-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, n+LUY30ckWMCC7VErM6bnwE8bUIEdLQKqbdD/gl0dXUac6opNMaSt3hiMTFnxKnO V+RXLU1LgkP3toSp2pmrRg== 0000950168-94-000194.txt : 19940602 0000950168-94-000194.hdr.sgml : 19940602 ACCESSION NUMBER: 0000950168-94-000194 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION CORP CENTRAL INDEX KEY: 0000036995 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 560898180 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10000 FILM NUMBER: 94528636 BUSINESS ADDRESS: STREET 1: ONE FIRST UNION CTR CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 BUSINESS PHONE: 7043746565 MAIL ADDRESS: STREET 1: FIRST UNION CORPORA STREET 2: ONE FIRST UNION CENTER CITY: CHARLOTTE STATE: NC ZIP: 28288-0630 FORMER COMPANY: FORMER CONFORMED NAME: CAMERON FINANCIAL CORP DATE OF NAME CHANGE: 19750522 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION NATIONAL BANCORP INC DATE OF NAME CHANGE: 19721115 10-Q 1 FUNB 10-Q 5-13-94 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) First Union Corporation One First Union Center Charlotte, North Carolina 28288-0013 (Address of principal executive offices) (Zip Code) (704) 374-6565 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS 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 Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 168,596,903 shares of Common Stock, par value $3.33 1/3 per share, were outstanding as of April 30, 1994. PART I. FINANCIAL INFORMATION Item 1. Financial Statements. The following unaudited consolidated financial statements of First Union Corporation (the "Corporation" or "FUNC") within Item 1 include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation of such consolidated financial statements for the periods indicated. 1 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF CASH FLOWS The Consolidated Balance Sheets of First Union Corporation and Subsidiaries at March 31, 1994, March 31, 1993, and December 31, 1993, respectively, set forth on page T-26 of the Corporation's First Quarter Financial Supplement for the three months ended March 31, 1994, (the "Financial Supplement"), are incorporated herein by reference. The Consolidated Statements of Income of First Union Corporation and Subsidiaries for the three months ended March 31, 1994 and 1993, set forth on page T-27 of the Financial Supplement, are incorporated herein by reference. The Consolidated Statements of Cash Flows of First Union Corporation and Subsidiaries for the three months ended March 31, 1994 and 1993, set forth on page T-28 of the Financial Supplement, are incorporated herein by reference. A copy of the Financial Supplement is being filed as Exhibit (19) to this Report. 2 FIRST UNION CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Securities The Corporation adopted Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at January 1, 1994, which requires that debt and equity securities held: (i) to maturity be classified as such and reported at amortized cost; (ii) for current resale be classified as trading securities and reported at fair value, with unrealized gains and losses included in current earnings; and (iii) for any other purpose be classified as securities available for sale and reported at fair value, with unrealized gains and losses excluded from current earnings and reported as a separate component of stockholders' equity. The adoption of Statement 115 had no impact on net income. The following table summarizes the effect of this standard on stockholders' equity:
January 1, March 31, (In thousands) 1994 1994 Securities available for sale $139,443 (65,725) Other assets (deferred income taxes) 46,016 23,899 Stockholders' equity Unrealized gain (loss) on debt and equity securities $93,427 (41,826)
Note 2: Off-Balance Sheet Risk and Carrying Amounts and Fair Value of Financial Instruments Information related to off-balance sheet risk as of March 31, 1994 is included in Table 20 through 22 of the Corporation's First Quarter Financial Supplement on pages T-18 through T-21. At March 31, 1994, the net fair value of the Corporation's recorded net financial assets subject to valuation in accordance with Financial Accounting Standard No. 107, "Disclosures about Fair Value of Financial Instruments", decreased 11 percent from year-end 1993 as a result of a decline in the net financial assets subject to such valuation and 10 percent as a result of an increase in interest rates from year-end 1993, which reduced the fair value of the Corporation's securities and loan portfolios. Information related to off-balance sheet risk and the impact of changes in interest rates should be read in conjunction with the "Interest Rate Risk Management" section of the Corporation's First Quarter Financial Supplement. 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's Analysis of Operations appears on pages 2 through 18 and T-1 through T-28 of the Financial Supplement and is incorporated herein by reference. A copy of the Financial Supplement is being filed as Exhibit (19) to this Report. 4 Part II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. At the annual meeting of the stockholders of the Corporation held on April 19, 1994, in addition to the election of the nine directors nominated to serve as such and the ratification of the selection of KPMG Peat Marwick as auditors of the Corporation, the following proposals were approved at the meeting: FOR AGAINST ABSTAIN 1. Proposal to approve the 127,888,671 2,591,952 1,379,096 Corporation's 1994 Employee Stock Purchase Plan. 2. Proposal to approve certain 127,150,986 3,752,897 955,837 amendments to the Corporation's 1992 Master Stock Compensation Plan. 3. Porposal to approve certain 118,036,055 12,054,988 1,768,676 amendments to the Corporation's Management Incentive Plan. 4. Proposal to approve certain 117,801,499 12,516,016 1,542,204 amendments to the Corporation's Long-Term Cash Incentive Plan. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit No. Description (4) Instruments defining the rights of security holders, including indentures.* (12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges. (12)(b) Computations of Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. (19) The Corporation's First Quarter Financial Supplement. (20) The Corporation's First Quarter Report to Stockholders.** (99) First Union Corporation of Virginia Summarized Financial Information. * The Corporation agrees to furnish to the Commission upon request, copies of the instrument, including indentures, defining the rights of the holders of the long-term debt of the Corporation and its consolidated subsidiaries. ** The First Quarter Report to Stockholders is furnished for the information of the Commission only and is not to be deemed "filed" as part of this Form 10-Q. 5 (b) Reports on Form 8-K. During the quarter ended March 31, 1994, no Reports on Form 8-K were filed with the Commission by the Corporation. SIGNATURES Pursuant to the Requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FIRST UNION CORPORATION Date: May 16, 1994 By: /s/ James H. Hatch James H. Hatch Senior Vice President and Corporate Controller (Principal Accounting Officer) 6 EXHIBIT INDEX
Exhibit No. Description (4) Instruments defining the rights of security holders, including indentures.* (12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges. (12)(b) Computations of Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. (19) The Corporation's First Quarter Financial Supplement. (20) The Corporation's First Quarter Report to Stockholders.** (99) First Union Corporation of Virginia Summarized Financial Information.
* The Corporation agrees to furnish to the Commission upon request, copies of the instrument, including indentures, defining the rights of the holders of the long-term debt of the Corporation and its consolidated subsidiaries. ** The First Quarter Report to Stockholders is furnished for the information of the Commission only and is not to be deemed "filed" as part of this Form 10-Q. EX-12 2 EXHIBIT (12) (A) Exhibit (12)(a) FIRST UNION CORPORATION COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
Three Months Ended Years Ended December 31, March 31, (Dollars in thousands) 1994 1993 1992 1991 1990 1989 EXCLUDING INTEREST ON DEPOSITS: Pretax income from continuing operations $342,460 1,220,781 581,203 419,801 327,360 441,663 Fixed charges, excluding capitalized interest 129,991 517,742 456,867 698,898 982,086 890,200 (A.) Earnings $472,451 1,738,523 1,038,070 1,118,699 1,309,446 1,331,863 Interest, excluding interest on deposits $117,319 467,181 405,297 652,393 949,046 865,413 One-third of rents 12,672 50,561 51,570 46,505 33,040 24,787 Capitalized interest 142 285 381 2,326 3,144 2,507 (B.) Fixed charges $130,133 518,027 457,248 701,224 985,230 892,707 Consolidated ratios of earnings to fixed charges, excluding interest on deposits (A./B.) 3.63X 3.36 2.27 1.60 1.33 1.49 INCLUDING INTEREST ON DEPOSITS: Pretax income from continuing operations $342,460 1,220,781 581,203 419,801 327,360 441,663 Fixed charges, excluding capitalized interest 448,675 1,841,000 2,072,538 2,789,501 3,127,374 2,728,410 (C.) Earnings $791,135 3,061,781 2,653,741 3,209,302 3,454,734 3,170,073 Interest, including interest on deposits $436,003 1,790,439 2,020,968 2,742,996 3,094,334 2,703,623 One-third of rents 12,672 50,561 51,570 46,505 33,040 24,787 Capitalized interest 142 285 381 2,326 3,144 2,507 (D.) Fixed charges $448,817 1,841,285 2,072,919 2,791,827 3,130,518 2,730,917 Consolidated ratios of earnings to fixed charges, including interest on deposits (C./D.) 1.76X 1.66 1.28 1.15 1.10 1.16
EX-12 3 EXHIBIT (12)(B) Exhibit (12)(b) FIRST UNION CORPORATION COMPUTATIONS OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Three Months Ended Years Ended December 31, March 31, (Dollars in thousands) 1994 1993 1992 1991 1990 1989 EXCLUDING INTEREST ON DEPOSITS: Pretax income from continuing operations $342,460 1,220,781 581,203 419,801 327,360 441,663 Fixed charges, excluding preferred stock dividends and capitalized interest 133,080 530,024 473,158 705,944 990,476 890,543 (A.) Earnings $475,540 1,750,805 1,054,361 1,125,745 1,317,836 1,332,206 Interest, excluding interest on deposits $117,319 467,181 405,297 652,393 949,046 865,413 One-third of rents 12,672 50,561 51,570 46,505 33,040 24,787 Preferred stock dividends 8,815 37,182 48,270 41,615 42,258 1,723 Capitalized interest 142 285 381 2,326 3,144 2,507 (B.) Fixed charges $138,948 555,209 505,518 742,839 1,027,488 894,430 Consolidated ratios of earnings to fixed charges, excluding interest on deposits (A./B.) 3.42X 3.15 2.09 1.52 1.28 1.49 INCLUDING INTEREST ON DEPOSITS: Pretax income from continuing operations $342,460 1,220,781 581,203 419,801 327,360 441,663 Fixed charges, excluding preferred stock dividends and capitalized interest 451,764 1,853,282 2,088,829 2,796,546 3,135,764 2,728,753 (C.) Earnings $794,224 3,074,063 2,670,032 3,216,347 3,463,124 3,170,416 Interest, including interest on deposits $436,003 1,790,439 2,020,968 2,742,996 3,094,334 2,703,623 One-third of rents 12,672 50,561 51,570 46,505 33,040 24,787 Preferred stock dividends 8,515 37,182 48,270 41,615 42,258 1,723 Capitalized interest 142 285 381 2,326 3,144 2,507 (D.) Fixed charges $457,632 1,878,467 2,121,189 2,833,442 3,172,776 2,732,640 Consolidated ratios of earnings to fixed charges, including interest on deposits (C./D.) 1.74X 1.64 1.26 1.14 1.09 1.16
EX-19 4 EXHIBIT (19) EXHIBIT (19) FIRST UNION CORPORATION AND SUBSIDIARIES FIRST QUARTER FINANCIAL SUPPLEMENT THREE MONTHS ENDED MARCH 31, 1994 FIRST UNION CORPORATION AND SUBSIDIARIES FIRST QUARTER FINANCIAL SUPPLEMENT THREE MONTHS ENDED MARCH 31, 1994 (Unaudited) TABLE OF CONTENTS Page Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 1 Management's Analysis of Operations . . . . . . . . . . . . . . . . 2 Consolidated Summaries of Income and Per Share Data . . . . . . . . T-1 Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . T-2 Noninterest Expense . . . . . . . . . . . . . . . . . . . . . . . . T-2 Internal Capital Growth and Dividend Payout Ratios . . . . . . . . T-3 Selected Quarterly Data . . . . . . . . . . . . . . . . . . . . . . T-4 Growth through Acquisitions . . . . . . . . . . . . . . . . . . . . T-5 Securities Available for Sale . . . . . . . . . . . . . . . . . . . T-6 Investment Securities . . . . . . . . . . . . . . . . . . . . . . . T-7 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T-8 Allowance for Loan Losses and Nonperforming Assets . . . . . . . . T-9 Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . T-10 Southeast Banks Segregated Assets . . . . . . . . . . . . . . . . . T-11 Allowance for Foreclosed Properties . . . . . . . . . . . . . . . . T-12 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . T-13 Time Deposits in Amounts of $100,000 or More . . . . . . . . . . . T-13 Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . T-14 Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . T-15 Capital Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . T-16 Interest Rate Gap . . . . . . . . . . . . . . . . . . . . . . . . . T-17 Off-Balance Sheet Derivative Financial Instruments . . . . . . . . T-18 Off-Balance Sheet Derivatives-Expected Maturities . . . . . . . . . T-20 Off-Balance Sheet Derivatives Activity . . . . . . . . . . . . . . T-21 Net Interest Income Summaries Five Quarters Ended March 31, 1994 . . . . . . . . . . . . . . . T-22 Year-to-date December 31, 1993; September 30, and June 30, 1993 T-24 Consolidated Balance Sheets Five Quarters Ended March 31, 1994 . . . . . . . . . . . . . . . T-26 Consolidated Statements of Income . . . . . . . . . . . . . . . . . T-27 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . T-28
SELECTED FINANCIAL DATA Three Months Ended March 31, Per Common Share Data 1994 1993 Net income applicable to common stockholders . . . . . . . $ 1.27 1.17 Cash dividends . . . . . . . . . . . . . . . . . . . . . . .40 .35 Book value . . . . . . . . . . . . . . . . . . . . . . . . 29.71 26.23 Quarter-end price . . . . . . . . . . . . . . . . . . . . $41.625 47.750 Financial Ratios Return on average assets (a)(b) . . . . . . . . . . . . . . 1.28% 1.28 Return on average common stockholders' equity (a)(c) . . . 17.54 18.41 Net interest margin . . . . . . . . . . . . . . . . . . . 4.79 5.00 Net charge-offs to average loans, net (a) . . . . . . . . .27 .61 Allowance for loan losses to: Loans, net . . . . . . . . . . . . . . . . . . . . . . 2.17 2.29 Nonaccrual and restructured loans . . . . . . . . . . . 168 98 Nonperforming assets . . . . . . . . . . . . . . . . . 127 74 Nonperforming assets to loans, net and foreclosed properties . . . . . . . . . . . . . . . . . 1.70 3.07 Stockholders' equity to assets . . . . . . . . . . . . . . 7.30 7.40 Tier 1 capital to risk-weighted assets . . . . . . . . . . 9.36 9.20 Dividend payout ratio on common shares . . . . . . . . . . 31.50% 29.91
Certain ratios related to nonperforming assets, net charge-offs and the loan loss provision were favorably impacted because of the inclusion of the acquired Southeast Banks' performing loan portfolio in the calculation of the ratios. (a) Quarterly amounts annualized. (b) Based on net income. (c) Based on net income applicable to common stockholders and average common stockholders' equity excluding average net unrealized gains on debt and equity securities. 1 MANAGEMENT'S ANALYSIS OF OPERATIONS EARNINGS HIGHLIGHTS First Union reported earnings applicable to common stockholders of $217 million in the first quarter of 1994, a 12 percent increase from $193 million in the first quarter of 1993. Net income per common share increased 9 percent, to $1.27 from $1.17 in the first quarter of 1993. Key factors in First Union's first quarter 1994 earnings performance, in addition to increased efficiencies resulting from the consolidation of five significant acquisitions in 1993, included: (diamond) Continued growth in net interest income; (diamond) Continued improvement in credit quality; and (diamond) A decline in noninterest expense from the fourth quarter of 1993. First quarter 1993 results do not include the purchase accounting acquisitions of Georgia Federal Bank and First American Metro Corp. completed in June 1993. Domestic banking operations, including trust operations, located in North and South Carolina, Georgia, Florida, Maryland, Tennessee, Virginia and Washington, D.C., and mortgage banking operations are our principal sources of revenues. Foreign banking operations are immaterial. The Net Interest Income section provides information about lost interest income related to nonaccrual and restructured loans and the Asset Quality section includes further information about the loan loss provision. Outlook This strong first quarter reflects First Union's ability to improve performance in a rising interest rate environment. Our focus is on providing the best service and a complete array of financial products for our customers, while improving our productivity and credit quality. We will continue to identify opportunities that will enhance operating results. This strategy includes making selective investments in such areas as capital markets, capital management and card products to further our financial goals. While net loans were essentially flat at the end of the first quarter of 1994 compared with the fourth quarter of 1993, principally due to acquisition-related runoff, a smaller balance in mortgages held for sale and seasonal declines, the outlook for loans through the rest of the year is good. During 1994, mortgage origination should benefit from the implementation of a new bank branch sales program with a broader array of mortgage products and the installation of an enhanced loan application system to speed the mortgage lending process. Implementation of this new program began in January of 1994. The first quarter of 1994 included the five major 1993 acquisitions (South Carolina Federal, DFSoutheastern, Dominion Bancshares, Georgia Federal and First 2 American), which were fully assimilated into First Union's one common operating system. During the second quarter of this year, First Union expects to complete two pooling of interests acquisitions -- that of American Bancshares Inc. on May 31, 1994, and Lieber & Co. on June 30, 1994. American Bancshares Inc., the parent corporation of American Commercial Savings Bank Inc., SSB, had assets of $216 million at March 31, 1994, and is based in Monroe, North Carolina. In this acquisition, we expect to issue approximately 518,000 shares of First Union common stock. Assuming a First Union common stock price of $42 per share and the issuance of 518,000 shares of First Union common stock, the transaction value would be approximately $22 million. Lieber is an investment management firm that is adviser to the Evergreen Funds, a $3.5 billion family of mutual funds at March 31, 1994, with headquarters in Purchase, New York. In this acquisition, we expect to issue approximately 3.1 million shares of First Union common stock. Assuming a First Union common stock price of $42 per share and the issuance of 3.1 million shares of First Union common stock, the transaction value would be approximately $130 million. During the third quarter this year, First Union expects to complete the acquisition, announced on January 17, 1994, of BancFlorida Financial Corporation, the parent company of BancFlorida, a Federal Savings Bank, which had assets of $1.5 billion at March 31, 1994, and is based in Naples, Florida. This acquisition is expected to be accounted for as a purchase. Assuming a First Union common stock price of $42 per share prior to closing, First Union would issue approximately 4 million shares and the transaction value would be approximately $168 million. In connection with this acquisition, in March and April 1994, we repurchased 2 million shares of First Union common stock in the open market at a cost of $83 million. The board of directors has authorized the repurchase from time to time of up to 15 million additional shares of common stock for various corporate purposes, including an additional number of shares which, together with the 2 million shares previously repurchased, are estimated to approximately equal the number of shares of First Union common stock expected to be issued upon consummation of the acquisition of BancFlorida. Such repurchases will not commence until at least after the special meeting of BancFlorida stockholders to be held on June 10, 1994. More information on the stock purchase is included in the Stockholders' Equity section. Consummation of all three acquisitions is subject to certain stockholder and regulatory approvals, and other conditions of closing. We expect these acquisitions to have a minor impact on 1994 earnings and to be positive to earnings within 12 months of consummation. We continue to be alert to opportunities to enhance stockholder value, especially in view of legislation introduced in the U.S. Congress and legislative actions in several Southeastern states that, under certain conditions, would permit the corporation to acquire banking organizations throughout the nation. We are evaluating acquisition opportunities, and teams of experienced bankers from all areas of the corporation frequently conduct due diligence activities in connection with possible acquisitions. 