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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, 1996
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, NORTH CAROLINA 28288-0013
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 374-6565
Securities registered pursuant to Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Common Stock, $3.33 1/3 par value (including rights New York Stock Exchange, 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, 1997, there were 286,196,482 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 $83.625 per share on the NYSE on such date, the aggregate
market value of the registrant's Common Stock held by those persons deemed by
the registrant to be nonaffiliates was approximately $24 billion.
DOCUMENTS INCORPORATED BY REFERENCE IN FORM 10-K
INCORPORATED DOCUMENTS WHERE INCORPORATED IN FORM 10-K
1. Certain portions of the Corporation's Summary Annual Part I -- Item 1.
Report to Stockholders for the year ended December 31,
1996 ("Summary Report").
2. Certain portions of the Corporation's 1996 Annual Part I -- Items 1 and 2; Part II -- Items 5, 6, 7
Report ("Annual Report"). and 8.
3. Certain portions of the Corporation's Proxy Statement Part III -- Items 10, 11, 12 and 13.
for Annual Meeting of Stockholders to be held on April
15, 1997 ("Proxy Statement").
PART I
FIRST UNION CORPORATION (THE "CORPORATION") MAY FROM TIME TO TIME MAKE
WRITTEN OR ORAL "FORWARD-LOOKING STATEMENTS", INCLUDING STATEMENTS CONTAINED IN
THE CORPORATION'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (INCLUDING
THIS ANNUAL REPORT ON FORM 10-K AND THE EXHIBITS THERETO), IN ITS REPORTS TO
STOCKHOLDERS AND IN OTHER COMMUNICATIONS BY THE CORPORATION, WHICH ARE
MADE IN GOOD FAITH BY THE CORPORATION PURSUANT TO THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE CORPORATION'S PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND
INTENTIONS, THAT ARE SUBJECT TO CHANGE BASED ON VARIOUS IMPORTANT FACTORS (SOME
OF WHICH ARE BEYOND THE CORPORATION'S CONTROL). THE FOLLOWING FACTORS, AMONG
OTHERS, COULD CAUSE THE CORPORATION'S FINANCIAL PERFORMANCE TO DIFFER MATERIALLY
FROM THE PLANS, OBJECTIVES, EXPECTATIONS, ESTIMATES AND INTENTIONS EXPRESSED IN
SUCH FORWARD-LOOKING STATEMENTS: THE STRENGTH OF THE UNITED STATES ECONOMY IN
GENERAL AND THE STRENGTH OF THE LOCAL ECONOMIES IN WHICH THE CORPORATION
CONDUCTS OPERATIONS; THE EFFECTS OF, AND CHANGES IN, TRADE, MONETARY AND FISCAL
POLICIES AND LAWS, INCLUDING INTEREST RATE POLICIES OF THE BOARD OF GOVERNORS OF
THE FEDERAL RESERVE SYSTEM; INFLATION, INTEREST RATE, MARKET AND MONETARY
FLUCTUATIONS; THE TIMELY DEVELOPMENT OF AND ACCEPTANCE OF NEW PRODUCTS AND
SERVICES OF THE CORPORATION AND THE PERCEIVED OVERALL VALUE OF THESE PRODUCTS
AND SERVICES BY USERS, INCLUDING THE FEATURES, PRICING AND QUALITY COMPARED TO
COMPETITORS' PRODUCTS AND SERVICES; THE WILLINGNESS OF USERS TO SUBSTITUTE
COMPETITORS' PRODUCTS AND SERVICES FOR THE CORPORATION'S PRODUCTS AND SERVICES;
THE SUCCESS OF THE CORPORATION IN GAINING REGULATORY APPROVAL OF ITS PRODUCTS
AND SERVICES, WHEN REQUIRED; THE IMPACT OF CHANGES IN FINANCIAL SERVICES' LAWS
AND REGULATIONS (INCLUDING LAWS CONCERNING TAXES, BANKING, SECURITIES AND
INSURANCE); TECHNOLOGICAL CHANGES; ACQUISITIONS; CHANGES IN CONSUMER SPENDING
AND SAVING HABITS; AND THE SUCCESS OF THE CORPORATION AT MANAGING THE RISKS
INVOLVED IN THE FOREGOING.
