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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (the "EXCHANGE ACT") for the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
for the transition period from __________ to ____________
Commission file number 1-10000
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0898180
(State of incorporation) (I.R.S. Employer Identification No.)
ONE FIRST UNION CENTER
CHARLOTTE, NC 28288-0013
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 374-6565
Securities registered pursuant to Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, $3.33 1/3 par value (including rights New York Stock Exchange, Inc. (the "NYSE")
attached thereto)
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of January 31, 2001, there were 977,984,086 shares of the registrant's common
stock outstanding, $3.33 1/3 par value per share, and based on the last reported
sale price of $33.93 per share on the NYSE on such date, the aggregate market
value of the registrant's common stock held by those persons deemed by the
registrant to be non-affiliates was approximately $33 billion.
DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K
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1. Certain portions of the Corporation's Annual Part I -- Items 1 and 2; Part II -- Items 5, 6, 7, 7A and 8.
Report to Stockholders for the year ended
December 31, 2000 ("Annual Report").
2. Certain portions of the Corporation's Proxy Part III -- Items 10, 11, 12 and 13.
Statement for the Annual Meeting of Stockholders
to be held on April 17, 2001 ("Proxy Statement").
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PART I
FIRST UNION CORPORATION MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL
"FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN OUR FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING THIS ANNUAL REPORT ON FORM
10-K AND THE EXHIBITS HERETO AND THERETO), IN OUR REPORTS TO STOCKHOLDERS AND IN
OTHER COMMUNICATIONS, WHICH WE MAKE IN GOOD FAITH PURSUANT TO THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, STATEMENTS WITH RESPECT
TO OUR BELIEFS, PLANS, OBJECTIVES, GOALS, EXPECTATIONS, ANTICIPATIONS, ESTIMATES
AND INTENTIONS THAT ARE SUBJECT TO SIGNIFICANT RISKS AND UNCERTAINTIES AND ARE
SUBJECT TO CHANGE BASED ON VARIOUS FACTORS (MANY OF WHICH ARE BEYOND OUR
CONTROL). THE WORDS "MAY", "COULD", "SHOULD", "WOULD", "BELIEVE", "ANTICIPATE",
"ESTIMATE", "EXPECT", "INTEND", "PLAN" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. THE FOLLOWING FACTORS, AMONG OTHERS, COULD
CAUSE OUR FINANCIAL PERFORMANCE TO DIFFER MATERIALLY FROM THAT EXPRESSED IN
THOSE FORWARD-LOOKING STATEMENTS: (1) THE STRENGTH OF THE UNITED STATES ECONOMY
IN GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH WE CONDUCT
OPERATIONS MAY BE DIFFERENT THAN EXPECTED RESULTING IN, AMONG OTHER THINGS, A
DETERIORATION IN CREDIT QUALITY OR A REDUCED DEMAND FOR CREDIT, INCLUDING THE
RESULTANT EFFECT ON OUR LOAN PORTFOLIO AND ALLOWANCE FOR LOAN LOSSES; (2) THE
EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL POLICIES AND LAWS,
INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM (THE "FEDERAL RESERVE BOARD"); (3) INFLATION, INTEREST RATE,
MARKET AND MONETARY FLUCTUATIONS; (4) ADVERSE CONDITIONS IN THE STOCK MARKET,
THE PUBLIC DEBT MARKET AND OTHER CAPITAL MARKETS AND THE IMPACT OF THOSE
CONDITIONS ON OUR CAPITAL MARKETS AND CAPITAL MANAGEMENT ACTIVITIES, INCLUDING,
WITHOUT LIMITATION, OUR MERGERS AND ACQUISITIONS ADVISORY BUSINESS, EQUITY AND
DEBT UNDERWRITING ACTIVITIES, PRINCIPAL INVESTING ACTIVITIES, DERIVATIVE
SECURITIES ACTIVITIES, INVESTMENT AND WEALTH MANAGEMENT ADVISORY BUSINESSES, AND
BROKERAGE ACTIVITIES; (5) THE TIMELY DEVELOPMENT OF COMPETITIVE NEW PRODUCTS AND
SERVICES BY US AND THE ACCEPTANCE OF THOSE PRODUCTS AND SERVICES BY NEW AND
EXISTING CUSTOMERS; (6) THE WILLINGNESS OF CUSTOMERS TO ACCEPT THIRD PARTY
PRODUCTS MARKETED BY US; (7) THE WILLINGNESS OF CUSTOMERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR OUR PRODUCTS AND SERVICES AND VICE VERSA;
(8) THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS AND REGULATIONS (INCLUDING
LAWS CONCERNING TAXES, BANKING, SECURITIES AND INSURANCE); (9) TECHNOLOGICAL
CHANGES; (10) CHANGES IN CONSUMER SPENDING AND SAVING HABITS; (11) THE EFFECT OF
CORPORATE RESTRUCTURING, ACQUISITIONS AND/OR DISPOSITIONS, INCLUDING, WITHOUT
LIMITATION, THE ACTUAL RESTRUCTURING AND OTHER CHARGES RELATED THERETO AND THE
FAILURE TO ACHIEVE THE EXPECTED GAINS, REVENUE GROWTH AND/OR EXPENSE SAVINGS
FROM SUCH CORPORATE RESTRUCTURING, ACQUISITIONS AND/OR DISPOSITIONS; (12) THE
GROWTH AND PROFITABILITY OF OUR NON-INTEREST OR FEE INCOME BEING LESS THAN
EXPECTED; (13) UNANTICIPATED REGULATORY OR JUDICIAL PROCEEDINGS; (14) THE IMPACT
OF CHANGES IN ACCOUNTING POLICIES BY THE SECURITIES AND EXCHANGE COMMISSION;
(15) ADVERSE CHANGES IN THE FINANCIAL PERFORMANCE AND/OR CONDITION OF OUR
BORROWERS WHICH COULD IMPACT THE REPAYMENT OF THOSE BORROWERS' OUTSTANDING
LOANS; AND (16) OUR SUCCESS AT MANAGING THE RISKS INVOLVED IN THE FOREGOING.
