based methodology is used to allocate equity based on the credit, market and operational risks associated with each business segment. A provision for loan losses is allocated to each business segment based on net charge-offs, and any excess is included in the Treasury /Nonbank segment. Income tax expense or benefit is allocated to each business segment at the statutory rate, and any difference between the total for all business segments and the consolidated amount is included in the Treasury/Nonbank segment. Exposure to market risk is managed centrally within the Treasury/Nonbank segment. In order to remove interest rate risk from each business segment, the management reporting model employs a funds transfer pricing ("FTP") system. The FTP system matches the duration of the funding used by each segment to the duration of the assets and liabilities contained in each segment. Matching the duration, or the effective term until an instrument can be repriced, allocates interest income and/or interest expense to each segment so its resulting net interest income is insulated from interest rate risk. The Treasury/Nonbank segment retains all unallocated equity and most of the interest rate risk resulting from the mismatch in the duration of assets and liabilities held by the other business segments. The Treasury/Nonbank segment also holds the Corporation's investment portfolio and off-balance sheet portfolio. Additionally, noninterest expense retained in the Treasury/Nonbank segment reflects the costs of portfolio management activities, goodwill amortization and certain other corporate charges, including merger-related and restructuring charges. In early 1999, significant refinements were made to certain of the allocation methodologies, and as a result, prior year information has been restated to conform to the information presented in 1999. These refinements include the allocation of certain nonearning assets and liabilities and the related funding cost from Treasury/Nonbank to other business segments; elimination of the tax-equivalization of net interest income such that the tax effect is now included in income tax expense; and adjustments to certain capital attribution formulas. These refinements increased net income in Treasury/Nonbank and reduced net income in the other segments. The following items not separately presented in the consolidated statements of income exceeded one percent of the sum of interest income and fee and other income. In 1999, 1998 and 1997, Investment Banking and Other Capital Markets income included investment banking amounts of $1.0 billion, $554 million and $306 million, respectively. In 1999, Capital Management fee and other income included retail brokerage and insurance services, trust services and mutual funds amounts of $1.1 billion, $678 million and $460 million, respectively; in 1998, $777 million, $609 million and $411 million, respectively; and in 1997, $316 million, $556 million and $266 million, respectively. C-24 - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999 -------------------------------------------------------------------------------------- CAPITAL CAPITAL FIRST UNION TREASURY/ (In millions) MARKETS MGT. SECURITIES (a) CONSUMER COMMERCIAL NONBANK TOTAL - ----------------------------------------------------------------------------------------------------------------------- CONSOLIDATED Income statement data Net interest income $ 1,327 526 1,853 3,356 1,615 628 7,452 Provision for loan losses 225 -- 225 325 95 47 692 Trading account profits 346 -- 346 -- -- 5 351 Fee and other income 1,393 2,316 3,709 1,746 551 576 6,582 Noninterest expense 1,349 1,898 3,247 3,535 1,207 873 8,862 Income tax expense 448 360 808 476 304 20 1,608 - ----------------------------------------------------------------------------------------------------------------------- Net income after merger-related and restructuring charges 1,044 584 1,628 766 560 269 3,223 After-tax merger-related and restructuring charges -- -- -- -- -- 263 263 - ----------------------------------------------------------------------------------------------------------------------- Net income before merger-related and restructuring charges $ 1,044 584 1,628 766 560 532 3,486 - ----------------------------------------------------------------------------------------------------------------------- Performance and other data Return on average attributed stockholders' equity 21.93 % 49.32 27.38 19.55 20.08 16.26 21.60 Average loans, net $36,807 3,785 40,592 43,157 33,487 15,138 132,374 Average deposits 11,436 19,979 31,415 70,956 25,996 6,745 135,112 Average attributed stockholders' equity (b) $ 4,766 1,181 5,947 3,926 2,788 3,271 15,932 ======================================================================================================================= YEAR ENDED DECEMBER 31, 1998 -------------------------------------------------------------------------------------------- CAPITAL CAPITAL FIRST UNION TREASURY/ (In millions) MARKETS MGT. SECURITIES (a) CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED Income statement data Net interest income $ 1,092 412 1,504 3,429 1,737 607 7,277 Provision for loan losses 130 5 135 351 91 114 691 Trading account profits 124 -- 124 -- -- (1) 123 Fee and other income 1,032 1,805 2,837 1,945 515 1,015 6,312 Noninterest expense 1,142 1,520 2,662 3,291 1,214 1,889 9,056 Income tax expense 289 266 555 662 343 (486) 1,074 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 687 426 1,113 1,070 604 104 2,891 After-tax merger-related and restructuring charges -- -- -- -- -- 805 805 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 687 426 1,113 1,070 604 909 3,696 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 17.36 % 44.87 22.70 29.16 20.78 20.66 22.70 Average loans, net $32,740 3,685 36,425 50,487 36,134 9,014 132,060 Average deposits 11,446 16,714 28,160 77,996 25,904 4,270 136,330 Average attributed stockholders' equity (b) $ 3,949 954 4,903 3,665 2,910 4,400 15,878 ====================================================================================================================================
C-25 - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------------------------------------- CAPITAL CAPITAL FIRST UNION CONSUMER COMMERCIAL TREASURY/ (In millions) MARKETS MGT. SECURITIES (a) BANK BANK NONBANK TOTAL - --------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED Income statement data Net interest income $ 1,007 342 1,349 3,866 1,843 736 7,794 Provision for loan losses 32 4 36 626 92 349 1,103 Trading account profits 237 -- 237 -- -- 15 252 Fee and other income 690 1,158 1,848 1,452 477 293 4,070 Noninterest expense 929 977 1,906 3,118 1,314 882 7,220 Income tax expense 331 198 529 603 343 (391) 1,084 - --------------------------------------------------------------------------------------------------------------------------------- Net income after merger-related and restructuring charges 642 321 963 971 571 204 2,709 After-tax merger-related and restructuring charges -- -- -- -- -- 204 204 - --------------------------------------------------------------------------------------------------------------------------------- Net incomes before merger-related and restructuring charges $ 642 321 963 971 571 408 2,913 - --------------------------------------------------------------------------------------------------------------------------------- Performance and other data Return on average attributed stockholders' equity 21.83% 46.40 26.54 28.99 19.19 9.33 20.29 Average loans, net $26,438 3,071 29,509 53,086 38,273 13,649 134,517 Average deposits 6,661 14,750 21,411 80,336 24,247 6,853 132,847 Average attributed stockholders' equity (b) $ 2,943 686 3,629 3,354 2,973 4,371 14,327 =================================================================================================================================
(a) Capital Markets and Capital Management amounts are combined under the heading "First Union Securities." (b) Average attributed stockholders' equity excludes each respective year's merger-related and restructuring charges. C-26 - -------------------------------------------------------------------------------- NOTE 10: PERSONNEL EXPENSE AND RETIREMENT BENEFITS The Corporation has a savings plan under which eligible employees are permitted to make basic contributions to the plan of up to six percent of base compensation and supplemental contributions of up to nine percent of base compensation. Annually, on approval of the Board of Directors, employee basic contributions may be matched up to six percent of the employee's base compensation. A six percent matching level was approved for each of the periods presented. Beginning in 1999, the first one percent of the Corporation's matching contribution is made in the Corporation's common stock. Savings plan expense in 1999, 1998 and 1997 was $102 million, $121 million and $87 million, respectively. Group insurance expense for active employees in 1999, 1998 and 1997 was $201 million, $160 million and $157 million, respectively. The Corporation has noncontributory, tax-qualified defined benefit pension plans (the "Qualified Pension") covering substantially all employees with one year of service. The Qualified Pension benefit expense is determined by an actuarial valuation, and it is based on assumptions that are evaluated annually. Contributions are made each year to a trust in an amount that is determined by the actuary to meet the minimum requirements of ERISA and to fall at or below the maximum amount that can be deducted on the Corporation's tax return. Amounts related to prior years are determined using the projected unit credit valuation method. The difference between the pension expense included in noninterest expense and the funded amount is included in Other Assets or Other Liabilities, as appropriate. At December 31, 1999, Qualified Pension assets included U.S. Government and Government agency securities, equity securities and other investments. Also included are 4.5 million shares of the Corporation's common stock. All Qualified Pension assets are held by First Union National Bank (the "Bank") in a Bank-administered trust fund. The Corporation has noncontributory, nonqualified pension plans (the "Nonqualified Pension") covering certain employees. The Nonqualified Pension benefit expense is determined annually by an actuarial valuation, and it is included in noninterest expense. The Corporation also provides certain health care and life insurance benefits for retired employees (the "Other Postretirement Benefits"). Substantially all of the Corporation's employees may become eligible for Other Postretirement Benefits if they reach retirement age while working for the Corporation. Life insurance benefits, medical and other benefits are provided through a tax-exempt trust formed by the Corporation. The change in benefit obligation and the change in fair value of plan assets related to each of the Qualified Pension, the Nonqualified Pension and the Other Postretirement Benefits using a September 30 measurement date for each of the years in the two-year period ended December 31, 1999, follows. In 1998, the curtailment gain resulted from employee terminations in connection with the CoreStates merger. C-27 - --------------------------------------------------------------------------------
OTHER POSTRETIREMENT QUALIFIED PENSION NONQUALIFIED PENSION BENEFITS -------------------- ----------------------- ----------------------- (IN MILLIONS) 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation, October 1 $ 2,333 2,020 250 182 390 350 Service cost 108 89 5 4 9 8 Interest cost 153 140 16 14 25 24 Retiree contributions -- -- -- -- 7 6 Plan amendments -- 22 -- 32 4 (4) Benefit payments (212) (143) (51) (12) (31) (29) Business combinations -- -- -- -- 16 -- Curtailment (gain) loss -- (39) -- -- -- 1 Special and/or contractual termination benefits -- 3 -- -- 3 -- Actuarial (gains) losses (327) 241 (18) 30 (19) 34 - ------------------------------------------------------------------------------------------------------------------------ Benefit obligation, September 30 2,055 2,333 202 250 404 390 - ------------------------------------------------------------------------------------------------------------------------ CHANGE IN FAIR VALUE OF PLAN ASSETS Fair value of plan assets, October 1 2,360 2,446 -- -- 70 67 Actual return on plan assets 257 57 -- -- 4 3 Employer contributions 67 -- 51 12 24 23 Retiree contributions -- -- -- -- 7 6 Benefit payments (212) (143) (51) (12) (30) (29) - ------------------------------------------------------------------------------------------------------------------------ Fair value of plan assets, September 30 2,472 2,360 -- -- 75 70 - ------------------------------------------------------------------------------------------------------------------------ RECONCILIATION OF FUNDED STATUS Funded status of plans 417 27 (202) (250) (329) (320) Unrecognized net transition obligation (13) (21) -- 1 51 55 Unrecognized prior service costs 47 54 39 64 (16) (22) Unrecognized net (gains) losses (34) 324 27 59 (73) (54) Employer contributions in the fourth quarter 104 67 -- -- (7) 10 - ------------------------------------------------------------------------------------------------------------------------ Prepaid (accrued) benefit expense at December 31, $ 521 451 (136) (126) (374) (331) ======================================================================================================================== ASSUMPTIONS Discount rate, September 30 7.75% 6.75 7.75 6.75 7.75 6.75 Expected return on plan assets 9.75 9.50 -- -- 6.00 6.00 Weighted average rate of increase in future compensation levels 4.25% 4.00 4.25 4.00 4.25 4.00 ========================================================================================================================
The components of the retirement benefits cost for each of the years in the three-year period ended December 31, 1999, are presented below.
QUALIFIED PENSION NONQUALIFIED PENSION ------------------------- -------------------------- YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, ------------------------- -------------------------- (IN MILLIONS) 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------ RETIREMENT BENEFITS COST Service cost $ 108 89 80 5 4 4 Interest cost 153 140 136 16 14 12 Expected return on plan assets (230) (203) (180) -- -- -- Amortization of transition (gains) losses (9) (9) (11) 1 1 1 Amortization of prior service cost 7 6 5 11 9 6 Actuarial gains 5 3 1 5 1 1 Curtailment (gain) loss -- (35) 2 -- 1 1 Special and/or contractual termination benefits -- 3 3 -- -- -- - ------------------------------------------------------------------------------------------------------ Net retirement benefits cost $ 34 (6) 36 38 30 25 ======================================================================================================
C-28 - -------------------------------------------------------------------------------- OTHER POSTRETIREMENT BENEFITS ---------------------------------------- YEARS ENDED DECEMBER 31, ---------------------------------------- (IN MILLIONS) 1999 1998 1997 - -------------------------------------------------------------------------------- RETIREMENT BENEFITS COST Service cost $ 9 8 7 Interest cost 25 24 26 Expected return on plan assets (4) (4) (3) Amortization of transition gains 4 4 4 Amortization of prior service cost (1) (2) (2) Actuarial losses (1) (4) (3) Curtailment (gain) loss -- (12) 3 Special termination benefit cost 2 -- -- - -------------------------------------------------------------------------------- Net retirement benefits cost $ 34 14 32 ================================================================================ Medical trend rates assumed with respect to Other Postretirement Benefits at the beginning and at the end of 1999 were 6.00 percent (pre-65 years of age) and 5.00 percent (post-65 years of age). Medical trend rates assumed with respect to Other Postretirement Benefits at the beginning of 1998 ranged from 5.50 percent to 6.00 percent (pre-65 years of age) and 5.00 percent to 8.75 percent (post-65 years of age) grading to 5.00 percent to 5.50 percent; and at the end of 1998, 6.00 percent (pre-65 years of age) and 5.00 percent (post-65 years of age). At December 31, 1999, the effect of a one percentage point increase or decrease in the assumed health care cost trend rate on service and interest costs is a $1 million increase and a $1 million decrease, respectively, and on the accumulated postretirement benefit obligation, a $13 million increase and a $12 million decrease, respectively. C-29 - -------------------------------------------------------------------------------- NOTE 11: INCOME TAXES The provision for income taxes for each of the years in the three-year period ended December 31, 1999, is presented below. YEARS ENDED DECEMBER 31, ------------------------------------------ (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------- CURRENT INCOME TAX EXPENSE Federal $ 451 395 480 State 63 40 39 - -------------------------------------------------------------------------------- Total 514 435 519 Foreign 15 15 12 - -------------------------------------------------------------------------------- Total 529 450 531 - -------------------------------------------------------------------------------- DEFERRED INCOME TAX EXPENSE Federal 1,090 598 526 State (11) 26 27 - -------------------------------------------------------------------------------- Total 1,079 624 553 - -------------------------------------------------------------------------------- Total $ 1,608 1,074 1,084 ================================================================================ The reconciliation of federal income tax rates and amounts to the effective income tax rates and amounts for each of the years in the three-year period ended December 31, 1999, is presented below.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------- 1999 1998 1997 ---------------------- ----------------------- ---------------------- PERCENT OF PERCENT OF PERCENT OF PRE-TAX PRE-TAX PRE-TAX (In millions) AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes $ 4,831 $ 3,965 $ 3,793 ---------- --------- ---------- Tax at federal income tax rate $ 1,691 35.0% $ 1,388 35.0% $ 1,327 35.0 % Reasons for difference in federal income tax rate and effective tax rate Tax-exempt interest, net of cost to carry (45) (0.9) (50) (1.3) (53) (1.4) Non-taxable distributions from corporate reorganizations -- -- (270) (6.8) (264) (7.0) State income taxes, net of federal tax benefit 34 0.7 43 1.1 43 1.1 Goodwill amortization 86 1.8 67 1.7 50 1.3 Tax credits, net of related basis adjustments (85) (1.8) (54) (1.4) (31) (0.8) Change in the beginning-of-the-year deferred tax assets valuation allowance (1) -- -- -- (11) (0.3) Other items, net (72) (1.5) (50) (1.2) 23 0.6 - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 1,608 33.3 % $ 1,074 27.1% $ 1,084 28.5 % ==================================================================================================================================
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. C-30 - -------------------------------------------------------------------------------- The sources and tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities for each of the years in the three-year period ended December 31, 1999, are presented below.
DECEMBER 31, ------------------------------------------ (In millions) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAX ASSETS Provision for loan losses, net $ 674 695 857 Accrued expenses, deductible when paid 681 711 524 Foreclosed properties 12 26 7 Sale and leaseback transactions - - 15 Deferred income - - 18 Unrealized loss on debt and equity securities 507 - - Purchase accounting adjustments (primarily loans and securities) 67 104 79 Net operating loss carryforwards 178 324 71 Tax credit carryforwards 392 207 54 Other 117 112 108 - --------------------------------------------------------------------------------------------------------------- Total deferred income tax assets 2,628 2,179 1,733 - --------------------------------------------------------------------------------------------------------------- Deferred tax assets valuation allowance 23 24 24 - --------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAX LIABILITIES Depreciation 114 174 303 Deferred income 34 - - Unrealized gain on debt and equity securities - 224 154 Intangible assets 112 166 115 Leasing activities 3,822 3,019 2,082 Loan products 101 99 46 Prepaid pension assets 199 175 128 Loan loss reserve recapture 13 28 30 Securitizations 101 33 - Other 259 143 126 - --------------------------------------------------------------------------------------------------------------- Total deferred income tax liabilities 4,755 4,061 2,984 - --------------------------------------------------------------------------------------------------------------- Net deferred income tax liabilities $ 2,150 1,906 1,275 ===============================================================================================================
A portion of the current year change in the net deferred tax liability relates to unrealized gains and losses on securities available for sale. The related 1999, 1998 and 1997 deferred tax expense (benefit) of $(731) million, $70 million and $139 million, respectively, have been recorded directly to stockholders' equity. Purchase acquisitions also increased (decreased) the net deferred tax liability by $(104) million, $(63) million and $44 million in 1999, 1998 and 1997, respectively. The realization of deferred tax assets may be based on the utilization of carrybacks to prior taxable periods, the anticipation of future taxable income in certain periods and the utilization of tax planning strategies. Management has determined that it is more likely than not that the deferred tax assets can be supported by carrybacks to federal taxable income in the two-year federal carryback period and by expected future taxable income that will exceed amounts necessary to fully realize remaining deferred tax assets resulting from net operating loss carryforwards and from the scheduling of temporary differences. The valuation allowance primarily relates to certain state temporary differences and to federal and state net operating loss carryforwards. C-31 - -------------------------------------------------------------------------------- At December 31, 1999, the Corporation had net operating loss carryforwards of $61 million that are available to offset future federal taxable income through 2017, subject to annual limitations. The Corporation also had net operating loss carryforwards of approximately $7.8 billion that are available to offset future state taxable income through 2014. Income tax expense related to securities available for sale transactions was $63 million, $137 million and $11 million in 1999, 1998 and 1997, respectively. Income tax expense related to investment security transactions was $2 million and $1 million in 1998 and 1997, respectively. Amounts in 1999 were not significant. The Internal Revenue Service (the "IRS") is currently examining the Corporation's federal income tax returns for the years 1994 through 1996 and federal income tax returns for certain acquired subsidiaries for periods prior to acquisition. In 1999, the IRS examination of the Corporation's federal income tax returns for the years 1991 through 1993 was settled with no significant impact on the Corporation's financial position or results of operations. In 1999, 1998 and 1997, tax liabilities for certain acquired subsidiaries for periods prior to their acquisition by the Corporation were settled with the IRS with no significant impact on the Corporation's financial position or results of operations. - -------------------------------------------------------------------------------- NOTE 12: BASIC AND DILUTED EARNINGS PER SHARE Basic earnings per share is computed by dividing adjusted net income by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed by dividing income available to common stockholders by the sum of the weighted average number of shares and the number of shares that would have been outstanding if potentially dilutive shares had been issued. The reconciliation between basic and diluted earnings per share for each of the years in the three-year period ended December 31, 1999, is presented below.