THE CORPORATION CAUTIONS THAT THE FOREGOING LIST OF IMPORTANT FACTORS IS
NOT EXCLUSIVE. THE CORPORATION DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING
STATEMENT, WHETHER WRITTEN OR ORAL, THAT MAY BE MADE FROM TIME TO TIME BY OR ON
BEHALF OF THE CORPORATION.
ITEM 1. BUSINESS.
GENERAL
The Corporation was incorporated under the laws of North Carolina in 1967
and is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHCA"). Pursuant to a corporate reorganization in
1968, First Union National Bank of North Carolina ("FUNB-NC") and First Union
Mortgage Corporation, a mortgage banking firm acquired by FUNB-NC in 1964,
became subsidiaries of the Corporation.
The Corporation currently operates deposit-taking banking subsidiaries in
Connecticut, Delaware, Florida, Georgia, Maryland, New Jersey, New York, North
Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and Washington, D.C.
In addition to providing a wide range of commercial and retail banking and trust
services through such banking subsidiaries, the Corporation also provides
various other financial services, including mortgage banking, investment
banking, home equity lending, leasing, insurance and securities brokerage
services, through other subsidiaries.
The Corporation's principal executive offices are located at One First
Union Center, Charlotte, North Carolina 28288-0013 (telephone number (704)
374-6565).
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, the Corporation has concentrated its efforts on building a large
banking organization in the eastern region of the United States. Since November
1985, the Corporation has completed 71 banking-related acquisitions, including
the more significant acquisitions (I.E., involving the acquisition of $3.0
billion or more of assets or deposits) set forth in the following table.
1
CONSIDERATION/
ASSETS/ ACCOUNTING
NAME (1) HEADQUARTERS DEPOSITS (2)(3) TREATMENT COMPLETION DATE
Atlantic Bancorporation.......................... Florida $3.8 billion common stock/ November 1985
pooling
Northwestern Financial Corporation............... North Carolina 3.0 billion common stock/ December 1985
pooling
First Railroad & Banking Company of Georgia...... Georgia 3.7 billion common stock/ November 1986
pooling
Florida National Banks of Florida, Inc........... Florida 7.9 billion cash/preferred January 1990
stock/purchase
Southeast Banking Corporation subsidiary banks
("Southeast").................................. Florida 9.9 billion cash/notes/ September 1991
preferred stock/
purchase
Resolution Trust Corporation ("RTC")
acquisitions................................... Florida, 5.3 billion cash/purchase 1991-1994
Georgia,
Virginia
Dominion Bankshares Corporation.................. Virginia 8.9 billion common stock/ March 1993
preferred stock/
pooling
Georgia Federal Bank, FSB........................ Georgia 4.0 billion cash/purchase June 1993
First American Metro Corp........................ Virginia 4.6 billion cash/purchase June 1993
American Savings of Florida, F.S.B............... Florida 3.6 billion common stock/ July 1995
purchase
First Fidelity Bancorporation ("FFB")............ New Jersey 35.3 billion common stock/ January 1996
preferred stock/
pooling
Center Financial Corporation..................... Connecticut $4.0 billion common stock/ November 1996
purchase
(1) Additional information relating to certain of the foregoing and other
acquisitions is set forth in the Annual Report in Note 2 on page C-12 and
incorporated herein by reference.
(2) The dollar amounts indicated represent assets of the related organization as
of the last reporting period prior to acquisition, except (i) the dollar
amount relating to the RTC acquisitions, which represents deposits acquired
from the RTC, and (ii) the dollar amount relating to Southeast, which
represents the assets of the two banking subsidiaries of Southeast Banking
Corporation acquired from the Federal Deposit Insurance Corporation (the
"FDIC").
(3) In addition, the Corporation acquired (i) Lieber & Company, a mutual fund
advisory company with $3.4 billion in assets under management, in June 1994,
and (ii) Keystone Investments, Inc., a mutual fund advisory company with
$11.6 billion in assets under management, in December 1996. The
consideration paid by the Corporation was common stock. The Lieber & Company
acquisition was accounted for as a pooling of interests and the Keystone
Investments, Inc. acquisition was accounted for as a purchase.