ADDITIONAL INFORMATION WITH RESPECT TO FACTORS THAT MAY CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THOSE FORWARD-LOOKING STATEMENTS
MAY BE INCLUDED IN REPORTS WE FILE WITH THE SEC.
WE CAUTION THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS NOT EXCLUSIVE. FIRST
UNION INCORPORATES BY REFERENCE THOSE FACTORS INCLUDED IN OUR PREVIOUSLY FILED
CURRENT REPORTS ON FORM 8-K. WE DO NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING
STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
OUR BEHALF.
ITEM 1. BUSINESS.
GENERAL
First Union Corporation was incorporated under the laws of North Carolina in
1967 and is registered as a financial holding company and a bank holding company
under the Bank Holding Company Act of 1956, as amended. Pursuant to a corporate
reorganization in 1968, a predecessor of First Union National Bank ("FUNB") and
First Union Mortgage Corporation, a mortgage banking firm acquired in 1964,
became our subsidiaries.
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We provide a wide range of commercial and retail banking and trust services
through full-service banking offices in Connecticut, Delaware, Florida, Georgia,
Maryland, New Jersey, New York, North Carolina, Pennsylvania, South Carolina,
Virginia and Washington, D.C. FUNB, based in Charlotte, North Carolina, operates
those offices, except in Delaware, where First Union National Bank of Delaware
operates the offices. We also provide various other financial services,
including mortgage banking, credit card, investment banking, investment
advisory, home equity lending, asset-based lending, leasing, insurance,
international and securities brokerage services, through other subsidiaries.
Our principal executive offices are located at One First Union Center,
Charlotte, North Carolina 28288-0013 (telephone number (704) 374-6565).
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, we have concentrated our efforts on building a large, diversified
financial services organization, primarily doing business in the eastern region
of the United States. Since November 1985, the Corporation has completed over 90
banking-related acquisitions.
First Union established a new strategic direction in 2000, with the focus on
generating improved core earnings growth from our three key businesses - Capital
Management, the General Bank and Capital Markets. After a six-month strategic
review, on June 26, 2000, we announced the strategic repositioning of our
company, which resulted in the disposition of certain businesses, assets and
branches that did not provide scale or strategic advantages. We will continue to
evaluate our operations and organizational structures to ensure they are closely
aligned with our goal of maximizing performance in our core business lines. When
consistent with our overall business strategy, we may consider the disposition
of certain assets, branches, subsidiaries or lines of business. While
acquisitions are no longer a primary business activity, we continue to routinely
explore acquisition opportunities, particularly in areas that would complement
our core business lines, and frequently conduct due diligence activities in
connection with possible acquisitions. As a result, acquisition discussions and,
in some cases, negotiations frequently take place and future acquisitions
involving cash, debt or equity securities can be expected.
Additional information relating to our businesses and our subsidiaries is
included in the information set forth on pages 16 through 20 and in Note 11 on
pages 77 through 80 in the Annual Report and in Exhibit 99 to this Form 10-K and
incorporated herein by reference. Information relating to First Union
Corporation only is set forth in Note 18 on pages 92 through 95 in the Annual
Report and incorporated herein by reference.
COMPETITION
Our subsidiaries face substantial competition in their operations from banking
and non-banking institutions, including savings and loan associations, credit
unions, money market funds and other investment vehicles, mutual fund advisory
companies, brokerage firms, insurance companies, leasing companies, credit card
issuers, mortgage banking companies, investment banking companies, finance
companies and other types of financial services providers, including
internet-only financial service providers.