3 As a result, acquisition discussions and in some cases negotiations frequently take place, and future acquisitions involving cash, debt or equity securities may be expected. Acquisitions typically involve the payment of a premium over book and market values. Some dilution of First Union's book value and net income per common share may occur in connection with any future acquisitions. The Accounting and Regulatory Matters section provides information about various other legislative, accounting and regulatory matters that have recently been adopted or proposed. NET INTEREST INCOME Tax-equivalent net interest income, the largest contributor to earnings, was $750 million in the first quarter of 1994, compared with $696 million in the first quarter of 1993. Nonperforming loans reduced interest income because the contribution from these loans is eliminated or sharply reduced. In the first quarter of 1994, $17 million in gross interest income would have been recorded if all nonaccrual and restructured loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination, if held for part of the period. The amount of interest income related to these assets and included in income in the first quarter of 1994 was $2 million. However, a $120 million reduction in nonperforming assets from the fourth quarter of 1993 helped in contributing to interest income in the first quarter of 1994. Net Interest Margin The net interest margin, which is the difference between the tax- equivalent yield on earning assets and the rate paid on funds to support those assets, was 4.79 percent in the first quarter of 1994, compared with 5.00 percent in the first quarter of 1993 and 4.61 percent in the fourth quarter of 1993. The margin decline since the first quarter of 1993 primarily resulted from the addition of acquired banks and thrifts with lower margins; the addition of short-term securities, which contribute to net interest income although they reduce the margin; and the impact of refinancing activity. The margin increase since the fourth quarter of 1993 reflects a larger spread between loan yields and deposits costs, and reduced refinancing activity, which had a positive effect on mortgage-related securities. Our goal is to continue increasing net interest income. The average rate earned on earning assets was 7.59 percent in the first quarter of 1994, compared with 8.10 percent in the first quarter of 1993. The average rate paid on interest-bearing liabilities was 3.29 percent in the first quarter of 1994 and 3.55 percent in the first quarter of 1993. We use securities and off-balance sheet transactions to manage interest rate sensitivity. More information on these transactions is included in the Interest Rate Risk Management section. 4 NONINTEREST INCOME Developing new sources of fee income has been one of our key long- term strategies for dealing with increased competition from nonbanking companies and other changes taking place in the financial services industry. Noninterest income was $281 million in the first quarter of 1994, compared with $271 million in the first quarter of 1993 and $324 million in the fourth quarter of 1993. A decrease in trading account profits, service charges on deposit accounts, and mortgage banking revenues contributed to the decline from the fourth quarter of 1993. The first quarter of 1994 included gains on assets held for sale of $17 million compared with $30 million in the fourth quarter of 1993. Trading Activities Trading activities are undertaken primarily to satisfy customers' risk management and investment needs. Additionally, trading is done for the corporation's own account. All trading activities are conducted within risk limits established by the corporation's Funds Management Committee. At March 31, 1994, trading account assets were $821 million compared with $652 million at year-end 1993. These assets are carried at market value. NONINTEREST EXPENSE Noninterest expense was $640 million in the first quarter of 1994, compared with $578 million in the first quarter of 1993 and $688 million in the fourth quarter of 1993. The decline in expenses from the fourth quarter of 1993 reflects the assimilation of five 1993 acquisitions into First Union's one common operating system and other acquisition-related declines in expenses, and a decline in credit-related costs. Costs related to environmental matters were not material. SECURITIES AVAILABLE FOR SALE Securities available for sale are used as a part of the corporation's interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital ratios and other factors. In accordance with the adoption of Statement of Financial Accounting Standards No. 115, we began accounting for debt and equity securities on a market value basis as of January 1, 1994. At March 31, 1994, we had $12.7 billion in securities available for sale, compared with a market value of $11.9 billion at December 31, 1993. The market value of securities available for sale was $66 million below amortized costs at the end of the first quarter of 1994. As a result a $42 million after-tax unrealized loss has been recorded as a reduction of stockholders' equity. Table 7 provides information related to unrealized gains and losses and realized gains and losses. The average rate earned on securities available for sale in the first quarter of 1994 was 5.23 percent, compared with 5.16 percent in the first quarter of 1993. The average maturity of the portfolio was 2.66 years at March 31, 1994. Portfolio activity in the first quarter of 1994 included the addition of short-term Treasuries. 5 The Accounting And Regulatory Matters section provides information related to the accounting for debt and equity securities. INVESTMENT SECURITIES First Union's investment securities amounted to $2.5 billion at March 31, 1994, compared with $2.7 billion at year-end 1993. The average rate earned on investment securities in the first quarter of 1994 was 9.04 percent, compared with 7.51 percent in the first quarter of 1993. The average maturity of the portfolio was 4.46 years at March 31, 1994. First quarter 1994 yields and maturities reflect the reclassification of securities to the available for sale portfolio at year-end 1993 to better support our current interest rate risk management strategy. The Accounting And Regulatory Matters section provides information related to the accounting for debt and equity securities. LOANS Our lending strategy stresses quality growth, diversified by product, geography and industry. A common credit underwriting structure is in place throughout the company, and a special real estate credit group reviews large commercial real estate loans before approval. Consistent with our long-time standard, we generally look for two repayment sources for commercial real estate loans: cash flows from both the project itself and the borrower. Our commercial lenders focus principally on middle-market companies. A majority of our commercial loans range from $50,000 to $10 million. We offer a broad range of financial products and services to meet our customers' needs, including access to sources of capital and creative financing solutions for our corporate and commercial customers. Our consumer lenders emphasize credit judgments that focus on a customer's debt obligations, ability and willingness to repay, and general economic trends. Net loans at March 31, 1994 were $46.7 billion, compared with $46.9 billion at December 31, 1993. Loans remained essentially flat since year-end 1993 due to the anticipated runoff of acquired loans and lower balances of mortgages held for sale. Commercial and consumer loan growth was strong in Florida and South Carolina, flat in North Carolina and Virginia, and down in Georgia, which reflected the acquisition-related runoff. The loan portfolio at March 31, 1994, was composed of 47 percent in commercial loans and 53 percent in consumer loans. The portfolio mix has not changed significantly from year-end 1993. Unused loan commitments related to commercial and consumer loans were $11.3 billion and $7.0 billion, respectively. Commercial and standby letters of credit were $1.5 billion. 6 At March 31, 1994, loan participations sold to other lenders amounted to $1.3 billion and were recorded as a reduction of gross loans. The average rate earned on loans in the first quarter of 1994 was 8.29 percent, compared with 8.80 percent in the first quarter of 1993. The average prime rate in the first quarter of 1994 was 6.02 percent, compared with 6.00 percent in the first quarter of 1993. The Asset Quality section provides information about geographic exposure in the loan portfolio and a loss-sharing arrangement with the Federal Deposit Insurance Corporation (FDIC) covering the Southeast Banks commercial and consumer loan portfolios acquired from the FDIC in 1991. Commercial Real Estate Loans Commercial real estate loans amounted to 16 percent of the total portfolio at March 31, 1994, and at December 31, 1993. This portfolio included commercial real estate mortgage loans of $5.8 billion at March 31, 1994, and at December 31, 1993. The Asset Quality section provides information related to geographic exposure. Highly Leveraged Transactions An HLT loan generally is defined as a loan amounting to more than $20 million involving a buyout, acquisition or recapitalization of an existing business, in which the loan substantially increases a company's leverage ratio. At March 31, 1994, outstanding HLT loans amounted to $700 million, compared with $786 million at December 31, 1993. ASSET QUALITY The following portion of the asset quality discussion is divided into two sections to reflect the loss-sharing arrangement between First Union and the FDIC in connection with the September 1991 Southeast Banks transaction. The first section relates to First Union's nonperforming assets, past due loans, net charge-offs and loan loss allowance, excluding those related to acquired Southeast Banks nonperforming assets. The acquired First American segregated assets discussed separately in previous reporting periods are no longer material for disclosure purposes and are included in the other assets caption in the balance sheet. The second section relates solely to the same categories mentioned above segregated for the acquired Southeast Banks loan portfolio. Certain ratios related to First Union's nonperforming assets and net charge-offs have been favorably affected because Southeast Banks segregated assets portfolios have not been included in the determination of these ratios. Under the terms of the loss-sharing arrangement, the FDIC reimburses First Union for 85 percent of any losses associated with the acquired Southeast Banks commercial and consumer loan portfolio, except revolving consumer credit, for which reimbursement declines five percent per year to 65 percent in 1996. 7 The FDIC also provides virtually cost-free funding for the acquired Southeast Banks nonperforming assets. This was initially accomplished through five-year revolving notes issued by First Union. Since the first quarter of 1992, in accordance with the FDIC assistance agreements, the FDIC has been paying a market rate of interest on the amount of additions to Southeast Banks segregated assets. First Union Nonperforming Assets Nonperforming assets at March 31, 1994, declined 13 percent to $796 million, or 1.70 percent of net loans and foreclosed properties, compared with $916 million, or 1.95 percent, at December 31, 1993. The Quarterly Nonperforming Assets By Business Unit table provides additional information about nonperforming assets. Quarterly Nonperforming Assets By Business Unit* (Dollars in millions) 1Q94 4Q93 3Q93 2Q93 1Q93 Florida $325 347 471 529 575 North Carolina 64 81 92 103 112 Georgia 119 134 223 208 152 Virginia 118 161 184 180 181 South Carolina 41 43 51 57 42 Tennessee 13 29 36 32 40 Maryland 28 29 23 23 34 Washington, D.C. 17 9 8 7 9 Other units** 71 83 122 134 123 Total $796 916 1,210 1,273 1,268 * Excludes acquired Southeast Banks segregated assets. ** First Union Mortgage Corporation, First Union Home Equity Corporation, Corporate Banking Group and other units. Loans or properties of less than $5 million each made up 82 percent, or $655 million, of nonperforming assets at March 31, 1994. Of the rest: (diamond) 8 loans or properties between $5 million and $10 million each accounted for $53 million; and (diamond) 6 loans or properties over $10 million each accounted for $88 million. Seventy-six percent of nonperforming assets were collateralized by real estate at March 31, 1994, compared with 71 percent at year- end 1993. First Union Past Due Loans In addition to these nonperforming assets, at March 31, 1994, accruing loans 90 days past due were $80 million, compared with $71 million at December 31, 1993. Of these, $22 million were related to commercial and commercial real estate loans, compared with $20 million at December 31, 1993. First Union Net Charge-offs Annualized net charge-offs as a percentage of average net loans were .27 percent in the first quarter of 1994, compared with .61 percent in the first quarter of 1993. Table 10 provides information on net charge-offs by category. 8 First Union Provision And Allowance For Loan Losses The loan loss provision was $25 million in the first quarter of 1994, compared with $60 million in the first quarter of 1993. The decrease in the loan loss provision was based primarily upon current economic conditions, lower levels of nonperforming assets, the maturity of the nonperforming assets portfolio, and current and projected lower levels of charge-offs. In addition, we establish reserves based upon various other factors, including the results of quantitative analyses of the quality of commercial loans and commercial real estate loans. Reserves for commercial and commercial real estate loans are based principally on loan grades, historical loss rates, borrowers' creditworthiness, underlying cash flows from the project itself and from borrowers, and analysis of other less quantifiable factors that might influence the portfolio. Reserves for consumer loans are based principally on delinquencies and historical loss rates. We analyze all loans in excess of $500,000 that are being monitored as potential credit problems to determine whether supplemental, specific reserves are necessary. For several quarters, the loan loss allowance as a percentage of net loans has declined and the allowance coverage of nonaccrual and restructured loans and nonperforming assets has increased, as indicated in Table 10. In the first quarter of 1994, this was primarily the result of growth in loans and a $472 million decline in nonperforming assets from March 31, 1993. These percentages exclude the acquired Southeast Banks segregated assets. The Southeast Banks Segregated Assets section provides information related to a separate $31 million allowance for losses on segregated assets. Southeast Banks Segregated Assets At March 31, 1994, acquired Southeast Banks segregated assets amounted to $338 million, or $307 million net of the $31 million allowance referred to above, compared with $380 million, or $347 million net of a $33 million allowance, at December 31, 1993. This segregated asset portfolio includes nonaccrual loans and foreclosed properties, net of the allowance for segregated assets as indicated in Table 12. Southeast Banks Past Due Loans Accruing loans 90 days past due included in the acquired Southeast Banks performing loan portfolio decreased 17 percent from $28 million at December 31, 1993, to $24 million at March 31, 1994. These loans are subject to the terms of the FDIC loss-sharing agreement. Southeast Banks Net Charge-offs Net charge-offs of $2 million, representing First Union's approximately 15 percent share of the losses on acquired Southeast Banks loans, were deducted from the allowance for segregated assets in the first quarter of 1994, compared with $3 million in the fourth quarter of 1993. Geographic Exposure The loan portfolio in the South Atlantic region of the United States is spread primarily across 58 metropolitan statistical areas with diverse economies. Washington, D.C.; Charlotte, North Carolina; Atlanta, Georgia; and Miami, Jacksonville, West Palm Beach and Tampa, Florida, are our largest markets, but no 9 individual metropolitan market contains more than 8 percent of the commercial loan portfolio. Substantially all of the $7.3 billion commercial real estate portfolio at March 31, 1994, was located in our banking region, which includes North Carolina, South Carolina, Georgia, Florida, Virginia, Maryland, Tennessee and Washington, D.C. CORE DEPOSITS Core deposits were $50.0 billion at March 31, 1994, compared with $50.9 billion at December 31, 1993. Core deposits include savings, negotiated order of withdrawal (NOW), money market and noninterest-bearing accounts, and other consumer time deposits. Average noninterest-bearing deposits were 20 percent of average core deposits in the first quarter of 1994, compared with 19 percent in the first quarter of 1993. The Net Interest Income Summaries provide additional information about average core deposits. The portion of core deposits in higher-rate, other consumer time deposits was 33 percent at March 31, 1994, and at year-end 1993. As market rates have declined, some customers have shifted their other consumer time deposits either into other deposit products or other investments. We expect declines in other consumer time deposit balances as long as rates stay at their current levels. Other consumer time and other noncore deposits usually pay higher rates than savings and transaction accounts, but they generally are not available for immediate withdrawal and are less expensive to process. PURCHASED FUNDS Purchased funds at March 31, 1994, were $12.1 billion, compared with $10.1 billion at year-end 1993. We purchase funds primarily to fund short-term investments that have attractive yields. Primarily, we fund these investments with federal funds, securities sold under repurchase agreements, and eurodollar time deposits. Average purchased funds in the first quarter of 1994 were $10.9 billion, an increase of 20 percent from the first quarter of 1993. LONG-TERM DEBT Long-term debt was 60 percent of total stockholders' equity at March 31, 1994, compared with 59 percent at December 31, 1993. During the first quarter of 1994, we issued $150 million of 15- year, 6.375 percent subordinated debt. Proceeds from this debt issue were designated for general corporate purposes. Under a shelf registration statement filed with the Securities and Exchange Commission, we currently have available for issuance $650 million of senior or 10 subordinated debt securities. The sale of any additional debt securities will depend on future market conditions, funding needs and other factors. Debt Obligations We have a $300 million committed back-up line of credit that expires in June 1994, which we are negotiating to replace. The current credit facility contains financial covenants that require First Union to maintain a minimum level of tangible net worth, restrict double leverage ratios and require capital levels at subsidiary banks to meet regulatory standards. We expect the new credit facility also will contain financial covenants. First Union is currently in compliance with these requirements and has not used this line of credit. In 1994, $57 million of long-term debt will mature. Maturing in 1995 is $211 million, and in 1996, $541 million, which includes notes payable to the FDIC of $225 million at March 31, 1994. We expect the notes payable to the FDIC will decrease over the remaining period ending in September 1996 through cash flows generated by the acquired loans, the sale of the Southeast Banks segregated assets and FDIC reimbursements. The Asset Quality section provides additional information related to the funding of the segregated assets. STOCKHOLDERS' EQUITY At March 31, 1994, common stockholders' equity was $5.03 billion, a two percent increase from $4.92 billion at December 31, 1993. Total stockholders' equity was $5.28 billion, compared with $5.21 billion at year-end 1993. The increase in equity since year-end 1993 was primarily the result of retained earnings and capital raised through the dividend reinvestment and employee stock option and purchase plans, net of a $42 million unrealized loss related to debt and equity securities and $46 million paid for the purchase in the open market of 1.1 million shares of common stock and cancellation of such shares. In April 1994 we repurchased and cancelled an additional 897,000 common stock at a cost of $37 million. Series 1990 preferred stock cash dividends of 7.25 percent per annum were paid for the quarter ended March 31, 1994. We paid $74 million in dividends to preferred and common stockholders in the first quarter of 1994. Subsidiary Dividends Our banking subsidiaries are the largest source of parent company dividends. Capital requirements established by regulators limit dividends that these and certain other of our subsidiaries can pay. The Comptroller of the Currency (OCC) generally limits a national bank's dividends in two principal ways: first, dividends cannot exceed the bank's undivided profits, less statutory bad debt in excess of a bank's allowance for loan losses; and second, in any year dividends may not exceed a bank's net profits for that year, plus its retained earnings from the preceding two years, less any required transfers to surplus. Under these and other limitations, our subsidiaries had $452 million available for dividends at March 31, 1994. Our subsidiaries paid $25 million in dividends to the corporation during the first quarter of 1994. 