The Corporation is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. Acquisitions typically involve the payment
of a premium over book and market values, and therefore some dilution of the
Corporation's book value and net income per common share may occur in connection
with future transactions.
Additional information relating to the business of the Corporation and its
subsidiaries is set forth on pages 11 through 18 in the Summary Report and
incorporated herein by reference. Information relating to the Corporation only
is set forth in Note 16 on pages C-31 through C-34 in the Annual Report and
incorporated herein by reference.
2
COMPETITION
The Corporation's subsidiaries face substantial competition in their
operations from banking and nonbanking institutions, including savings and loan
associations, credit unions, money market funds and other investment vehicles,
mutual fund advisory companies, brokerage firms, insurance companies, leasing
companies, credit card issuers, mortgage banking companies, investment banking
companies, finance companies and other types of financial services providers.
SUPERVISION AND REGULATION
THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE
REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES
AND PROVIDES CERTAIN SPECIFIC INFORMATION RELEVANT TO THE CORPORATION. THE
REGULATORY FRAMEWORK IS INTENDED PRIMARILY FOR THE PROTECTION OF DEPOSITORS AND
THE FEDERAL DEPOSIT INSURANCE FUNDS AND NOT FOR THE PROTECTION OF SECURITY
HOLDERS. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND
REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
PARTICULAR STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE STATUTES,
REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF
THE CORPORATION.
GENERAL
As a bank holding company, the Corporation is subject to regulation under
the BHCA and its examination and reporting requirements. Under the BHCA, bank
holding companies may not directly or indirectly acquire the ownership or
control of more than five percent of the voting shares or substantially all of
the assets of any company, including a bank, without the prior approval, or a
waiver of the requirement for such approval, by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). In addition, bank holding
companies are generally prohibited under the BHCA from engaging in nonbanking
activities, subject to certain exceptions.
The earnings of the Corporation's subsidiaries, and therefore the earnings
of the Corporation, are affected by general economic conditions, management
policies and the legislative and governmental actions of various regulatory
authorities, including the Federal Reserve Board, the Comptroller of the
Currency (the "Comptroller") and the FDIC. In addition, there are numerous
governmental requirements and regulations which affect the activities of the
Corporation and its subsidiaries.
PAYMENT OF DIVIDENDS
The Corporation is a legal entity separate and distinct from its banking
and other subsidiaries. A major portion of the revenues of the Corporation
result from amounts paid as dividends to the Corporation by its banking
subsidiaries. The Corporation's banking subsidiaries are subject to legal
limitations on the amount of dividends they can pay. The prior approval of the
Comptroller is required if the total of all dividends declared by a national
bank in any calendar year will exceed the sum of such bank's net profits for
that year and its retained net profits for the preceding two calendar years,
less any required transfers to surplus. Federal law also prohibits national
banks from paying dividends which would be greater than the bank's undivided
profits after deducting statutory bad debt in excess of the bank's allowance for
loan losses. Similar restrictions on dividends are in effect for the
Corporation's subsidiary banks that are not national banks.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of the Corporation's nonbanking subsidiaries, as of
December 31, 1996, the Corporation's subsidiaries, without obtaining affirmative
governmental approvals, could pay aggregate dividends of $533 million to the
Corporation during 1997. In 1996, the Corporation's subsidiaries paid $2.3
billion in cash dividends to the Corporation.
In addition, both the Corporation and its banking subsidiaries are subject
to various general regulatory policies and requirements relating to the payment
of dividends, including requirements to maintain adequate capital above
regulatory minimums. The appropriate federal regulatory authority is authorized
to determine under certain circumstances relating to the financial condition of
a bank or bank holding company that the payment of dividends would be an unsafe
or unsound practice and to prohibit payment thereof. The appropriate federal
regulatory authorities have indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsound and unsafe
banking practice and that banking organizations should generally pay dividends
only out of current operating earnings.
3
BORROWINGS BY THE CORPORATION
There are also various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit
from its banking subsidiaries. In general, these restrictions require that any
such extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Corporation or such nonbank
subsidiaries, to ten percent of the lending bank's capital stock and surplus,
and as to the Corporation and all such nonbank subsidiaries in the aggregate, to
20 percent of such lending bank's capital stock and surplus.