YEARS ENDED DECEMBER 31, ----------------------------------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998 1997 - ------------------------------------------------------------------------------------------ Net income $ 3,223 2,891 2,709 Less imputed interest on the Corporation's transactions in its common stock (6) -- -- - ------------------------------------------------------------------------------------------ Income available to common stockholders 3,217 2,891 2,709 ========================================================================================== Basic earnings per share $ 3.35 2.98 2.84 ========================================================================================== Diluted earnings per share $ 3.33 2.95 2.80 ========================================================================================== Average shares - basic (IN THOUSANDS) 959,390 969,131 955,241 Options and unvested restricted stock (IN THOUSANDS) 7,473 10,981 11,551 - ------------------------------------------------------------------------------------------ Average shares - diluted (IN THOUSANDS) 966,863 980,112 966,792 ==========================================================================================
C-32 - -------------------------------------------------------------------------------- NOTE 13: ACCUMULATED OTHER COMPREHENSIVE INCOME, NET Comprehensive income is defined as the change in equity from all transactions other than those with stockholders, and it includes net income and other comprehensive income. The Corporation's only significant item of other comprehensive income is net unrealized gains or losses on certain debt and equity securities and the reclassification adjustments related thereto. Reclassification adjustments include the gains or losses realized in the current period on certain debt and equity securities that were included in accumulated other comprehensive income at the beginning of the period. Disclosure of reclassification adjustments for periods prior to January 1, 1998, is not required. Accumulated other comprehensive income, net, for each of the years in the three-year period ended December 31, 1999, is presented below.
INCOME TAX PRE-TAX (EXPENSE) AFTER-TAX (In millions) AMOUNT BENEFIT AMOUNT - -------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME, NET Accumulated other comprehensive income, net, December 31, 1996 $ 48 (19) 29 Unrealized net holding gain arising in 1997 396 (139) 257 - -------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net, December 31, 1997 444 (158) 286 Unrealized net holding gain arising in 1998 469 (168) 301 Reclassification adjustment for gains and losses realized in net income (277) 97 (180) - -------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net, December 31, 1998 636 (229) 407 Unrealized net holding loss arising in 1999 (1,820) 644 (1,176) Reclassification adjustment for gains and losses realized in net income (247) 86 (161) - -------------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income, net, December 31, 1999 $ (1,431) 501 (930) ====================================================================================================================
- -------------------------------------------------------------------------------- NOTE 14: OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENT LIABILITIES The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers, to reduce its own exposure to fluctuations in interest rates and to conduct lending activities. These financial instruments include commitments to extend credit, standby and commercial letters of credit, derivatives, and commitments to purchase and sell securities. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the consolidated financial statements. The Corporation's exposure to credit loss in the event of nonperformance by the counterparty for commitments to extend credit and standby and commercial letters of credit is represented by the contract amount of those instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation holds various assets as collateral to support those commitments for which collateral is deemed necessary. The Corporation uses the same credit policies in entering into commitments and conditional obligations as it does for on-balance sheet instruments. For derivatives, the contract or notional amounts do not represent the exposure to credit loss. The Corporation controls the credit risk of its derivatives through collateral arrangements, credit approvals, limits and monitoring procedures. The Corporation's policy requires all swaps and options to be governed by an International Swaps and Derivatives Association Master Agreement. Bilateral collateral agreements are in place for substantially all dealer counterparties. Collateral for dealer transactions is delivered by either party when the credit risk associated with a particular transaction, or group of transactions to the extent netting exists, exceeds defined thresholds of credit risk. Thresholds are determined based on the strength of the individual counterparty. As of December 31, 1999, the total credit risk in excess of thresholds was $759 million. The fair value of collateral held approximated the total credit risk in excess of the thresholds. C-33 - -------------------------------------------------------------------------------- For non-dealer transactions, the need for collateral is evaluated on an individual transaction basis, and it is primarily dependent on the financial strength of the counterparty. Additional information related to derivatives used for the Corporation's interest rate risk management purposes as of December 31, 1999 and 1998, can be found in Table 16 through Table 18 on pages T-22 through T-24, which are incorporated herein by reference. Additional information related to other off-balance sheet financial instruments as of December 31, 1999 and 1998, is presented below.
DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------------------------ --------------------------------------- CONTRACT CONTRACT ESTIMATED OR ESTIMATED OR CARRYING FAIR NOTIONAL CARRYING FAIR NOTIONAL (IN MILLIONS) AMOUNT VALUE AMOUNT AMOUNT VALUE AMOUNT - -------------------------------------------------------------------------------------------------------------------------------- FINANCIAL INSTRUMENTS WHOSE CONTRACT AMOUNTS REPRESENT CREDIT RISK Commitments to extend credit $ - 172 141,176 - 189 131,483 Standby and commercial letters of credit - 25 11,512 - 27 10,782 FINANCIAL INSTRUMENTS WHOSE CONTRACT OR NOTIONAL AMOUNTS EXCEED THE AMOUNT OF CREDIT RISK Trading and dealer activities Forward and futures contracts 748 748 108,177 83 83 87,038 Interest rate swap agreements (385) (385) 121,394 (213) (213) 72,698 Purchased options, interest rate caps, floors, collars and swaptions 724 724 88,896 368 368 44,485 Written options, interest rate caps, floors, collars and swaptions (682) (682) 63,406 (299) (299) 18,218 Foreign currency and exchange rate swap commitments (26) (26) 2,794 6 6 5,293 Commodity and equity swaps $ 1 1 28 10 10 69 ================================================================================================================================
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses, and they may require payment of a fee by the counterparty. Since many of the commitments are expected to expire without being drawn, the total commitment amounts do not necessarily represent future cash requirements. Standby and commercial letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Except for short-term guarantees of $7 billion, guarantees extend for more than one year, and they expire in varying amounts primarily through 2033. The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. Generally, for fixed rate loan commitments, fair value also considers the difference between the current level of interest rates and the committed rates. The fair value of commitments and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties. C-34 Forward and futures contracts are contracts for delayed delivery of securities or money market instruments in which the seller agrees to make delivery of a specified instrument at a specified future date, at a specified price or yield. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities values and interest rates. The Corporation enters into a variety of derivatives including interest rate swaps, options, caps, floors and swaptions in its trading activities and in managing its interest rate exposure. As a writer of options, the Corporation receives a premium at the outset and bears the risk of an unfavorable change in the price of the financial instrument underlying the contract. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying notional amounts. Entering into interest rate swap agreements involves not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also the interest rate risk associated with unmatched positions. Notional amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Generally, futures contracts are exchange traded, and all other off-balance sheet instruments are transacted in the over-the-counter markets. In the normal course of business, the Corporation enters into underwriting commitments. Transactions relating to these underwriting commitments that were open at December 31, 1999, and that were subsequently settled, had no material impact on the Corporation's consolidated financial position. In the normal course of business, the Corporation has entered into certain transactions that have recourse options. These recourse options, if acted on, would not have a material impact on the Corporation's financial position. Substantially all time drafts accepted by December 31, 1999, met the requirements for discount with Federal Reserve Banks. Average daily Federal Reserve Bank balance requirements for the year ended December 31, 1999, amounted to $367 million. Minimum operating lease payments due in each of the five years subsequent to December 31, 1999, are as follows (in millions): 2000, $250; 2001, $245; 2002, $221; 2003, $194; 2004, $171; and subsequent years, $931 million. Rental expense for all operating leases for the three years ended December 31, 1999, was $319 million, 1999; $326 million, 1998; and $316 million, 1997. The Corporation and certain of its subsidiaries have been named as defendants in various legal actions arising from their normal business activities and as specifically described below, in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, any such liability will not have a material impact on the Corporation's consolidated financial condition. A number of purported class actions were filed in June through August 1999 against the Corporation in the United States District Courts for the Western District of North Carolina and for the Eastern District of Pennsylvania. These actions name the Corporation and certain of its executive officers as defendants and are purported to be on behalf of persons who purchased shares of the Corporation's common stock from August 14, 1998 through May 24, 1999. These complaints allege various violations of federal securities law, including violations of Section 10(b) of the Securities Exchange Act of 1934, and that the defendants made materially misleading statements and/or material omissions which artificially inflated prices for the Corporation's common stock. Plaintiffs seek a judgment awarding damages and other relief. The Corporation believes the allegations contained in these actions are without merit and will vigorously defend them. C-35 - -------------------------------------------------------------------------------- NOTE 15: FAIR VALUE OF FINANCIAL INSTRUMENTS Information about the fair value of on-balance sheet financial instruments at December 31, 1999 and 1998, is set forth below.
DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------------------- ------------------------ ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR (IN MILLIONS) AMOUNT VALUE AMOUNT VALUE - ----------------------------------------------------------------------------------------------- FINANCIAL ASSETS Cash and cash equivalents $ 22,677 22,677 28,637 28,637 Trading account assets 14,946 14,946 9,759 9,759 Securities available for sale 51,277 51,277 37,434 37,434 Investment securities 1,758 1,809 2,025 2,162 Loans, net of unearned income and allowance for loan losses 133,809 133,763 132,323 134,728 Other assets $ 14,259 14,259 12,698 12,698 =============================================================================================== FINANCIAL LIABILITIES Deposits 141,047 141,477 142,467 142,936 Short-term borrowings 50,107 50,107 41,438 41,438 Other liabilities 9,084 9,084 8,099 8,099 Long-term debt $ 31,975 31,807 22,949 23,517 ===============================================================================================
The fair values of performing loans for all portfolios are calculated by discounting estimated cash flows through expected maturity dates using estimated market yields that reflect the credit and interest rate risks inherent in each category of loans. These market yields also include a component for the estimated cost of servicing the portfolio. A prepayment assumption is used as an estimate of the number of loans that will be repaid prior to their contractual maturity. Estimated fair values for the commercial loan portfolio were based on weighted average discount rates ranging from 6.88 percent to 8.08 percent and 5.52 percent to 7.64 percent at December 31, 1999 and 1998, respectively, and for the retail portfolio from 8.21 percent to 12.94 percent and 7.08 percent to 12.94 percent, respectively. For performing residential mortgage loans, fair values are estimated using a discounted cash flow analysis utilizing yields for comparable mortgage-backed securities.The fair value of nonperforming loans is calculated by estimating the timing and amount of cash flows. These cash flows are discounted using estimated market yields commensurate with the risk associated with such cash flows. The fair value of noninterest-bearing deposits, savings and NOW accounts, and money market accounts was the amount payable on demand at December 31, 1999 and 1998. The fair value of fixed-maturity certificates of deposit is estimated based on the discounted value of contractual cash flows using the rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market. The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt with similar terms. Fair value estimates are based on existing financial instruments, as defined, without estimating the value of certain ongoing businesses, the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In the opinion of management, these add significant value to the Corporation. Significant items that are not included are long-term relationships with customers through the deposit base, the mortgage banking operation and the brokerage network. The fair value of off-balance sheet derivative financial instruments has not been considered in determining on-balance sheet fair value estimates. C-36 - -------------------------------------------------------------------------------- NOTE 16: FIRST UNION CORPORATION (PARENT COMPANY) The Parent Company serves as the primary source of funding for the activities of its nonbank subsidiaries. The Parent Company has available a $175 million, four-year line of credit that expires in July 2002 and a $175 million, 364-day line of credit which expires in June 2000. Annual facility fees related to the four-year line of credit and the 364-day line of credit range from 7.00 basis points to 17.50 basis points and 5.00 basis points to 15.00 basis points, respectively. The annual facility fee is based on both the commitment amount, and on the senior, unsecured debt ratings of the Parent Company. Generally, interest rates will be determined when the credit line is used, and they will vary based on the type of loan extended to the Parent Company. Additionally, each line of credit contains financial covenants related to tangible net worth and double leverage ratios, and each requires that the Parent Company's banking affiliates maintain certain capital levels. At December 31, 1999, the Parent Company was in compliance with these covenants and requirements. Certain regulatory and other requirements restrict the lending of funds by the bank subsidiaries to the Parent Company and to the Parent Company's nonbank subsidiaries and restrict the amount of dividends that can be paid to the Parent Company by the bank subsidiaries and certain of the Parent Company's other subsidiaries. On December 31, 1999, the Parent Company was indebted to subsidiary banks in the amount of $1.1 billion that, under the terms of revolving credit