11 Risk-Based Capital The minimum requirement for the ratio of total capital to risk- weighted assets (including certain off-balance-sheet activities, such as standby letters of credit and interest rate swaps) is currently 8 percent. At least half of the total capital is to be composed of common equity, retained earnings and a limited amount of qualifying preferred stock, less certain intangible assets (tier 1 capital). The rest may consist of a limited amount of subordinated debt, nonqualifying preferred stock and a limited amount of the loan loss allowance (together with tier 1 capital, total capital). At March 31, 1994, the corporation's tier 1 and total capital ratios were 9.36 percent and 15.15 percent, respectively. In addition, the Federal Reserve Board has established minimum leverage ratio requirements for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets equal to 3 percent for bank holding companies that meet specified criteria, including having the highest regulatory rating. All other bank holding companies will generally be required to maintain a leverage ratio from at least 4 to 5 percent. The corporation's leverage ratio at March 31, 1994, was 6.57 percent. The requirements also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve Board also has indicated it will continue to consider a tangible tier 1 leverage ratio (deducting all intangibles) in evaluating proposals for expansion or new activity. The Federal Reserve Board has not advised us of any specific minimum leverage ratio applicable to us. Each subsidiary bank is subject to similar capital requirements adopted by the OCC. Each subsidiary bank listed in Table 18 had a leverage ratio in excess of 5.58 percent at March 31, 1994. None of our subsidiary banks has been advised of any specific minimum capital ratios applicable to it. The regulatory agencies also have adopted regulations establishing capital tiers for banks. Banks in the highest capital tier, or "well capitalized," must have a leverage ratio of 5 percent, a tier 1 capital ratio of 6 percent and a total capital ratio of 10 percent. At March 31, 1994, the subsidiary national banks listed in Table 18 met the capital and leverage ratio requirements for well capitalized banks. We expect to maintain these banks' ratios at the required levels by the retention of earnings and, if necessary, the issuance of additional capital. Failure to meet certain capital ratio or leverage ratio requirements could subject a bank to a variety of enforcement remedies, including termination of deposit insurance by the FDIC. The Accounting and Regulatory Matters section provides more information about proposed changes in risk-based capital standards. 12 INTEREST RATE RISK MANAGEMENT Managing interest rate risk is fundamental to banking. Banking institutions manage the inherently different maturity and repricing characteristics of the lending and deposit-taking lines of business to achieve a desired interest rate sensitivity position and to limit exposure to interest rate risk. Our inherent maturity and repricing characteristics of lending and deposit activities create a naturally asset-sensitive structure. By using a combination of on- and off-balance sheet financial instruments we manage interest rate sensitivity within our established policy guidelines. The Financial Management Committee of the corporation's board of directors reviews the corporation's overall interest rate risk management activity. The Funds Management Committee, which includes the chief executive officer, president, and senior executives from our Capital Markets Group, credit and finance areas, oversees the interest rate risk management process and approves policy guidelines. Funds Management personnel monitor the day-to-day exposure to changes in interest rates in response to loan and deposit flows and make adjustments within established policy guidelines. We believe that interest rate risk is best measured by the amount of earnings per share at risk given specified changes in interest rates. We have been modeling interest rate sensitivity since the early 1970s. The model captures all earning assets, interest- bearing liabilities and all off-balance sheet financial instruments and combines the various factors affecting rate sensitivity into an earnings outlook that incorporates our view of the short-term interest rate environment most likely over the next 24 months. The Funds Management Committee reviews and continuously updates the underlying assumptions included in the earnings simulation model. Our interest rate sensitivity analysis is based on multiple interest rate scenarios, projected changes in balance sheet categories and other relevant assumptions. Changes in management's outlook and other market factors may cause actual results to differ from our current simulated outlook. We believe our earnings simulation model is a more relevant depiction of interest rate risk than traditional gap tables because it captures multiple effects excluded in less sophisticated presentations, and it includes significant variables that we identify as being affected by interest rates. For example our model captures rate of change differentials, such as federal funds rates versus savings account rates; maturity effects, such as calls on securities; and rate barrier effects, such as caps and floors on loans. It also captures changing balance sheet levels, such as loans and investment securities; and floating rate loans that may be tied or related to prime, LIBOR, CD rates, treasury notes, federal funds or other rate indices, which do not necessarily move identically as short-term rates change. In addition it captures leads and lags that occur in long-term rates as short-term rates move away from current levels; 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 multiple scenarios from which sensitivity of earnings to changes in interest rates is determined. 13 We determine sensitivity of earnings to changes in interest rates by assessing the impact on net income in multiple rising and falling interest rate scenarios. The model is updated at least monthly and more often if desired. We use three scenarios in analyzing interest rate sensitivity. The base line scenario is our estimated most likely path for future short-term interest rates for the next 24 months. The base line scenario assumes rising federal funds rates over the next 24 months. The "high rate" and "low rate" scenarios assume 100 basis point shifts from the base line scenario in the federal funds rate by the fourth succeeding month and remain 100 basis points higher or lower through the twenty-fourth month. Additionally, other scenarios are reviewed monthly to examine the effects of different interest rate movements. We determine interest rate sensitivity by the change in earnings per share between the three scenarios over a 12-month policy measurement period. The earnings per share as calculated by the earnings simulation model under the base line scenario becomes the standard. The measurement of interest rate sensitivity is the percentage change in earnings per share calculated by the model under high rate versus base-line and under low rate versus base- line. The policy measurement period begins with the fourth month forward and ends with the fifteenth month (i.e., the twelve-month period.) The scenarios do not include the adjustments that management would make as rate expectations change. Our policy limit for the maximum negative impact on earnings per share resulting from either the high rate or low rate scenario is 5 percent. Based upon the April 1994 outlook, if interest rates were to rise to follow the high rate scenario, which means a full 100 basis point increase over the base line (already a rising rate scenario), then earnings during the policy measurement period would be negatively affected by 2.9 percent (assuming management took no actions.) Off-Balance Sheet Derivatives For Interest Rate Risk Management As part of our overall interest rate risk management strategy, for many years we have used off-balance sheet derivatives as a cost- and capital-efficient way to modify the repricing or maturity characteristics of on-balance sheet assets and liabilities. Our off-balance sheet derivative transactions used for interest rate sensitivity management include swaps, futures and options with indices that directly relate to the pricing of specific core assets and liabilities of the corporation. We believe there is minimal risk that the derivatives used for rate sensitivity management will have any significant unintended effect on corporate earnings. As a result of interest rate fluctuations, derivatives will from time to time develop unrealized appreciation or depreciation in market values as compared with their cost. If the derivatives are directly linked to specific assets and liabilities of the organization, then there will generally be offsetting unrealized appreciation and depreciation on the corporate balance sheet. Our asset sensitivity arises naturally primarily because the repricing characteristics of the large core deposit base have a positive effect on earnings in a rising rate environment and a negative effect on earnings in a falling rate environment. We use the traditional investment portfolio as well as off-balance sheet derivative instruments to neutralize this natural asset sensitivity of the corporation. This is accomplished primarily by holding fixed rate debt instruments in the securities 14 portfolio or by adding off-balance sheet "asset proxies." These "asset proxies" consist of interest rate swaps that convert floating rate assets (primarily variable rate loans) into fixed rate assets. The combination of securities and interest rate swaps enables us to achieve a desired level of interest rate sensitivity. Another common application of derivatives in managing the corporation's interest rate risk is the use of interest rate swaps to convert fixed rate debt into floating rate debt. This is accomplished by entering into interest rate swap contracts to receive a fixed rate of interest to the contractual maturity of the debt issued and pay a variable rate, usually six-month LIBOR. These "liability swaps" leave rate sensitivity unchanged, whereas the fixed-rate debt issuance alone would have increased asset sensitivity or reduced liability sensitivity. The combination of the "liability swaps" and debt produces the desired LIBOR-based floating rate funding regardless of changes in interest rates. As interest rates move higher, the market value of both categories of interest rate swaps will decline. In the example of swaps used as "asset proxies," the market value decline will be somewhat offset by a gain in value of the corporation's core deposits. For "liability swaps," the market value decline would be closely offset by appreciation in the market value of the fixed rate debt on the balance sheet to which the swaps are directly linked. The important consideration is not the shifting of unrealized appreciation or depreciation between and among on- and off-balance sheet instruments, but the prudent management of interest rate sensitivity so the corporate earnings are not at risk as interest rates move up or down. The notional amount of off-balance sheet derivative financial instruments used to manage our interest rate risk sensitivity amounted to $42.6 billion at March 31, 1994, compared to $48.8 billion at December 31, 1993. The related fair value of the off- balance sheet derivative financial instruments was $18 million at March 31, 1994, and $369 million at December 31, 1993. The increased contribution to net interest income in a higher interest rate environment from on-balance sheet assets and liabilities is expected to substantially offset the potential negative impact on net interest income reflected by the decline in market value of these instruments. Although off-balance sheet derivative financial instruments do not expose the corporation to credit risk equal to the notional amount, we are exposed to credit risk equal to the extent of the fair value gain in an off-balance sheet derivative financial instrument if the counterparty fails to perform. We minimize the credit risk in these instruments by dealing only with high quality counterparties. Each transaction is specifically approved for applicable credit exposure. In addition, our policy is to require all caps, floors, swaps and swaptions be governed by an International Swap Dealers Association Master Agreement and be subject to bilateral collateral arrangements. Collateral for these 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 acceptable thresholds of credit risk. Thresholds are determined based on the strength of the individual counterparty and are bilateral. As of March 31, 1994, the total credit risk in excess of thresholds was $124 million. 15 The fair value of collateral held was 96 percent of the total credit risk in excess of thresholds. LIQUIDITY We manage liquidity -- the ability to raise funds primarily through deposits, purchased funds or the issuance of debt or capital -- through the selection of the asset mix and the maturity mix of liabilities. As part of this process, we continually evaluate funding needs and alternatives. For example, for some time we have focused efforts in our large branch network toward raising more deposits. This reduces dependency on national market sources to help meet funding requirements. In addition, acquired bank and savings bank deposits have enhanced overall liquidity. We use these deposits and other funding sources to fund loans and investments, meet deposit withdrawals and maintain reserve requirements. Net cash provided from operations primarily results from net income adjusted for the following noncash accounting items: the provisions for loan losses and foreclosed properties; and depreciation and amortization. These items amounted to $106 million in the first quarter of 1994, compared with $152 million in the first quarter of 1993. This cash was available to increase earning assets, to reduce borrowings by $32 million and to pay dividends of $74 million. Several off-balance sheet assets could be used to increase liquidity and provide additional financial flexibility. These include a mortgage servicing portfolio with an estimated fair value of $255 million over book value at March 31, 1994. ACCOUNTING AND REGULATORY MATTERS The Financial Accounting Standards Board (FASB) has issued Standard No. 112, "Employers' Accounting for Postemployment Benefits", which requires accrual of a liability for all types of benefits paid to former or inactive employees after employment but before retirement. The company adopted this accounting standard beginning January 1, 1994. Benefits subject to this accounting pronouncement include salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits (including workers' compensation), job training and counseling, and continuation of such benefits as health care and life insurance coverage. The cumulative effect of initially applying this new accounting standard in 1994 will be approximately $14 million. The recurring reduction of income before income taxes is expected to be immaterial. The FASB also has issued Standard No. 114, "Accounting by Creditors for Impairment of a Loan", which requires that all creditors value all specifically reviewed loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected cash flows, market price of the loan, if available, or value of the underlying collateral. Expected cash flows are required to be discounted at the loan's effective interest rate. We estimate the initial application of this accounting standard will not require an increase to the existing allowance for loan losses. The 16 periodic effect on net income has not been fully determined. This Standard is required for fiscal years beginning after December 15, 1994. The FASB has issued an exposure draft, "Accounting by Creditors for Impairment of a Loan--Income Recognition", that would amend FASB Statement No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan and by requiring additional disclosures about how a creditor recognizes interest income related to impaired loans. This proposed Statement would be effective upon issuance. The FASB also issued Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities", that requires that debt and equity securities held: (i) to maturity be classified as such and reported at amortized cost; (ii) for current resale be classified as trading securities and reported at fair value, with unrealized gains and losses included in current earnings; and (iii) for any other purpose be classified as securities available for sale and reported at fair value, with unrealized gains and losses excluded from current earnings and reported as a separate component of stockholders' equity. It is required for fiscal years beginning after December 15, 1993. The effect of the foregoing would be to cause fluctuations in stockholders' equity based on changes in values of debt and equity securities. More information related to the adoption of this Standard is included in the Securities Available For Sale section. The FASB has issued an exposure draft, "Accounting for Stock-based Compensation", that proposes that the fair value of an award of equity instruments to employees be recognized as additional equity at the date the award is granted. Amounts attributable to future service would be recognized as an asset and amortized to personnel expense over the period of employee service. If the award is for past services, personnel expense would be charged in the period in which the award is granted. Pro forma disclosure of the effects on net income and income per share for awards granted after December 31, 1993, would be required. The actual fair value adjustments to net income would be effective for awards granted after December 31, 1996. The effect of the provisions of this proposed accounting standard on net income and total stockholders' equity would depend upon the nature of stock-based compensation, if any, awarded by the corporation in future years. The FASB has also issued an exposure draft, "Accounting for the Impairment of Long-Lived Assets", that proposes accounting for the impairment of long-lived assets, identifiable intangibles and goodwill related to those assets. It would require the carrying amount of impaired assets be reduced to fair value. An entity would estimate the future cash flows expected to result from the use of an asset and its eventual disposition. If the sum of the expected future net cash flows (undiscounted and without interest charges) is less that the carrying amount of the asset, an impairment loss would be recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use would be based on the fair value of the asset. Long-lived assets and identifiable intangibles to be disposed of would be reported at the lower of cost or fair value less cost to sell, except for certain assets, which in accordance with current accounting pronouncements, will continue to be reported at the lower of cost or net realizable value. This proposed statement also would require a rate-regulated enterprise to recognize an impairment for the amount of costs excluded when a regulator excludes all or part of a cost from the enterprise's rate base. This proposed 17 statement would be effective for financial statements issued for fiscal years beginning after December 15, 1994. The FASB has also issued an exposure draft, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". This proposed statement would require improved disclosures about derivative financial instruments -- futures, forward, swap or option contracts, or other financial instruments with similar characteristics. It would also amend existing requirements of FASB Statement No.105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk, and FASB Statement No.107, Disclosures about Fair Value of Financial Instruments. It would require that a distinction be made between financial instruments held or issued for the purposes of trading or other than trading. For derivative financial instruments held or issued for trading, this proposed Statement would require disclosure of average, maximum and minimum aggregate fair values and of net trading gains or losses. For derivative financial instruments held or issued for purposes other than trading, it would require disclosure about those purposes, about how the instruments are reported in financial statements, and, if the purpose is hedging anticipated transactions, about the anticipated transactions, the amounts of hedging gains and losses deferred, and the transactions or other events that result in recognition of the deferred gains or losses in income. The proposed Statement would encourage, but not require, quantitative information about interest rate or other market risks of derivative financial instruments, and also of other assets and liabilities, that is consistent with the way the entity manages or adjusts risks and that is useful for comparing the results of applying the entity's strategies to its objectives for holding or issuing the derivative financial instruments. The proposed Statement would be effective for financial statements issued for fiscal years ending after December 15, 1995. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), among other provisions, imposes liability on a bank insured by the FDIC for certain obligations to the FDIC incurred in connection with other insured banks under common control. The Federal Deposit Insurance Corporation Improvement Act also requires a revision of risk-based capital standards. The new standards are required to incorporate interest rate risk, concentration of credit risk and the risks of nontraditional activities and to reflect the actual performance and expected risk of loss of multifamily mortgages.The Risk-Based Capital section provides more information on risk assessment classifications. Legislation has been enacted providing that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution, including federal funds and letters of credit, in the "liquidation or other resolution" of such an institution by any receiver. Various other legislative proposals concerning the banking industry are pending in Congress. Given the uncertainty of the legislative process, we cannot assess the impact of any such legislation on our financial condition or results of operations. 18 Table 1 CONSOLIDATED SUMMARIES OF INCOME AND PER SHARE DATA