SUPERVISION AND REGULATION
The following discussion sets forth some of the material elements of the
regulatory framework applicable to financial holding companies and bank holding
companies and their subsidiaries and provides some specific information relevant
to us. The regulatory framework is intended primarily for the protection of
depositors and the Federal Deposit Insurance Funds and not for the protection of
security holders. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in
applicable statutes, regulations or regulatory policy may have a material effect
on our business.
GENERAL
As a financial holding company and a bank holding company, First Union is
subject to regulation under the Bank Holding Company Act and its examination and
reporting requirements. The earnings of our subsidiaries, and therefore our
earnings, are affected by general economic conditions, management policies and
the legislative and governmental actions of various regulatory authorities,
including the Federal Reserve Board, the Comptroller of the Currency (the
"Comptroller") and the Federal Deposit Insurance Corporation (the "FDIC"). In
addition, there are numerous governmental requirements and regulations which
affect our activities and the activities of our subsidiaries.
PAYMENT OF DIVIDENDS
First Union Corporation is a legal entity separate and distinct from its banking
and other subsidiaries. A major portion of our revenues result from amounts paid
as dividends to us by our national bank subsidiaries. The Comptroller's prior
approval is required if the total of all dividends declared by a national bank
in any calendar year will exceed the sum of that bank's net profits for that
year and its retained net profits for the preceding two calendar years, less any
required transfers to surplus.
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Federal law also prohibits national banks from paying dividends which would be
greater than the bank's undivided profits after deducting statutory bad debt in
excess of the bank's allowance for loan losses.
Under the foregoing dividend restrictions and certain restrictions applicable to
certain of our non-banking subsidiaries, as of December 31, 2000, our
subsidiaries, without obtaining affirmative governmental approvals, could pay
aggregate dividends of $1.1 billion to us during 2001. In 2000, our subsidiaries
paid $3.1 billion in cash dividends to us.
In addition, we and our banking subsidiaries are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums.
The appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a bank or bank
holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. The appropriate federal regulatory
authorities have indicated that paying dividends that deplete a bank's capital
base to an inadequate level would be an unsound and unsafe banking practice and
that banking organizations should generally pay dividends only out of current
operating earnings.
BORROWINGS
There are also various legal restrictions on the extent to which we and our
non-bank subsidiaries can borrow or otherwise obtain credit from its banking
subsidiaries. In general, these restrictions require that any such extensions of
credit must be secured by designated amounts of specified collateral and are
limited, as to any one of us or those non-bank subsidiaries, to 10% of the
lending bank's capital stock and surplus, and as to us and all non-bank
subsidiaries in the aggregate, to 20% of such lending bank's capital stock and
surplus.
CAPITAL ADEQUACY
Under the risk-based capital requirements for bank holding companies, the
minimum requirement for the ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) is 8%.
At least half of the total capital is to be composed of common stockholders'
equity, retained earnings, a limited amount of qualifying perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less goodwill and certain intangibles ("tier 1 capital" and
together with tier 2 capital "total capital"). The remainder of total capital
may consist of mandatory convertible debt securities and a limited amount of
subordinated debt, qualifying preferred stock and loan loss allowance ("tier 2
capital"). At December 31, 2000, our tier 1 capital and total capital ratios
were 7.02% and 11.19%, respectively.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These requirements provide for a minimum
leverage ratio of tier 1 capital to adjusted average quarterly assets less
certain amounts ("leverage ratio") equal to 3% for bank holding companies that
meet certain specified criteria, including having the highest regulatory rating.
All other bank holding companies will generally be required to maintain a
leverage ratio of at least 4%. Our leverage ratio at December 31, 2000, was
5.92%. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the guidelines indicate
that the Federal Reserve Board will continue to consider a "tangible tier 1
leverage ratio" (deducting all intangibles) in evaluating proposals for
expansion or new activity. The Federal Reserve Board has not advised us of any
specific minimum leverage ratio or tier 1 leverage ratio applicable to us.
Each of our subsidiary banks is subject to similar capital requirements adopted
by the Comptroller or other applicable regulatory agency. Neither the
Comptroller nor such applicable regulatory agency has advised any of our
subsidiary banks of any specific minimum leverage ratios applicable to it. The
capital ratios of our bank subsidiaries are set forth in Table 14 on page 42 in
the Annual Report and incorporated herein by reference.
SUPPORT OF SUBSIDIARY BANKS
The Federal Deposit Insurance Act, as amended ("FDIA"), among other things,
imposes liability on an institution the deposits of which are insured by the
FDIC, such as our subsidiary banks, for certain potential obligations to the
FDIC incurred in connection with other FDIC-insured institutions under common
control with such institution.