agreements, was collateralized by certain interest-bearing balances, securities available for sale, loans, premises and equipment, and it was payable on demand. On December 31, 1999, a subsidiary bank had loans outstanding to Parent Company nonbank subsidiaries in the amount of $579 million that, under the terms of a revolving credit agreement, were collateralized by securities available for sale and certain loans, and they were payable on demand. The Parent Company has guaranteed certain borrowings of its subsidiaries that at December 31, 1999, amounted to $395 million. Industry regulators limit dividends that can be paid by the Corporation's subsidiaries. National banks are limited in their ability to pay dividends in two principal ways. First, dividends cannot exceed the bank's undivided profits, less statutory bad debt in excess of the bank's allowance for loan losses; and second, in any year, dividends may not exceed a bank's net profits for that year, plus its retained earnings from the preceding two years, less any required transfers to surplus. At December 31, 1999, the Parent Company's subsidiaries, including its bank subsidiaries, had available retained earnings of $1.5 billion for the payment of dividends to the Parent Company without regulatory or other restrictions. Dividends from subsidiaries include $1.5 billion in equity transfers to the Parent Company related to internal bank consolidations in 1998. Subsidiary net assets of $17 billion were restricted from being transferred to the Parent Company at December 31, 1999, under regulatory or other restrictions. The operating results of the Parent Company and its eligible subsidiaries are included in a consolidated federal income tax return. Each subsidiary pays its allocation of federal income taxes to the Parent Company or receives payment from the Parent Company to the extent tax benefits are realized. Where state income tax laws do not permit consolidated income tax returns, applicable state income tax returns are filed. At December 31, 1999 and 1998, the estimated fair value of the Parent Company's loans was $4.7 billion and $3.9 billion, respectively. See Note 7 for information related to the Parent Company's junior subordinated deferrable interest debentures. The Parent Company's condensed balance sheets as of December 31, 1999 and 1998, and the related condensed statements of income and cash flows for each of the years in the three-year period ended December 31, 1999, are presented below. C-37 - -------------------------------------------------------------------------------- CONDENSED BALANCE SHEETS
DECEMBER 31, ------------------------- (In millions) 1999 1998 - --------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 5 - Interest-bearing balances with bank subsidiary 3,013 3,568 Securities purchased under resale agreements 1,648 1,912 - --------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 4,666 5,480 - --------------------------------------------------------------------------------------------------------- Trading account assets 33 9 Securities available for sale (amortized cost $1,171 in 1999; $610 in 1998) 1,198 618 Loans, net 58 14 Loans due from subsidiaries Banks 2,066 2,300 Other subsidiaries 2,623 1,549 Investments in wholly owned subsidiaries Banks 17,362 18,913 Other subsidiaries 2,284 1,311 - --------------------------------------------------------------------------------------------------------- Total 19,646 20,224 Arising from purchase acquisitions 1,041 262 - --------------------------------------------------------------------------------------------------------- Total investments in wholly owned subsidiaries 20,687 20,486 - --------------------------------------------------------------------------------------------------------- Other assets 196 547 - --------------------------------------------------------------------------------------------------------- Total $ 31,527 31,003 ========================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper 2,028 1,629 Other short-term borrowings with affiliates 2,546 2,533 Other liabilities 628 456 Long-term debt 8,285 8,457 Junior subordinated deferrable interest debentures 1,331 1,031 - --------------------------------------------------------------------------------------------------------- Total liabilities 14,818 14,106 Stockholders' equity 16,709 16,897 - --------------------------------------------------------------------------------------------------------- Total $ 31,527 31,003 =========================================================================================================
C-38 - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- (IN MILLIONS) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $ 264 303 177 Interest and dividends on securities available for sale 49 35 29 Interest and dividends on investment securities - 1 3 Other interest income from subsidiaries 157 195 172 - ---------------------------------------------------------------------------------------------------------- Total interest income 470 534 381 - ---------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on short-term borrowings 134 129 95 Interest on long-term debt 576 596 434 - ---------------------------------------------------------------------------------------------------------- Total interest expense 710 725 529 - ---------------------------------------------------------------------------------------------------------- Net interest income (240) (191) (148) Provision for loan losses - - (1) - ---------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses (240) (191) (147) - ---------------------------------------------------------------------------------------------------------- FEE AND OTHER INCOME Dividends from subsidiaries Banks 3,150 1,766 2,226 Bank holding companies - - 452 Other subsidiaries 40 5 116 Trading account profit (loss) (1) 2 15 Securities transactions 4 5 9 Sundry income 1,127 845 708 - ---------------------------------------------------------------------------------------------------------- Total fee and other income 4,320 2,623 3,526 - ---------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE 898 733 650 - ---------------------------------------------------------------------------------------------------------- Income before income taxes and equity in undistributed net income of subsidiaries 3,182 1,699 2,729 Income taxes 2 9 13 - ---------------------------------------------------------------------------------------------------------- Income before equity in undistributed net income of subsidiaries 3,180 1,690 2,716 Equity in undistributed net income of subsidiaries 43 1,201 (7) - ---------------------------------------------------------------------------------------------------------- Net income $ 3,223 2,891 2,709 ==========================================================================================================
C-39 - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------------- (In millions) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 3,223 2,891 2,709 Adjustments to reconcile net income to net cash provided (used) by operating activities Equity in undistributed net income of subsidiaries (43) (1,201) 7 Accretion and revaluation losses on securities 9 4 2 Provision for loan losses - - (1) Securities transactions (4) (5) (9) Depreciation, goodwill and other amortization 202 136 56 Deferred income taxes (benefits) 13 36 (46) Trading account assets, net (24) (9) - Other assets, net 275 (44) (35) Other liabilities, net 162 (448) 828 - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,813 1,360 3,511 - ----------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Increase (decrease) in cash realized from Sales and maturities of securities available for sale 352 389 161 Purchases of securities available for sale (918) (556) (335) Calls and underdeliveries of investment securities - 29 153 Purchases of investment securities - - (96) Advances to subsidiaries, net (840) (1,232) 402 Investments in subsidiaries (253) (549) 196 Longer-term loans originated or acquired (84) (155) (382) Principal repaid on longer-term loans 40 295 336 Purchases of premises and equipment, net 27 (68) (18) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities (1,676) (1,847) 417 - ----------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase (decrease) in cash realized from Deposits - (1) 1 Commercial paper 399 758 (150) Other short-term borrowings, net 13 1,419 104 Issuance of junior subordinated deferrable interest debentures 300 - 511 Issuances of long-term debt 1,378 4,018 525 Payments of long-term debt (1,554) (943) (17) Sales of common stock 143 700 728 Purchases of common stock (1,813) (3,056) (2,360) Cash dividends paid (1,817) (1,524) (1,141) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (2,951) 1,371 (1,799) - ----------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (814) 884 2,129 Cash and cash equivalents, beginning of year 5,480 4,596 2,467 - ----------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 4,666 5,480 4,596 ============================================================================================================================= CASH PAID FOR Interest $ 705 706 464 Income taxes 115 85 200 NONCASH ITEM Increase in investments in subsidiaries as a result of acquisitions of institutions for common stock $ 1,251 2,540 3 =============================================================================================================================
C-40 STOCKHOLDER INFORMATION FINANCIAL INFORMATION Analysts, stockholders and other investors seeking financial information about First Union should contact Alice Lehman, managing director of Corporate Relations, at 704-374-2137. News media and others seeking general information should contact Ginny Mackin, senior vice president, Corporate Relations, at 704-374-2138. Print. Printed financial materials, including our 1999 Annual Report on Form 10-K, may be obtained from Investor Relations by calling 704-374-6782. Internet. First Union's annual report and quarterly financial releases, as well as other company news releases, can be accessed through our website on the Internet at www.firstunion.com. Fax-On-Demand. Call 1-800-283-6214 for the latest news announcements through FAX-On-Demand. STOCKHOLDER ASSISTANCE General information, including information about our dividend reinvestment program and direct deposit of dividends, may be obtained by calling Investor Relations at 704-374-6782. If you have questions concerning your stockholder account, please call our transfer agent, First Union National Bank, at 1-800-347-1246. This is the place to call if you require a change of address, records or information about lost certificates, dividend checks or dividend reinvestment. CUSTOMER INQUIRIES Mail. If you need to contact our Corporate Headquarters, write First Union Corporation, 301 South College Street, Suite 4000, Charlotte, North Carolina 28288-0001, or call 704-374-6161. Internet. Customers nationwide who wish to manage their checking, bill payment and brokerage activities through the convenience of a single access code may do so at www.firstunion.com. Open a checking, savings or brokerage account online. Apply and, if qualified, receive online approval for mortgage loan, home equity loan or a credit card within minutes. Our e-mail address is comments@ firstunion.com. Phone. Customers nationwide also may conduct their banking transactions by calling toll-free at 1-800-413-7898. ANNUAL MEETING The annual meeting of stockholders will be at 9:30 a.m. on Tuesday, April 18, 2000, in the 12th floor auditorium of Two First Union Center, 301 South Tryon Street, Charlotte, North Carolina. DUPLICATE COPIES The Annual Report to Stockholders is an important disclosure document that securities laws require us to provide. However, we are looking for ways to reduce the expense associated with mailing financial reports. If you receive duplicate copies of the same report, it may be that you have more than one stockholder account whose registration is identical or two or more differently registered accounts receiving information at the same address. We can eliminate duplicate mailings only if we receive written authorization from each registered stockholder named on the account to mail only one report per address. Please send written authorization signed by each stockholder listed on the stockholder account to First Union National Bank Shareholder Services, 1525 West W.T. Harris Boulevard 3C3, Charlotte, North Carolina 28288-1153. Please include name, address, phone number, Social Security number or account number. EQUAL OPPORTUNITY EMPLOYER First Union Corporation is an equal opportunity employer. All matters regarding recruiting, hiring, training, compensation, benefits, promotions, transfers and all other personnel policies will continue to be free from discriminatory practices. SECURITIES AND DEBT RATINGS First Union Corporation's senior long-term debt is rated A by Standard & Poor's; A1 by Moody's; AA- by Thomson BankWatch; and A+ by Duff & Phelps and Fitch IBCA. Subordinated debt is rated A- by S&P; A2 by Moody's; A+ by Thomson BankWatch; and A by Duff & Phelps. Commercial paper is rated A-1 by S&P; P-1 by Moody's; TBW-1 by Thomson BankWatch; and D-1 by Duff & Phelps. First Union National Bank ratings for long-term letters of credit and certificates of deposit are A+ by S&P; Aa3 by Moody's; and AA- by Duff & Phelps and by Fitch IBCA. Short-term letters of credit and certificates of deposit are rated A-1, P-1, TBW-1, D-1+ and F-1+ by S&P, Moody's, Thomson BankWatch, Duff & Phelps and Fitch IBCA, respectively. (Photo of First Union building appears here) Annual Report Impact Survey The annual report is an important document of disclosure that we are required to provide. Our goal is to share this information in an efficient yet thorough manner. If you are receiving duplicate copies of this report, please contact Shareholder Services at 1-800-347-1246. If you hold First Union Corporation stock through a brokerage account, please contact your brokerage firm. We are pleased to note that over the past decade, we have reduced the cost of producing our annual report by more than 50 percent per book. Material is printed on recycled paper whenever feasible. To help us communicate as effectively as possible about First Union's performance, progress and strategic priorities, we would appreciate your feedback on the 1999 Annual Report. Please take a moment to fill out the attached card and drop it in the mail. No postage is required. Again, thank you for your investment in First Union. On a scale of 1 to 5 (one being the least favorable and five being the most favorable), please rate the following: How clearly did the 1999 Annual Report tell you what you wanted to know about First Union? 1 2 3 4 5 How well did the Annual Report help you understand First Union's corporate strategy? 1 2 3 4 5 Overall, how well did this Annual Report meet your needs as an investor? 1 2 3 4 5