Twelve Months 1994 1993 Ended March 31, First Fourth Third Second First (In thousands except per share data) 1994 Quarter Quarter Quarter Quarter Quarter CONSOLIDATED SUMMARIES OF INCOME Interest income* $ 4,719,523 1,186,412 1,196,674 1,199,264 1,137,173 1,123,989 Interest expense 1,798,875 436,003 463,394 470,491 428,987 427,567 Net interest income* 2,920,648 750,409 733,280 728,773 708,186 696,422 Provision for loan losses 186,424 25,000 49,973 50,001 61,450 60,329 Net interest income after provision for loan losses* 2,734,224 725,409 683,307 678,772 646,736 636,093 Securities available for sale transactions 12,751 4,300 2,804 4,142 1,505 17,316 Investment security transactions 8,050 615 3,049 815 3,571 - Noninterest income 1,186,862 275,781 317,727 287,998 305,356 254,005 Noninterest expense 2,583,193 639,841 687,922 664,388 591,042 578,295 Income before income taxes* 1,358,694 366,264 318,965 307,339 366,126 329,119 Income taxes 418,221 120,001 98,469 84,286 115,465 105,040 Tax-equivalent adjustment 100,485 23,804 25,153 27,638 23,890 24,087 Net income 839,988 222,459 195,343 195,415 226,771 199,992 Dividends on preferred stock 23,622 5,726 5,489 6,240 6,167 7,004 Net income applicable to common stockholders $ 816,366 216,733 189,854 189,175 220,604 192,988 PER COMMON SHARE DATA Net income $ 4.83 1.27 1.12 1.12 1.32 1.17 Average common shares - 170,314,176 169,981,393 168,540,736 166,972,413 165,272,415 Average common stockholders' equity** Quarter-to-date $ - 5,012,086 4,843,889 4,657,544 4,439,393 4,251,677 Year-to-date - 5,012,086 4,550,048 4,451,024 4,346,054 4,251,677 Common stock price High 51 1/2 43 3/4 48 1/8 49 5/8 51 1/2 50 7/8 Low 37 7/8 39 3/4 37 7/8 43 1/2 40 42 1/4 Period-end $ 41 5/8 41 5/8 41 1/4 47 5/8 48 1/2 47 3/4 To earnings ratio*** 8.62 X 8.62 8.72 13.01 13.86 16.08 To book value 140 % 140 143 169 178 182 Cash dividends $ 1.55 .40 .40 .40 .35 .35 Book value** $ 29.71 29.71 28.90 28.14 27.27 26.23 PER PREFERRED SHARE DATA Series 1990 preferred stock price High $ 55 1/2 53 7/8 53 7/8 55 1/2 55 1/8 55 3/8 Low 52 52 1/8 52 53 1/4 53 1/8 53 Period-end 52 1/8 52 1/8 52 3/8 53 1/2 54 7/8 53 Cash dividends $ 3.7376 .9063 .8688 .9875 .9750 1.0563 Dividend rate 7.48 % 7.25 6.95 7.90 7.80 8.45
*Tax-equivalent. **Quarter-to-date and year-to-date average common stockholders' equity excludes average net unrealized gains on debt and equity securities of $46,966,000. The determination of book value excludes a net unrealized loss on debt and equity securities of $41,826,000 in the first quarter of 1994. ***Based on net income applicable to common stockholders. T-1 Table 2 NONINTEREST INCOME
Twelve Months 1994 1993 Ended March 31, First Fourth Third Second First (In thousands) 1994 Quarter Quarter Quarter Quarter Quarter Trading account profits $ 44,691 7,323 21,413 5,814 10,141 5,639 Service charges on deposit accounts 431,095 108,022 114,016 111,163 97,894 97,212 Mortgage banking income 119,541 19,421 30,325 34,444 35,351 38,488 Capital management income 202,429 50,949 49,383 50,283 51,814 50,395 Securities available for sale transactions 12,751 4,300 2,804 4,142 1,505 17,316 Investment security transactions 8,050 615 3,049 815 3,571 - Merchant discounts 55,653 14,361 14,485 13,600 13,207 14,440 Insurance commissions 43,601 9,990 10,825 11,138 11,648 10,265 Sundry income 289,852 65,715 77,280 61,556 85,301 37,566 Total $ 1,207,663 280,696 323,580 292,955 310,432 271,321
Table 3 NONINTEREST EXPENSE
Twelve Months 1994 1993 Ended March 31, First Fourth Third Second First (In thousands) 1994 Quarter Quarter Quarter Quarter Quarter Personnel expense Salaries $ 963,609 244,254 257,418 243,871 218,066 219,054 Other benefits 230,233 65,386 56,117 57,253 51,477 52,643 Total 1,193,842 309,640 313,535 301,124 269,543 271,697 Occupancy 237,708 60,391 63,402 62,085 51,830 51,801 Equipment rentals, depreciation and maintenance 200,646 56,700 51,975 49,994 41,977 45,643 Advertising 26,645 8,622 3,707 6,855 7,461 4,518 Telephone 55,427 14,678 14,499 14,774 11,476 12,274 Travel 45,535 12,076 13,671 9,952 9,836 8,871 Postage 41,465 11,908 10,225 10,175 9,157 9,981 Printing and office supplies 57,335 13,374 16,958 13,461 13,542 9,343 FDIC insurance 119,962 29,939 30,798 30,715 28,510 28,406 Other insurance 17,313 3,715 4,785 4,872 3,941 4,635 Professional fees 51,791 10,908 17,278 13,570 10,035 11,368 Data processing 40,501 5,236 14,453 14,909 5,903 6,175 Owned real estate expense 36,106 5,296 15,252 5,049 10,509 9,823 Mortgage servicing amortization 82,002 8,326 10,032 32,737 30,907 33,266 Other amortization 106,687 28,052 28,643 28,635 21,357 21,510 Sundry 270,228 60,980 78,709 65,481 65,058 48,984 Total $ 2,583,193 639,841 687,922 664,388 591,042 578,295
T-2 Table 4 INTERNAL CAPITAL GROWTH AND DIVIDEND PAYOUT RATIOS
1994 1993 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter INTERNAL CAPITAL GROWTH* Assets to stockholders' equity (a) 13.28 X 14.08 14.46 13.83 13.89 X Return on assets 1.28 % 1.07 1.08 1.39 1.28 Return on total stockholders' equity (a) 17.03 % 15.11 15.69 19.22 17.83 X Earnings retained 66.79 % 62.34 62.22 71.57 71.56 Internal capital growth (a) 11.38 % 9.42 9.76 13.76 12.76 DIVIDEND PAYOUT RATIO ON Common shares 31.50 % 35.71 35.73 26.52 29.91 Preferred and common shares 33.21 % 37.66 37.78 28.43 28.44 Return on common stockholders' equity** (a) 17.54 % 15.55 16.11 19.93 18.41
(a) The determination of these ratios exclude average net unrealized gains on debt and equity securities of $46,966,000 in the first quarter of 1994. * Based on average balances and net income. ** Based on average balances and net income applicable to common stockholders. T-3 Table 5 SELECTED QUARTERLY DATA
1994 1993 First Fourth Third Second First (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter MORTGAGE LOAN PORTFOLIO PERMANENT LOAN ORIGINATIONS Residential Direct $ 509,458 1,099,079 935,103 870,479 796,815 Wholesale 424,460 655,452 477,660 818,478 479,865 Total 933,918 1,754,531 1,412,763 1,688,957 1,276,680 Income property 51,446 111,332 47,984 47,772 41,436 Total $ 985,364 1,865,863 1,460,747 1,736,729 1,318,116 VOLUME OF LOANS SERVICED Residential $32,178,000 32,786,000 34,833,000 36,461,000 34,156,000 Income property 1,884,000 1,972,000 2,068,000 2,035,000 1,954,000 Total $34,062,000 34,758,000 36,901,000 38,496,000 36,110,000 NUMBER OF OFFICES Banking North Carolina 272 266 269 269 269 South Carolina 67 67 65 65 65 Georgia 161 163 165 191 142 Florida 485 488 458 451 454 Washington, D.C. 30 30 40 36 5 Maryland 32 32 55 54 10 Tennessee 64 63 63 67 68 Virginia 197 193 258 260 182 Foreign 2 1 1 1 2 Total banking offices 1,310 1,303 1,374 1,394 1,197 Savings banks - - - 41 43 Home equity lending 164 151 146 139 132 Mortgage banking 24 53 53 57 70 Other 18 18 19 36 36 Total offices 1,516 1,525 1,592 1,667 1,478 OTHER DATA ATMs 1,180 1,189 1,205 1,266 1,031 Employees 31,670 32,861 32,709 32,184 28,672
T-4 Table 6 GROWTH THROUGH ACQUISITIONS
Loans, Stockholders' Net (In thousands) Assets net Deposits Equity Income December 31, 1987, as reported $ 27,629,481 15,388,490 17,425,316 1,794,405 283,122 Pooling of interests acquisitions 10,904,462 8,089,149 8,492,443 635,739 86,588 December 31, 1987, as restated 38,533,943 23,477,639 25,917,759 2,430,144 396,710 1988 acquisition 939,454 498,578 871,281 Growth in operations 1,973,349 4,155,409 2,691,528 December 31, 1988, as reported 41,446,746 28,131,626 29,480,568 Growth in operations 4,060,101 3,469,150 2,051,202 December 31, 1989, as reported 45,506,847 31,600,776 31,531,770 1990 acquisition 7,946,973 4,174,478 5,727,330 Growth in operations 1,134,590 275,465 935,168 December 31, 1990, as reported 54,588,410 36,050,719 38,194,268 1991 acquisitions 12,322,456 7,025,621 9,921,421 Growth (reduction) in operations (7,637,689) (1,692,760) (939,466) December 31, 1991, as reported 59,273,177 41,383,580 47,176,223 1992 acquisitions 3,739,039 1,773,797 3,645,316 Growth (reduction) in operations 815,815 (1,233,610) (1,670,574) December 31, 1992, as reported 63,828,031 41,923,767 49,150,965 1993 acquisitions 7,785,479 4,380,362 6,302,873 Growth (reduction) in operations (826,541) 572,048 (1,711,427) December 31, 1993, as reported 70,786,969 46,876,177 53,742,411 Growth in operations 1,461,404 (143,753) (1,654,620) March 31, 1994, as reported $ 72,248,373 46,732,424 52,087,791
Major acquisitions (those greater than $1.0 billion in acquired assets and/or deposits) include Florida Commercial Banks, Inc. in 1988; Florida National Banks of Florida, Inc. in 1990; and the Florida Federal Savings, FSB and Southeast Banks transactions in 1991; the Flagler Savings & Loan Association transaction and PSFS Thrift Holding Company acquisition in 1992; the pooling of interests acquisitions of South Carolina Federal Corporation, DFSoutheastern, Inc. and Dominion Bankshares Corporation in 1993; and the Georgia Federal Bank, FSB and First American Metro Corp. purchase acquisitions in 1993. Stockholders' equity includes public offerings of common stock amounting to $234,934,000 in 1991 and $330,045,000 in 1992. T-5 Table 7 SECURITIES AVAILABLE FOR SALE
March 31, 1994 Average 1 Year 1-5 5-10 After 10 Gross Unrealized Amortized Maturity (In thousands) or Less Years Years Years Total Gains Losses Cost in Years MARKET VALUE U.S. Treasury $ 4,335,331 1,241,742 - - 5,577,073 (542) 47,624 5,624,155 1.18 U.S. Government agencies 13,303 1,188,579 1,835,818 567 3,038,267 (1,125) 70,043 3,107,185 5.62 CMOs 352,282 1,785,720 - - 2,138,002 (8,726) 17,403 2,146,679 2.00 Other 343,394 1,329,215 53,386 186,568 1,912,563 (73,974) 15,022 1,853,611 2.95 Total $ 5,044,310 5,545,256 1,889,204 187,135 12,665,905 (84,367) 150,092 12,731,630 2.66 MARKET VALUE Debt securities $ 5,044,310 5,545,256 1,889,204 1,095 12,479,865 (41,941) 149,019 12,586,943 Sundry securities - - - 186,040 186,040 (42,426) 1,073 144,687 Total $ 5,044,310 5,545,256 1,889,204 187,135 12,665,905 (84,367) 150,092 12,731,630 AMORTIZED COST Debt securities $ 5,039,514 5,587,545 1,952,007 7,877 12,586,943 Sundry securities - - - 144,687 144,687 Total $ 5,039,514 5,587,545 1,952,007 152,564 12,731,630 WEIGHTED AVERAGE YIELD U.S. Treasury 4.09 % 5.37 - - 4.38 U.S. Government agencies 4.43 6.54 5.83 6.53 6.10 CMOs 5.16 5.34 - - 5.32 Other 7.17 7.70 6.37 2.83 7.16 Consolidated 4.37 % 6.16 5.85 2.85 5.36
Included in "Other" at March 31, 1994, are $ 1,357,553,000 of securities that are denominated in currencies other than the U.S. dollar. The currency exchange rates were hedged to minimize the exposure to currency revaluation risks. At March 31, 1994, these securities had a weighted average maturity of 3.07 years and a weighted average yield of 7.41 percent. The weighted average U.S. equivalent yield of these securities was 5.13 percent based on a weighted average interest differential of (2.28) percent due to the hedging of the foreign currency exchange rates. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The aging of mortgage-backed securities is based on their weighted average maturities at March 31, 1994. Average maturity in years excludes preferred and common stocks and money market funds. Weighted average yields are based on amortized cost. Yields related to securities exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent; a North Carolina state tax rate of 7.8275 percent, a Georgia and Tennessee state tax rate of 6 percent; a South Carolina state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a Maryland state tax rate of 7 percent; and a Washington, D.C. tax rate of 10.25 percent, respectively. Securities available for sale at March 31, 1994, do not include commitments to purchase $77,828,000 of additional securities that at March 31, 1994 had a market value of $77,818,000 . Securities available for sale at March 31, 1994, include the carrying value of $478,522,000 of securities which have been sold for future settlement. Gains and losses from sales are accounted for on a trade date basis. Gross gains and losses realized on the sale of debt securities in 1994, were $12,028,000 and $11,500,000, respectively, and on sundry securities gross gains realized were $3,772,000 . T-6 Table 8 INVESTMENT SECURITIES
March 31, 1994 Average 1 Year 1-5 5-10 After 10 Gross Unrealized Market Maturity (In thousands) or Less Years Years Years Total Gains Losses Value in Years CARRYING VALUE U.S. Government agencies $ 9,930 981,624 60,181 - 1,051,735 26,095 (4,810) 1,073,020 3.00 State, county and municipal 102,852 480,451 240,369 471,629 1,295,301 127,887 (1,781) 1,421,407 5.93 Other 6 3,077 6,194 183,334 192,611 9,700 (2) 202,309 .58 Total $ 112,788 1,465,152 306,744 654,963 2,539,647 163,682 (6,593) 2,696,736 4.46 CARRYING VALUE Debt securities $ 112,788 1,465,152 306,744 559,448 2,444,132 163,682 (6,593) 2,601,221 Sundry securities - - - 95,515 95,515 - - 95,515 Total $ 112,788 1,465,152 306,744 654,963 2,539,647 163,682 (6,593) 2,696,736 MARKET VALUE Debt securities $ 116,102 1,515,305 327,317 642,497 2,601,221 Sundry securities - - - 95,515 95,515 Total $ 116,102 1,515,305 327,317 738,012 2,696,736 WEIGHTED AVERAGE YIELD U.S. Government agencies 8.64 % 7.92 6.64 - 7.86 State, county and municipal 11.49 11.29 11.44 12.24 11.68 Other - 5.71 7.42 8.01 7.96 Consolidated 11.24 % 9.02 10.42 11.06 9.81
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The aging of mortgage-backed securities is based on their weighted average maturities at March 31, 1994. Average maturity in years excludes preferred and common stocks and money market funds. Yields related to securities exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal tax rate of 35 percent; a North Carolina state tax rate of 7.8275 percent; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a Maryland state tax rate of 7 percent; and a Washington, D.C. tax rate of 10.25 percent, respectively. Investment securities do not include commitments to purchase $462,661,000 of additional securities that at March 31, 1994 had a market value of $463,048,000. Gross gains and losses from sales of investment securities are accounted for on a trade date basis. Gross gains realized on the sale of debt securities for the three months ended March 31, 1994 were $615,000 and there were no gross gains or losses on sundry securities. T-7 Table 9 LOANS*
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter FIRST UNION CORPORATION COMMERCIAL Commercial, financial and agricultural Taxable $ 12,630,234 12,509,283 12,318,117 11,817,755 10,485,623 Non-taxable 701,791 724,442 729,685 749,008 695,290 Total commercial, financial and agricultural 13,332,025 13,233,725 13,047,802 12,566,763 11,180,913 Real estate - construction and other 1,572,105 1,664,694 1,749,011 1,839,204 1,864,478 Real estate - mortgage 5,761,598 5,834,894 5,792,923 5,914,869 5,434,642 Lease financing 916,068 962,599 875,536 776,993 783,558 Foreign 384,740 304,267 278,666 237,471 259,629 Total commercial 21,966,536 22,000,179 21,743,938 21,335,300 19,523,220 RETAIL Real estate - mortgage 13,401,838 13,318,058 12,877,141 12,955,846 10,366,087 Installment loans to individuals 11,690,649 11,891,999 11,924,617 11,912,721 11,339,801 Total retail 25,092,487 25,210,057 24,801,758 24,868,567 21,705,888 Total loans 47,059,023 47,210,236 46,545,696 46,203,867 41,229,108 UNEARNED INCOME Loans 133,735 129,830 139,298 140,858 139,446 Lease financing 192,864 204,229 181,454 160,704 160,224 Total unearned income 326,599 334,059 320,752 301,562 299,670 Loans, net $ 46,732,424 46,876,177 46,224,944 45,902,305 40,929,438 ACQUIRED SOUTHEAST BANKS LOANS** COMMERCIAL Commercial, financial and agricultural Taxable $ 304,425 532,388 575,882 637,889 669,379 Non-taxable 47,879 52,977 56,709 58,397 57,033 Total commercial, financial and agricultural 352,304 585,365 632,591 696,286 726,412 Real estate - construction and other 65,859 87,954 94,991 110,729 138,617 Real estate - mortgage 643,414 695,243 756,693 810,312 835,185 Foreign 9,740 1,448 1,539 1,814 1,290 Total commercial 1,071,317 1,370,010 1,485,814 1,619,141 1,701,504 RETAIL Real estate - mortgage 745,446 806,576 882,902 970,538 1,062,959 Installment loans to individuals 374,447 911,395 992,447 1,132,309 1,243,564 Total retail 1,119,893 1,717,971 1,875,349 2,102,847 2,306,523 Total loans 2,191,210 3,087,981 3,361,163 3,721,988 4,008,027 UNEARNED INCOME 1,020 1,757 2,876 4,483 6,886 Loans, net $ 2,190,190 3,086,224 3,358,287 3,717,505 4,001,141
*At March 31, 1994, $380,532,000 of securitized retail real estate mortgage loans had a market value of $395,501,000. **For a five-year period that began September 19, 1991, the FDIC will reimburse First Union for 85 percent of all net charge-offs related to acquired Southeast Banks loans except installment loan reimbursements, which will decline 5 percent per year to 65 percent by 1996. T-8 Table 10 ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING ASSETS*
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter ALLOWANCE FOR LOAN LOSSES Balance, beginning of quarter $ 1,020,191 1,029,162 1,036,539 938,334 940,804 Provision for loan losses 25,000 49,973 50,001 61,450 60,329 Allowance of acquired loans and credit cards - 252 - 109,069 - Loan losses, net (31,190) (59,196) (57,378) (72,314) (62,799) Balance, end of quarter $ 1,014,001 1,020,191 1,029,162 1,036,539 938,334 (as % of loans, net) 2.17 % 2.18 2.23 2.26 2.29 (as % of nonaccrual and restructured loans) 168 % 147 112 110 98 (as % of nonperforming assets) 127 % 111 85 81 74 LOAN LOSSES Commercial, financial and agricultural $ 14,176 34,894 32,585 29,744 24,150 Real estate - construction and other 2,942 4,727 3,360 8,988 10,239 Real estate - mortgage 8,533 13,380 13,160 24,244 13,836 Installment loans to individuals 30,417 33,601 29,692 24,644 28,316 Total 56,068 86,602 78,797 87,620 76,541 LOAN RECOVERIES Commercial, financial and agricultural 15,836 12,590 10,168 3,236 3,687 Real estate - construction and other 431 2,220 1,196 965 1,693 Real estate - mortgage 1,291 5,498 2,994 3,856 3,162 Installment loans to individuals 7,320 7,098 7,061 7,249 5,200 Total 24,878 27,406 21,419 15,306 13,742 Loan losses, net $ 31,190 59,196 57,378 72,314 62,799 (as % of average loans, net)** .27% .51 .50 .69 .61 NONPERFORMING ASSETS Nonaccrual loans Commercial loans $ 189,759 242,241 321,699 442,411 414,523 Real estate loans 412,748 425,101 580,508 483,428 527,052 Total nonaccrual loans 602,507 667,342 902,207 925,839 941,575 Restructured loans 2,742 26,544 18,617 18,613 14,529 Foreclosed properties 191,153 222,503 288,818 328,735 312,046 Total nonperforming assets $ 796,402 916,389 1,209,642 1,273,187 1,268,150 (as % of loans, net and foreclosed properties) 1.70 % 1.95 2.60 2.75 3.07 Accruing loans past due 90 days $ 80,479 71,307 108,138 116,673 89,099 *Excluding Southeast Banks segregated assets. **Annualized.