Under the National Bank Act, if the capital stock of a national bank is impaired
by losses or otherwise, the Comptroller is authorized to require payment of the
deficiency by assessment upon the bank's stockholders, pro rata, and to the
extent necessary, if any such assessment is not paid by any stockholder after
three months notice, to sell the stock of such stockholder to make good the
deficiency. Under Federal Reserve Board policy, we are expected to act as a
source of financial strength to each of our subsidiary banks and to commit
resources to support each of those subsidiaries. This support may be required at
times when, absent such Federal Reserve Board policy, we may not find ourselves
able to provide it.
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Any capital loans by a bank holding company to any of its subsidiary banks are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary banks. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
The FDIA, among other things, requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized". A depository institution's
capital tier will depend upon where its capital levels compare to various
relevant capital measures and certain other factors, as established by
regulation.
Federal regulatory authorities have adopted regulations establishing relevant
capital measures and relevant capital levels applicable to FDIC-insured banks.
The relevant capital measures are the total capital ratio, the tier 1 capital
ratio and the leverage ratio. Under the regulations, an FDIC-insured bank will
be: (i) "well capitalized" if it has a total capital ratio of 10% or greater, a
tier 1 capital ratio of 6% or greater and a leverage ratio of 5% or greater and
is not subject to any order or written directive by any such regulatory
authority to meet and maintain a specific capital level for any capital measure;
(ii) "adequately capitalized" if it has a total capital ratio of 8% or greater,
a tier 1 capital ratio of 4% or greater and a leverage ratio of 4% or greater
(3% in certain circumstances) and is not "well capitalized"; (iii)
"undercapitalized" if it has a total capital ratio of less than 8%, a tier 1
capital ratio of less than 4% or a leverage ratio of less than 4% (3% in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than 6%, a tier 1 capital ratio of less than 3% or a leverage
ratio of less than 3%; and (v) "critically undercapitalized" if its tangible
equity is equal to or less than 2% of average quarterly tangible assets. An
institution may be downgraded to, or deemed to be in, a capital category that is
lower than is indicated by its capital ratios if it is determined to be in an
unsafe or unsound condition or if it receives an unsatisfactory examination
rating with respect to certain matters. As of December 31, 2000, all of our
deposit-taking subsidiary banks had capital levels that qualify them as being
"well capitalized" under those regulations.
The FDIA generally prohibits an FDIC-insured depository institution from making
any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be "undercapitalized". "Undercapitalized" depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of (i) an amount equal to 5% of the
depository institution's total assets at the time it became "undercapitalized",
and (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards applicable with
respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit an acceptable plan, it is treated as if
it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator. A bank that is not "well capitalized" is subject to
certain limitations relating to so-called "brokered" deposits.
DEPOSITOR PREFERENCE STATUTE
Under federal law, deposits and certain claims for administrative expenses and
employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of such an institution by any receiver.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA"), authorized interstate acquisitions of banks and bank holding companies
without geographic limitation beginning one year after enactment. In addition,
it authorized, beginning June 1, 1997, a bank to merge with a bank in another
state as long as neither of the states opted out of interstate branching between
the date of enactment of the IBBEA and May 31, 1997. In addition, a bank may
establish and operate a de novo branch in a state in which the bank does not
maintain a branch if that state expressly permits de novo branching. It was
pursuant to authority from IBBEA that we reorganized certain of our subsidiary
banks in 1997 and in February 1998, as a result of which FUNB, based in
Charlotte, North Carolina, operates in 10 states and Washington, D.C.
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FINANCIAL MODERNIZATION ACT OF 1999
The Gramm-Leach-Bliley Financial Modernization Act of 1999 was enacted on
November 12, 1999. The Modernization Act:
- allows bank holding companies meeting management, capital and
CRA standards to engage in a substantially broader range of
nonbanking activities than was permissible prior to enactment,
including insurance underwriting and making merchant banking
investments in commercial and financial companies;
- allows insurers and other financial services companies to
acquire banks;
- removes various restrictions that applied to bank holding
company ownership of securities firms and mutual fund advisory
companies; and
- establishes the overall regulatory structure applicable to
bank holding companies that also engage in insurance and
securities operations.
This part of the Modernization Act became effective on March 11, 2000. The
Federal Reserve Board has notified us that, effective March 13, 2000, we are
authorized to operate as a financial holding company and therefore are eligible
to engage in the broader range of activities that are permitted by the
Modernization Act. The Modernization Act will also modify other current
financial laws, including laws related to financial privacy and community
reinvestment. The new financial privacy provisions will generally prohibit
financial institutions, including us, from disclosing nonpublic personal
financial information to nonaffiliated third parties unless customers have the
opportunity to "opt out" of the disclosure.