General comments about the Annual Report - ----------------------------------------------------- - ----------------------------------------------------- - ----------------------------------------------------- - ----------------------------------------------------- Thank you for your time and interest. Please complete the following: ( ) I am an individual investor. ( ) I am an institutional investor. ( ) I am a stock analyst. NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES BUSINESS REPLY MAIL FIRST-CLASS MAIL PERMIT NO. 1273 CHARLOTTE, NC POSTAGE WILL BE PAID BY THE ADDRESSEE FIRST UNION CORPORATION INVESTOR RELATIONS NC0206 301 S. COLLEGE STREET CHARLOTTE, NC 28254-0040 BOARD OF DIRECTORS Edward E. Barr Chairman Sun Chemical Corporation Fort Lee, New Jersey G. Alex Bernhardt, Sr. Chairman and Chief Executive Officer Bernhardt Furniture Company Lenoir, North Carolina Erskine B. Bowles General Partner Forstmann, Little and Co. New York, New York W. Waldo Bradley Chairman Bradley Plywood Corporation Savannah, Georgia Robert J. Brown Chairman and Chief Executive Officer B&C Associates, Inc. High Point, North Carolina Edward E. Crutchfield Chairman and Chief Executive Officer First Union Corporation Charlotte, North Carolina A. Dano Davis Chairman Winn-Dixie Stores, Inc. Jacksonville, Florida Norwood H. Davis, Jr. Chairman Trigon Healthcare, Inc. Richmond, Virginia R. Stuart Dickson* Chairman of Executive Committee Ruddick Corporation Charlotte, North Carolina B.F. Dolan Investor Charlotte, North Carolina Roddey Dowd, Sr. Chairman of Executive Committee Charlotte Pipe and Foundry Company Charlotte, North Carolina Arthur M. Goldberg* President and Chief Executive Officer Park Place Entertainment Corporation Chatham, New Jersey William H. Goodwin, Jr. Chairman CCA Industries, Inc. Richmond, Virginia Frank M. Henry Chairman Frank Martz Coach Company Wilkes-Barre, Pennsylvania James E.S. Hynes Chairman Hynes, Inc. Charlotte, North Carolina Ernest E. Jones President and Chief Executive Officer Philadelphia Workforce Development Corporation Philadelphia, Pennsylvania Herbert Lotman Chairman and Chief Executive Officer Keystone Foods Holding Company, Inc. Bala Cynwyd, Pennsylvania Radford D. Lovett Chairman Commodores Point Terminal Corporation Jacksonville, Florida Mackey J. McDonald Chairman, President and Chief Executive Officer VF Corporation Greensboro, North Carolina Patricia A. McFate Senior Scientist of the Strategies Group Science Applications International Corporation Santa Fe, New Mexico Joseph Neubauer Chairman and Chief Executive Officer ARAMARK Corporation Philadelphia, Pennsylvania Randolph N. Reynolds* Vice Chairman Reynolds Metals Company Richmond, Virginia James M. Seabrook Chairman and Chief Executive Officer Seabrook Brothers and Sons, Inc. Seabrook, New Jersey Ruth G. Shaw Executive Vice President and Chief Administrative Officer Duke Energy Corporation Charlotte, North Carolina Lanty L. Smith Chairman Soles Brower Smith & Co. Greensboro, North Carolina G. Kennedy Thompson President First Union Corporation Charlotte, North Carolina EXECUTIVE OFFICERS Edward E. Crutchfield Chairman and Chief Executive Officer G. Kennedy Thompson President Benjamin P. Jenkins, III Vice Chairman Donald A. McMullen, Jr. Vice Chairman B.J. Walker Vice Chairman Robert T. Atwood Executive Vice President and Chief Financial Officer Mark C. Treanor Executive Vice President, Secretary and General Counsel COMMITTEES OF THE CORPORATE BOARD OF DIRECTORS Executive Committee B.F. Dolan, Chairman Edward E. Crutchfield R. Stuart Dickson Arthur M. Goldberg William H. Goodwin, Jr. Radford D. Lovett Mackey J. McDonald Joseph Neubauer Lanty L. Smith Robert T. Atwood (Staff) Audit Committee Joseph Neubauer, Chairman Norwood H. Davis, Jr., Vice Chairman Edward E. Barr Ernest E. Jones Patricia A. McFate Lanty L. Smith Robert T. Atwood (Staff) James H. Hatch (Staff) Peter J. Schild (Staff) Nominating Committee B.F. Dolan, Chairman G. Alex Bernhardt, Sr., Vice Chairman Edward E. Crutchfield R. Stuart Dickson William H. Goodwin, Jr. Radford D. Lovett Mackey J. McDonald Human Resources Committee R. Stuart Dickson, Chairman Robert J. Brown Frank M. Henry James E.S. Hynes Herbert Lotman Randolph N. Reynolds Donald R. Johnson (Staff) Credit/Risk Management Committee Mackey J. McDonald, Chairman A. Dano Davis, Vice Chairman G. Alex Bernhardt, Sr. W. Waldo Bradley B.F. Dolan William H. Goodwin, Jr. Malcolm T. Murray (Staff) Brian E. Simpson (Staff) Financial Services Committee Roddey Dowd, Sr., Chairman Ruth G. Shaw, Vice Chairman Erskine B. Bowles Arthur M. Goldberg Radford D. Lovett James M. Seabrook Benjamin P. Jenkins, III (Staff) Donald A. McMullen, Jr. (Staff) * Retiring in 2000. (recycle logo appears here) THIS PUBLICATION IS PRINTED ON RECYCLED PAPER. FIRST UNION CORPORATION ONE FIRST UNION CENTER CHARLOTTE, NC 28288-0570 EX-21 6 LIST OF SUBSIDIARIES EXHIBIT (21) FIRST UNION CORPORATION LIST OF SUBSIDIARIES AS OF 2/1/00(1) ABCA, INC. (3) (JACKSONVILLE, FL) -1005 CORP. (CHARLOTTE, NC) -CITRUS COUNTY LAND CORP. (3) (JACKSONVILLE, FL) -CITRUS COUNTY SERVICE CORP. (3) (JACKSONVILLE, FL) -MELBOURNE ATLANTIC VENTURE PARTNERS (20%-NV) (JACKSONVILLE, FL) CAPITOL FINANCE GROUP, INC. (CHARLOTTE, NC) CORESTATES COMMUNITY DEVELOPMENT CORPORATION, INC. (PHILADELPHIA, PA) (51%)* -PARTNERSHIP HOMES (PHILADELPHIA, PA) (50%)* CORESTATES HOLDINGS, INCORPORATED (WILMINGTON, DE) -BENCHMARK CABLE ACQUISITION FUND VII, L. P. (15%-NV) (STERLING, VA) -BRADFORD EQUITIES FUND, L.P. (11.02%-NV) (13) (NEW YORK, NY) -BRAND EQUITY VENTURES I, L.P. (5.30%-NV) (GREENWICH, CT) -FIRST COMMERCIAL BANK OF PHILADELPHIA (24.90%) (PHILADELPHIA, PA) -FOUNDERS COURT FUND II, L.P. (40%-NV) (PENNINGTON, NJ) -MEREDIAN VENTURE PARTNERS (45.72%-NV) (RADNOR, PA) -NEPA VENTURE FUND, L.P. (7.34%-NV) (BETHLEHEM, PA) -RADNOR VENTURE PARTNERS, L.P. (7.65%%-NV) (WAYNE, PA) (4) -RFE CAPITAL PARTNERS, L.P. (6.67%-NV) (NEW CANAAN, CT) (5) -UNITED BANCSHARES, INC. (6.02%-V; 9.40%-NV) (PHILADELPHIA, PA) (7) --UNITED BANK OF PHILADELPHIA (PHILADELPHIA, PA) -ZERO STAGE CAPITAL II, L.P. (5.37%-NV) (CAMBRIDGE, MA) EDUCATION FINANCING SERVICES, LLC (19.318%) (WINSTON-SALEM, NC) EVEREN CAPITAL CORPORATION (CHICAGO, IL) -BRADFORD EQUITIES FUND, LP (7.87%-NV) (13) (NEW YORK, NY) -CEDAR CREEK PARTNERS (6.53%-NV) (MILWAUKEE, WI) -EVEREN SECURITIES HOLDINGS, INC. (CHICAGO, IL) --BATEMAN EICHLER, HILL RICHARDS, INC. (NEVER ACTIVE) (CHICAGO, IL) --BATEMAN EICHLER, HILL RICHARDS REALTY SERVICES, INC. (CHICAGO, IL) ---BATEMAN EICHLER, HILL RICHARDS HOUSING INVESTORS, INC. (CHICAGO, IL) --BATEMAN EICHLER, HILL RICHARDS REALTY CO., INCORPORATED (CHICAGO, IL) ---BEHR HOUSING INVESTORS 1980-1, L.P. (1%-NV)(CHICAGO, IL) ---BEHR HOUSING INVESTORS 1981-1, L.P. (1%-NV)(CHICAGO, IL) --BLUNT, ELLIS & LOEWI, INC. (NEVER ACTIVE) (CHICAGO, IL) --BNY CLEARING SERVICES LLC (20%) (MILWAUKEE, WI) --BOETTCHER & COMPANY, INC. (NEVER ACTIVE) (CHICAGO, IL) --BPL HOLDINGS, INC. (CHICAGO, IL) ---BOETTCHER PROPERTIES, LTD. (CHICAGO, IL) ----THE BOETTCHER 1981-2 DRILLING PROGRAM, LTD. (11%-NV) (CHICAGO, IL) --GATEWAY MORTGAGE ACCEPTANCE CORPORATION (CHICAGO, IL) --FIRST UNION SECURITIES, INC. (CHARLOTTE, NC) ---CIIT HOLDINGS, LLC (NV) (CHARLOTTE, NC) ---MICROINVESTORS, LLC (20%-NV) (CHARLOTTE, NC) ---TRG HOLDINGS, LLC (24.99%-NV) (CHARLOTTE, NC) ----TECH RESOURCES GROUP, INC. (22%) (RALEIGH, NC) ---WHEAT FIRST BUTCHER SINGER PRIVATE EQUITY FUND, LIMITED PARTNERSHIP (1%-NV)(RICHMOND, VA) --ESI INSURANCE AGENCY, INC. OF OKLAHOMA (0%*) (TULSA, OK) 1 --ESI INSURANCE AGENCY, INC. OF TEXAS (0%*) (HOUSTON, TX) --KSI INSURANCE AGENCY, INC. OF OHIO (0%*) (CHICAGO, IL) --LOVETT UNDERWOOD NEUHAUS & WEBB, INC. (NEVER ACTIVE) (CHICAGO, IL) --MENTOR INVESTMENT GROUP, LLC (45%) (RICHMOND, VA (12) --PFS GENERAL AGENCY, INC. (0%*) (PHOENIX, AZ) --PFS GENERAL AGENCY OF TEXAS, INC. (0%*) (DALLAS, TX) --PFS GENERAL INSURANCE AGENCY, INC. OF NEW MEXICO (0%*) (SANTA FE, NM) --PRESCOTT, BALL & TURBEN, INC. (NEVER ACTIVE) (CHICAGO, IL) --PRESCOTT REALTY SERVICES, INC. (INACTIVE) (CHICAGO, IL) -MENTOR INVESTMENT ADVISORS, LLC (RICHMOND, VA)(1%) (14) -MENTOR INVESTMENT GROUP, LLC (55%) (RICHMOND, VA) (12) --MENTOR INVESTMENT ADVISORS, LLC (RICHMOND, VA) (99%) (14) --MENTOR PERPETUAL ADVISORS, LLC (50%) (RICHMOND, VA) --MENTOR SERVICES COMPANY, LLC (RICHMOND, VA) FAIRFIELD PROPERTIES, INC. (STAMFORD, CT) FCC-PR, INC. (3) (PHILADELPHIA, PA) FIDELCOR BUSINESS CREDIT CORPORATION (NEW YORK, NY) -COMWEST CAPITAL CORPORATION (3) (LOS ANGELES, CA) FIRST AMERICAN SERVICE CORPORATION (ROANOKE, VA) -LONG, TRAVERS & FASC (40%-NV) (SPRINGFIELD, VA) -NEW RIVERS TOWERS LIMITED PARTNERSHIP (NV) (INACTIVE) (ANNANDALE, VA) -WOODLAWN JOINT VENTURE (INACTIVE) (40%-NV) (15) (WOODBRIDGE, VA) FIRST CLEARING CORPORATION (GLEN ALLEN, VA) FIRST UNION BANK OF DELAWARE (WILMINGTON, DE) -DELAWARE TRUST CAPITAL MANAGEMENT, INC. (WILMINGTON, DE) --GRIFFIN CORPORATE SERVICES, INC. (WILMINGTON, DE) -FIRST FIDELITY INSURANCE SERVICES OF DELAWARE, INC. (WILMINGTON, DE) --BUTCHER & SINGER FINANCIAL SERVICES AGENCY OF OHIO, INC. (YOUNGSTOWN, OHIO) --ESI INSURANCE AGENCY, INC. OF COLORADO (DENVER, CO) --ESI INSURANCE AGENCY, INC. OF HAWAII (HONOLULU, HI) --ESI INSURANCE AGENCY OF NEVADA (LAS VEGAS, NV) --ESI INSURANCE AGENCY, INC. OF UTAH (SALT LAKE CITY, UT) --ESI INSURANCE AGENCY, INC. OF WYOMING (CHICAGO, IL) --ESI (MA) INSURANCE AGENCY, INC. (HYANNIS, MA) --TAYLOR & CLARK INSURANCE SERVICES, INCORPORATED (FAIRFAX, VA) --WHEAT INSURANCE SERVICES, INC. (RICHMOND, VA) ---WHEAT INSURANCE SERVICES OF ALABAMA, INC. (RICHMOND, VA) ---WHEAT INSURANCE AGENCY OF MASSACHUSETTS, INC. (BOSTON, MA) FIRST UNION CAPITAL I (WILMINGTON, DE) FIRST UNION CAPITAL II (WILMINGTON, DE) (NEVER ACTIVE) FIRST UNION CAPITAL III (WILMINGTON, DE) (NEVER ACTIVE) FIRST UNION COMMERCIAL CORPORATION (0.9696%) (9) (CHARLOTTE, NC) FIRST UNION COMMUNITY DEVELOPMENT CORPORATION (CHARLOTTE, NC) -CIMARRON ESTATES, LTD. (99.99%-NV) (AUSTIN, TX) -CRESTMORE VILLAGE APARTMENTS LIMITED PARTNERSHIP (99.99%-NV)(LAS VEGAS, NV) -HEADHOUSE RETAIL ASSOCIATES, L.P. (99.99%-NV) (PHILADELPHIA, PA) 2 -HOUSING EQUITY FUND OF VIRGINIA I, L.P. (6.945%-NV) (RICHMOND, VA) -PARKCHESTER LIMITED PARTNERSHIP (99%-NV) (ROANOKE, VA) -RIHC PARTNERS, L.P. (99.99%-NV) (RESTON, VA) -ROANOKE COMMUNITY DEVELOPMENT CORPORATION (27.778%) (INACTIVE) (ROANOKE, VA) (6) FIRST UNION DEVELOPMENT CORPORATION (CHARLOTTE, NC) -343 SOUTH DEARBORN II, LLC (99.99%-NV) (PALATINE, IL) -425 SOUTH TRYON STREET, LLC (CHARLOTTE, NC) -1024 DODGE STREET LIMITED PARTNERSHIP (99.99%-NV) (OMAHA, NE) -APPOMATTOX GOVERNOR'S SCHOOL L.L.C. (99.99%-NV) (RICHMOND, VA) -BLACK DIAMONDS LLC (99.99%-NV) (NEW YORK, NY) -FIRST UNION FREMONT, LLC (CHARLOTTE, NC) --CAMPUS 1000 FREMONT, LLC (45%) (LOS ANGELES, CA) -FU/WD ATLANTA, LLC (CHARLOTTE, NC) -FU/WD OPA LOCKA, LLC (CHARLOTTE, NC) -HANOVER/FUDC MASTER LIMITED PARTNERSHIP (80%) (HOUSTON, TX) --LODGE AT WARNER RANCH, LP (HOUSTON, TX) --VILLAGES AT WARNER RANCH PUD, LP (HOUSTON, TX) -LAKE STREET LOFTS, L.L.C. ((99%-NV) (CHICAGO, IL) -LODGE AT SHAVANO PARK, LP (HOUSTON, TX) (57%) -MOUNTAIN VENTURES, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ATLANTA HAMPTON GREEN I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ATLANTA NORTHBROOK I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ATLANTA NORTHMEADOW, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ATLANTA SUGARLOAF I, LLC CHARLOTTE, NC) --MOUNTAIN VENTURES CLEVELAND PARK 82 I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES COLUMBUS GROVEPORT I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES INDIANAPOLIS LEBANON I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES INDIANAPOLIS PLAINFIELD I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES INDIANAPOLIS WOODLAND CORPORATE I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES MINNEAPOLIS APOLLO II, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES MINNEAPOLIS CROSSTOWN I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES MINNEAPOLIS NORMAN CENTER I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES NASHVILLE METROCENTER I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ORLANDO CELEBRATION I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES RALEIGH SUMMIT I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ST. LOUIS MARYVILLE I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES ST. LOUIS RIVERPORT I, LLC (CHARLOTTE, NC) --MOUNTAIN VENTURES TAMPA FAIRFIELD I, LLC (CHARLOTTE, NC) -OILWELL SUPPLY, L.P. (99.90%-NV) (DALLAS, TX) -ROCKETTS VIEW L.P. (99.99%-NV) (RICHMOND, VA) -THE FIRST SERVICE CORPORATION OF SOUTH CAROLINA (GREENVILLE, SC) --ARROWWOOD ASSOCIATES (50%) (COLUMBIA, SC) -TRIBUNE TOWER INVESTORS, L.P. (99.99%-NV) (OAKLAND, CA) -UF-RALEIGH LLC (50%) (CHARLOTTE, NC) -WILLOWS, LLC (70%-NV) (NASHVILLE, TN) FIRST UNION EXPORT TRADING COMPANY (INACTIVE) (CHARLOTTE, NC) FIRST UNION FPS, INC. (CHARLOTTE, NC) -FIRST UNION PRIVATE EQUITY FUND, L.P. (1%-NV**) (CHARLOTTE, NC) (16) -FIRST UNION PRIVATE EQUITY FUND II, L. P. (1%-NV**) (CHARLOTTE, NC) -FIRST UNION PRIVATE INVESTMENT FUNDS HEDGED EQUITIES SUPER ACCREDITED, L. P. (0.89%-NV**) (CHARLOTTE, NC) (17) -FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY ACCREDITED, L. P. (2.14%-NV**) (CHARLOTTE, NC) (18) -FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY SUPER ACCREDITED, L. P. (0.93%-NV**) (CHARLOTTE, NC) (19) -ULQ, LP (0.81%-NV**) (CHARLOTTE, NC) FIRST UNION FUTURES CORPORATION (CHARLOTTE, NC) FIRST UNION HOME EQUITY BANK, N. A. (CHARLOTTE, NC) 3 FIRST UNION INSTITUTIONAL CAPITAL I (WILMINGTON, DE) FIRST UNION INSTITUTIONAL CAPITAL II (WILMINGTON, DE) FIRST UNION INSTITUTIONAL DEBT MANAGEMENT, INC. (CHARLOTTE, NC) FIRST UNION INVESTORS, INC. (CHARLOTTE, NC) -ARCAP INVESTORS, L.L.C. (5%-V; 6%-NV) (DALLAS, TX) -ARENA CAPITAL INVESTMENT FUND, L.P. (4.99%-V; .6749%-NV) (NEW YORK, NY) -ARLINGTON CAPITAL PARTNERS, L.P. (4.99%-V; 1.43%-NV) (WASHINGTON, DC) -ATLANTIC VENTURE PARTNERS II, L.P. (5.44%-NV) (ROANOKE, VA) -BCI GROWTH V, L.P. (6.96%-NV) (TEANECK, NJ) -BLACK ENTERPRISE/GREENWICH STREET CORPORATE GROWTH PARTNERS, L.P. (5.79%: 5%-V, .79%-NV) (NEW YORK, NY) -BLUE WATER VENTURE FUND II, LLC (5%-V; 5%-NV) (MCLEAN, VA) -BROADVIEW CAPITAL PARTNERS, L.P. (5%-V; 11.21%-NV) (FOSTER CITY, CA) -BRYNWOOD PARTNERS I, L. P. (7.14%-NV) (GREENWICH, CT) -BRYNWOOD PARTNERS IV, L. P. (4.99%-V; 4.90%-NV) (GREENWICH, CT) -CANAAN VENTURES II L. P. (19.60%-NV) (ROWAYTON, CT) -CAPITAL ACROSS AMERICA (8.06%-NV) (NASHVILLE, TN) -CARLYLE HIGH YIELD PARTNERS, L.P. (4.99%-V; 1.11%-NV) (WASHINGTON, DC) -CATALYST EQUITY FUND, L.P. (20.36%-NV) (CHICAGO, IL) -CAROUSEL CAPITAL PARTNERS, L. P. (15.3374%-NV) (CHARLOTTE, NC) -CENTURY CAPITAL PARTNERS II, L.P. (6.1%-NV) (BOSTON, MA) -CHARTWELL CAPITAL INVESTORS, L. P. (16.03%-NV) (JACKSONVILLE, FL) -CHARTWELL INVESTMENTS II, L.P. (19.4%: 5%-V, 14.4%-NV) (NEW YORK, NY) -CHISHOLM PARTNERS III, L. P. (11.06%-NV) (PROVIDENCE, RI) -COLEMAN SWENSON HOFFMAN & BOOTH IV, LP (6.71%-NV) (FRANKLIN, TN) -COMMONWEALTH INVESTORS II, L. P. (5.59%-NV) (RICHMOND, VA) -CREST COMMUNICATION PARTNERS, L.P. (13.60%-NV) (NEW YORK, NY) -DELITE OUTDOOR ADVERTISING, LLC (1.30%-V; 5.90%-NV) (EAGAN, MN) -DEMUTH, FOLGER & WETHERILL II, L. P. (7.5%-NV) (TEANECK, NJ) -DIMAC CORPORATION (5%-V; 0.60%-NV) (ATLANTA, GA) -DJ ORTHOPEDICS, LLC (8.20-V; 0.80%-NV) (VISTA, CA) -EDISON VENTURE FUND IV, L.P. (15.2%-NV) (LAWRENCEVILLE, NJ) -ENERVEST ENERGY, L.P. (9.90%-NV) (HOUSTON, TX) -EUREKA I, L.P. (4.99%-V; 1.61%-NV) (BALA CYNWYD, PA) -FIRST UNION PRIVATE EQUITY FUND, L. P. (3.9%-NV) (CHARLOTTE, NC) (16) -FIRST UNION PRIVATE INVESTMENT FUNDS HEDGED EQUITIES SUPER ACCREDITED, L. P. (11.20%-NV) (CHARLOTTE, NC) (17) -FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY ACCREDITED, L.P. (16.29%-NV) (CHARLOTTE, NC) (18) -FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY SUPER ACCREDITED, L. P. (11.23%-NV) (CHARLOTTE, NC) (19) -GLOBAL PRIVATE EQUITY III L.P. (5.18%-NV) (BOSTON, MA) -GREENWICH STREET CAPITAL PARTNERS II, L.P. (5.1%-NV) (NEW YORK, NY) -HARBINGER/AURORA QP VENTURE FUND, LLC (4.99%-V; 7.43%-NV) (BIRMINGHAM, AL) -HIGH RIDGE CAPITAL, LLC (24.99%-NV) (STAMFORD, CT) -HOB ENTERTAINMENT, INC. (1.30%-V; 4.60%-NV) (HOLLYWOOD, CA) -HOUSTON VENTURE PARTNERS, LTD. (5.69%-NV) (HOUSTON, TX) -HRC GENERAL PARTNERS LIMITED PARTNERSHIP (15%-NV) (STAMFORD, CT) -KNIGHTSBRIDGE CAPITAL FUND I, L. P. (10.76%-NV) (NEW YORK, NY) -LEEDS EQUITY PARTNERS, L.P. (4.99%-V; 4.18%-NV) (NEW YORK, NY) -LONGLEAF VENTURE FUND, LLC (4.99%-V;11.7276%-NV) (RESEARCH TRIANGLE PARK, NC) -MARATHON FUND LIMITED PARTNERSHIP IV, L.P. (9.97%-NV)(MINNEAPOLIS, MN) -MIDMARK EQUITY PARTNERS II, L.P. (4.99%-V; 4.94%-NV) (CHATHAM, NJ) -MCCOWN DE LEEUW & CO. IV, L.P. (7.1182%-NV) (MENLO PARK, CA) -MD SASS CORPORATE RESURGENCE PARTNERS, L. P. (8.00%-NV) (NEW YORK, NY) -MEDIA/COMMUNICATIONS PARTNERS II, L.P. (5.71%-NV) (BOSTON, MA) -NAVIANT TECHNOLOGY SOLUTIONS, INC. (1.80%-V; 10.70%-NV) (NEWTOWN SQUARE, PA) -NORTH CAROLINA BIOSCIENCE INVESTMENT FUND, LLC (4.90%-V; 4.95%-NV) (DURHAM, NC) -PACIFIC VENTURE GROUP, L. P. (5.24%-NV) (IRVINE, CA) -PACIFIC VENTURE GROUP II, L. P. (8.4%-NV) (IRVINE, CA) -PEGASUS PARTNERS II, L.P. (4.99%-V; 4.2979%-NV) (COS COB, CT) -PHILLIPS-SMITH SPECIALTY RETAIL GROUP III, L. P. (7.14%-NV) (DALLAS, TX) -RADNOR VENTURE PARTNERS, L. P. (7.39%-NV) (WAYNE, PA) (4) 4 -RFE CAPITAL PARTNERS, L.P. (6.67%-NV) (NEW CANAAN, CT) (5) -SHAWMUT EQUITY PARTNERS, L. P. (9.27%-NV) (BOSTON, MA) -SIMONDS INDUSTRIES, INC. (4.4%-V; 9.9%-NV) (FITCHBURG, MA) -SKM EQUITY FUND III, L. P. (4.99%-V; 1.97%-NV) (STAMFORD, CT) -SPECIAL VALUE BOND FUND, LLC (4.99%-V; 4.27%-NV) (LOS ANGELES, CA) -TDH II LIMITED (5.72%-NV) (ROSEMONT, PA) -TECHAMP INTERNATIONAL, L.P. (4.99%-V; 4.73%-NV) (DURHAM, NC) -TRANSTAR METALS, LLC (6.80%-V; 7.93%-NV (NEW ORLEANS, LA) -TRITON CELLULAR PARTNERS, LP (4.9%-V; 3.9%-NV) (MALVERN, PA) -TRIVEST FURNITURE PARTNERS, LTD. (WINSLOWE) (4.99%-V; 2.71%-NV) (MIAMI, FL) -VIRGINIA BASEBALL CLUB, L.P. (9.25%-NV) (ALEXANDRIA, VA) -VS&A COMMUNICATIONS PARTNERS III, L.P. (6.48%-NV) (NEW YORK, NY) -WIND POINT PARTNERS IV, L.P. (4.99%-V; 0.7243%-NV) (SOUTHPOINT, MI) FIRST UNION LIFE INSURANCE COMPANY (CHARLOTTE, NC) FIRST UNION MORTGAGE CORPORATION (CHARLOTTE, NC) -ARGO PARTNERSHIP, L. P. (8%-NV) (NEW YORK, NY) -FARMINGTON, INCORPORATED (CHARLOTTE, NC) --GHENT-FARMINGTON ASSOCIATES (50%) (NORFOLK, VA) -FIRST UNION TITLE CORPORATION (ATLANTA, GA) -R.B.C. CORPORATION (CHARLOTTE, NC) -SLATE STONE