T-9 Table 11 INTANGIBLE ASSETS
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter MORTGAGE SERVICING RIGHTS $ 82,102 87,350 94,432 124,726 151,348 CREDIT CARD PREMIUM $ 71,538 75,588 79,893 73,836 63,739 OTHER INTANGIBLE ASSETS Goodwill $ 703,559 712,485 728,107 738,284 636,079 Deposit base premium 240,935 255,359 268,527 272,689 161,765 Other 9,817 10,468 11,172 11,830 13,390 Total $ 954,311 978,312 1,007,806 1,022,803 811,234
T-10 Table 12 SOUTHEAST BANKS SEGREGATED ASSETS
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter SEGREGATED ASSETS $338,237 380,515 424,586 477,828 535,284 ALLOWANCE FOR SEGREGATED ASSET LOSSES Balance, beginning of quarter 33,313 36,280 39,092 41,925 45,362 Transfer (to) from allowance for foreclosed properties (295) (20) 578 1,440 - Segregated asset losses, net (1,710) (2,947) (3,390) (4,273) (3,437) Balance, end of quarter 31,308 33,313 36,280 39,092 41,925 Segregated assets, net $306,929 347,202 388,306 438,736 493,359 SEGREGATED ASSET LOSSES Commercial, financial and agricultural $ 36 346 417 2,425 427 Real estate - construction and other 4 36 103 97 98 Real estate - mortgage 372 767 1,628 857 1,104 Installment loans to individuals 2,456 2,822 2,578 2,659 3,054 Total 2,868 3,971 4,726 6,038 4,683 SEGREGATED ASSET RECOVERIES Commercial, financial and agricultural 221 185 526 762 222 Real estate - construction and other - - - - - Real estate - mortgage 174 166 97 216 155 Installment loans to individuals 763 673 713 787 869 Total 1,158 1,024 1,336 1,765 1,246 Segregated asset losses, net $ 1,710 2,947 3,390 4,273 3,437 SEGREGATED ASSETS Nonaccrual loans Commercial loans $ 58,285 67,064 78,293 93,715 119,136 Real estate loans 176,622 187,432 203,946 233,586 279,012 Total nonaccrual loans 234,907 254,496 282,239 327,301 398,148 Foreclosed properties 103,330 126,019 142,347 150,527 137,136 Total segregated assets 338,237 380,515 424,586 477,828 535,284 Less FDIC loss-sharing* (287,501) (323,438) (360,898) (406,154) (454,991) Total $ 50,736 57,077 63,688 71,674 80,293 Accruing loans past due 90 days $ 23,627 28,493 34,692 31,716 42,935
*For a five-year period that began September 19, 1991, the FDIC will reimburse First Union for 85 percent of all net charge-offs related to acquired Southeast Banks loans except installment loan reimbursements, which will decline 5 percent per year to 65 percent by 1996. T-11 Table 13 ALLOWANCE FOR FORECLOSED PROPERTIES*
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter Foreclosed properties $ 239,037 278,694 361,739 405,299 389,606 Allowance for foreclosed properties, beginning of quarter 56,191 72,921 76,564 77,660 103,328 Provision for foreclosed properties 2,794 4,666 2,982 13,495 2,587 Transfer from (to) allowance for segregated assets 295 20 (578) (1,440) - Dispositions, net (11,396) (21,416) (6,047) (13,151) (28,255) Allowance for foreclosed properties, end of quarter 47,884 56,191 72,921 76,564 77,660 Foreclosed properties, net $ 191,153 222,503 288,818 328,735 312,046
* Excluding Southeast Banks segregated assets. T-12 Table 14 DEPOSITS
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter CORE DEPOSITS Noninterest-bearing $ 10,428,019 10,861,207 10,245,808 10,186,909 8,644,543 Savings and NOW accounts 12,132,581 12,010,636 11,230,863 11,315,648 9,654,369 Money market accounts 10,931,222 11,131,334 10,519,720 10,555,609 9,770,882 Other consumer time 16,536,800 16,897,062 18,035,692 18,803,261 17,178,613 Total core deposits 50,028,622 50,900,239 50,032,083 50,861,427 45,248,407 Foreign 574,868 1,240,448 1,139,335 2,788,742 1,095,217 Other time 1,484,301 1,601,724 1,763,996 1,786,702 1,512,017 Total deposits $ 52,087,791 53,742,411 52,935,414 55,436,871 47,855,641
Table 15 TIME DEPOSITS IN AMOUNT OF $100,000 OR MORE
March 31, 1994 Time Other (In thousands) Certificates Time MATURITY OF 3 months or less $ 1,518,352 83,594 Over 3 months through 6 months 643,558 - Over 6 months through 12 months 536,577 - Over 12 months 930,905 - Total $ 3,629,392 83,594
T-13 Table 16 LONG-TERM DEBT
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter DEBENTURES AND NOTES 7-1/2% debentures due 2002 $ 15,619 15,619 15,619 15,619 15,619 Floating rate extendible notes due 2005 100,000 100,000 100,000 100,000 100,000 11% notes due 1996 18,360 18,360 18,360 18,360 64,636 Floating rate notes due 1996 150,000 150,000 150,000 150,000 150,000 9-1/4% notes - - 225,000 225,000 225,000 5.95% notes due 1995 149,802 149,762 149,723 149,683 149,644 6-3/4% notes due 1998 248,144 248,021 247,899 247,777 247,655 Fixed rate medium-term senior notes, varying rates and terms to 1996 61,700 72,200 90,500 90,500 90,500 Fixed rate medium-term subordinated notes, varying rates and terms to 2001 54,000 54,000 54,000 54,000 54,000 Floating rate subordinated notes - - - - 50,000 Floating rate subordinated notes due 2003 149,022 149,003 149,020 - - 11% subordinated and variable rate notes due 1996 17,954 17,954 17,954 17,954 17,954 8-1/8% subordinated notes due 1996 100,000 100,000 100,000 100,000 100,000 9.45% subordinated notes due 1999 250,000 250,000 250,000 250,000 250,000 9.45% subordinated notes due 2001 147,256 147,164 147,071 146,978 146,885 8-1/8% subordinated notes due 2002 248,322 248,271 248,220 248,169 248,118 8% subordinated notes due 2002 222,850 222,788 222,726 222,664 222,602 7-1/4% subordinated notes due 2003 148,707 148,671 148,651 148,615 148,579 6-5/8% subordinated notes due 2005 247,856 247,807 247,757 - - 6% subordinated notes due 2008 197,160 197,115 - - - 6-3/8% subordinated notes due 2009 147,406 - - - - Debentures and notes of subsidiaries Floating rate subordinated notes - - - - 49,833 9-7/8% subordinated capital notes due 1999 74,301 74,267 74,232 74,198 74,164 Floating rate subordinated notes - - - - 34,461 9-5/8% subordinated capital notes due 1999 74,935 74,931 74,928 74,926 74,923 10-1/2% collateralized mortgage obligations due 1996 74,008 72,115 70,271 68,473 - Debentures and notes with varying rates and terms to 2002 7,400 7,400 7,500 7,500 7,801 Total 2,904,802 2,765,448 2,809,431 2,410,416 2,522,374 MORTGAGES AND OTHER DEBT Notes payable to FDIC due 1996 214,682 260,846 291,163 342,880 377,505 Advances from the Federal Home Loan Bank 4,453 4,453 4,453 4,453 - Mortgage notes and other debt 25,401 25,575 26,309 27,860 28,828 Capitalized leases 5,492 5,622 5,796 6,011 6,160 Total long-term debt $ 3,154,830 3,061,944 3,137,152 2,791,620 2,934,867
T-14 Table 17 CHANGES IN STOCKHOLDERS' EQUITY
Twelve Months 1994 1993 Ended March 31, First Fourth Third Second First (In thousands) 1994 Quarter Quarter Quarter Quarter Quarter Balance, beginning of period $ 4,656,312 5,207,625 5,056,518 4,866,617 4,656,312 4,459,163 Net income 839,988 222,459 195,343 195,415 226,771 199,992 Purchase of Class A Series A preferred stock (130) 4 59 - (193) - Purchase of common stock (49,856) (46,061) (408) (1,660) (1,727) (56) Common stock issued for stock options exercised 55,108 2,082 4,203 9,864 38,959 3,692 Common stock issued through dividend reinvestment plan 101,930 5,659 25,480 60,019 10,772 48,462 Converted debentures 285 - - 95 190 53 Converted Class A Series preferred stock (4) - (4) - - - Pre-merger transactions of pooled banks - - - - - 1,886 Unrealized loss on debt and equity securities (41,826) (41,826) - - - - Cash dividends paid $2.50 Class A Series A preferred stock (7) - - - (7) (330) Series 1990 preferred stock (23,615) (5,726) (5,489) (6,240) (6,160) (6,674) Common stock (262,125) (68,156) (68,077) (67,592) (58,300) (49,876) Balance, end of period $ 5,276,060 5,276,060 5,207,625 5,056,518 4,866,617 4,656,312
T-15 Table 18 CAPITAL RATIOS
1994 1993 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter CONSOLIDATED CAPITAL RATIOS* Qualifying capital Tier 1 capital $ 4,467,801 4,342,664 4,154,400 3,950,790 3,985,468 Total capital 7,235,875 6,960,671 6,633,377 6,298,817 6,316,847 Adjusted risk-based assets 47,746,123 47,529,159 48,145,379 49,546,246 43,337,181 Adjusted leverage ratio assets $ 68,023,421 70,785,664 69,899,151 63,738,426 61,827,887 Ratios Tier 1 capital 9.36 % 9.14 8.63 7.97 9.20 Total capital 15.15 14.64 13.78 12.21 14.58 Leverage 6.57 6.13 5.94 6.20 6.45 Stockholders' equity to assets Quarter-end 7.30 7.36 7.08 6.76 7.40 Average 7.60 % 7.10 6.92 7.23 7.20 BANK CAPITAL RATIOS Tier 1 capital First Union National Bank of North Carolina 8.34 % 8.24 8.20 7.63 7.78 South Carolina 7.80 7.55 8.42 8.61 8.72 Georgia 9.55 9.58 9.07 8.75 8.60 Florida 9.98 9.13 9.69 9.34 10.41 Washington, D.C. 19.07 14.23 15.04 14.87 30.66 Maryland 16.23 15.78 32.41 32.51 31.61 Tennessee 12.34 12.43 13.05 14.17 23.26 Virginia 10.25 10.77 11.50 10.24 9.49 Total capital First Union National Bank of North Carolina 11.41 11.35 11.40 10.87 11.17 South Carolina 12.09 11.82 12.70 12.88 12.72 Georgia 12.60 12.62 12.10 11.56 10.93 Florida 11.68 10.83 11.40 11.05 12.14 Washington, D.C. 20.36 15.52 16.32 16.15 32.03 Maryland 17.52 17.07 33.76 33.94 32.98 Tennessee 13.60 13.69 14.31 15.44 24.52 Virginia 12.58 13.08 14.11 12.81 12.03 Leverage First Union National Bank of North Carolina 5.86 5.52 5.77 5.25 5.35 South Carolina 5.59 5.56 6.23 6.23 6.69 Georgia 6.17 5.67 5.63 8.48 6.86 Florida 6.33 5.79 6.17 5.88 6.30 Washington, D.C. 7.05 6.06 7.40 46.06 16.87 Maryland 9.72 9.04 17.03 16.62 20.99 Tennessee 8.30 8.05 8.79 8.55 23.55 Virginia 7.03% 6.89 8.13 7.78 7.62
*Risk-based capital ratio guidelines require a minimum ratio of tier 1 capital to risk-weighted assets of 4.00 percent and a minimum ratio of total capital to risk-weighted assets of 8.00 percent. The minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets is from 3.00 to 5.00 percent. T-16 Table 19 INTEREST RATE GAP
March 31, 1994 Interest Sensitivity in Days One to (In thousands) 1-90 91-180 181-365 Total two years EARNING ASSETS Interest-bearing bank balances $ 799,469 - 100 799,569 - Federal funds sold and securities purchased under resale agreements 1,438,561 20,000 - 1,458,561 - Trading account assets 820,876 - - 820,876 - Securities available for sale U.S. Government and other 1,072,848 4,077,558 1,598,654 6,749,060 1,122,640 Investment securities U.S. Government and other 51,853 69,386 155,110 276,349 153,577 State, county and municipal 7,585 22,440 61,019 91,044 310,441 Loans* Commercial and commercial real estate 18,130,896 193,199 264,411 18,588,506 428,728 Residential mortgages 2,180,155 1,440,247 2,388,339 6,008,741 1,921,594 Installment loans to individuals 4,432,307 447,052 863,420 5,742,779 1,511,092 Lease financing 79,899 34,186 80,269 194,354 272,254 Foreign 261,399 92,656 15,506 369,561 15,179 Total earnings assets 29,275,848 6,396,724 5,426,828 41,099,400 5,735,505 INTEREST-BEARING LIABILITIES Interest-bearing deposits Savings and NOW accounts 12,132,581 - - 12,132,581 - Money market accounts 10,931,222 - - 10,931,222 - Other consumer time 4,782,993 3,336,554 3,390,433 11,509,980 2,543,891 Foreign 574,868 - - 574,868 - Other time 761,378 235,233 188,284 1,184,895 134,434 Short-term borrowings 10,038,994 19,348 - 10,058,342 - Long-term debt 409,315 9,548 44,635 463,498 224,961 Total interest-bearing liabilities 39,631,351 3,600,683 3,623,352 46,855,386 2,903,286 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS 456,100 11,012,000 (3,049,427) 8,418,673 (3,051,115) Total interest-bearing liabilities and off-balance sheet financial instruments 40,087,451 14,612,683 573,925 55,274,059 (147,829) Interest rate gap $(10,811,603) (8,215,959) 4,852,903 (14,174,659) 5,883,334 Cumulative gap $(10,811,603) (19,027,562) (14,174,659) (14,174,659) (8,291,325) Ratio of cumulative gap to total earnings assets (16.61) % (29.24) (21.78) (21.78) (12.74) March 31, 1994 Non-Sensitive Two to and Sensitive five years Over five years Total EARNING ASSETS Interest-bearing bank balances - - 799,569 Federal funds sold and securities purchased under resale agreements - - 1,458,561 Trading account assets - - 820,876 Securities available for sale U.S. Government and other 4,221,420 638,510 12,731,630 Investment securities U.S. Government and other 468,890 345,530 1,244,346 State, county and municipal 180,559 713,257 1,295,301 Loans* Commercial and commercial real estate 840,008 753,895 20,611,137 Residential mortgages 2,817,303 2,619,289 13,366,927 Installment loans to individuals 2,639,876 1,752,669 11,646,416 Lease financing 75,495 181,101 723,204 Foreign - - 384,740 Total earnings assets 11,243,551 7,004,251 65,082,707 INTEREST-BEARING LIABILITIES Interest-bearing deposits Savings and NOW accounts - - 12,132,581 Money market accounts - - 10,931,222 Other consumer time 2,442,906 40,023 16,536,800 Foreign - - 574,868 Other time 160,995 3,977 1,484,301 Short-term borrowings - - 10,058,342 Long-term debt 625,067 1,841,304 3,154,830 Total interest-bearing liabilities 3,228,968 1,885,304 54,872,944 OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (3,832,558) (1,535,000) - Total interest-bearing liabilities and off-balance sheet financial instruments (603,590) 350,304 54,872,944 Interest rate gap 11,847,141 Cumulative gap 3,555,816 Ratio of cumulative gap to total earnings assets 5.46
*Loans are stated net of unearned income. Since savings, NOW and money market accounts theoretically can be repriced at any time, all such balances have been included in 1-90 days. If these amounts were spread based upon expected repricing characteristics, or if they were treated as nonsensitive, as many in the industry do, the cumulative gap ratio would be significantly reduced. Accordingly, this interest rate gap table has inherent limitations on its ability to accurately portray interest rate sensitivity, and therefore, it is only provided in conjunction with common banking industry practice. T-17 TABLE 20 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted Average Rate Estimated March 31, 1994 Notional Maturity Fair (In thousands) Amount Receive Pay In Years Value Comments ASSET RATE CONVERSIONS (1) Interest rate swaps $ 12,293,594 5.59% 3.99% 1.67 Carrying amount $ 36,706 Unrealized gross gain 75,918 Unrealized gross loss (125,348) Total (12,724) Forward interest rate swaps 2,200,000 5.07 - 1.97 (2) Carrying amount - Unrealized gross gain - Unrealized gross loss (24,177) Total (24,177) Other financial instruments 850,000 5.13 4.94 2.19 (3) Carrying amount 587 Unrealized gross gain 9,135 Unrealized gross loss (9,722) Total - Total asset rate conversions $ 15,343,594 5.49% 4.05% 1.74 $ (36,901) LIABILITY RATE CONVERSIONS Interest rate swaps $ 2,490,173 7.39% 3.71% 6.52 (4) Carrying amount $ 46,848 Unrealized gross gain 35,639 Unrealized gross loss (69,739) Total 12,748 Other financial instruments 760,000 4.00 3.88 2.30 (5) Carrying amount (3,296) Unrealized gross gain 5,625 Unrealized gross loss (1,571) Total 758 Total liability rate conversions $ 3,250,173 7.20% 3.72% 5.53 $ 13,506 BASIS PROTECTION Prime/federal funds caps $ 5,000,000 4.66% 4.66% 2.01 (6) Carrying amount $ 5,898 Unrealized gross gain 8,329 Unrealized gross loss - Total 14,227 Forward prime/federal funds swap 500,000 - - 2.04 (7) Carrying amount - Unrealized gross gain 95 Unrealized gross loss - Total 95 Forward prime/LIBOR swap 500,000 - - 2.22 (8) Carrying amount - Unrealized gross gain 980 Unrealized gross loss - Total 980 Total basis protection $ 6,000,000 4.66% 4.66% 2.03 $ 15,302 (1) Converts floating rate assets to fixed rate. Adds to liability sensitivity. Similar characteristics to a fixed income security. Includes $3.6 billion of indexed amortizing swaps of which $1.5 billion to mature in 1994 if 3 month LIBOR remains below 7 percent and $2.1 billion to mature within five years. (2) Enables Corporation to, in effect, extend maturities by locking in yields for future periods; $2.0 billion effective December 1994 and $200 million effective March 1995. (3) Includes $800 million of interest rate floors, of which $400 million were purchased and offset by $400 million sold, locking in gains to be amortized over the remaining life of the contracts. (4) Converts fixed rate long-term debt to floating rate by matching maturity of the swap to the debt issue. Maintains neutral rate sensitivity. (5) Miscellaneous option-based products for liability management purposes include $285 million of written and purchased options on swaps, $325 million eurodollar caps and $150 million eurodollar floors. (6) Simultaneous purchase and sale of caps ($2.5 billion each) to protect against a narrowing in the spread between prime and federal funds. Protection occurs with prime rate greater than 6 percent and federal funds rate greater than 3.25 percent. (7) Swap to hedge against a narrowing in the spread between the prime rate and federal funds; pay rate equals the average prime rate less 233 basis points versus receiving the federal funds rate. Subsequent to March 31, 1994, the forward prime/federal funds swap was terminated resulting in a loss of $219,000. The loss will be deferred and amortized over the remaining life of the contract. (8) Swap to hedge against a narrowing in the spread between the prime rate and 3 month LIBOR; pay rate equals the average prime rate less 212 basis points versus receiving 3 month LIBOR. Subsequent to March 31, 1994, the forward prime/LIBOR swap was terminated resulting in a gain of $1.1 million. The gain will be deferred and amortized over the remaining life of the contract.