ADDITIONAL INFORMATION
Additional information related to certain accounting and regulatory matters is
set forth on pages 28 and 29 in the Annual Report and incorporated herein by
reference.
ITEM 2. PROPERTIES.
As of December 31, 2000, we and our subsidiaries owned 1,272 locations and
leased 3,279 locations in 48 states, Washington, D.C., and 25 foreign countries
from which our business is conducted, including a multi-building office complex
in Charlotte, North Carolina, which serves as our administrative headquarters.
Additional information relating to our lease commitments is set forth in Note 16
on page 90 in the Annual Report and incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
We and certain of our subsidiaries have been named as defendants in various
legal actions arising from their normal business activities in which varying
amounts are claimed. Although the amount of any ultimate liability with respect
to those matters cannot be determined, in management's opinion, based upon the
opinions of counsel, any such liability will not have a material effect on our
and our subsidiaries' consolidated financial position.
A number of purported class actions were filed in June through August 1999
against us in the United States District Courts for the Western District of
North Carolina and for the Eastern District of Pennsylvania. These actions named
us and certain of our executive officers as defendants and were purported to be
on behalf of persons who purchased shares of our common stock from August 14,
1998, through May 24, 1999. These actions were consolidated into one case in the
U.S. District Court for the Western District of North Carolina in October 1999.
These complaints alleged various violations of federal securities law, including
violations of Section 10(b) of the Exchange Act, and that the defendants made
materially misleading statements and/or material omissions which artificially
inflated prices for our common stock. Plaintiffs sought a judgment awarding
damages and other relief. On January 10, 2001, the U.S. District Court for the
Western District of North Carolina granted our motion to dismiss the litigation
for failure to state a claim upon which relief could be granted. It is unknown
at this time whether the plaintiffs plan to appeal the court's order. We believe
the allegations contained in these actions are without merit and, if appealed by
the plaintiffs, will vigorously defend them.
On July 26, 2000, a jury in the Philadelphia County (PA) Court of Common Pleas
returned a verdict in the case captioned Pioneer Commercial Funding Corporation
v. American Financial Mortgage Corporation, CoreStates Bank, N.A., et al. The
verdict against CoreStates Bank, N.A. ("CoreStates"), a predecessor of First
Union National Bank, included consequential damages of $13.5 million and
punitive damages of $337.5 million. The trial court had earlier directed a
verdict against CoreStates for compensatory damages of $1.7 million. The
plaintiff, who was not a CoreStates customer, alleged that the sum of $1.7
million, which it claims it owned, was improperly setoff by CoreStates. Upon our
motion, the trial court reduced the amount of the punitive damages award to
$40.5 million in December 2000. We believe that numerous reversible errors
occurred at the trial, and that the facts do not support the damages awards. We
will vigorously pursue our pending post-trial motions and
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our right of appeal. We believe, after consultation with external counsel, that
the ultimate outcome of this litigation will not have a material adverse effect
on our consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is listed on the NYSE. Table 5 on page 36 in the Annual Report
sets forth information relating to the quarterly prices of, and quarterly
dividends paid on, the common stock for the two-year period ended December 31,
2000, and incorporated herein by reference. Prices shown represent the high, low
and quarter-end sale prices of the common stock as reported on the NYSE
Composite Transactions tape for the periods indicated. As of December 31, 2000,
there were 157,524 holders of record of the common stock.
Subject to the prior rights of holders of any outstanding shares of our
preferred stock or Class A preferred stock, holders of common stock are entitled
to receive such dividends as may be legally declared by our Board of Directors
and, in the event of dissolution and liquidation, to receive our net assets
remaining after payment of all liabilities, in proportion to their respective
holdings. Additional information concerning certain limitations on our payment
of dividends is set forth above under "Business -- Supervision and Regulation;
Payment of Dividends" and in Note 18 on page 92 in the Annual Report and
incorporated herein by reference.
Under our Shareholder Protection Rights Agreement, each outstanding common stock
share has a right attached to it. This right remains attached unless a
separation time occurs. At separation time, common shareholders will receive
separate certificates for these rights. Each right entitles its owner to
purchase at separation time one one-hundredth of a share of a participating
series of Class A preferred stock for $105. This series of Class A preferred
stock would have economic and voting terms similar to those of one common stock
share. Separation time would generally occur at the earlier of the following two
dates:
- the tenth business day after any person commences a tender or
exchange offer that entitles that person to 10% or more of our
outstanding common stock
or
- the tenth business day after we publicly announce that a
person has acquired beneficial ownership of 10% or more of our
outstanding common stock.