HILLS, INCORPORATED (CHARLOTTE, NC) -THE FAIRFAX CORPORATION (CHARLOTTE, NC) --INTERCHANGE PARTNERS (50%-NV) (CHARLOTTE, NC) --REAL ESTATE CONSULTANTS OF THE SOUTH, INC. (CHARLOTTE, NC) -WATER STREET INSURANCE AGENCY, INC. (JACKSONVILLE, FL) FIRST UNION NATIONAL BANK (CHARLOTTE, NC) -349-59 LENOX LLC (99.99%-NV) (MOUNT VERNON, NY) -ACB SERVICES, INC. (INACTIVE) (NASHVILLE, TN) -ANDALUSIA SENIOR HOUSING, L. P. (99%-NV) (LEVITTOWN, PA) -ARBOR GLENN L.P. (99%-NV) (ROANOKE, VA) -ARBOR VILLAGE, L.P. (99%-NV) (WINTER PARK, FL) -ASHTON OF RICHMOND HILL, L. P. (99%-NV) (GAINESVILLE, FL) -BACON HOUSING, L.P. (99%-NV) (RICHMOND, VA) -BARRETT PLACE LIMITED PARTNERSHIP (99%-NV) (WAKE FOREST, NC) -BARRETT PLACE II LIMITED PARTNERSHIP (99.99%-NV) (RALEIGH, NC) -BART, INC. (JACKSONVILLE, FL) -BEAUMONT AVENUE APARTMENTS, L. P. (99%-NV) (NEW YORK, NY) -BEECHRIDGE LIMITED PARTNERSHIP (99%-NV) (RALEIGH, NC) -BGMCO PA, INC. (3) (PHILADELPHIA, PA) -BOB TITLE HOLDINGS, INC. (3) (BALTIMORE, MD) --BOB TITLE XXX, INC. (3) (BALTIMORE ,MD) -BOWLER HOUSING L.P. (99%-NV) (RICHMOND, VA) -BR LIMITED PARTNERSHIP (99%-NV) (WASHINGTON, DC) -BUILDERS ACCEPTANCE CORPORATION (RALEIGH, NC) -BUSINESS DEVELOPMENT CORPORATION OF SOUTH CAROLINA (8.7%) (COLUMBIA, SC) -CALLOWHILL CONSUMER DISCOUNT COMPANY (INACTIVE) (READING, PA) -CAMELLIA COURT APARTMENTS LIMITED PARTNERSHIP (99.99%-NV) (BEAUFORT, NC) -CENTER CREDIT CORPORATION (WATERBURY, CT) -CENTER FUNDING COMPANY (WATERBURY, CT) -CFF FINANCIAL CORPORATION (ROANOKE, VA) -CITY AFFORDABLE HOUSING LLC (99.99%-NV) (CHARLOTTE, NC) -CONGRESS FINANCIAL CORPORATION (NEW YORK, NY) --CONGRESS CREDIT CORPORATION (HATO REY, PUERTO RICO) --CONGRESS FINANCIAL CORP. (SOUTHWEST) (DALLAS, TX) --CONGRESS FINANCIAL CORPORATION (CENTRAL) (CHICAGO, IL) --CONGRESS FINANCIAL CORPORATION (FLORIDA) (MIAMI, FL) --CONGRESS FINANCIAL CORPORATION (NEW ENGLAND) (BOSTON, MA) --CONGRESS FINANCIAL CORPORATION (NORTHWEST) (PORTLAND, OR) 5 --CONGRESS FINANCIAL CORPORATION (SOUTHERN) (ATLANTA, GA) --CONGRESS FINANCIAL CORPORATION (WESTERN) (PASADENA, CA) ---LAUNDRY, INC. (INACTIVE) (PASADENA, CA) --CONGRESS FINANCIAL INVESTMENT CORP. (WILMINGTON, DE) -CORESTATES CAPITAL I (PHILADELPHIA, PA) -CORESTATES CAPITAL II (PHILADELPHIA, PA) -CORESTATES CAPITAL III (PHILADELPHIA, PA) -CORESTATES DEALER SERVICES CORP. (HORSHAM, PA) -CRANFORD AVENUE APARTMENTS, L.P. (99%-NV) (NEW YORK, NY) -CT I LIMITED PARTNERSHIP (99%-NV) (RALEIGH, NC) -CTB REALTY VENTURES XXI, INC. (3) (NEW HAVEN, CT) -DANVILLE COMMUNITY DEVELOPMENT CORPORATION (13%) ((DANVILLE, VA) -DF SOUTHEASTERN MORTGAGE, INC. (ATLANTA, GA) -EVERGREEN INVESTMENT COMPANY, INC. (CHARLOTTE, NC) --EVERGREEN INVESTMENT MANAGEMENT COMPANY (BOSTON, MA) ---EVERGREEN ASSET MANAGEMENT CORP. (CHARLOTTE, NC) ---EVERGREEN INVESTMENT SERVICES, INC. (CHARLOTTE, NC) ---EVERGREEN SERVICE COMPANY (BOSTON, MA) ---LIEBER I CORP. (CHARLOTTE, NC) ---LIEBER & COMPANY (99%-NV) (PURCHASE, NY) ---LIEBER II CORP. (CHARLOTTE, NC) ---LIEBER & COMPANY (1%-NV) (PURCHASE, NY) ---POLARIS INTERNATIONAL SECURITIES INVESTMENT TRUST CO., LTD. (13.5%)(TAIPEI, TAIWAN) -EQUITABLE REALTY ASSOCIATES, L. P. (99%-NV) (YONKERS, NY) -FAIRFAX COUNTY REDEVELOPMENT AND HOUSING AUTHORITY/HCDC ONE L.P. (99%-NV) (FAIRFAX, VA) -FFBIC, INC. (NEWARK, DE) -FFBIC NEW YORK, INC. (SPRING VALLEY, NY) -FFBIC NEW YORK II, INC. (SPRING VALLEY, NY) -FFL SERVICES CORPORATION (NEWARK, NJ) -FIFTH AND MARKET CORPORATION (PHILADELPHIA, PA) -FINANCIAL WORLD FUNDING CORP. (CHARLOTTE, NC) -FIRST FIDELITY BUILDING CORPORATION (PHILADELPHIA, PA) -FIRST FIDELITY INSURANCE SERVICES, INC. (NEWARK, NJ) -FIRST FIDELITY INTERNATIONAL BANK (CHARLOTTE, NC) --FIRST INTERNATIONAL ADVISORS, LTD. (LONDON, ENGLAND) --FIRST UNION I, INC. (ST. THOMAS, US VIRGIN ISLANDS) --MATTHEW INTERNATIONAL SALES, INC. (ST. THOMAS, US VIRGIN ISLANDS) -FIRST FIDELITY URBAN INVESTMENT CORPORATION (NEWARK, NJ) --ALLENTOWN DEVELOPMENT COMPANY, INC. (24%) (TRENTON, NJ) -FIRST PENCO REALTY, INC. (PHILADELPHIA, PA) -FIRST UNION AFFORDABLE HOUSING COMMUNITY DEVELOPMENT CORPORATION (CHARLOTTE, NC) --2-4 POTTER PLACE URBAN RENEWAL, L.P. (99%-NV) (WEEHAWKEN, NJ) --110 MONASTERY ASSOCIATES, LIMITED PARTNERSHIP (99.99%-NV)( BRAINTREE, MA) --1700 ASSOCIATES (89%-NV) (PLYMOUTH MEETING, PA) --3716 THIRD AVENUE LLC (99.99%-NV) (LARCHMONT, NY) --ANACUITAS MANOR, LTD. (99%-NV) (AUSTIN, TX) --ANNVILLE HOUSING LIMITED PARTNERSHIP (99.99%-NV) (LEBANON, PA) --ANTIOCH SENIOR HOUSING LIMITED PARTNERSHIP (99.99%-NV) (HEMPSTEAD, NY) --ASHTON LANDING, L.P. (99.99%-NV) (VALDOSTA, GA) --ASHTON POINTE, LLLP (99%-NV) (VALDOSTA, GA) --ATHENS RENTAL HOUSING, L.P. (99%-NV) (CORDELE, GA) --BEECHRIDGE II, LLC (99.99%-NV) (RALEIGH, NC) --BENSALEM SENIOR APARTMENTS, L.P. (99.99%-NV) (LAFAYETTE HILL, PA) --BLANTON GREEN ASSOCIATES LIMITED PARTNERSHIP (96%-NV) (FAYETTEVILLE, NC) --BRITTANY ASSOCIATES, LTD. (99.99%-NV) (FORT MYERS, FL) --BULL RUN CREEK ASSOCIATES, LLC (99.99%-NV) (NASHVILLE, TN) --CAPITAL.COM, INC. (14.99%) (BETHESDA, MD) --CANNON/HEARTHWOOD LIMITED PARTNERSHIP (99%-NV) (CULPEPER, VA) --CANTON MILL, LLC (99%-NV) (ATLANTA, GA) --CANTEBURY OF HILLIARD, LTD. (99%-NV) (GAINESVILLE, FL) --CEDAR FOREST LIMITED PARTNERSHIP (95%-NV) (BOSTON, MA) --CHAMBERS BRIDGE URBAN RENEWAL HOUSING, L. P. (99%-NV) (YARDVILLE, NJ) --CHEROKEE HILLS ASSOCIATES LLC (99%-NV) (NASHVILLE, TN) --CHURCH STREET SENIOR HOUSING, L. P. (99.99%-NV) (KEANSBURG, NJ) 6 --COLUMBIA GARDENS, L. P. (99.99%-NV) (ATLANTA, GA) --COLUMBIA VILLAGE, L.P. (99.99%-NV) (ATLANTA, GA) --CREATIVE CHOICE HOMES IX, LTD. (99%-NV) (PALM BEACH GARDENS, FL) --CREATIVE CHOICE HOMES X, LTD. (99%-NV) (PALM BEACH GARDENS, FL) --CREEKSIDE AT BELLEMEADE LIMITED PARTNERSHIP (99.99%-NV) (PANAMA CITY, FL) --CROSSWINDS GREEN ASSOCIATES LIMITED PARTNERSHIP (99.99%-NV) (FAYETTEVILLE, NC) --DAVENPORT ALLEY, L.P. (99.98%-NV) (RICHMOND, VA) --ELLENTON HOUSING ASSOCIATES, LTD. (99%-NV) (CORAL GABLES, FL) --ELM LAKE APARTMENTS, LTD. (99%-NV) (BRADENTON, FL) --EVERGREEN APARTMENTS, L.P. (99.99%-NV) (CORDELE, GA) --FAIRBROOKE APARTMENTS LIMITED PARTNERSHIP (99%-NV) (BALTIMORE, MD) --FAIRFAX COUNTY REDEVELOPMENT AND HOUSING AUTHORITY/HCDC TWO L.P. (99%-NV) (FAIRFAX, VA) --FLORAL OAKS APARTMENTS, LTD. ( 99%-NV)(GAINESVILLE, FL) --FOUNTAIN PLACE ASSOCIATES LIMITED PARTNERSHIP (99%-NV) (ANNAPOLIS, MD) --FRANKLIN RIDGE, LLC (99.99%-NV) (RALEIGH, NC) --GENESIS GARDENS, L.P. (99.99%-NV) (PALMETTO, GA) --GLENBURN ASSOCIATES LIMITED PARTNERSHIP (99.99%-NV) (ANNAPOLIS, MD) --GOLD RUSH I APARTMENTS LIMITED PARTNERSHIP (99%-NV) (PHOENIX, AZ) --GOLD RUSH II APARTMENTS LIMITED PARTNERSHIP (99%-NV) (PHOENIX, AZ) --GREEN GABLES APARTMENTS, LTD. (99%-NV) (GAINESVILLE, FL) --GREENLEAF VILLAGE OF GROVELAND, LTD. (89%-NV) (GAINESVILLE, FL) --GREYSTONE OF MCDONOUGH L.P. (99.99%) (DOUGLAS, GA) --HAVERHILL AFFORDABLE HOUSING, LTD. (99.99%-NV) (ORLANDO, FL) --HEATHERWOOD APARTMENTS LIMITED PARTNERSHIP (99%-NV) (COLUMBIA, SC) --HICKORY HOLLOW SENIOR APARTMENTS LIMITED PARTNERSHIP (99.90%-NV) (ALTAMONTE SPRINGS, FL) --HOMES FOR FREDERICKSBURG LIMITED PARTNERSHIP (99%-NV) (STERLING, VA) --HUB BUILDING LIMITED PARTNERSHIP (99.9%-NV) (CHICAGO, IL) --HUNTINGTON PARK APARTMENTS LIMITED PARTNERSHIP (99.90%-NV) (ALTAMONTE SPRINGS, FL) --INDIAN RUN LIMITED PARTNERSHIP (86%-NV) (BOSTON, MA) --JACKSONVILLE AFFORDABLE HOUSING, LTD. (98%-NV) (PANAMA CITY, FL) --KENSINGTON OF KISSIMMEE, LTD. (99.99%-NV) (GAINESVILLE, FL) --KINDER MORGAN, INC. (5.60%) (HOUSTON, TX) --KNOX HOMES, L. P. (99.99%-NV) (BROOKLYN, NY) --L & M HOE ASSOCIATES LLC (99.99%-NV) (LARCHMONT, NY) --LAKE WESTON APARTMENTS (ORLANDO) LIMITED PARTNERSHIP (99.99%-NV) (ALTAMONTE SPRINGS, FL) --LOEWEN DEVELOPMENT OF WAPPINGERS FALLS, L.P. (99.99%-NV) (NEW ROCHELLE, NY) --MAGNOLIA WALK APARTMENTS, LTD. (99%-NV) (OCALA, FL) --MEADOW RIDGE SENIOR APARTMENTS LIMITED PARTNERSHIP (99.99%-NV)(ALTAMONTE SPRINGS, FL) --MEREDIAN POINT SENIOR APARTMENTS LIMITED PARTNERSHIP (99.90%-NV) (UNIONTOWN, PA) --MONTGOMERY HOMES L. P. IX (99%-NV) (KENSINGTON, MD) --MONTGOMERY HOMES LIMITED PARTNERSHIP X (99%-NV) (KENSINGTON, MD) --MONARCH PLACE APTS. LP (99%-NV) (COLUMBIA, SC) --MORAVIAN HOUSE III, LP (99.99%-NV) (BETHLEHEM, PA) --OAK CREST APARTMENTS OF KANNAPOLIS, LTD. (99%-NV) (PANAMA CITY, FL) --ODC SELBORNE HOUSE LIMITED PARTNERSHIP (99.99%-NV) (ELLICOTT CITY, MD) --OLDBRIDGE URBAN RENEWAL, L.P. (99%-NV) (CHERRY HILL, NJ) --ONE PLEASANT GREEN PLACE, LTD. (99.90%-NV) (AUSTIN, TX) --ONE SOUTH PLACE, L.P. (99%-NV) (KNOXVILLE, TN) --PACIFIC PARK, L.P. (99.99%-NV) (FORT VALLEY, GA) --PARKVIEW HEIGHTS, L.P. (99.99%-NV) (ATLANTA, GA) --PENDLETON PINES ASSOCIATES, LLC (99%-NV) (NASHVILLE, TN) --PEPPERMILL PARTNERS, L. P. (99%-NV) (ATLANTA, GA) --RAILROAD Y L.P. (99.98%-NV)(RICHMOND, VA) --RELATED CLUB WEST HOUSING ASSOCIATES, LTD. (99.50%-NV) (MIAMI, FL) --RESERVOIR HILL LIMITED PARTNERSHIP (99.99%-NV) (BALTIMORE, MD) --RESERVOIR HILL LIMITED PARTNERSHIP XI (99%-NV) (BALTIMORE, MD) --RESERVOIR HILL LIMITED PARTNERSHIP IX (99%-NV) (BALTIMORE, MD) --RICHMOND GREEN LIMITED PARTNERSHIP (99.99%-NV) (NASHVILLE, TN) --RIDGETOP REALTY ASSOCIATES LLC (99%-NV) (NASHVILLE, TN) --ROANOKE HIGHER EDUCATION ASSOCIATES, L. P. (99.98%-NV) (ROANOKE, VA) --ROBINS LANDING, L. P. (99.99%-NV)(ALTAMONTE SPRINGS, FL) --ROME RENTAL HOUSING, L. P. (99%-NV) (CORDELE, GA) --ROSEMONT MANOR LTD. (99%-NV) (GAINESVILLE, FL) --SABLE POINT APARTMENTS LIMITED PARTNERSHIP (99%-NV) (ALTAMONTE SPRINGS, FL) 7 --SABLE POINT II APARTMENTS LIMITED PARTNERSHIP (99%-NV) (MARTINSBURG, WV) --SAN BENITO HOUSING, LTD. (99%-NV) (ALTAMONTE SPRINGS, FL) --SANDLEWOOD TERRACE OF LUDOWICI L.P. (99%-NV) (GAINESVILLE, FL) --SARANOR APARTMENTS LIMITED PARTNERSHIP (99.99%-NV) (MILFORD, CT) --S.H.E. URBAN RENEWAL ASSOCIATES, L. P. (99%-NV) (NEWARK, NJ) --SHENANDOAH STATION, L.P. (99.99%-NV) (RICHMOND, VA) --SK 55 WALL LLC (99.99%-NV) (NEW YORK, NY) --SOUTHSIDE PLAZA 455 LTD., L.L.P. (99.99%-NV) (LEWISVILLE, TX) --SPRING GATE MANOR LIMITED (99%-NV) (GAINESVILLE, FL) --ST. CHARLES PLACE, L. P. (99.99%-NV)(FORT VALLEY, GA) --STEEPLECHASE APARTMENTS, LTD. (99%-NV) (GAINESVILLE, FL) --STEEPLECHASE APARTMENTS II, LTD. (99%-NV) (GAINSVILLE, FL) --STONECREEK APARTMENTS OF MOORESVILLE, LTD. (99%-NV) (PANAMA CITY, FL) --STONEYBROOKE HEIGHTS ASSOCIATES LLC (99.99%-NV) (NASHVILLE, TN) --STUDEBAKER LIMITED PARTNERSHIP (99.99%-NV) (BROOKLYN, NY) --SUGAR MILL ASSOCIATES, LTD. (95%-NV) (MIAMI, FL) --SUNDIAL APARTMENTS, L.P. (99.99%-NV) (CORDELE, GA) --THE MAPLES LIMITED PARTNERSHIP (99.99%-NV) (DENTON, MD) --TIMBERLAKE APTS, LP (99.99%-NV) (AYNOR, SC) --TIMBERLEAF ESTATES LIMITED PARTNERSHIP (99%-NV) (MARTINSBURG, WV) --TOBACCO ROW PHASE II ASSOCIATES, L.P. (99%-NV) (RICHMOND, VA) --TWC EIGHTY-FOUR, LTD. (95%-NV) (TAMPA, FL) --TWC EIGHTY-SEVEN, LTD. (99%-NV) (TAMPA, FL) --TWC EIGHTY-THREE, LTD. (97%-NV) (TAMPA, FL) --TWC NINETY-EIGHT, LTD. (99%-NV) (TAMPA, FL) --TWC NINETY-FIVE, LTD. (99%-NV) (TAMPA, FL) --TWC NINETY-FOUR, LTD. (98%-NV) (TAMPA, FL) --TWC NINETY-ONE, LTD. (99%-NV) (TAMPA, FL) --TWC NINETY-NINE, LTD. (99.99%-NV) (TAMPA, FL) --TWC NINETY-SEVEN, LTD. (99%-NV) (TAMPA, FL) --TWC NINETY-TWO, LTD. (99%-NV) (TAMPA, FL) --TWC SEVENTY-EIGHT, LTD. (99.99%-NV) (TAMPA, FL) --TWC SEVENTY-THREE, LTD. (99.99%-NV) (TAMPA, FL) --TWC SEVENTY-TWO, LTD. (99.99%-NV) (TAMPA, FL) --VCP-SB ASSOCIATES, LTD. (99%-NV) (JACKSONVILLE, FL) --VESTCOR FUND XIV, LTD. (99.99%-NV) (JACKSONVILLE, FL) --VESTCOR-WR ASSOCIATES, LTD. (99%-NV) (JACKSONVILLE, FL) --VILLA BISCAYNE OF SOUTH DADE, LTD. (99%-NV) (PANAMA CITY, FL) --VIRGINIA CENTER ASSOCIATES, L. P. (99.99%-NV) (MIDLOTHIAN, VA) --VISTA POINT APARTMENTS LIMITED PARTNERSHIP (99%-NV) (LAS VEGAS, NV) --WATERFORD MANOR, L. P. (99%-NV) (WINTER PARK, FL) --WATERFORD MANOR II, L.P. (99%-NV) (ALTAMONTE SPRINGS, FL) --WEST 152 STREET ASSOCIATES LLC (99.99%-NV) (LARCHMONT, NY) --WEST BRICKELL APARTMENTS, LTD. (99%-NV) (MIAMI, FL) --WEST HANOVER URBAN RENEWAL, L.P. (99.99%-NV) (YARDVILLE, NJ) --WESTVILLE, LTD. (99%-NV) (GAINESVILLE, FL) --WHITNEY HOTEL LIMITED PARTNERSHIP (99.99%-NV) (METAIRIE, LA) --WILLIAMS LANDING LIMITED PARTNERSHIP (95%-NV) (BOSTON, MA) --WILLOW KEY APARTMENTS LIMITED PARTNERSHIP (99.50%-NV) (ALTAMONTE SPRINGS, FL) --WILLOW RIDGE APARTMENTS OF GREENSBORO LIMITED PARTNERSHIP (99.99%-NV) (PANAMA CITY, FL) --WILLOW RIDGE ASSOCIATES (99.99%-NV) (LANCASTER, PA) -FIRST UNION AFFORDABLE HOUSING CORP. (CHARLOTTE, NC) --AHG TAX CREDIT FUND I, L.L.C. (0.1%) (CHARLOTTE, NC) ---FLAGSHIP PARTNERS, L. P. (99%-NV) (KNOXVILLE, TN) ---SALEM RUN ASSOCIATES, L. P. (99%-NV) (MIDLOTHIAN, VA) ---SALEM RUN II ASSOCIATES, L. P. (99%-NV) (FREDERICKSBURG, VA) ---SALISBURY SENIOR HOUSING LIMITED PARTNERSHIP (99.99%-NV) (ANNAPOLIS, MD) --AHG TAX CREDIT FUND II, L.L.C. (0.1%) (CHARLOTTE, NC) ----TWC EIGHTY-EIGHT, LTD. (99%-NV) (TAMPA, FL) -FIRST UNION ATM SOLUTIONS, INC. (CHARLOTTE, NC) -FIRST UNION AUTO LOAN SECURITIZATION, INC. (CHARLOTTE, NC) -FIRST UNION BANK AND TRUST COMPANY (CAYMAN) LTD. (GEORGE TOWN, CAYMAN ISLANDS) -FIRST UNION BANK INTERNATIONAL (PHILADELPHIA, PA) --PHILADELPHIA INTERNATIONAL FINANCE CO. HONG KONG (VICTORIA, HONG KONG) 8 ---PHILADELPHIA NATIONAL LIMITED (10) (14.30%) (LONDON, ENGLAND) -FIRST UNION BROKERAGE SERVICES, INC. (CHARLOTTE, NC) -FIRST UNION CAPITAL PARTNERS, INC. (CHARLOTTE, NC) --ADVANCED TELCOM GROUP, INC. (7.40%) (LOS ALTOS, CA) --AMERICAN CELLULAR CORPORATION (6.60%) (PALO ALTO, CA) --AMERICAN INFORMATION CO., INC. (18%) (SAN FRANCISCO, CA) --ARCON HEALTHCARE, INC. (6.90%) (NASHVILLE, TN) --BEACON INDUSTRIAL GROUP LLC (66.30%) (TULSA, OK) --BLOOMINGTON BROADCASTING ACQUISITION CORP. (27.70%) (BLOOMINGTON, IL) --CORILLIAN CORPORATION (6%) (BEAVERTON, OR) --CYBERGENICS HOLDING, INC. (30.9%) (NEW YORK, NY) --DIGITAL ACCESS, INC. (11%) (BALA CYNWYD, PA) --DURO COMMUNICATIONS, INC. (8.60%) (CASSELBERRY, FL) --EBIZ.NET, INC. (9%-V; 10.90%-NV) (MARINA DEL RAY, CA) --GRAPEVINE BROADCASTING OF ANCHORAGE, LLC (23%) (ANCHORAGE, AK) --GRAPEVINE BROADCASTING OF AUSTIN, LLC (23%) (AUSTIN, MN) --GRAPEVINE BROADCASTING OF HUNTSVILLE, LLC (23%) (HUNTSVILLE, AL) --GRAPEVINE BROADCASTING OF JOPLIN, LLC (23%) (JOPLIN, MO) --GRAPEVINE BROADCASTING OF SAVANNAH, LLC (23.2%) (SAVANNAH, GA) --GRAPEVINE BROADCASTING OF WYOMING, LLC (23%) (CASPER, WO) --HEARTLAND PORK ENTERPRISES, INC. (18.40%) (ALDEN, IO) --INFLOW, INC. (34.48%) (DENVER, CO) --INSIGHT TECHNOLOGY PARTNERS, INC. (26.3%)(FT. LAUDERDALE, FL) --KELMSCOTT COMMUNICATIONS, L.L.C. (18.10%)(SAN RAFAEL, CA) --LAKELAND HOLDINGS LLC (59.20%) (CHARLOTTESVILLE, VA) --MEIGHER COMMUNICATIONS, L. P. (12.2%-NV) (NEW YORK, NY) --METAMOR INFORMATION TECHNOLOGY SERVICES, INC. (27.30%) (HOUSTON, TX) --METAMOR SOFTWARE SOLUTIONS, INC. (16.50%) (PITTSFORD, NY) --NEWSOUTH HOLDINGS, INC. (18.30%) (GREENVILLE, SC) --OUTSOURCING SOLUTIONS, INC. (2.82%-V; 3.49%-NV) (CHESTERFIELD, MO) --PACKAGING INVESTMENTS, LLC (74.30%) (CHARLOTTE, NC) --PROMETHEUS LABORATORIES, INC. (15%) (SAN DIEGO, CA) --QUALITOR, INC. (8.50%) (SMITHFIELD, MI) --PHYSICIAN PARTNERS, INC. (17.50%) (PORTLAND, OR) --REIMAN HOLDING COMPANY, LLC (5.4%) (GREENDALE, WI) --STATE COMMUNICATIONS, INC. (10.10%) (GREENVILLE, SC) --STERLING NETWORK GROUP, INC. (50.10%) (QUINCY, MA) --TEXOIL, INC. (5.72%) (HOUSTON, TX) --TRITON PCS, INC. (6.80%) (MALVERN, PA) --TSO HOLDING CORP. (8.60%) (BROOKLYN, NY) --ULTRAPRISE CORPORATION (7.30%) (DULIES, VA) --UNIVERSAL COMPRESSION HOLDINGS, INC. (8.60%) (NEW ORLEANS, LA) --US SALT HOLDINGS, LLC (47.5%) (JACKSONVILLE, FL) -FIRST UNION COMMERCIAL CORPORATION (98.0250%) (9)(CHARLOTTE, NC) --FIRST UNION COMMERCIAL LEASING GROUP, L.L.C. (1%) (11) (CHARLOTTE, NC) --FIRST UNION COMMERCIAL SHARED RESOURCES, LLC (CHARLOTTE, NC) --FIRST UNION INSTITUTIONAL MORTGAGE SERVICES, LLC (CHARLOTTE, NC) ---FIRST UNION/MAHER PARTNERS (50%) (WAYNE, PA) --FIRST UNION OVERSEAS INVESTMENT CORPORATION (CHARLOTTE, NC) ---BESSO HOLDINGS LIMITED (6.55%) (LONDON, ENGLAND) ---UNION HAMILTON ASSURANCE, LTD. (HAMILTON, BERMUDA) --FIRST UNION RAIL CORPORATION (CHARLOTTE, NC) ---IRONBRAND CAPITAL LLC (1%)(8) (CHARLOTTE, NC) ---TRANSPORTATION EQUIPMENT ADVISORS, INC. (ARLINGTON HEIGHTS, ILL) --IRONBRAND CAPITAL LLC (99%) (8) (CHARLOTTE, NC) ---INTEGRION FINANCIAL NETWORK, L.L.C. (5.26%-NV) (HERNDON, GA) ---JV MORTGAGE CAPITAL, INC. (50%) (PROSPECT HEIGHTS, IL) ---JV MORTGAGE CAPITAL, L.P. (49.5%-NV) (PROSPECT HEIGHTS, IL) ---NATIONAL AUTO FINANCE COMPANY, L..P. (10%-NV) (BOCA RATON, FL) --SPECTRUM EBP, LLC (33 1/3%) (RIDGEWOOD, NJ) -FIRST UNION COMMERCIAL LEASING GROUP, L.L.C. (99%) (11) (CHARLOTTE, NC) -FIRST UNION COMMERCIAL MORTGAGE SECURITIES, INC. (CHARLOTTE, NC) -FIRST UNION COMMERCIAL MORTGAGE LOAN WAREHOUSE CORP. (CHARLOTTE, NC) -FIRST UNION DIRECT BANK, N. A. (AUGUSTA, GA) 9 --FIRST UNION REAL ESTATE ASSET COMPANY OF CONNECTICUT (STAMFORD, CT) ---FIRST