(Continued) T-18 TABLE 20 OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS*
Weighted Average Rate Estimated March 31, 1994 Notional Maturity Fair (In thousands) Amount Receive Pay In Years Value Comments RATE SENSITIVITY HEDGES Short eurodollar futures $3,000,000 - % 3.65 % .21 (1) Carrying amount $ - Unrealized gross gain 5,425 Unrealized gross loss - Total 5,425 Put options on eurodollar futures 9,737,000 - 4.20 .27 (2) Carrying amount 2,339 Unrealized gross gain 6,102 Unrealized gross loss - Total 8,441 Put options on forward swaps 1,000,000 - 5.03 .73 (3) Carrying amount 3,187 Unrealized gross gain 8,477 Unrealized gross loss - Total 11,664 Long euromark and eurodollar futures $ 726,643 5.28 % - % .96 (4) Carrying amount $ - Unrealized gross gain 120 Unrealized gross loss (25) Total 95 Total rate sensitivity hedges $ 14,463,643 5.28 % 4.14 % .33 $ 25,625 ASSET HEDGE Short T-Bill futures $ 3,500,000 - % 3.82 % .21 (5) Carrying amount $ 788 Unrealized gross gain - Unrealized gross loss - Total 788 Total asset hedge $ 3,500,000 - % 3.82 % .21 $ 788 (1) Reduces liability sensitivity by locking in floating pay rate of the interest rate swaps; mature in the second quarter of 1994. (2) Paid a premium for the right to lock in the 3 month LIBOR reset rates on receive fixed interest rate swaps; $7.2 billion effective June 1994; $2.5 billion effective September 1994. Beneficial in rising short-term rate environment. (3) Paid a premium for the right to terminate $1.0 billion of forward interest rate swaps based on interest rates at settlement date. Reduces liability sensitivity. (4)Locks in the rate on the future placement of 3 month eurodollar and euromark deposits. (5)Converts the maturity of $3.5 billion U.S. Treasury bills in the available for sale portfolio from September 1994 to June 1994.
*Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. Prime Rate - The base rate on corporate loans posted by at least 75 percent of the nation's 30 largest banks as defined in The Wall Street Journal. London Interbank Offered Rates (LIBOR) The average of interbank offered rates on dollar deposits in the London market based on quotations at five major banks. Weighted average pay rates are generally based upon one to six month LIBOR. Pay rates reset at predetermined reset dates over the life of the contract. Rates shown are the pay rates in effect as of March 31, 1994. Weighted average receive rates are fixed rates set at the time the contract was entered into. Carrying amount includes accrued interest receivable/payable, unamortized premiums paid/received and any related margin accounts. T-19 Table 21 OFF-BALANCE SHEET DERIVATIVES - EXPECTED MATURITIES*
1 Year 1-5 5 -10 After 10 (In thousands) or Less Years Years Years Total Asset Rate Conversions Notional amount $ 7,317,712 8,015,882 10,000 - 15,343,594 Weighted average receive rate 5.61% 5.37 3.56 - 5.49 Estimated fair value $ 57,616 (93,985) (532) - (36,901) Liability Rate Conversions Notional amount $ 965,173 760,000 925,000 600,000 3,250,173 Weighted average receive rate 8.77% 7.44 6.96 6.15 7.20 Estimated fair value $ 13,674 24,573 37,995 (62,736) 13,506 Basis Protection Notional amount $ - 6,000,000 - - 6,000,000 Weighted average receive rate -% 4.66 - - 4.66 Estimated fair value $ - 15,302 - - 15,302 Rate Sensitivity Hedges Notional amount $ 14,171,529 292,114 - - 14,463,643 Weighted average receive rate 5.17% 5.43 - - 5.28 Estimated fair value $ 25,563 62 - - 25,625 Asset Hedge Notional amount $ 3,500,000 - - - 3,500,000 Weighted average receive rate -% - - - - Estimated fair value $ 788 - - - 788
*Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. Pay rates are generally based upon one to six month LIBOR and reset at predetermined reset dates. Current pay rates are not necessarily indicative of future pay rates and therefore have been excluded from the above table. T-20 TABLE 22 OFF-BALANCE SHEET DERIVATIVES ACTIVITY*
Rate Asset Rate Liability Rate Basis Sensitivity Asset (In thousands) Conversions Conversions Protection Hedges Hedge Total Balance, December 31, 1993 $ 16,079,540 3,241,173 6,000,000 23,493,000 - 48,813,713 Additions - 155,000 - 5,683,753 3,500,000 9,338,753 Maturities/Amortizations (735,946) (146,000) - (8,306,110) - (9,188,056) Terminations - - - (6,407,000) - (6,407,000) Balance, March 31, 1994 $ 15,343,594 3,250,173 6,000,000 14,463,643 3,500,000 42,557,410
*Includes only off-balance sheet derivative financial instruments related to interest rate risk management activities. T-21 FIRST UNION CORPORATION AND SUBSIDIARIES NET INTEREST INCOME SUMMARIES
FIRST QUARTER 1994 FOURTH QUARTER 1993 Interest Average Interest Average Average Income/ Rates Average Income/ Rates (In thousands) Balances Expense Earned/Paid Balances Expense Earned/Paid ASSETS Interest-bearing bank balances $ 687,314 8,740 5.16% $ 677,135 5,313 3.11% Federal funds sold and securities purchased under resale agreements 884,366 6,328 2.90 475,184 3,508 2.93 Trading account assets (a) 928,576 11,190 4.89 1,988,989 19,843 3.96 Securities available for sale (a) 11,655,783 151,785 5.23 6,774,551 87,643 5.16 Investment securities (a) U.S. Government and other 1,221,890 19,574 6.41 6,166,830 88,791 5.76 State, county and municipal 1,307,801 37,633 11.51 1,190,980 33,853 11.37 Total investment securities 2,529,691 57,207 9.04 7,357,810 122,644 6.67 Loans (a) (b) Commercial Commercial, financial and agricultural 12,646,082 248,571 7.97 12,687,322 238,745 7.47 Real estate - construction and other 1,605,390 27,712 7.00 2,051,496 32,918 6.37 Real estate - mortgage 5,633,194 101,031 7.27 5,421,146 100,908 7.39 Lease financing 634,610 14,547 9.17 589,613 14,601 9.91 Foreign 236,441 2,674 4.59 343,753 3,997 4.61 Total commercial 20,755,717 394,535 7.70 21,093,330 391,169 7.36 Retail Real estate-mortgage 11,883,032 212,156 7.14 11,625,424 214,819 7.39 Installment loans to individuals 13,583,438 344,471 10.19 13,502,979 351,735 10.39 Total retail 25,466,470 556,627 8.77 25,128,403 566,554 9.00 Total loans 46,222,187 951,162 8.29 46,221,733 957,723 8.25 Total earning assets 62,907,917 1,186,412 7.59 63,495,402 1,196,674 7.51 Cash and due from banks 3,038,166 3,748,206 Other assets 4,397,425 4,943,044 Total assets $ 70,343,508 $ 72,186,652 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 11,964,371 61,993 2.10 11,603,921 62,683 2.14 Money market accounts 10,906,396 59,622 2.22 10,933,617 63,140 2.29 Other consumer time 16,663,990 172,855 4.21 17,299,925 185,970 4.26 Foreign 834,297 7,569 3.68 702,989 5,975 3.37 Other time 1,515,325 16,645 4.45 1,655,928 18,912 4.53 Total interest-bearing deposits 41,884,379 318,684 3.09 42,196,380 336,680 3.17 Federal funds purchased and securities sold under repurchase agreements 7,109,922 65,895 3.76 8,368,019 75,420 3.58 Commercial paper 321,628 2,277 2.87 319,744 1,725 2.14 Other short-term borrowings 1,162,345 10,932 3.82 766,080 6,800 3.52 Long-term debt 3,148,942 38,215 4.85 3,225,556 42,769 5.30 Total interest-bearing liabilities 53,627,216 436,003 3.29 54,875,779 463,394 3.35 Noninterest-bearing deposits 10,072,065 10,609,800 Other liabilities 1,301,135 1,573,144 Stockholders' equity 5,343,092 5,127,929 Total liabilities and stockholders' equity $ 70,343,508 $ 72,186,652 Interest income and rate earned $ 1,186,412 7.59 % $1,196,674 7.51% Interest expense and rate paid 436,003 2.80 463,394 2.90 Net interest income and margin $ 750,409 4.79 % $ 733,280 4.61%
(a) Yields related to securities and loans exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal income tax rate of 35 percent; a North Carolina state tax rate of 7.8275 percent in 1994 and 7.905 percent in 1993; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a Maryland state tax rate of 7 percent; and a Washington, D.C. tax rate of 10.25 percent. T-22
THIRD QUARTER 1993 SECOND QUARTER 1993 FIRST QUARTER 1993 Interest Average Interest Average Interest Average Average Income/ Rates Average Income/ Rates Average Income/ Rates Balances Expense Earned/Paid Balances Expense Earned/Paid Balances Expense Earned/Paid $ 320,216 2,903 3.60% $ 399,424 6,172 6.20% $ 687,907 6,934 4.09% 491,070 3,737 3.02 553,725 4,499 3.26 630,314 5,025 3.23 674,439 8,259 4.86 546,402 7,245 5.32 431,139 5,499 5.17 7,597,882 92,020 4.82 7,240,340 90,582 5.01 6,019,580 77,206 5.16 6,829,166 104,859 6.14 6,194,022 99,996 6.46 6,057,545 101,991 6.74 1,126,833 33,454 11.88 1,010,869 29,750 11.77 1,010,528 30,709 12.15 7,955,999 138,313 6.95 7,204,891 129,746 7.20 7,068,073 132,700 7.51 12,147,950 236,030 7.71 11,213,249 231,304 8.27 10,897,435 219,872 8.18 2,085,368 32,207 6.13 2,093,808 27,838 5.33 2,104,476 31,726 6.11 5,576,267 103,496 7.37 5,185,385 96,239 7.44 5,144,721 99,028 7.80 504,764 13,259 10.51 506,826 13,480 10.64 524,531 13,853 10.56 268,662 3,338 4.93 212,799 2,764 5.21 229,056 2,841 5.03 20,583,011 388,330 7.49 19,212,067 371,625 7.76 18,900,219 367,320 7.88 11,501,250 215,493 7.49 10,259,324 201,500 7.86 10,163,170 207,621 8.17 13,443,492 350,209 10.39 12,229,288 325,804 10.67 11,933,835 321,684 10.81 24,944,742 565,702 9.06 22,488,612 527,304 9.38 22,097,005 529,305 9.60 45,527,753 954,032 8.35 41,700,679 898,929 8.64 40,997,224 896,625 8.80 62,567,359 1,199,264 7.64 57,645,461 1,137,173 7.90 55,834,237 1,123,989 8.10 3,359,195 3,215,118 3,033,398 5,535,224 4,570,557 4,321,888 $71,461,778 $ 65,431,136 $ 63,189,523 11,303,281 62,306 2.19 9,887,786 54,879 2.23 9,441,180 52,363 2.25 10,566,722 60,390 2.27 9,885,606 55,391 2.25 9,883,149 53,480 2.19 18,412,561 200,087 4.31 17,170,942 184,279 4.30 17,485,709 191,287 4.44 581,585 4,968 3.39 779,967 6,661 3.43 236,638 3,301 5.66 1,760,681 20,060 4.52 1,463,190 15,472 4.24 1,721,006 21,654 5.10 42,624,830 347,811 3.24 39,187,491 316,682 3.24 38,767,682 322,085 3.37 7,492,596 68,273 3.62 6,813,985 65,583 3.86 6,156,791 58,477 3.85 297,781 1,774 2.36 367,876 3,147 3.43 299,880 1,708 2.31 1,041,294 12,731 4.85 715,723 5,991 3.36 669,486 5,723 3.47 3,082,522 39,902 5.18 2,848,098 37,584 5.29 2,865,271 39,574 5.60 54,539,023 470,491 3.42 49,933,173 428,987 3.45 48,759,110 427,567 3.55 10,067,212 9,079,037 8,373,863 1,913,959 1,686,281 1,508,615 4,941,584 4,732,645 4,547,935 $ 71,461,778 $ 65,431,136 $ 63,189,523 $ 1,199,264 7.64 % $ 1,137,173 7.90 % $ 1,123,989 8.10 % 470,491 2.99 428,987 2.98 427,567 3.10 $ 728,773 4.65 % $ 708,186 4.92 % $ 696,422 5.00 %
(b) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. T-23 FIRST UNION CORPORATION AND SUBSIDIARIES NET INTEREST INCOME SUMMARIES
YEAR ENDED 1993 Interest Average Average Income/ Rates (In thousands) Balances Expense Earned/Paid ASSETS Interest-bearing bank balances $ 520,591 21,321 4.10 % Federal funds sold and securities purchased under resale agreements 537,021 16,770 3.12 Trading account assets (a) 913,864 40,846 4.47 Securities available for sale (a) 6,912,046 347,451 5.03 Investment securities (a) U.S. Government and other 6,313,607 395,637 6.27 State, county and municipal 1,085,412 127,766 11.77 Total investment securities 7,399,019 523,403 7.07 Loans (a) (b) Commercial Commercial, financial and agricultural 11,742,520 925,951 7.89 Real estate - construction and other 2,083,646 124,689 5.98 Real estate - mortgage 5,333,306 399,671 7.49 Lease financing 531,539 55,193 10.38 Foreign 263,896 12,940 4.90 Total commercial 19,954,907 1,518,444 7.61 Retail Real estate-mortgage 10,892,980 839,434 7.71 Installment loans to individuals 12,783,523 1,349,431 10.56 Total retail 23,676,503 2,188,865 9.24 Total loans 43,631,410 3,707,309 8.50 Total earnings assets 59,913,951 4,657,100 7.77 Cash and due from banks 3,340,993 Other assets 4,846,278 Total assets $ 68,101,222 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits Savings and NOW accounts 10,567,006 232,231 2.20 Money market accounts 10,320,835 232,402 2.25 Other consumer time 17,594,023 761,623 4.33 Foreign 576,590 20,905 3.63 Other time 1,650,325 76,097 4.61 Total interest-bearing deposits 40,708,779 1,323,258 3.25 Federal funds purchased and securities sold under repurchase agreements 7,214,686 267,751 3.71 Commercial paper 321,310 8,356 2.60 Other short-term borrowings 799,077 31,245 3.91 Long-term debt 3,006,560 159,829 5.32 Total interest-bearing liabilities 52,050,412 1,790,439 3.44 Noninterest-bearing deposits 9,540,069 Other liabilities 1,671,344 Stockholders' equity 4,839,397 Total liabilities and stockholders' equity $ 68,101,222 Interest income and rate earned $ 4,657,100 7.77 % Interest expense and rate paid 1,790,439 2.99 Net interest income and margin $ 2,866,661 4.78 %
(a) Yields related to securities and loans exempt from both federal and state income taxes, federal income taxes only or state income taxes only are stated on a fully tax-equivalent basis. They are reduced by the nondeductible portion of interest expense, assuming a federal income tax rate of 35 percent; a North Carolina state tax rate of 7.905 percent; a Georgia and Tennessee state tax rate of 6 percent; a South Carolina state tax rate of 4.5 percent; a Florida state tax rate of 5.5 percent; a Maryland state tax rate of 7 percent; and a Washington, D.C. tax rate of 10.25 percent. T-24