These rights will not trade separately from the shares of common stock until
separation time occurs, and may be exercised on the business day immediately
after the separation time. The rights will expire at the earliest of:
- the date on which our board of directors elects to exchange
the rights for our common stock or preferred as described
below;
- the close of business on December 28, 2010, unless our board
of directors extends that time; or
- the date on which the rights are terminated as described
below.
Once we publicly announce that a person has acquired 10% of our outstanding
common stock, we can allow for rights holders to buy our common stock for half
of its market value. For example, we would sell to each rights holder common
stock shares worth $210 for $105 in cash. At the same time, any rights held by
the 10% owner or any of his affiliates, associates or transferees will be void.
In addition, if we are acquired in a merger or other business combination after
a person has become a 10% owner, the rights held by shareholders would become
exercisable to purchase the acquiring company's common stock for half of its
market value.
In the alternative, our board of directors may elect to exchange all of the then
outstanding rights for shares of common stock at an exchange ratio of two common
stock shares for one right. Upon election of this exchange, a right will no
longer be exercisable and will only represent a right to receive two common
stock shares.
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If we are required to issue common stock shares upon the exercise of rights, or
in exchange for rights, our board may substitute shares of participating Class A
preferred stock. The substitution will be at a rate of two one one-hundredths of
a share of participating Class A preferred stock for each right exchanged.
The rights may be terminated without any payment to holders before their
exercise date. The rights have no voting rights and are not entitled to
dividends.
The rights will not prevent a takeover of First Union. The rights, however, may
cause substantial dilution to a person or group that acquires 10% or more of
common stock unless our board first terminates the rights. Nevertheless, the
rights should not interfere with a transaction that is in First Union's and its
shareholders' best interests because the rights can be terminated by the board
before that transaction is completed.
The complete terms of the rights are contained in the Shareholder Protection
Rights Agreement. The foregoing description of the rights and the rights
agreement is qualified in its entirety by reference to the agreement. A copy of
the rights agreement can be obtained upon written request to First Union
National Bank, 1525 West W.T. Harris Blvd., Charlotte, North Carolina
28288-1153.
Additional information relating to our common stock is set forth in Note 10 on
pages 74 through 76 in the Annual Report and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
In response to this Item, the information set forth in Table 2 on page 34 in the
Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In response to this Item, the information set forth on pages 12 through 53 in
the Annual Report is incorporated herein by reference.
In the fourth quarter of 2000, we revised the way we have reported lower of
cost or market ("LOCOM") adjustments in the second and third quarters of 2000
as well as for the full year 2000.
We have previously recorded LOCOM adjustments as "Other Income". Under the new
reporting, a LOCOM adjustment that occurs as a result of reclassifying a loan
to "Assets Held for Sale" will be recorded as an increase to our "Loan Loss
Provision". The increased loan loss provision attributable to the LOCOM
adjustment is reflected as a transfer from the "Allowance for Loan Losses". Any
subsequent LOCOM adjustment to a loan already in "Assets Held for Sale" will be
recorded as "Other Income" as a contra income item.
This change has no effect in our previously reported net income, operating
income, charge-offs or loans.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In response to this Item, the information set forth on pages 24 through 28, on
pages 43 through 49 and in Note 16 on pages 89 and 90 in the Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
In response to this Item, the information set forth in Table 5 on page 36 and on
pages 54 through 95 in the Annual Report is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Our executive officers are elected to their offices for one year terms at the
board meeting in April of each year. The terms of any executive officers elected
after that date expire at the same time as the terms of the executive officers
elected on that date. The names of each of our executive officers, their ages,
their positions with us, and, if different, their business experience during the
past five years, are as follows:
G. Kennedy Thompson (50). Chairman, since March 1, 2001, Chief
Executive Officer, since April 2000, and President, since December
1999. Previously, Vice Chairman, from October 1998 to December 1999,
Executive Vice President, from November 1996 to October 1998, and
President, First Union-Florida, prior to November 1996. Also, a
director of the Corporation.
Donald A. McMullen, Jr. (52). Vice Chairman, since August 1999.
Previously, Executive Vice President.
8
9
Benjamin P. Jenkins, III (56). Vice Chairman, since August 1999.
Previously, President, First Union-Florida, from June 1999 to August
1999, and President, First Union-VA/MD/DC, prior to June 1999.
B. J. Walker (70). Vice Chairman.
Robert P. Kelly (47). Executive Vice President and Chief Financial
Officer, since November 2000. Previously, Vice Chairman-Group office of
Toronto Dominion Bank from February 2000 to July 2000, Vice
Chairman-Retail Banking from 1997 to February 2000, Vice Chairman from
1996 to 1997, and Executive Vice President prior to 1996.