UNION REAL ESTATE INVESTMENT COMPANY OF CONNECTICUT (STAMFORD, CT) -FIRST UNION HOLDINGS, INC. (NASHVILLE, TN) --FIRST UNION FINANCIAL INVESTMENTS, INC. (NASHVILLE, TN) ---FIRST UNION COMMERCIAL CORPORATION (0.8881%) (9)(CHARLOTTE, NC) -FIRST UNION INSURANCE AGENCY OF FL, INC. (REDINGTON, FL) -FIRST UNION INSURANCE AGENCY OF NC, INC. (CHARLOTTE, NC) --UNION COMMERCE TITLE COMPANY, LLC (50%) (CHARLOTTE, NC) -FIRST UNION INTERNATIONAL BANKING CORPORATION (CHARLOTTE, NC) --BURDALE FINANCIAL HOLDINGS LIMITED (80%) (LONDON, ENGLAND) ---BURDALE FINANCIAL LIMITED (LONDON, ENGLAND) --CONGRESS FINANCIAL CORPORATION (CANADA) (TORONTO, CANADA) --EVERGREEN MANAGEMENT , S. A. (LUXEMBOURG) --EVERGREEN WORLDWIDE DISTRIBUTORS, LTD. (HAMILTON, BERMUDA) --FIRST UNION COMMERCIAL MORTGAGE SERVICES, INC. (TORONTO, CANADA) --FIRST UNION INTERNATIONAL CAPITAL MARKETS LIMITED (LONDON, ENGLAND) -FIRST UNION INVESTMENT CORPORATION (3) (CHARLOTTE, NC) -FIRST UNION NOVA HOLDINGS OF NC, INC. (CHARLOTTE, NC) -FIRST UNION REAL ESTATE ASSET COMPANY OF GEORGIA (ATLANTA, GA) -FIRST UNION REAL ESTATE ASSET COMPANY OF NEW JERSEY (AVONDALE, PA) -FIRST UNION REAL ESTATE ASSET COMPANY OF NORTH CAROLINA (CHARLOTTE, NC) -FIRST UNION RESIDENTIAL SECURITIZATION TRANSACTIONS, INC. (CHARLOTTE, NC) -FIRST UNION SHARED RESOURCES, LLC (CHARLOTTE, NC) -FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION (WILMINGTON, DE) --WNB CORPORATION (3) (ROANOKE, VA) ---LONE STONE, L. C. (43.946%-NV) (3) (ALBANY, NY) -FNB PROPERTIES, INC. (3) (JACKSONVILLE, FL) -FOIL, INC. (3) (PHILADELPHIA, PA) -FOX HAVEN LIMITED PARTNERSHIP (99%-NV) (RALEIGH, NC) -GAINSBOROUGH CORPORATION (3) (CHARLOTTE, NC) -GENERAL HOMES CORP. (9.205%) (3) (HOUSTON, TX) -GJA R/E CORP. (3) (NEW YORK, NY) -GLEN ROYALL MILL LIMITED PARTNERSHIP (99%-NV) (WAKE FOREST, NC) -GOLFVIEW ASSOCIATES LIMITED PARTNERSHIP (99%-NV) (FAYETTEVILLE, NC) -GREEN RIDGE ASSOCIATES, LLC (99%-NV) (NASHVILLE, TN) -HAMILTON MANOR LIMITED PARTNERSHIP (99%-NV) (STROUDSBURG, PA) -HARLINGEN COMMUNITY DEVELOPMENT CORPORATION 1, LP (99%-NV) (ALTAMONTE SPRINGS, FL) -HHS PROPERTY CORPORATION (3) (ATLANTA, GA) -HORACE BUSHNELL LIMITED PARTNERSHIP (99.99%-NV) (HARTFORD, CT) -HORIZON APPRAISAL SERVICES, INC. (JACKSONVILLE, FL) -HOUSING EQUITY FUND OF VIRGINIA II, L.P. (38.5%-NV) (RICHMOND, VA) -INDUSTRIAL VALLEY REAL ESTATE CO. (JENKINTOWN, PA) -INTERNATIONAL PROGRESS, INC. (50%) (WINCHESTER, VA) --MOUNTAIN FALLS PARK, INC. (WINCHESTER, VA) -JERSEY CENTER/FIDOREO, INC. (3) (NEWARK, NJ) -JPSD, INC. (3) (CHARLOTTE, NC) -KAUFMAN, ALSBERG & CO., INC. (INACTIVE) (JACKSONVILLE, FL) -KKM, INC. (3) (READING, PA) -KOGEL ISLAND/FIDOREO, INC. (3) (NEW YORK, NY) -LAFAYETTE FAMILY L.P. (99%-NV) (ROANOKE, VA) -LANTANA ASSOCIATES, LTD. (99%-NV) (CORAL GABLES, FL) -LAUREL POINTE OF SALISBURY LIMITED PARTNERSHIP (99%-NV) (PANAMA CITY, FL) -MANOR RIDGE LIMITED PARTNERSHIP (99.99%-NV) (RALEIGH, NC) -MARTIN'S LANDING LIMITED PARTNERSHIP (99%-NV) (WINTER PARK, FL) -MARTIN'S LANDING II LIMITED PARTNERSHIP (99%-NV) (WINTER PARK, FL) -MARYLAND HOUSING EQUITY FUND III LIMITED PARTNERSHIP (7.7647%-NV) (COLUMBIA, MD) -MERIDIAN MORTGAGE CORPORATION (PERKASIE, PA) -MERIDIAN PROPERTIES, INC. (READING, PA) -NFPS, INC. (3) (CHARLOTTE, NC) -NNI BELL STREET LIMITED PARTNERSHIP (99%-NV) ((STAMFORD, CT) -OLD YORK AGENCY, INC. (AVONDALE, PA) -O.R.E.O., INC. (3) (JACKSONVILLE, FL) -ORIANNA STREET LIMITED PARTNERSHIP (99%-NV) (PHILADELPHIA, PA) -PAROG, INC. (3) (PHILADELPHIA, PA) 10 -PHILADELPHIA INTERNATIONAL INVESTMENT CORP. (PHILADELPHIA, PA) --JOH. BERENBERG, GOSSLER & CO. (15%) (HAMBURG, GERMANY) --NEW WORLD DEVELOPMENT CORPORATION, LTD. (NASSAU, BAHAMAS) ---PHILADELPHIA NATIONAL LIMITED (65.10%) (10) (LONDON, ENGLAND) ----NEW WORLD GROUP HOLDINGS, LTD. (42.60%) (NEW BRUNSWICK, CANADA) ----THE HERITABLE AND GENERAL INVESTMENT BANK LIMITED (14.35%) (LONDON, ENGLAND) -----ALBEMARIE & BOND HOLDINGS PLC (6.60%) (BRISTOL, ENGLAND) -----BEESON GREGORY HOLDINGS LIMITED (10.20%) (LONDON, ENGLAND) --PHILADELPHIA INTERNATIONAL EQUITIES, INC. (WILMINGTON, DE) ---ACCEL GROUP LLC (21.10%) (PRAGUE, CZECH REPUBLIC) ---BANCO INTERNACIONAL DE PANAMA, S.A. (20%)(PANAMA CITY, PANAMA) ---CENTRO INTERNATIONALE HANDELSBANK AKTRINGESEELSCHAFT (10%) (VIENNA, AUSTRIA) ---CORESTATES FUND MANAGEMENT (IRELAND) LTD. (DUBLIN, IRELAND) ---CORESTATES FUNDING LIMITED (GEORGETOWN, CAYMAN ISLANDS) ---CROSBY FINANCIAL HOLDINGS LIMITED (8.61%) (TORTOLA, BRITISH VIRGIN ISLANDS) ---CSB INFORMATION SERVICES PTE LTD. (SINGAPORE) ---CS OUTSOURCING HOLDINGS LIMITED (20%) (NASSAU, BAHAMAS) ---EMPRESA MINERA DE MANTOS BLANCOS, S.A. (1.1%)(SANTIAGO, CHILE) ---ESTABLISHED HOLDINGS LIMITED (LONDON, ENGLAND) ----PHILADELPHIA NATIONAL LIMITED (10) (20.60%) (LONDON, ENGLAND) ---MEDICAL EQUIPMENT CREDIT PTE LTD. (20%) (SINGAPORE) ---MSF HOLDING, LTD. (26.25%) (NASSAU, BAHAMAS) ---MULTI-CREDIT CORPORATION OF THAILAND PCL ((7.50%) (BANGKOK, THAILAND) ---MULTI-RISK CONSULTANTS (THAILAND) LTD. (10%) (BANGKOK, THAILAND) ---SCM CHINA GROWTH FUND LDC (8.88%)(GEORGETOWN, CAYMAN ISLANDS) ---SURINVEST INTERNATIONAL LIMITED (13.76%)(GEORGETOWN, CAYMAN ISLANDS) ---THE HERITABLE AND GENERAL INVESTMENT BANK LIMITED (55.16%) (LONDON, ENGLAND) ---TI REMNACO, INC. (39.80%)(TORONTO, CANADA) ---VECTODIVISAS CASA DE CAMBIA S.A. DE C.V. (20%)(MONTERREY, MEXICO) -QUESTPOINT L. P., INC. (PHILADELPHIA, PA) -RAVENWOOD OF KISSIMMEE, LTD. (99%-NV) (GAINESVILLE, FL) -RESIDENTIAL ASSET FUNDING CORPORATION (CHARLOTTE, NC) -RICHMOND COMMUNITY DEVELOPMENT CORPORATION (19%-NV) (RICHMOND, VA) -RIVER REACH OF ORANGE COUNTY, LTD. (99%-NV) (PANAMA CITY, FL) -ROANOKE COMMUNITY DEVELOPMENT CORPORATION (11.11%) (INACTIVE) (ROANOKE, VA) (6) -SAVINGS ASSOCIATIONS FINANCIAL ENTERPRISES, INC. (48.15%) (WASHINGTON, DC) -SECOND ELEUTHERAN INVESTMENT COMPANY, LTD. (INACTIVE) (NASSAU, BAHAMAS) -SENIOR COTTAGES OF SHIPPENSBURG, LTD. (99%-NV) (ST. LOUIS PARK, MN) -SHENANDOAH VALLEY PROPERTIES L.P. (99%-NV) (FISHERVILLE, VA) --CRAIGMONT II, L.P. (99%-NV) (FISHERVILLE, VA) --ELKMONT PARTNERS, L.P. (99%-NV) (FISHERVILLE, VA) --GROTTOES PARTNERS L.P. (99%-NV) (FISHERVILLE, VA) --WILLOW LAKE PARTNERS, L.P. (99%-NV) (FISHERVILLE, VA) -SIGNET EQUIPMENT COMPANY (BALTIMORE, MD) -SKYHAWK AGENCY, INC. (HAWTHORNE, NY) -SOUTHWOODS LIMITED PARTNERSHIP (99%-NV) (GREENSBORO, NC) -SPINNAKER REACH APARTMENTS OF DUVAL, LTD. (99%-NV) (PANAMA CITY, FL) -ST. JOSEPH'S AFFORDABLE HOUSING LIMITED PARTNERSHIP (74.25%-NV) (WAYNE, PA) -ST. PAUL REALTY, INC. (INACTIVE) (BALTIMORE, MD) -STATESBORO RENTAL HOUSING, L. P. (99%-NV) (CORDELE, GA) -SUGAR MILL APARTMENTS, L. P. (99%-NV) (CORDELE, GA) -SURREY DOWNS/FIDOREO, INC. (3) (NEWARK, NJ) --SPRING RIDGE HOLDINGS, INC. (3) (READING, PA) -SYCAMORE ROW, LLC (99%-NV) (BRONX, NY) -TATTERSALL ADVISORY GROUP, INC. (CHARLOTTE, NC) -TAYLORR LAKES/FIDOREO, INC. (3) (NEWARK, NJ) -THE EXCHANGE BUILDING LIMITED PARTNERSHIP (99%-NV) (PORTLAND, ME) -THE HOWARD MORTGAGE GROUP, INC. (NEWARK, NJ) -THE MONEY STORE, INC. (UNION, NJ) --CLASSNOTES, INC. (SACRAMENTO, CA) ---EDUCAID STUDENT HOLDINGS, INC. (SACRAMENTO, CA) (INACTIVE) ---TMS STUDENT HOLDINGS, INC. (UNION, NJ) --THE MONEY STORE COMMERCIAL MORTGAGE INC. (WEST SACRAMENTO, CA) --THE MONEY STORE INVESTMENT CORPORATION (WEST SACRAMENTO, CA) 11 ---THE MONEY STORE OF NEW YORK, INC. (WEST SACRAMENTO, CA) ---TMS SBA HOLDINGS, INC. (UNION, NJ) --THE MONEY STORE/SERVICE CORP. (WEST SACRAMENTO, CA) ---FIRST MONEY STORE SECURITIES, INC. (UNION, NJ) (INACTIVE) ---FIRST UNION MONEY STORE HOME EQUITY LOAN WAREHOUSE CORP. (CHARLOTTE, NC) ---THE MONEY STORE HELOC HOLDING, INC. (UNION, NJ) (INACTIVE) ---THE MONEY STORE INSURANCE SERVICES CORP. (UNION, NJ) ---THE MONEY STORE REALTY, INC. (UNION, NJ) ---TMS AUTO HOLDINGS, INC. (UNION, NJ) ---TMS SPECIAL HOLDINGS, INC. (UNION, NJ) ---TMS SPV, INC. (UNION, NJ) --TMS MORTGAGE INC. (UNION, NJ) ---DYNA-MARK, INC. (UNION,NJ) ---EQUITY INSURANCE AGENCY, INC. (UNION, NJ) ---FIRST UNION COMMERCIAL CORPORATION (0.1173%) (9)(CHARLOTTE, NC) ---INTEGRATED CAPITAL GROUP, INC. (WEST SACRAMENTO, CA) ---MAJOR BROKERAGE CO., INC. (UNION, NJ) (INACTIVE) ---PRINCETON RECONVEYANCE SERVICES INC. (FOUNTAIN VALLEY, CA) ---THE MONEY STORE AUTO FINANCE INC. (SACRAMENTO, CA) ---THE MONEY STORE/D.C. INC. (UNION, NJ) ---THE MONEY STORE HOME EQUITY CORP. (UNION, NJ) ---THE MONEY STORE/KENTUCKY INC. (UNION, NJ) ---THE MONEY STORE/MINNESOTA INC. (UNION, NJ) ---TMS HOME HOLDINGS, INC. (UNION, NJ) ---TMS VENTURE HOLDINGS, INC. (INACTIVE) (UNION, NJ) ----AE MORTGAGE SERVICES L.L.C. (50%-NV) (INACTIVE) (WEST SACRAMENTO, CA) -THE MORTGAGE CORNER, INC. (WATERBURY, CT) -TOWSON SERVICE CORPORATION (3) (TOWSEN, MD) --ASHLAND JOINT VENTURE (50%-NV) (BALTIMORE, MD) --SILVER SPRING STATION JOINT VENTURE (50%-NV) (BALTIMORE, MD) -TWC NINETY-SIX, LTD. (99%-NV) (TAMPA, FL) -TWO APN PLAZA, INC. (89%) (PHILADELPHIA, PA) -VCP-ALDERMAN PARK PARTNERS, LTD. (99%-NV) (JACKSONVILLE, FL) -VENICE SERVICE CORP. (3) (JACKSONVILLE, FL) -WASHINGTON APARTMENTS ASSOCIATES, LIMITED PARTNERSHIP (99%-NV) (EMMAUS, PA) -WATERVIEW/FIDOREO, INC. (3) (NEWARK, NJ) -WHEAT BENEFIT SERVICES, LLC (61.446%) (RICHMOND, VA) -WILLIAM BYRD HOTEL ASSOCIATES, L. P. (99%-NV) (RICHMOND, VA) -WOODLAWN JOINT VENTURE (30%-NV) (INACTIVE) (15) (WOODBRIDGE, VA) -YORKTOWN ARMS DEVELOPMENT LIMITED PARTNERSHIP (99%-NV) (PHILADELPHIA, PA) FIRST UNION PRIVATE CAPITAL, INC. (PHILADELPHIA, PA) FIRST UNION RISK MANAGEMENT, INC. (CHARLOTTE, NC) FIRST UNION SERVICES, INC. (CHARLOTTE, NC) FRANKLIN CAPITAL ASSOCIATES III, L. P. (6.60%-NV) (FRANKLIN, TN) GF TITLE CORPORATION (INACTIVE) (ATLANTA, GA) HOME INVESTORS MORTGAGE CORPORATION (INACTIVE) (NEW BRUNSWICK, NJ) HORIZON TELECOM INTERNATIONAL, LLC (19.90%-V; 40.9%-NV) (BOSTON, MA) MCGLINN CAPITAL MANAGEMENT, INC. (READING, PA) MERIDIAN ACCEPTANCE CORPORATION (INACTIVE) (READING, PA) MERIDIAN ASSET MANAGEMENT, INC. (VALLEY FORGE, PA) -FIRST UNION TRUST COMPANY OF CALIFORNIA (SAN FRANCISCO, CA) -MERIDIAN INVESTMENT COMPANY (MALVERN, PA) 12 MERIDIAN SECURITIES, INC. (INACTIVE) (READING, PA) SIGNAL FINANCIAL CORPORATION (INACTIVE) (PITTSBURGH, PA) SIGNET INSURANCE SERVICES, INC. (RICHMOND, VA) SIGNET REALTY, INC. (INACTIVE) (BALTIMORE, MD) SIGNET STRATEGIC CAPITAL CORPORATION (RICHMOND, VA) SIGNET STUDENT LOAN CORPORATION (RICHMOND, VA) STAR SYSTEMS, INC. (10.04%) (MAITLAND, FL) THE MONEY STORE HOLDINGS LIMITED (LONDON, ENGLAND) -THE MONEY STORE ADVERTISING SERVICES LIMITED (LONDON, ENGLAND) -THE MONEY STORE LIMITED (LONDON, ENGLAND) TRSTE, INC. (CHARLOTTE, NC) TRSTE II, INC. (NASHVILLE, TN) TRYON MANAGEMENT, INC. (CHARLOTTE, NC) UNITED BANCSHARES, INC. (100%-NV) (PHILADELPHIA, PA) (7) -UNITED BANK OF PHILADELPHIA (PHILADELPHIA, PA) VERDUGT HOLDINGS, LLC (28.32%: 15%-V, 12.62%-NV) (JACKSONVILLE, FL) WALLER HOUSE CORPORATION (PHILADELPHIA, PA) -NATIONAL TEMPLE LIMITED PARTNERSHIP-II (98.99%-NV) (PHILADELPHIA, PA) WFS REAL ESTATE INVESTMENT CORPORATION (RICHMOND, VA) -HUGUENOT PROFESSIONAL CENTER LIMITED PARTNERSHIP, LP (6.482%) (RICHMOND, VA) WHEAT SERVICE & EQUIPMENT CORPORATION (RICHMOND, VA) -ENERGY SEARCH LP (INACTIVE) (7.7%-NV) -WBP ASSOCIATES (INACTIVE) (33%-NV) WOMEN'S GROWTH CAPITAL FUND I, L.L.L.P. (10%-NV) (WASHINGTON,DC) - ----------------------------------------- * CONTROLLED BY MANAGEMENT CONTRACT - NO EQUITY OWNED. ** MANAGING INTEREST (1) 100% OF VOTING SECURITIES OWNED UNLESS OTHERWISE INDICATED. NV INDICATES NON-VOTING EQUITY. DOES NOT INCLUDE COMPANIES IN WHICH THE OWNERSHIP INTEREST IS 5% OR LESS OF VOTING EQUITY NOR COMPANIES WHERE THE SOLE OWNERSHIP IS THROUGH NON-VOTING EQUITY (EXCEPT FOR BANKS AND BANK HOLDING COMPANIES). ALL PARTNERSHIP INTERESTS IN EXCESS OF 5% ARE SHOWN; INTERESTS OF LESS THAN 5% WHERE THE PARTNERSHIPS ARE CONTROLLED ARE SHOWN. (2) VOTES AS ON A CONVERTED BASIS. (3) INTEREST ACQUIRED OR SUBSIDIARY FORMED IN CONNECTION WITH DEBTS PREVIOUSLY CONTRACTED (DPC). (4) COMBINED OWNERSHIP OF RADNOR VENTURE PARTNERS, L. P. BY ALL FIRST UNION ENTITIES IS 15.04%-NV (FIRST UNION INVESTORS, INC. - 7.39%, CORESTATES HOLDINGS, INCORPORATED - 7.65%). 13 (5) COMBINED OWNERSHIP OF RFE CAPITAL PARTNERS, L.P. BY ALL FIRST UNION ENTITIES IS 13.34%-NV (FIRST UNION INVESTORS, INC. - 6.67%, CORESTATES HOLDINGS, INCORPORATED - 6.67%). (6) COMBINED OWNERSHIP OF ROANOKE COMMUNITY DEVELOPMENT CORPORATION BY ALL FIRST UNION ENTITIES IS 38.888% (FIRST UNION NATIONAL BANK - 11.11%, FIRST UNION COMMUNITY DEVELOPMENT CORPORATION - 27.778%). (7) COMBINED OWNERSHIP OF UNITED BANCSHARES, INC. BY ALL FIRST UNION ENTITIES IS 6.02% OF VOTING COMMON STOCK BY CORESTATES HOLDINGS, INCORPORATED, 9.40% OF NON-VOTING PREFERRED STOCK BY CORESTATES HOLDINGS, INCORPORATED, AND 100% OF NON-VOTING CLASS B COMMON STOCK BY FIRST UNION CORPORATION. (8) COMBINED OWNERSHIP OF IRONBRAND CAPITAL LLC BY ALL FIRST UNION ENTITIES IS 100% (FIRST UNION COMMERCIAL CORPORATION - 99%, FIRST UNION RAIL CORPORATION - 1%). (9) COMBINED OWNERSHIP OF FIRST UNION COMMERCIAL CORPORATION BY ALL FIRST UNION ENTITIES IS 100% (FIRST UNION NATIONAL BANK - 98.0250%, FIRST UNION CORPORATION - 0.9696%, FIRST UNION FINANCIAL INVESTMENTS, INC. - 0.8881%, AND TMS MORTGAGE, INC. - 0.1173 %). (10) COMBINED OWNERSHIP OF PHILADELPHIA NATIONAL LIMITED BY ALL FIRST UNION ENTITIES IS 100% (NEW WORLD DEVELOPMENT CORPORATION, LTD. - 65.10%, ESTABLISHED HOLDINGS LIMITED - 20.60%, AND PHILADELPHIA INTERNATIONAL FINANCE CO. HONG KONG - 14.30%). (11) COMBINED OWNERSHIP OF FIRST UNION COMMERCIAL LEASING GROUP L.L.C. BY ALL FIRST UNION ENTITIES IS 100% (FIRST UNION NATIONAL BANK - 99%, FIRST UNION COMMERCIAL CORPORATION - 1%). (12) COMBINED OWNERSHIP OF MENTOR INVESTMENT GROUP, LLC BY ALL FIRST UNION ENTITIES IS 100% (EVEREN CAPITAL CORPORATION, 55%, EVEREN SECURITIES HOLDINGS, INC. - 45%). (13) COMBINED OWNERSHIP OF BRADFORD EQUITIES FUND, L.P. BY ALL FIRST UNION ENTITIES IS 18.89% (CORESTATES HOLDINGS, INCORPORATED - 11.02%, EVEREN CAPITAL CORPORATION - 7.87%). (14) COMBINED OWNERSHIP OF MENTOR INVESTMENT ADVISORS, LLC BY ALL FIRST UNION ENTITIES IS 100% (MENTOR INVESTMENT GROUP LLC - 99%, EVEREN CAPITAL CORPORATION - - 1%). (15) COMBINED OWNERSHIP OF WOODLAWN JOINT VENTURE BY ALL FIRST UNION ENTITIES IS 70% (FIRST AMERICAN SERVICE CORPORATION - 40%, FIRST UNION NATIONAL BANK - 30%). (16) COMBINED OWNERSHIP OF FIRST UNION PRIVATE EQUITY FUND, L. P. IS 1%-NV** BY FIRST UNION FPS, INC. AND 3.9%-NV BY FIRST UNION INVESTORS, INC. (17) COMBINED OWNERSHIP OF FIRST UNION PRIVATE INVESTMENT FUNDS HEDGED EQUITIES SUPER ACCREDITED, L.P. IS 0.89%-NV** BY FIRST UNION FPS,INC. AND 11.20%-NV BY FIRST UNION INVESTORS, INC. (18) COMBINED OWNERSHIP OF FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY ACCREDITED, L. P. IS 2.14%-NV** BY FIRST UNION FPS, INC. AND 16.29%-NV BY FIRST UNION INVESTORS, INC. (19) COMBINED OWNERSHIP OF FIRST UNION PRIVATE INVESTMENT FUNDS MULTI-STRATEGY SUPER ACCREDITED, L. P. IS 0.93%-NV** BY FIRST UNION FPS, INC. AND 11.23%-NV BY FIRST UNION INVESTORS, INC. 2/1/00
14 EX-23 7 CONSENT OF KPMG EXHIBIT (23) CONSENT OF KPMG LLP - -------------------------------------------------------------------------------- Board of Directors First Union Corporation We consent to the incorporation by reference in the Registration Statements of (i) First Union Corporation on:
REGISTRATION REGISTRATION STATEMENT STATEMENT FORM NUMBER FORM NUMBER ----------- ------------------ ----------- ----------------- S-3 33-50103 S-4 333-19039-01 S-8 33-51964 S-4 333-20611 S-8 33-54148 S-3 333-34151 S-8 33-54274 S-3 333-35363 S-3 33-56927 S-8 333-36839 S-8 33-60835 S-8 333-37709 S-8 33-60913 S-8 333-44015 S-8 33-62307 S-8 333-50589 S-8 33-63387 S-3 333-50999 S-8 33-65501 S-8 333-53549 S-8 333-2551 S-3 333-58299 S-8 333-10179 S-8 333-59789 S-8 333-10211 S-3 333-70489 S-8 333-11613 S-8 333-83969 S-8 333-14469 S-8 333-89299 S-3 333-15743 S-3 333-90593 S-3 333-17599