NINE MONTHS 1993 SIX MONTHS 1993 Interest Average Interest Average Average Income/ Rates Average Income/ Rates Balances Expense Earned/Paid Balances Expense Earned/Paid $ 467,835 16,008 4.57 % $ 542,869 13,106 4.87 % 557,860 13,262 3.18 591,808 9,524 3.25 551,551 21,003 5.09 489,089 12,744 5.25 6,958,382 259,808 4.99 6,633,331 167,788 5.08 6,363,071 306,846 6.43 6,126,160 201,987 6.59 1,049,836 93,913 11.93 1,010,700 60,459 11.96 7,412,907 400,759 7.21 7,136,860 262,446 7.35 11,424,125 687,206 8.04 11,056,214 451,176 8.23 2,094,481 91,771 5.86 2,099,113 59,564 5.72 5,303,705 298,763 7.53 5,165,165 195,267 7.62 511,968 40,592 10.57 515,629 27,333 10.60 236,984 8,943 5.05 220,883 5,605 5.12 19,571,263 1,127,275 7.70 19,057,004 738,945 7.82 10,646,150 624,615 7.82 10,211,513 409,121 8.01 12,541,068 997,696 10.62 12,082,378 647,488 10.74 23,187,218 1,622,311 9.33 22,293,891 1,056,609 9.49 42,758,481 2,749,586 8.59 41,350,895 1,795,554 8.72 58,707,016 3,460,426 7.87 56,744,852 2,261,162 8.00 3,203,764 3,124,760 4,813,667 4,446,910 $ 66,724,447 $ 64,316,522 10,217,570 169,547 2.22 9,665,717 107,243 2.24 10,114,330 169,262 2.24 9,884,384 108,871 2.22 17,693,132 575,653 4.35 17,327,456 375,565 4.37 533,994 14,930 3.74 509,804 9,962 3.94 1,648,437 57,186 4.64 1,591,386 37,126 4.70 40,207,463 986,578 3.28 38,978,747 638,767 3.30 6,826,017 192,328 3.77 6,487,203 124,060 3.86 321,838 6,629 2.75 334,066 4,855 2.93 810,196 24,450 4.03 692,732 11,714 3.41 2,932,760 117,060 5.32 2,856,637 77,158 5.40 51,098,274 1,327,045 3.47 49,349,385 856,554 3.50 9,179,573 8,728,398 1,704,437 1,597,939 4,742,163 4,640,800 $ 66,724,447 $ 64,316,522 $ 3,460,426 7.87 % $ 2,261,162 8.00 % 1,327,045 3.02 856,554 3.04 $ 2,133,381 4.85 % $ 1,404,608 4.96 %
(b) The loan averages include loans on which the accrual of interest has been discontinued and are stated net of unearned income. T-25 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
1994 1993 First Fourth Third Second First (In thousands except per share data) Quarter Quarter Quarter Quarter Quarter ASSETS Cash and due from banks $ 3,054,037 3,351,963 2,790,443 3,210,877 2,711,928 Interest-bearing bank balances 799,569 712,153 587,506 256,230 505,226 Federal funds sold and securities purchased under resale agreements 1,438,561 351,754 319,012 2,433,874 460,904 Total cash and cash equivalents 5,292,167 4,415,870 3,696,961 5,900,981 3,678,058 Trading account assets 820,876 652,470 2,286,061 565,347 539,606 Securities available for sale 12,665,905 11,744,942 5,944,236 6,344,036 6,899,821 Investment securities 2,539,647 2,692,476 8,100,384 7,853,423 6,568,262 Loans, net of unearned income 46,732,424 46,876,177 46,224,944 45,902,305 40,929,438 Allowance for loan losses (1,014,001) (1,020,191) (1,029,162) (1,036,539) (938,334) Loans, net 45,718,423 45,855,986 45,195,782 44,865,766 39,991,104 Premises and equipment 1,535,383 1,524,855 1,490,690 1,500,088 1,335,764 Due from customers on acceptances 220,698 246,095 150,448 168,231 220,741 Mortgage servicing rights 82,102 87,350 94,432 124,726 151,348 Credit card premium 71,538 75,588 79,893 73,836 63,739 Other intangible assets 954,311 978,312 1,007,806 1,022,803 811,234 Southeast segregated assets 306,929 347,202 388,306 438,736 493,359 Other assets 2,040,394 2,165,823 2,953,088 3,100,966 2,199,608 Total assets $ 72,248,373 70,786,969 71,388,087 71,958,939 62,952,644 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing deposits 10,428,019 10,861,207 10,245,808 10,186,909 8,644,543 Interest-bearing deposits 41,659,772 42,881,204 42,689,606 45,249,962 39,211,098 Total deposits 52,087,791 53,742,411 52,935,414 55,436,871 47,855,641 Short-term borrowings 10,058,342 7,254,178 8,210,812 6,720,792 5,833,296 Bank acceptances outstanding 220,698 246,095 150,448 168,231 220,741 Other liabilities 1,450,652 1,274,716 1,897,743 1,974,808 1,451,787 Long-term debt 3,154,830 3,061,944 3,137,152 2,791,620 2,934,867 Total liabilities 66,972,313 65,579,344 66,331,569 67,092,322 58,296,332 STOCKHOLDERS' EQUITY Preferred stock Class A, authorized 40,000,000 shares Series A, 11% cumulative perpetual; $25.00 stated and liquidation value - - - - - Series A, $2.50 cumulative convertible; no-par value; $25.00 stated and liquidation value - - - - 13,181 Series B, none issued - - - - - Series 1990 cumulative perpetual adjustable rate, no par value; $5.00 liquidation value; authorized 10,000,000 shares 31,592 31,592 31,592 31,592 31,592 Common stock, $3.33-1/3 par value; authorized 750,000,000 shares 564,812 567,791 565,236 560,138 553,914 Paid-in capital 1,555,938 1,591,275 1,564,495 1,501,274 1,446,322 Retained earnings 3,165,544 3,016,967 2,895,195 2,773,613 2,611,303 Unrealized loss on debt and equity securities (41,826) - - - - Total stockholders' equity 5,276,060 5,207,625 5,056,518 4,866,617 4,656,312 Total liabilities and stockholders' equity $ 72,248,373 70,786,969 71,388,087 71,958,939 62,952,644 MEMORANDA Securities available for sale-amortized cost $ 12,731,630 - - - - Securities available for sale-market value 12,665,905 11,884,385 6,024,087 6,416,169 6,964,331 Investment securities-market value 2,696,736 2,931,139 8,414,741 8,157,663 6,852,557 Common stockholders' equity, net of $(41,826,000) $ 5,033,846 4,923,584 4,772,478 4,582,576 4,359,091 Preferred shares outstanding Series A, $2.50 cumulative convertible - - - - 527,252 Series 1990 6,318,350 6,318,350 6,318,350 6,318,350 6,318,350 Common shares outstanding 169,443,814 170,337,619 169,573,982 168,041,506 166,188,354
T-26 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, (In thousands except per share data) 1994 1993 INTEREST INCOME Interest and fees on loans $ 946,151 891,221 Interest and dividends on securities available for sale 147,558 70,542 Interest and dividends on investment securities: Taxable income 18,829 100,717 Non-taxable income 24,610 20,308 Trading account interest 10,392 5,155 Other interest income 15,068 11,959 Total interest income 1,162,608 1,099,902 INTEREST EXPENSE Interest on deposits 318,684 322,085 Interest on short-term borrowings 79,104 65,908 Interest on long-term debt 38,215 39,574 Total interest expense 436,003 427,567 Net interest income 726,605 672,335 Provision for loan losses 25,000 60,329 Net interest income after provision for loan losses 701,605 612,006 NONINTEREST INCOME Trading account profits 7,323 5,639 Service charges on deposit accounts 108,022 97,212 Mortgage banking income 19,421 38,488 Capital management income 50,949 50,395 Securities available for sale transactions 4,300 17,316 Investment security transactions 615 - Merchant discounts 14,361 14,440 Insurance commissions 9,990 10,265 Sundry income 65,715 37,566 Total noninterest income 280,696 271,321 NONINTEREST EXPENSE Personnel expense 309,640 271,697 Occupancy 60,391 51,801 Equipment rentals, depreciation and maintenance 56,700 45,643 Postage, printing and supplies 25,282 19,324 FDIC insurance 29,939 28,406 Owned real estate expense 5,296 9,823 Amortization 36,378 54,776 Sundry 116,215 96,825 Total noninterest expense 639,841 578,295 Income before income taxes 342,460 305,032 Income taxes 120,001 105,040 Net income 222,459 199,992 Dividends on preferred stock 5,726 7,004 Net income applicable to common stockholders $ 216,733 192,988 PER COMMON SHARE DATA Before extraordinary items and cumulative Net income $ 1.27 1.17 Cash dividends $ .40 .35 Average common shares 170,314,176 165,272,415
T-27 FIRST UNION CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (In thousands) 1994 1993 OPERATING ACTIVITIES Net income $ 222,459 199,992 Adjustments to reconcile net income to net cash provided (used) by operating activities Accretion and amortization of securities discounts and premiums, net 13,479 (15,390) Provision for loan losses 25,000 60,329 Provision for foreclosed properties 2,794 2,587 Gain on sale of mortgage servicing rights - (213) Securities available for sale transactions (4,300) (17,316) Investment security transactions (615) - Depreciation and amortization 78,079 89,258 Trading account assets, net (168,406) (370,338) Mortgage loans held for resale 391,190 (65,727) Gain on sales of premises and equipment (739) 385 Gain on sale of First American segregated assets (16,731) - Other assets, net 196,831 178,714 Other liabilities, net 175,936 (382,294) Net cash provided (used) by operating activities 914,977 (320,013) INVESTING ACTIVITIES Increase (decrease) in cash realized from Sales of securities available for sale 2,922,982 2,887,368 Maturities of securities available for sale 1,204,690 122,406 Purchases of securities available for sale (5,116,298) (4,667,582) Sales of investment securities 1,334 98,678 Maturities of investment securities 161,975 538,819 Purchases of investment securities (17,106) (578,384) Origination of loans, net (271,920) 1,004,148 Sales of premises and equipment 30,398 8,389 Purchases of premises and equipment (81,888) (44,515) Sales of mortgage servicing rights - 540 Purchases of mortgage servicing rights (3,079) (1,745) Other intangible assets, net - 12,627 Net cash used by investing activities (1,168,912) (619,251) FINANCING ACTIVITIES Increase (decrease) in cash realized from Sales of deposits, net (1,654,620) (1,295,324) Securities sold under repurchase agreements and other short-term borrowings, net 2,804,164 767,959 Issuances of long-term debt 149,270 399,447 Payments of long-term debt (56,384) (615,787) Sales of common stock 7,741 54,040 Purchases of common stock (46,057) (56) Cash dividends paid (73,882) (56,880) Net cash provided (used) by financing activities 1,130,232 (746,601) Increase (decrease) in cash and cash equivalents 876,297 (1,685,865) Cash and cash equivalents, beginning of period 4,415,870 5,363,923 Cash and cash equivalents, end of period $5,292,167 3,678,058 NONCASH ITEMS Increase in foreclosed properties $ 6,707 6,891 Effect of an unrealized loss on debt and equity securities included in Securities available for sale 65,725 - Other assets (deferred income taxes) $ 23,899 -
T-28 EX-20 5 EXHIBIT (20) EXHIBIT (20) LETTER FROM THE CHAIRMAN Our earnings in the first quarter of 1994 were $217 million, a 12 percent increase from $193 million in the first quarter of 1993 and 14 percent from $190 million in the fourth quarter of 1993. Net income per common share increased to $1.27 from $1.17 in the first quarter of 1993 and $1.12 in the fourth quarter of 1993. This strong first quarter reflects our ability to improve performance in a rising interest rate environment. Our focus is on providing the best service and a complete array of financial products for our customers, while improving our productivity and credit quality. We will continue to make selective investments in such areas as capital markets, capital management and card products to further our financial goals. Key factors in First Union's first quarter 1994 earnings performance since the fourth quarter of 1993 included continued growth in net interest income; improvement in credit quality, including a $120 million reduction in nonperforming assets since year-end, lower charge-offs and a lower loan loss provision; and a $48 million decline in noninterest expense. Tax-equivalent net interest income increased to $750 million from $696 million in the first quarter of 1993 and $733 million in the fourth quarter of 1993. Nonperforming assets declined to $796 million, or 1.70 percent of net loans and foreclosed properties, at March 31, 1994, compared with $1.268 billion, or 3.07 percent, at the end of the first quarter a year ago, and $916 million, or 1.95 percent, at December 31, 1993. Net loans at March 31, 1994, were $46.7 billion, compared with $40.9 billion at the end of first quarter of 1993 and $46.9 billion at year- end 1993. Since year-end, commercial and consumer loan growth has been partially offset by the planned runoff of acquired loans and lower balances of mortgages held for sale. Deposits were $52.1 billion at March 31, 1994, compared with $47.9 billion at the end of the first quarter a year ago and $53.7 billion at year- end 1993. Total stockholders' equity was $5.28 billion at March 31, 1994, compared with $4.66 billion at March 31, 1993 and $5.21 billion at year-end. Results for the first quarter of 1993 do not include the purchase accounting acquisitions of Georgia Federal Bank and First American Metro Corp. in June 1993. At March 31, 1994, First Union had assets of $72.2 billion and operated 1,308 banking offices in Florida, North Carolina, Georgia, Virginia, South Carolina, Tennessee, Maryland and Washington, D.C., and 206 nonbanking offices in 39 states. Thank you for your interest in First Union. Sincerely, (Signature of Edward E. Crutchfield Jr.) Edward E. Crutchfield Jr., Chairman and Chief Executive Officer FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED) OTHER FINANCIAL DATA
1994 1993 (DOLLARS IN THOUSANDS) 1Q 4Q 3Q 2Q RETURN ON AVERAGE ASSETS (A)(B) 1.28% 1.07 1.08 1.39 RETURN ON AVERAGE COMMON EQUITY (A)(C) 17.54 15.55 16.11 19.93 NET INTEREST MARGIN 4.79 4.61 4.65 4.92 ALLOWANCE AS % OF LOANS, NET 2.17 2.18 2.23 2.26 ALLOWANCE AS % OF NONACCRUAL AND RESTRUCTURED LOANS 168 147 112 110 ALLOWANCE AS % OF NONPERFORMING ASSETS 127% 111 85 81 LOAN LOSSES $ 56,067 86,602 78,797 87,620 LOAN RECOVERIES 24,877 27,406 21,419 15,306 LOAN LOSSES, NET $ 31,190 59,196 57,378 72,314 AS % OF AVERAGE LOANS, NET (A) .27% .51 .50 .69 NONPERFORMING ASSETS (D) COMMERCIAL NONACCRUAL $ 189,759 242,241 321,699 442,411 REAL ESTATE NONACCRUAL 412,748 425,101 580,508 483,428 TOTAL NONACCRUAL LOANS 602,507 667,342 902,207 925,839 RESTRUCTURED LOANS 2,742 26,544 18,617 18,613 FORECLOSED PROPERTIES 191,153 222,503 288,818 328,735 TOTAL NONPERFORMING ASSETS $ 796,402 916,389 1,209,642 1,273,187 AS % OF LOANS, NET AND FORECLOSED PROPERTIES 1.70% 1.95 2.60 2.75 SOUTHEAST SEGREGATED LOSS-SHARING NONPERFORMING ASSETS NONACCRUAL LOANS $ 234,907 254,496 282,239 327,301 FORECLOSED PROPERTIES 103,330 126,019 142,347 150,527 TOTAL 338,237 380,515 424,586 477,828 LESS FDIC LOSS-SHARING (E) (287,501) (323,438) (360,898) (406,154) TOTAL $ 50,736(F) 57,077 63,688 71,674 1Q (DOLLARS IN THOUSANDS) RETURN ON AVERAGE ASSETS (A)(B) 1.28 RETURN ON AVERAGE COMMON EQUITY (A)(C) 18.41 NET INTEREST MARGIN 5.00 ALLOWANCE AS % OF LOANS, NET 2.29 ALLOWANCE AS % OF NONACCRUAL AND RESTRUCTURED LOANS 98 ALLOWANCE AS % OF NONPERFORMING ASSETS 74 LOAN LOSSES 76,541 LOAN RECOVERIES 13,742 LOAN LOSSES, NET 62,799 AS % OF AVERAGE LOANS, NET (A) .61 NONPERFORMING ASSETS (D) COMMERCIAL NONACCRUAL 414,523 REAL ESTATE NONACCRUAL 527,052 TOTAL NONACCRUAL LOANS 941,575 RESTRUCTURED LOANS 14,529 FORECLOSED PROPERTIES 312,046 TOTAL NONPERFORMING ASSETS 1,268,150 AS % OF LOANS, NET AND FORECLOSED PROPERTIES 3.07 SOUTHEAST SEGREGATED LOSS-SHARING NONPERFORMING ASSETS NONACCRUAL LOANS 398,148 FORECLOSED PROPERTIES 137,136 TOTAL 535,284 LESS FDIC LOSS-SHARING (E) (454,991) TOTAL 80,293