Mark C. Treanor (54). Executive Vice President, Secretary and General
Counsel, since August 1999. Previously, Senior Vice President and
Senior Deputy General Counsel, August 1998 to August 1999, and senior
partner, Treanor, Pope & Hughes, prior to August 1998.
David M. Carroll (43). Executive Vice President and Chief E-Commerce
Officer, since May 1999. Previously, President and CEO, First
Union-Florida, from January 1998 to May 1999, and President and CEO,
First Union-Georgia, prior to December 1997.
Don R. Johnson (53). Executive Vice President.
Robert W. J. Nimmo (53). Executive Vice President and Chief Risk
Officer, since August 2000. Previously, Chief Risk Officer, Westpac
Banking Corp, Sydney, Australia.
P. Sue Perrotty (47). Executive Vice President, since February 20,
2001. Previously, General Banking Executive, First Union-Penn/Del,
April 1998-February 2001, and Executive Vice President, Chief
Information Technology Officer, CoreStates Financial Corp, prior to
April 1998.
In addition to the foregoing, the information set forth in the Proxy Statement
under the heading "General Information and Nominees", and under the subheading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the heading
"Other Matters Relating to Executive Officers and Directors" is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
In response to this Item, the information set forth in the Proxy Statement under
the heading "Executive Compensation", excluding the information under the
subheadings "HR Committee Report on Executive Compensation" and "Performance
Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In response to this Item, the information set forth in the Proxy Statement
relating to the ownership of common stock by our directors, executive officers
and principal stockholders under the headings "Voting Securities and Principal
Holders" and "General Information and Nominees" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In response to this Item, the information set forth in the Proxy Statement under
the subheadings "General" and "Certain Relationships" under the heading "Other
Matters Relating to Executive Officers and Directors" is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Our consolidated financial statements, including the notes thereto and
independent auditors' report thereon, are set forth on pages 54 through 95 of
the Annual Report, and are incorporated herein by reference. All financial
statement schedules are omitted since the required information is either not
applicable, is immaterial or is included in our consolidated financial
statements and notes thereto. A list of the exhibits to this Form 10-K is set
forth on the Exhibit Index immediately preceding such exhibits and is
incorporated herein by reference.
(b) During the quarter ended December 31, 2000, we filed the following Current
Reports on Form 8-K with the SEC: November 15, 2000, and December 20, 2000. In
addition, we filed the following Current Report on Form 8-K with the SEC in the
first quarter of 2001: January 18, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST UNION CORPORATION
Date: March 15, 2001
By: /s/ JAMES H. HATCH
---------------------
JAMES H. HATCH
SENIOR VICE PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated and on the date indicated.
SIGNATURE CAPACITY
--------- --------
G. KENNEDY THOMPSON* Chairman, President, Chief
------------------------ Executive Officer and Director
G. KENNEDY THOMPSON
ROBERT P. KELLY* Executive Vice President and Chief
------------------------ Financial Officer
ROBERT P. KELLY
JAMES H. HATCH* Senior Vice President and
------------------------ Corporate Controller (Principal
JAMES H. HATCH Accounting Officer)
EDWARD E. BARR* Director
------------------------
EDWARD E. BARR
G. ALEX BERNHARDT* Director
------------------------
G. ALEX BERNHARDT
ERSKINE B. BOWLES* Director
------------------------
ERSKINE B. BOWLES
------------------------ Director
W. WALDO BRADLEY
ROBERT J. BROWN* Director
------------------------
ROBERT J. BROWN
------------------------ Director
A. DANO DAVIS
NORWOOD H. DAVIS, JR.* Director
------------------------
NORWOOD H. DAVIS, JR.
B. F. DOLAN* Director
------------------------
B. F. DOLAN
RODDEY DOWD, SR.* Director
------------------------
RODDEY DOWD, SR.
WILLIAM H. GOODWIN, JR.* Director
------------------------
WILLIAM H. GOODWIN, JR.
------------------------ Director
FRANK M. HENRY
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SIGNATURE CAPACITY
--------- --------
ERNEST E. JONES* Director
------------------------
ERNEST E. JONES
HERBERT LOTMAN* Director
HERBERT LOTMAN
RADFORD D. LOVETT* Director
------------------------
RADFORD D. LOVETT
MACKEY J. MCDONALD* Director
------------------------
MACKEY J. MCDONALD
PATRICIA A. MCFATE* Director
------------------------
PATRICIA A. MCFATE
JOSEPH NEUBAUER* Director
------------------------
JOSEPH NEUBAUER
------------------------ Director
JAMES M. SEABROOK
RUTH G. SHAW* Director
------------------------
RUTH G. SHAW
LANTY L. SMITH* Director
------------------------
LANTY L. SMITH
*By Mark C. Treanor, Attorney-in-Fact
/s/ MARK C. TREANOR
-------------------
MARK C. TREANOR
Date: March 15, 2001
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
----------- ----------- --------
(3)(a) Restated Articles of Incorporation of the Corporation. Incorporated by reference to Exhibit (4)
to the Corporation's 1998 Third Quarter
Report on Form 10-Q.