(ii) First Union Capital I on Form S-3 (No. 333-15743-01); (iii) First Union Capital II on Form S-3 (No. 333-15743-02); (iv) First Union Capital III on Form S-3 (No. 333-15743-03); (v) First Union Institutional Capital I on Form S-4 (No. 333-19039); (vi) First Union Institutional Capital II on Form S-4 (No. 333-20611-01); (vii) First Union Capital I on Form S-3 (No. 333-90593-01); (viii) First Union Capital II on Form S-3 (No. 333-90593-02); and (ix) First Union Capital III on Form S-3 (No. 333-90593-03) of First Union Corporation of our report dated January 13, 2000, relating to the consolidated balance sheets of First Union Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the 1999 Annual Report to Stockholders which is incorporated by reference in First Union Corporation's 1999 Form 10-K. KPMG LLP Charlotte, North Carolina March 15, 2000 EX-24 8 POWER OF ATTORNEY EXHIBIT (24) FIRST UNION CORPORATION POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of FIRST UNION CORPORATION (the "Corporation") hereby constitute and appoint Mark C. Treanor and Kent S. Hathaway, and each of them severally, the true and lawful agents and attorneys-in-fact of the undersigned with full power and authority in said agents and the attorneys-in-fact, and in any one of them, to sign for the undersigned and in their respective names as directors and officers of the Corporation, the Corporation's Annual Report on Form 10-K for the year ended December 31, 1999, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to sign any and all amendments to such Annual Report. SIGNATURE CAPACITY --------- -------- /s/ EDWARD E. CRUTCHFIELD Chairman and Chief Executive ------------------------- Officer and Director EDWARD E. CRUTCHFIELD /s/ ROBERT T. ATWOOD Executive Vice President and -------------------- Chief Financial Officer ROBERT T. ATWOOD /s/ JAMES H. HATCH Senior Vice President and Controller ------------------ (Principal Accounting Officer) JAMES H. HATCH /s/ EDWARD E. BARR Director ------------------ EDWARD E. BARR /s/ G. ALEX BERNHARDT Director --------------------- G. ALEX BERNHARDT /S/ERSKINE B. BOWLES Director --------------------- ERSKINE B. BOWLES /s/ W. WALDO BRADLEY Director -------------------- W. WALDO BRADLEY /s/ ROBERT J. BROWN Director ------------------- ROBERT J. BROWN Director /S/ A. DANO DAVIS - ------------------- A. DANO DAVIS /s/ NORWOOD H. DAVIS, JR. Director ------------------------- NORWOOD H. DAVIS, JR. /s/ R. STUART DICKSON Director --------------------- R. STUART DICKSON Director /S/ B.F. DOLAN -------------- B. F. DOLAN /s/ RODDEY DOWD, SR. Director -------------------- RODDEY DOWD, SR. 1 SIGNATURE CAPACITY - --------------------------- Director ARTHUR M. GOLDBERG /s/ WILLIAM H. GOODWIN, JR. Director - --------------------------- WILLIAM H. GOODWIN, JR. /s/ FRANK M. HENRY Director - --------------------------- FRANK M. HENRY /s/ ERNEST E. JONES Director - --------------------------- ERNEST E. JONES /s/ HERBERT LOTMAN Director - --------------------------- HERBERT LOTMAN /S/ RADFORD D. LOVETT Director - -------------------------- RADFORD D. LOVETT /s/ MACKEY J. MCDONALD Director - --------------------------- MACKEY J. MCDONALD /s/ PATRICIA A. MCFATE Director - --------------------------- PATRICIA A. MCFATE - --------------------------- Director JOSEPH NEUBAUER /s/ RANDOLPH N. REYNOLDS Director - --------------------------- RANDOLPH N. REYNOLDS /s/ JAMES M. SEABROOK Director - --------------------------- JAMES M. SEABROOK - --------------------------- Director RUTH G. SHAW /s/ LANTY L. SMITH Director - --------------------------- LANTY L. SMITH /S/ G. KENNEDY THOMPSON Director - --------------------------- G. KENNEDY THOMPSON Dated: December 14, 1999 2 EX-27 9 FDS
9 12-MOS DEC-31-1999 DEC-31-1999 10,081 1,073 11,523 14,946 51,277 1,758 1,809 141,091 (1,757) 253,024 141,047 50,107 12,191 31,975 0 0 3,294 13,415 253,024 10,812 3,098 641 15,151 4,054 7,699 7,452 692 71 8,862 4,831 4,831 0 0 3,223 3.35 3.33 3.79 968 188 2 0 1,826 828 140 1,757 1,230 19 508
EX-99 10 BUSINESS SEGMENT
EXHIBIT (99) BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED DECEMBER 31, 1999 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 33 19 199 62 35 - 348 Provision for loan losses - - 61 1 - - 62 Trading account profits 95 - - - - - 95 Fee and other income 327 41 8 41 51 (71) 397 Noninterest expense 208 34 50 29 55 - 376 Income tax expense 94 7 37 23 13 (71) 103 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 153 19 59 50 18 - 299 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 44.99 % 45.34 7.94 80.19 13.55 - 22.22 Average loans, net $ 3,883 2,026 22,459 5,335 4,921 - 38,624 Average deposits 3,212 831 2,820 21 4,415 - 11,299 Average attributed stockholders' equity (b) $ 1,330 166 3,019 249 601 - 5,365 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 39 12 (2) 61 44 - 154 Provision for loan losses - - - - - - - Fee and other income 451 185 124 34 4 (25) 773 Noninterest expense 400 111 50 36 26 - 623 Income tax expense 33 34 27 22 7 (11) 112 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 57 52 45 37 15 (14) 192 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 35.56 % 87.06 87.50 73.94 19.06 - 51.26 Average loans, net $ 1 123 - - 3,773 - 3,897 Average deposits - 2,682 - 14,245 3,181 - 20,108 Average attributed stockholders' equity (b) $ 612 247 169 200 269 (34) 1,463 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 14 143 44 635 836 Provision for loan losses 1 22 35 22 80 Fee and other income 46 29 84 200 359 Noninterest expense 53 188 61 633 935 Income tax expense 2 (14) 12 69 69 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 4 (24) 20 111 111 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 16.41 % (7.18) 17.08 21.47 11.61 Average loans, net $ 1,076 13,414 1,689 23,483 39,662 Average deposits 900 243 15 67,076 68,234 Average attributed stockholders' equity (b) $ 65 1,232 452 2,066 3,815 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
1
BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED DECEMBER 31, 1999 ---------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 20 94 43 243 400 Provision for loan losses 1 18 6 - 25 Fee and other income - - - 140 140 Noninterest expense 12 74 17 202 305 Income tax expense 3 (4) 9 69 77 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 4 6 11 112 133 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 9.53 % 1.61 10.24 58.11 19.71 Average loans, net $ 2,756 21,646 8,741 - 33,143 Average deposits - - - 25,920 25,920 Average attributed stockholders' equity (b) $ 183 1,230 535 760 2,708 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 348 154 502 836 400 207 1,945 Provision for loan losses 62 - 62 80 25 6 173 Trading account profits 95 - 95 - - 4 99 Fee and other income 397 773 1,170 359 140 69 1,738 Noninterest expense 376 623 999 935 305 121 2,360 Income tax expense 103 112 215 69 77 46 407 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 299 192 491 111 133 107 842 After-tax merger-related and restructuring charges - - - - - 4 4 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 299 192 491 111 133 111 846 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 22.22 % 51.26 28.53 11.61 19.71 13.20 19.78 Average loans, net $ 38,624 3,897 42,521 39,662 33,143 18,073 133,399 Average deposits 11,299 20,108 31,407 68,234 25,920 11,419 136,980 Average attributed stockholders' equity (b) $ 5,365 1,463 6,828 3,815 2,708 3,335 16,686 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
2 BUSINESS SEGMENTS (A)
- ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 32 21 172 61 29 - 315 Provision for loan losses 4 - 58 1 - - 63 Trading account profits 36 - - - - - 36 Fee and other income 275 19 (3) 43 53 (22) 365 Noninterest expense 174 28 41 26 50 - 319 Income tax expense 63 4 26 23 12 (22) 106 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 102 8 44 54 20 - 228 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 41.32 % 15.14 6.31 88.29 13.89 - 19.15 Average loans, net $ 3,737 2,028 20,889 5,105 4,842 - 36,601 Average deposits 2,712 825 2,995 21 3,805 - 10,358 Average attributed stockholders' equity (b) $ 982 205 2,689 242 572 - 4,690 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 20 13 - 53 43 - 129 Provision for loan losses - - - - - - - Fee and other income 229 168 118 30 4 (25) 524 Noninterest expense 199 97 54 31 24 - 405 Income tax expense 20 32 25 20 9 (9) 97 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 30 52 39 32 14 (16) 151 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 38.45 % 87.12 74.75 74.50 22.09 - 54.65 Average loans, net $ - 104 - - 3,661 - 3,765 Average deposits - 2,623 - 14,302 3,076 - 20,001 Average attributed stockholders' equity (b) $ 325 233 163 168 254 (32) 1,111 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 18 146 53 629 846 Provision for loan losses - 20 35 26 81 Fee and other income 43 (31) 99 208 319 Noninterest expense 55 144 53 568 820 Income tax expense 2 (19) 24 93 100 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 4 (30) 40 150 164 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 20.40 % (8.78) 34.35 29.31 16.39 Average loans, net $ 1,449 12,683 2,115 23,280 39,527 Average deposits 1,214 295 9 68,424 69,942 Average attributed stockholders' equity (b) $ 78 1,370 449 2,021 3,918 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
3
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - --------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL Income statement data Net interest income $ 21 91 46 239 397 Provision for loan losses 1 13 5 - 19 Fee and other income - - - 139 139 Noninterest expense 10 69 15 191 285 Income tax expense 4 (2) 10 71 83 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 6 11 16 116 149 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 14.33 % 3.67 11.66 63.65 22.09 Average loans, net $ 2,792 21,718 8,629 - 33,139 Average deposits - - - 25,507 25,507 Average attributed stockholders' equity (b) $ 187 1,241 535 719 2,682 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 315 129 444 846 397 195 1,882 Provision for loan losses 63 - 63 81 19 12 175 Trading account profits 36 - 36 - - (1) 35 Fee and other income 365 524 889 319 139 58 1,405 Noninterest expense 319 405 724 820 285 111 1,940 Income tax expense 106 97 203 100 83 19 405 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 228 151 379 164 149 110 802 After-tax merger-related and restructuring charges - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 228 151 379 164 149 110 802 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 19.15 % 54.65 25.92 16.39 22.09 15.06 20.47 Average loans, net $ 36,601 3,765 40,366 39,527 33,139 16,886 129,918 Average deposits 10,358 20,001 30,359 69,942 25,507 7,616 133,424 Average attributed stockholders' equity (b) $ 4,690 1,111 5,801 3,918 2,682 2,898 15,299 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
4
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED JUNE 30, 1999 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 46 24 168 65 46 - 349 Provision for loan losses 1 - 47 3 - - 51 Trading account profits 70 33 - - - - 103 Fee and other income 164 17 17 39 50 (27) 260 Noninterest expense 159 28 47 27 51 - 312 Income tax expense 43 17 35 23 17 (27) 108 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 77 29 56 51 28 - 241 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 35.87 % 49.38 8.64 98.55 18.65 - 21.34 Average loans, net $ 3,181 2,352 20,957 5,040 4,525 - 36,055 Average deposits 2,740 770 3,475 22 4,539 - 11,546 Average attributed stockholders' equity (b) $ 873 237 2,639 207 604 - 4,560 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 20 11 1 46 44 - 122 Provision for loan losses - - - - (1) - (1) Fee and other income 234 164 111 29 4 (22) 520 Noninterest expense 209 108 68 32 21 - 438 Income tax expense 17 25 17 17 11 (8) 79 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 28 42 27 26 17 (14) 126 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 33.38 % 71.57 40.95 71.83 27.88 - 46.28 Average loans, net $ - 155 - - 3,602 - 3,757 Average deposits - 2,566 - 14,096 3,178 - 19,840 Average attributed stockholders' equity (b) $ 334 230 159 149 252 (29) 1,095 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 21 145 62 617 845 Provision for loan losses - 17 40 24 81 Fee and other income 111 113 108 200 532 Noninterest expense 66 150 65 601 882 Income tax expense 26 35 25 74 160 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 40 56 40 118 254 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 127.84 % 16.57 36.49 24.15 26.35 Average loans, net $ 1,618 12,284 2,564 28,844 45,310 Average deposits 1,332 66 9 70,637 72,044 Average attributed stockholders' equity (b) $ 129 1,358 444 1,975 3,906 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
5
BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED JUNE 30, 1999 ---------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 23 94 47 236 400 Provision for loan losses 1 24 7 - 32 Fee and other income - - - 139 139 Noninterest expense 10 85 17 196 308 Income tax expense 4 (14) 8 69 67 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 8 (1) 15 110 132 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 15.29 % (0.32) 10.00 63.24 19.21 Average loans, net $ 2,751 22,252 8,529 - 33,532 Average deposits - - - 25,637 25,637 Average attributed stockholders' equity (b) $ 186 1,291 550 704 2,731 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 349 122 471 845 400 129 1,845 Provision for loan losses 51 (1) 50 81 32 17 180 Trading account profits 103 - 103 - - 1 104 Fee and other income 260 520 780 532 139 151 1,602 Noninterest expense 312 438 750 882 308 113 2,053 Income tax expense 108 79 187 160 67 31 445 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 241 126 367 254 132 120 873 After-tax merger-related and restructuring charges - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 241 126 367 254 132 120 873 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 21.34 % 46.28 26.03 26.35 19.21 14.12 21.94 Average loans, net $ 36,055 3,757 39,812 45,310 33,532 15,145 133,799 Average deposits 11,546 19,840 31,386 72,044 25,637 4,725 133,792 Average attributed stockholders' equity (b) $ 4,560 1,095 5,655 3,906 2,731 3,409 15,701 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
6
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, 1999 --------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 30 13 163 63 46 - 315 Provision for loan losses 2 - 47 - - - 49 Trading account profits 85 27 - - - - 112 Fee and other income 269 18 18 44 50 (28) 371 Noninterest expense 174 33 53 27 55 - 342 Income tax expense 79 9 31 25 15 (28) 131 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 129 16 50 55 26 - 276 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 58.34 % 27.22 7.99 117.44 17.22 - 25.13 Average loans, net $ 2,954 2,002 21,033 5,035 4,924 - 35,948 Average deposits 2,677 709 3,633 22 5,502 - 12,543 Average attributed stockholders' equity (b) $ 901 238 2,526 191 597 - 4,453 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 17 15 1 45 43 - 121 Provision for loan losses - - - - 1 - 1 Fee and other income 222 161 107 26 5 (22) 499 Noninterest expense 201 115 60 31 25 - 432 Income tax expense 15 23 18 15 9 (8) 72 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 23 38 30 25 13 (14) 115 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 30.43 % 64.74 51.01 68.43 23.25 - 43.88 Average loans, net $ - 179 - - 3,543 - 3,722 Average deposits - 2,760 - 14,161 3,046 - 19,967 Average attributed stockholders' equity (b) $ 314 236 152 144 247 (29) 1,064 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 23 124 60 622 829 Provision for loan losses - 10 46 27 83 Fee and other income 117 84 57 278 536 Noninterest expense 79 157 64 598 898 Income tax expense 23 16 3 105 147 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 38 25 4 170 237 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 83.59 % 7.60 4.28 32.83 23.68 Average loans, net $ 2,026 12,164 2,598 31,343 48,131 Average deposits 1,340 2 10 72,253 73,605 Average attributed stockholders' equity (b) $ 183 1,337 446 2,098 4,064 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
7
BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, 1999 ---------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 21 97 48 252 418 Provision for loan losses 1 12 6 - 19 Fee and other income - - - 133 133 Noninterest expense 9 76 19 205 309 Income tax expense 4 (4) 8 69 77 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 7 13 15 111 146 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 14.63 % 3.65 9.64 58.28 19.43 Average loans, net $ 2,696 23,053 8,387 - 34,136 Average deposits - - - 26,922 26,922 Average attributed stockholders' equity (b) $ 177 1,500 575 776 3,028 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 315 121 436 829 418 97 1,780 Provision for loan losses 49 1 50 83 19 12 164 Trading account profits 112 - 112 - - 1 113 Fee and other income 371 499 870 536 133 298 1,837 Noninterest expense 342 432 774 898 309 528 2,509 Income tax expense 131 72 203 147 77 (76) 351 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 276 115 391 237 146 (68) 706 After-tax merger-related and restructuring charges - - - - - 259 259 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 276 115 391 237 146 191 965 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 25.13 % 43.88 28.74 23.68 19.43 22.57 24.32 Average loans, net $ 35,948 3,722 39,670 48,131 34,136 10,459 132,396 Average deposits 12,543 19,967 32,510 73,605 26,922 3,225 136,262 Average attributed stockholders' equity (b) $ 4,453 1,064 5,517 4,064 3,028 3,432 16,041 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