(A) QUARTERLY AMOUNTS ANNUALIZED. (B) BASED ON NET INCOME. (C) BASED ON NET INCOME APPLICABLE TO COMMON STOCKHOLDERS AND AVERAGE COMMON STOCKHOLDERS' EQUITY EXCLUDING AVERAGE NET UNREALIZED GAINS ON DEBT AND EQUITY SECURITIES. (D) EXCLUDES NONPERFORMING ASSETS RELATED TO SOUTHEAST BANKS. (E) FOR A FIVE-YEAR PERIOD THAT BEGAN SEPTEMBER 19, 1991, THE FDIC WILL REIMBURSE FIRST UNION FOR 85 PERCENT OF ALL NET CHARGE-OFFS RELATED TO ACQUIRED SOUTHEAST BANKS LOANS EXCEPT INSTALLMENT LOAN REIMBURSEMENTS, WHICH WILL DECLINE 5 PERCENT PER YEAR OVER THE NEXT THREE YEARS FROM 75 PERCENT TO 65 PERCENT BY 1996. (F) ALLOWANCE FOR LOSSES ON SEGREGATED ASSETS AMOUNTED TO $31,308,000 AT MARCH 31, 1994. THIS AMOUNT IS NOT INCLUDED IN THE ALLOWANCE FOR LOAN LOSSES. FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED) AVERAGE BALANCE SHEET SUMMARY
1994 1993 (IN THOUSANDS) 1Q 4Q 3Q 2Q LOANS, NET $46,222,187 46,221,733 45,527,753 41,700,679 EARNING ASSETS 62,907,917 63,495,402 62,567,359 57,645,461 TOTAL ASSETS 70,343,508 72,186,652 71,461,778 65,431,136 NONINTEREST-BEARING DEPOSITS 10,072,065 10,609,800 10,067,212 9,079,037 CONSUMER TIME DEPOSITS 39,534,757 39,837,463 40,282,564 36,944,334 OTHER TIME DEPOSITS 2,349,622 2,358,917 2,342,266 2,243,157 COMMON STOCKHOLDERS' EQUITY (A) 5,012,086 4,843,889 4,657,544 4,439,393 TOTAL STOCKHOLDERS' EQUITY (A) $ 5,296,126 5,127,929 4,941,584 4,732,645 1Q 1Q '94 (IN THOUSANDS) 1Q '93 LOANS, NET 40,997,224 12.7% EARNING ASSETS 55,834,237 12.7 TOTAL ASSETS 63,189,523 11.3 NONINTEREST-BEARING DEPOSITS 8,373,863 20.3 CONSUMER TIME DEPOSITS 36,810,038 7.4 OTHER TIME DEPOSITS 1,957,644 20.0 COMMON STOCKHOLDERS' EQUITY (A) 4,251,677 17.9 TOTAL STOCKHOLDERS' EQUITY (A) 4,547,935 16.5%
CAPITAL RATIOS (B) TIER 1 CAPITAL 9.27% 9.14 8.63 7.97 TOTAL CAPITAL 14.99 14.64 13.78 12.21 LEVERAGE 6.57% 6.13 5.94 6.20 TIER 1 CAPITAL 9.20 TOTAL CAPITAL 14.58 LEVERAGE 6.45
INTANGIBLE ASSETS
(IN THOUSANDS) INTANGIBLE ASSETS GOODWILL $ 703,559 712,485 728,107 738,284 DEPOSIT BASE PREMIUM 240,935 255,359 268,527 272,689 OTHER 9,817 10,468 11,172 11,830 TOTAL $ 954,311 978,312 1,007,806 1,022,803 MORTGAGE SERVICING RIGHTS $ 82,102 87,350 94,432 124,726 CREDIT CARD PREMIUM $ 71,538 75,588 79,893 73,836 (IN THOUSANDS) INTANGIBLE ASSETS GOODWILL 636,079 DEPOSIT BASE PREMIUM 161,765 OTHER 13,390 TOTAL 811,234 MORTGAGE SERVICING RIGHTS 151,348 CREDIT CARD PREMIUM 63,739
(A) AVERAGE COMMON STOCKHOLDERS' EQUITY AND AVERAGE TOTAL STOCKHOLDERS' EQUITY EXCLUDE AVERAGE NET UNREALIZED GAINS ON DEBT AND EQUITY SECURITIES OF $46,966,000. (B) 1994 RATIOS ARE BASED ON ESTIMATES AND EXCLUDE NET UNREALIZED LOSSES ON DEBT AND EQUITY SECURITIES OF $41,826,000. CONSOLIDATED STATEMENTS OF INCOME FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED)
THREE MONTHS ENDED (IN THOUSANDS) MARCH 31, 1994 1993 INTEREST INCOME INTEREST AND FEES ON LOANS $ 946,151 891,221 INTEREST AND DIVIDENDS ON SECURITIES AVAILABLE FOR SALE 147,558 70,542 INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES TAXABLE INCOME 18,829 100,717 NON-TAXABLE INCOME 24,610 20,308 TRADING ACCOUNT INTEREST 10,392 5,155 OTHER INTEREST INCOME 15,068 11,959 TOTAL INTEREST INCOME 1,162,608 1,099,902 INTEREST EXPENSE INTEREST ON DEPOSITS 318,684 322,085 INTEREST ON SHORT-TERM BORROWINGS 79,104 65,908 INTEREST ON LONG-TERM DEBT 38,215 39,574 TOTAL INTEREST EXPENSE 436,003 427,567 NET INTEREST INCOME 726,605 672,335 PROVISION FOR LOAN LOSSES 25,000 60,329 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 701,605 612,006 NONINTEREST INCOME TRADING ACCOUNT PROFITS 7,323 5,639 SERVICE CHARGES ON DEPOSIT ACCOUNTS 108,022 97,212 MORTGAGE BANKING INCOME 19,421 38,488 CAPITAL MANAGEMENT INCOME 50,949 50,395 SECURITIES AVAILABLE FOR SALE TRANSACTIONS 4,300 17,316 INVESTMENT SECURITY TRANSACTIONS 615 -- MERCHANT DISCOUNTS 14,361 14,440 INSURANCE COMMISSIONS 9,990 10,265 SUNDRY INCOME 65,715 37,566 TOTAL NONINTEREST INCOME 280,696 271,321 NONINTEREST EXPENSE PERSONNEL EXPENSE 309,640 271,697 OCCUPANCY 60,391 51,801 EQUIPMENT RENTALS, DEPRECIATION AND MAINTENANCE 56,700 45,643 POSTAGE, PRINTING AND SUPPLIES 25,282 19,324 FDIC INSURANCE 29,939 28,406 OWNED REAL ESTATE EXPENSE 5,296 9,823 AMORTIZATION 36,378 54,776 SUNDRY 116,215 96,825 TOTAL NONINTEREST EXPENSE 639,841 578,295 INCOME BEFORE INCOME TAXES 342,460 305,032 INCOME TAXES 120,001 105,040 NET INCOME 222,459 199,992 DIVIDENDS ON PREFERRED STOCK 5,726 7,004 NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 216,733 192,988
FINANCIAL TABLES FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED) FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED (IN THOUSANDS EXCEPT PER SHARE DATA) MARCH 31, 1994 1993 NET INCOME $ 222,459 199,992 DIVIDENDS ON PREFERRED STOCK 5,726 7,004 NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 216,733 192,988 NET INCOME PER COMMON SHARE $ 1.27 1.17 AVERAGE COMMON SHARES 170,314 165,272 COMMON STOCKHOLDERS' EQUITY (A) $5,033,846 4,359,091 TOTAL STOCKHOLDERS' EQUITY (A) 5,317,886 4,656,312 BOOK VALUE PER COMMON SHARE $ 29.71 26.23 ACTUAL COMMON SHARES 169,444 166,188 COMMON STOCK PERIOD-END PRICE $ 41.625 47.750 SERIES 1990 PREFERRED STOCK PERIOD-END PRICE $ 52.125 53.000 PERCENT INCREASE (DECREASE) NET INCOME 11.2% DIVIDENDS ON PREFERRED STOCK (18.2) NET INCOME APPLICABLE TO COMMON STOCKHOLDERS 12.3% NET INCOME PER COMMON SHARE 8.5% AVERAGE COMMON SHARES 3.1 COMMON STOCKHOLDERS' EQUITY (A) 15.5 TOTAL STOCKHOLDERS' EQUITY (A) 14.2 BOOK VALUE PER COMMON SHARE 13.3 ACTUAL COMMON SHARES 2.0 COMMON STOCK PERIOD-END PRICE (12.8) SERIES 1990 PREFERRED STOCK PERIOD-END PRICE (1.7)%
EARNINGS SUMMARY
1994 1993 (IN THOUSANDS EXCEPT PER SHARE DATA) 1Q 4Q 3Q 2Q 1Q NET INTEREST INCOME (B) $ 750,409 733,280 728,773 708,186 696,422 PROVISION FOR LOAN LOSSES 25,000 49,973 50,001 61,450 60,329 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES (B) 725,409 683,307 678,772 646,736 636,093 SECURITIES AVAILABLE FOR SALE TRANSACTIONS 4,300 2,804 4,142 1,505 17,316 INVESTMENT SECURITY TRANSACTIONS 615 3,049 815 3,571 -- NONINTEREST INCOME 275,781 317,727 287,998 305,356 254,005 NONINTEREST EXPENSE 639,841 687,922 664,388 591,042 578,295 INCOME BEFORE INCOME TAXES (B) 366,264 318,965 307,339 366,126 329,119 INCOME TAXES 120,001 98,469 84,286 115,465 105,040 TAX-EQUIVALENT ADJUSTMENT 23,804 25,153 27,638 23,890 24,087 NET INCOME 222,459 195,343 195,415 226,771 199,992 DIVIDENDS ON PREFERRED STOCK 5,726 5,489 6,240 6,167 7,004 NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 216,733 189,854 189,175 220,604 192,988 NET INCOME PER COMMON SHARE $ 1.27 1.12 1.12 1.32 1.17 1Q '94 vs. (IN THOUSANDS EXCEPT PER SHARE DATA) 1Q '93 NET INTEREST INCOME (B) 7.8% PROVISION FOR LOAN LOSSES (58.6 ) NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES (B) 14.0 SECURITIES AVAILABLE FOR SALE TRANSACTIONS (75.2 ) INVESTMENT SECURITY TRANSACTIONS -- NONINTEREST INCOME 8.6 NONINTEREST EXPENSE 10.6 INCOME BEFORE INCOME TAXES (B) 11.3 INCOME TAXES 14.2 TAX-EQUIVALENT ADJUSTMENT (1.2 ) NET INCOME 11.2 DIVIDENDS ON PREFERRED STOCK (18.2 ) NET INCOME APPLICABLE TO COMMON STOCKHOLDERS 12.3% NET INCOME PER COMMON SHARE 8.5%
(A) COMMON STOCKHOLDERS' EQUITY AND TOTAL STOCKHOLDERS' EQUITY EXCLUDE NET UNREALIZED LOSSES ON DEBT AND EQUITY SECURITIES OF $41,826,000. (B) TAX-EQUIVALENT. BOARD OF DIRECTORS G. ALEX BERNHARDT President, Bernhardt Furniture Company Lenoir, North Carolina W. WALDO BRADLEY Chairman, Bradley Plywood Corporation Savannah, Georgia ROBERT J. BROWN Chairman and President, B&C Associates Inc. High Point, North Carolina EDWARD E. CRUTCHFIELD JR. Chairman and Chief Executive Officer, First Union Corporation Charlotte, North Carolina ROBERT D. DAVIS Chairman, D.D.I. Inc. Jacksonville, Florida R. STUART DICKSON Chairman, Ruddick Corporation Charlotte, North Carolina B.F. DOLAN Investor Charlotte, North Carolina RODDEY DOWD SR. Chairman, Charlotte Pipe & Foundry Co. Charlotte, North Carolina JOHN R. GEORGIUS President, First Union Corporation Charlotte, North Carolina WILLIAM H. GOODWIN JR. Chairman, AMF Companies Richmond, Virginia BRENTON S. HALSEY Chairman Emeritus, James River Corporation Richmond, Virginia HOWARD H. HAWORTH President, The Haworth Group Morganton, North Carolina TORRENCE E. HEMBY JR. President, Beverly Crest Corporation Charlotte, North Carolina LEONARD G. HERRING President and Chief Executive Officer, Lowe's Companies Inc. North Wilkesboro, North Carolina JACK A. LAUGHERY Investor Rocky Mount, North Carolina MAX LENNON President, Clemson University Clemson, South Carolina RADFORD D. LOVETT Chairman, Commodores Point Terminal Corporation Jacksonville, Florida HENRY D. PERRY JR. Physician Plantation, Florida RANDOLPH N. REYNOLDS President and Chief Executive Officer, Reynolds Metal Company Richmond, Virginia RUTH G. SHAW Vice President, Duke Power Company Charlotte, North Carolina LANTY L. SMITH Chairman and Chief Executive Officer, Precision Fabrics Group Inc. Greensboro, North Carolina DEWEY L. TROGDON Chairman, Cone Mills Corporation Greensboro, North Carolina JOHN D. UIBLE Investor Jacksonville, Florida B.J. WALKER Vice Chairman, First Union Corporation Jacksonville, Florida KENNETH G. YOUNGER Chairman, Carolina Freight Corporation Cherryville, North Carolina CONSOLIDATED BALANCE SHEETS FIRST UNION CORPORATION AND SUBSIDIARIES (UNAUDITED)
(IN THOUSANDS) MARCH 31, 1994 1993 ASSETS CASH AND DUE FROM BANKS $ 3,054,037 2,711,928 INTEREST-BEARING BANK BALANCES 799,569 505,226 FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER RESALE AGREEMENTS 1,438,561 460,904 TOTAL CASH AND CASH EQUIVALENTS 5,292,167 3,678,058 TRADING ACCOUNT ASSETS 820,876 539,606 SECURITIES AVAILABLE FOR SALE 12,665,905 6,899,821 INVESTMENT SECURITIES 2,539,647 6,568,262 LOANS, NET OF UNEARNED INCOME 46,732,424 40,929,438 ALLOWANCE FOR LOAN LOSSES (1,014,001) (938,334) LOANS, NET 45,718,423 39,991,104 PREMISES AND EQUIPMENT 1,535,383 1,335,764 DUE FROM CUSTOMERS ON ACCEPTANCES 220,698 220,741 MORTGAGE SERVICING RIGHTS 82,102 151,348 CREDIT CARD PREMIUM 71,538 63,739 OTHER INTANGIBLE ASSETS 954,311 811,234 SOUTHEAST SEGREGATED ASSETS 306,929 493,359 OTHER ASSETS 2,040,394 2,199,608 TOTAL ASSETS $72,248,373 62,952,644 LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS NONINTEREST-BEARING DEPOSITS 10,428,019 8,644,543 INTEREST-BEARING DEPOSITS 41,659,772 39,211,098 TOTAL DEPOSITS 52,087,791 47,855,641 SHORT-TERM BORROWINGS 10,058,342 5,833,296 BANK ACCEPTANCES OUTSTANDING 220,698 220,741 OTHER LIABILITIES 1,450,652 1,451,787 LONG-TERM DEBT 3,154,830 2,934,867 TOTAL LIABILITIES 66,972,313 58,296,332 STOCKHOLDERS' EQUITY PREFERRED STOCK CLASS A, AUTHORIZED 40,000,000 SHARES SERIES A, 11% CUMULATIVE PERPETUAL; $25.00 STATED AND LIQUIDATION VALUE -- -- SERIES A, $2.50 CUMULATIVE CONVERTIBLE, NO PAR VALUE; $25.00 STATED AND LIQUIDATION VALUE -- 13,181 SERIES B, NONE ISSUED -- -- SERIES 1990 CUMULATIVE PERPETUAL ADJUSTABLE RATE, NO PAR VALUE; $5.00 LIQUIDATION VALUE; AUTHORIZED 10,000,000 SHARES 31,592 31,592 COMMON STOCK, $3.33 1/3 PAR VALUE; AUTHORIZED 750,000,000 SHARES 564,812 553,914 PAID-IN CAPITAL 1,555,938 1,446,322 RETAINED EARNINGS 3,165,544 2,611,303 UNREALIZED LOSS ON DEBT AND EQUITY SECURITIES (41,826) -- TOTAL STOCKHOLDERS' EQUITY 5,276,060 4,656,312 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $72,248,373 62,952,644
(First Union logo) FIRST UNION Bulk Rate CORPORATION U.S. Postage Paid Two First Union Center Charlotte, NC Charlotte, NC 28288-0570 Permit No. 736 This First Union quarterly report includes information released to the public and the news media on April 14, 1994. You may obtain a copy of our First Quarter Financial Supplement, which contains more detailed financial and other information, by writing to Investor Relations, Two First Union Center, Charlotte, North Carolina 28288-0206. There is no charge. 1 9 9 4 FIRST UNION CORPORATION FIRST QUARTER REPORT (First Union logo) *************************APPENDIX****************************** There are two First Union logos, one on the front of the outside cover page of the second document and on the back cover (last page of second document) *************************************************************** EX-99 6 EXHIBIT (99) EXHIBIT (99) FIRST UNION CORPORATION OF VIRGINIA AND SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION In connection with the merger of Dominion Bankshares Corporation into First Union Corporation of Virginia ("FUNC-VA"), a wholly-owned subsidiary of First Union Corporation (the "Corporation"), on March 1, 1993, FUNC-VA assumed, and subsequently the Corporation guaranteed, FUNC-VA's publicly held 9 5/8 % Subordinated Capital Notes Due 1999. Set forth below is summarized consolidated financial information for FUNC-VA and subsidiaries for the period indicated. CONSOLIDATED STATEMENT OF INCOME DATA Three Months Ended March 31, (In thousands) 1994 Net interest income $119,659 Income before income taxes 34,517 Net income $ 22,316
CONSOLIDATED BALANCE SHEET DATA March 31, (In thousands) 1994 Asset $13,194,259 Securities available for sale 2,748,875 Investment securities 76,702 Loans, net of unearned income 7,091,396 Stockholder's equity $1,210,099
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