(3)(b) Bylaws of the Corporation, as amended. Incorporated by reference to Exhibit (3)(b)
to the Corporation's 1995 Annual Report
on Form 10-K.
(4)(a) Instruments defining the rights of the holders of the *
Corporation's long-term debt.
(4)(b) The Corporation's Shareholder Protection Rights Agreement. Incorporated by reference to Exhibit (4)
to the Corporation's Current Report on
Form 8-K dated December 20, 2000.
(10)(a) The Corporation's Amended and Restated Management Incorporated by reference to Exhibit
Incentive Plan. (10)(a) to the Corporation's 1995 Annual
Report on Form 10-K.
(10)(b) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit
Officers. (10)(b) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(c) The Corporation's Deferred Compensation Plan for Filed herewith.
Non-Employee Directors, as amended.
(10)(d) The Corporation's Contract Executive Deferred Incorporated by reference to Exhibit
Compensation Plan. (10)(d) to the Corporation's 1997 Annual
Report on Form 10-K.
(10)(e) The Corporation's Supplemental Executive Long-Term Incorporated by reference to Exhibit
Disability Plan. (10)(d) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(f) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit
(10)(f) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(g) Amendment to the Corporation's Supplemental Filed herewith.
Retirement Plan.
(10)(h) The Corporation's Retirement Plan for Non-Employee Incorporated by reference to Exhibit
Directors. (10)(g) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(i) The Corporation's 1988 Master Stock Compensation Incorporated by reference to Exhibit (28)
Plan. to the Corporation's Registration
Statement No. 33-47447.
(10)(j) The Corporation's 1992 Master Stock Compensation Incorporated by reference to Exhibit (28)
Plan. to the Corporation's Registration
Statement No. 33-47447.
(10)(k) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10)(k)
Edward E. Crutchfield. to the Corporation's 1994 Annual Report on
Form 10-K.
(10)(l) Management Restricted Stock Award Agreement. Incorporated by reference to Exhibit (10)
to the Corporation's 1997 Second Quarter
Report on Form 10-Q.
(10)(m) The Corporation's Management Long-Term Cash Incorporated by reference to Exhibit
Incentive Plan. (10)(m) to the Corporation's 1992 Annual
Report on Form 10-K.
(10)(n) Special Retirement Agreement between the Corporation and Incorporated by reference to Exhibit (10)
Edward E. Crutchfield. to the Corporation's 2000 Third Quarter
Report on Form 10-Q.
(10)(o) The Corporation's Elective Deferral Plan. Incorporated by reference to Exhibit (4)
to the Corporation's Registration
Statement No. 33-60913.
13
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ----------- --------
(10)(p) The Corporation's 1996 Master Stock Compensation Incorporated by reference to Exhibit (10)
Plan. to the Corporation's 1996 First Quarter
Report on Form 10-Q.
(10)(q) The Corporation's 1998 Stock Incentive Plan, as amended. Filed herewith.
(10)(r) Employment Agreement between the Corporation Incorporated by reference to Exhibit (10)(q)
and G. Kennedy Thompson. to the Corporation's 1999 Annual Report on
Form 10-K.
(10)(s) Form of Employment Agreement between the Incorporated by reference to Exhibit (10)(r)
Corporation and Austin A. Adams, David M. Carroll, to the Corporation's 1999 Annual Report on
Benjamin P. Jenkins, III, and Donald A. McMullen, Jr., Form 10-K.
and certain other Executive Officers of the Corporation.
(10)(t) The Corporation's Senior Management Incentive Plan. Filed herewith.
(10)(u) The Corporation's 2000 Cash Performance and Retention Plan. Filed herewith.
(12) Computations of Consolidated Ratios of Earnings to Filed herewith.
Fixed Charges.
(13) The Corporation's 2000 Annual Report to Filed herewith.
Stockholders.**
(21) List of the Corporation's subsidiaries. Filed herewith.
(23) Consent of KPMG LLP. Filed herewith.
(24) Power of Attorney. Filed herewith.
(99) Business Segments for each of the years in the three-year Filed herewith.
period ended December 31, 2000.
* We agree to furnish to the SEC upon request, copies of the instruments,
including indentures, defining the rights of the holders of our long-term
debt and of our subsidiaries' long-term debt.
** Except for those portions of the Annual Report which are expressly
incorporated by reference in this Form 10-K, the Annual Report is
furnished for the information of the Securities and Exchange Commission
only and is not to be deemed "filed" as part of such Form 10-K.