8
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED DECEMBER 31, 1998 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 50 19 158 31 57 - 315 Provision for loan losses (5) 1 26 2 10 - 34 Trading account profits 59 34 - - - - 93 Fee and other income 134 22 16 48 46 (17) 249 Noninterest expense 168 41 49 28 49 - 335 Income tax expense 30 9 37 14 17 (17) 90 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 50 24 62 35 27 - 198 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 21.67 % 29.82 10.04 93.35 17.33 - 17.74 Average loans, net $ 2,957 2,017 20,361 4,743 5,166 - 35,244 Average deposits 2,743 734 3,993 22 5,913 - 13,405 Average attributed stockholders' equity (b) $ 911 306 2,411 153 641 - 4,422 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 8 14 - 43 42 - 107 Provision for loan losses - - - - 1 - 1 Fee and other income 201 159 108 22 5 (21) 474 Noninterest expense 185 105 55 29 23 - 397 Income tax expense 9 26 21 14 8 (7) 71 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 15 42 32 22 15 (14) 112 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 22.03 % 75.76 67.24 70.61 20.97 - 45.44 Average loans, net $ - 107 - - 3,701 - 3,808 Average deposits - 2,406 - 13,123 2,971 - 18,500 Average attributed stockholders' equity (b) $ 270 221 152 126 256 (27) 998 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 26 119 56 654 855 Provision for loan losses 1 3 59 30 93 Fee and other income 125 27 90 301 543 Noninterest expense 84 171 68 625 948 Income tax expense 26 (11) 8 114 137 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 40 (17) 11 186 220 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 88.34 % (5.47) 10.43 33.35 20.96 Average loans, net $ 2,511 9,202 2,636 35,316 49,665 Average deposits 1,407 65 9 73,723 75,204 Average attributed stockholders' equity (b) $ 184 1,327 439 2,200 4,150 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
9
BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED DECEMBER 31, 1998 ------------------------------------------------------------------------------------------ SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 22 100 50 261 433 Provision for loan losses 1 19 6 - 26 Fee and other income - - - 129 129 Noninterest expense 10 79 18 211 318 Income tax expense 3 (6) 10 68 75 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 8 8 16 111 143 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 13.63 % 2.39 10.38 59.15 19.38 Average loans, net $ 2,658 22,953 8,651 - 34,262 Average deposits - - - 27,760 27,760 Average attributed stockholders' equity (b) $ 172 1,366 606 746 2,890 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 315 107 422 855 433 88 1,798 Provision for loan losses 34 1 35 93 26 13 167 Trading account profits 93 - 93 - - (16) 77 Fee and other income 249 474 723 543 129 270 1,665 Noninterest expense 335 397 732 948 318 489 2,487 Income tax expense 90 71 161 137 75 (344) 29 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 198 112 310 220 143 184 857 After-tax merger-related and restructuring charges - - - - - 136 136 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 198 112 310 220 143 320 993 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 17.74 % 45.44 22.69 20.96 19.38 29.17 22.49 Average loans, net $ 35,244 3,808 39,052 49,665 34,262 10,014 132,993 Average deposits 13,405 18,500 31,905 75,204 27,760 2,591 137,460 Average attributed stockholders' equity (b) $ 4,422 998 5,420 4,150 2,890 4,353 16,813 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
10
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 20 17 154 35 51 - 277 Provision for loan losses - (1) 62 - - - 61 Trading account profit (loss) 83 (156) - - - - (73) Fee and other income 84 35 36 45 60 (35) 225 Noninterest expense 107 22 38 24 40 - 231 Income tax expense 27 (40) 34 13 27 (35) 26 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 53 (85) 56 43 44 - 111 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 27.41 % (113.16) 10.12 113.73 29.99 - 11.03 Average loans, net $ 3,006 1,553 19,191 4,647 4,909 - 33,306 Average deposits 3,003 643 3,827 22 4,796 - 12,291 Average attributed stockholders' equity (b) $ 767 298 2,196 150 582 - 3,993 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 8 13 1 38 42 - 102 Provision for loan losses - - - - 1 - 1 Fee and other income 196 150 105 19 5 (21) 454 Noninterest expense 180 93 50 27 18 - 368 Income tax expense 10 27 21 12 11 (8) 73 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 14 43 35 18 17 (13) 114 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 22.75 % 82.70 71.23 71.47 26.55 - 48.15 Average loans, net $ - 118 - - 3,706 - 3,824 Average deposits - 2,334 - 11,534 2,800 - 16,668 Average attributed stockholders' equity (b) $ 267 208 147 103 257 (28) 954 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 24 112 95 683 914 Provision for loan losses - 3 42 41 86 Fee and other income 68 178 161 208 615 Noninterest expense 79 174 71 545 869 Income tax expense 5 43 54 117 219 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 8 70 89 188 355 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 21.80 % 18.71 76.76 33.91 32.83 Average loans, net $ 2,173 9,873 3,648 37,015 52,709 Average deposits 1,413 159 11 76,366 77,949 Average attributed stockholders' equity (b) $ 143 1,472 454 2,211 4,280 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
11
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SEPTEMBER 30, 1998 ------------------------------------------------------------------------------------------ SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 22 113 54 250 439 Provision for loan losses 1 18 6 - 25 Fee and other income - - - 129 129 Noninterest expense 9 70 13 186 278 Income tax expense 5 4 14 74 97 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 7 21 21 119 168 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 17.67 % 6.34 13.76 66.44 23.50 Average loans, net $ 2,648 24,213 9,048 - 35,909 Average deposits - - - 26,666 26,666 Average attributed stockholders' equity (b) $ 171 1,366 634 713 2,884 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 277 102 379 914 439 111 1,843 Provision for loan losses 61 1 62 86 25 66 239 Trading account profit (loss) (73) - (73) - - 18 (55) Fee and other income 225 454 679 615 129 445 1,868 Noninterest expense 231 368 599 869 278 176 1,922 Income tax expense 26 73 99 219 97 85 500 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 111 114 225 355 168 247 995 After-tax merger-related and restructuring charges - - - - - 16 16 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 111 114 225 355 168 263 1,011 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 11.03 % 48.15 18.04 32.83 23.50 24.08 23.42 Average loans, net $ 33,306 3,824 37,130 52,709 35,909 7,938 133,686 Average deposits 12,291 16,668 28,959 77,949 26,666 2,640 136,214 Average attributed stockholders' equity (b) $ 3,993 954 4,947 4,280 2,884 4,333 16,444 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
12
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED JUNE 30, 1998 ---------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 16 14 151 31 38 - 250 Provision for loan losses 5 - 18 3 1 - 27 Trading account profits 38 31 - - - - 69 Fee and other income 205 13 18 45 47 (17) 311 Noninterest expense 163 26 48 22 54 - 313 Income tax expense 34 10 39 15 11 (17) 92 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 57 22 64 36 19 - 198 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 30.82 % 38.20 13.32 94.38 13.81 - 22.05 Average loans, net $ 2,426 1,754 18,194 4,594 5,088 - 32,056 Average deposits 2,048 658 3,551 21 4,484 - 10,762 Average attributed stockholders' equity (b) $ 748 231 1,927 153 552 - 3,611 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 10 13 1 39 40 - 103 Provision for loan losses - - - - 2 - 2 Fee and other income 193 154 102 18 4 (23) 448 Noninterest expense 168 109 56 26 20 - 379 Income tax expense 13 22 18 12 9 (9) 65 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 22 36 29 19 13 (14) 105 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 32.28 % 66.56 51.85 71.97 22.78 - 44.46 Average loans, net $ 1 100 - - 3,508 - 3,609 Average deposits - 2,167 - 11,150 2,620 - 15,937 Average attributed stockholders' equity (b) $ 267 216 145 105 242 (30) 945 - ------------------------------------------------------------------------------------------------------------------------------------ HOME EQUITY & FIRST THE RETAIL UNION MONEY CREDIT BRANCH (In millions) MORTGAGE STORE CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 24 41 83 691 839 Provision for loan losses - 3 57 26 86 Fee and other income 101 9 74 249 433 Noninterest expense 78 26 61 582 747 Income tax expense 17 8 15 127 167 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 30 13 24 205 272 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 65.06 % 22.46 22.19 35.77 34.45 Average loans, net $ 2,230 6,082 3,676 37,795 49,783 Average deposits 1,428 105 13 78,368 79,914 Average attributed stockholders' equity (b) $ 174 238 450 2,300 3,162 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
13
BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED JUNE 30, 1998 ----------------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (IN MILLIONS) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 21 127 52 237 437 Provision for loan losses 1 15 5 - 21 Fee and other income - - - 128 128 Noninterest expense 10 77 15 206 308 Income tax expense 4 10 12 61 87 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 6 25 20 98 149 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 15.75 % 6.83 12.82 58.58 20.47 Average loans, net $ 2,571 25,903 8,850 - 37,324 Average deposits - - - 24,888 24,888 Average attributed stockholders' equity (b) $ 167 1,471 618 671 2,927 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 250 103 353 839 437 176 1,805 Provision for loan losses 27 2 29 86 21 14 150 Trading account profit (loss) 69 - 69 - - (94) (25) Fee and other income 311 448 759 433 128 236 1,556 Noninterest expense 313 379 692 747 308 1,062 2,809 Income tax expense 92 65 157 167 87 (283) 128 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 198 105 303 272 149 (475) 249 After-tax merger-related and restructuring charges - - - - - 634 634 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 198 105 303 272 149 159 883 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 22.05 % 44.46 26.68 34.45 20.47 16.02 23.89 Average loans, net $ 32,056 3,609 35,665 49,783 37,324 8,264 131,036 Average deposits 10,762 15,937 26,699 79,914 24,888 5,540 137,041 Average attributed stockholders' equity (b) $ 3,611 945 4,556 3,162 2,927 3,980 14,625 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
14
BUSINESS SEGMENTS (A) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, 1998 --------------------------------------------------------------------------------------------- REAL COMMERCIAL INVESTMENT ESTATE TRADITIONAL LEASING & (In millions) BANKING FINANCE BANKING RAIL INTERNATIONAL OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MARKETS Income statement data Net interest income $ 27 16 161 19 27 - 250 Provision for loan losses - - 6 1 1 - 8 Trading account profits 35 - - - - - 35 Fee and other income 131 16 8 50 59 (17) 247 Noninterest expense 113 24 46 34 46 - 263 Income tax expense 27 1 45 10 15 (17) 81 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 53 7 72 24 24 - 180 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 22.15 % 14.27 14.97 64.89 19.43 - 19.36 Average loans, net $ 2,207 1,829 17,907 4,244 4,168 - 30,355 Average deposits 1,586 590 3,573 21 3,560 - 9,330 Average attributed stockholders' equity (b) $ 970 199 1,951 150 501 - 3,771 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL BROKERAGE & PRIVATE INSURANCE TRUST MUTUAL CAP CLIENT (In millions) SERVICES SERVICES FUNDS ACCOUNT BANKING OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL MANAGEMENT Income statement data Net interest income $ 12 15 - 35 38 - 100 Provision for loan losses - - - - 1 - 1 Fee and other income 187 146 96 17 3 (20) 429 Noninterest expense 167 109 54 25 21 - 376 Income tax expense 12 20 16 10 7 (8) 57 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 20 32 26 17 12 (12) 95 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 29.94 % 59.78 48.01 70.84 20.88 - 41.13 Average loans, net $ - 127 - - 3,375 - 3,502 Average deposits - 2,356 - 10,879 2,517 - 15,752 Average attributed stockholders' equity (b) $ 264 216 135 97 232 (27) 917 - ------------------------------------------------------------------------------------------------------------------------------------ FIRST RETAIL UNION HOME CREDIT BRANCH (In millions) MORTGAGE EQUITY CARDS PRODUCTS TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER Income statement data Net interest income $ 19 38 94 670 821 Provision for loan losses 1 2 53 30 86 Fee and other income 52 9 69 224 354 Noninterest expense 70 27 59 571 727 Income tax expense - 7 20 112 139 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ - 11 31 181 223 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity - % 25.54 28.89 31.60 29.59 Average loans, net $ 1,901 5,057 3,884 38,952 49,794 Average deposits 1,109 - 15 77,794 78,918 Average attributed stockholders' equity (b) $ 125 184 444 2,316 3,069 - ------------------------------------------------------------------------------------------------------------------------------------ (CONTINUED)
15
BUSINESS SEGMENTS (a) - ------------------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31, 1998 ------------------------------------------------------------------------------------------------- SMALL REAL CASH MGT. & BUSINESS ESTATE DEPOSIT (In millions) BANKING LENDING BANKING SERVICES TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL Income statement data Net interest income $ 21 123 55 229 428 Provision for loan losses 1 16 2 - 19 Fee and other income - - - 129 129 Noninterest expense 10 83 16 201 310 Income tax expense 4 6 14 60 84 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 6 18 23 97 144 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 16.29 % 4.76 14.33 58.59 19.76 Average loans, net $ 2,532 24,980 9,530 - 37,042 Average deposits - - - 24,301 24,301 Average attributed stockholders' equity (b) $ 162 1,453 658 667 2,940 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL CAPITAL FIRST UNION TREASURY/ (IN MILLIONS) MARKETS MGT. SECURITIES CONSUMER COMMERCIAL NONBANK TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED (C) Income statement data Net interest income $ 250 100 350 821 428 232 1,831 Provision for loan losses 8 1 9 86 19 21 135 Trading account profits 35 - 35 - - 91 126 Fee and other income 247 429 676 354 129 64 1,223 Noninterest expense 263 376 639 727 310 162 1,838 Income tax expense 81 57 138 139 84 56 417 - ------------------------------------------------------------------------------------------------------------------------------------ Net income after merger-related and restructuring charges 180 95 275 223 144 148 790 After-tax merger-related and restructuring charges - - - - - 19 19 - ------------------------------------------------------------------------------------------------------------------------------------ Net income before merger-related and restructuring charges $ 180 95 275 223 144 167 809 - ------------------------------------------------------------------------------------------------------------------------------------ Performance and other data Return on average attributed stockholders' equity 19.36 % 41.13 23.79 29.59 19.76 13.78 21.01 Average loans, net $ 30,355 3,502 33,857 49,794 37,042 9,786 130,479 Average deposits 9,330 15,752 25,082 78,918 24,301 6,273 134,574 Average attributed stockholders' equity (b) $ 3,771 917 4,688 3,069 2,940 4,915 15,612 - ------------------------------------------------------------------------------------------------------------------------------------
(a) Business Segment information reflects the April 1998 pooling of interests merger with CoreStates. The information also reflects the 1998 divestiture of $3.4 billion of deposits, $2.2 billion of which related to the CoreStates merger. Information related to the purchase accounting acquisitions of The Money Store and EVEREN on June 30, 1998, and October 1, 1999, respectively, is included from the date the acquisitions occurred. (b) Average attributed stockholders' equity excludes merger-related and restructuring charges. The return on average attributed stockholders' equity for the Capital Management Mutual Funds unit is net of the amount included in Other. (c) In the consolidated data, First Union Securities represents the total of Capital Markets and Capital Management. 16 -----END PRIVACY-ENHANCED MESSAGE-----