CAPITAL
Under the risk-based capital requirements for bank holding companies, the
minimum requirement for the ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) is
eight percent. At least half of the total capital is to be composed of common
equity, retained earnings and qualifying perpetual preferred stock, less
goodwill ("tier 1 capital" and together with tier 2 capital "total capital").
The remainder may consist of subordinated debt, nonqualifying preferred stock
and a limited amount of the loan loss allowance ("tier 2 capital"). At December
31, 1996, the Corporation's tier 1 capital and total capital ratios were 7.33
percent and 12.33 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
("leverage ratio") equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. The Corporation's leverage ratio at
December 31, 1996, was 6.13 percent. The requirements also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the requirements indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Corporation of any specific minimum tier 1
leverage ratio applicable to it.
Each of the Corporation's subsidiary banks is subject to similar capital
requirements adopted by the Comptroller or other applicable regulatory agency.
Neither the Comptroller nor such applicable regulatory agency has advised any of
the Corporation's subsidiary banks of any specific minimum leverage ratios
applicable to them. The capital ratios of the bank subsidiaries of the
Corporation are set forth on page T-18 in the Annual Report and incorporated
herein by reference.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital requirements.
SUPPORT OF SUBSIDIARY BANKS
The Federal Deposit Insurance Act, as amended ("FDIA"), among other things,
imposes liability on an institution the deposits of which are insured by the
FDIC, such as the Corporation's subsidiary banks, for certain potential
obligations to the FDIC incurred in connection with other FDIC-insured
institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the Comptroller is authorized to require3
payment of the deficiency by assessment upon the bank's stockholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
stockholder after three months notice, to sell the stock of such stockholder to
make good the deficiency. Under Federal Reserve Board policy, the Corporation is
expected to act as a source of financial strength to each of its subsidiary
banks and to commit resources to support each of such subsidiaries. This support
may be required at times when, absent such Federal Reserve Board policy, the
Corporation may not find itself able to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
4
CORRECTIVE ACTION
FDIA 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. The relevant capital
measures are the total capital ratio, the tier 1 capital ratio and the leverage
ratio. Under the regulations, a bank will be: (i) "well capitalized" if it has a
total capital ratio of ten percent or greater, a tier 1 capital ratio of six
percent or greater and a leverage ratio of five percent or greater and is not
subject to any order or written directive by any such regulatory authority to
meet and maintain a specific capital level for any capital measure; (ii)
"adequately capitalized" if it has a total capital ratio of eight percent or
greater, a tier 1 capital ratio of four percent or greater and a leverage ratio
of four percent or greater (three percent in certain circumstances) and is not
"well capitalized"; (iii) "undercapitalized" if it has a total capital ratio of
less than eight percent, a tier 1 capital ratio of less than four percent or a
leverage ratio of less than four percent (three percent in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than six percent, a tier 1 capital ratio of less than three
percent or a leverage ratio of less than three percent; and (v) "critically
undercapitalized" if its tangible equity is equal to or less than two percent of
average quarterly tangible assets. As of December 31, 1996, all of the
Corporation's subsidiary banks had capital levels that qualify them as being
"well capitalized" under such regulations.
FDIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
"undercapitalized". "Undercapitalized" depository institutions are subject to
growth limitations and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized", and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
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"), authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation. In addition, beginning June 1, 1997,
the IBBEA authorizes a bank to merge with a bank in another state as long as
neither of the states has opted out of interstate branching between the date of
enactment of the IBBEA and May 31, 1997. The IBBEA further provides that states
may enact laws permitting interstate bank merger transactions prior to June 1,
1997. A bank may establish and operate a DE NOVO branch in a state in which the
bank does not maintain a branch if that state expressly permits DE NOVO
branching. Once a bank has established branches in a state through an interstate
merger transaction, the bank may establish and acquire additional branches at
any location in the state where any bank involved in the interstate merger
transaction could have established or acquired branches under applicable federal
or state law. A bank that has established a branch in a state through DE NOVO
branching may establish and acquire additional branches in such state in the
same manner and to the same extent as a bank having a branch in such state as a
result of an interstate merger. If a state opts out of interstate
5
branching within the specified time period, no bank in any other state may
establish a branch in the opting out state, whether through an acquisition or DE
NOVO.
FDIC INSURANCE ASSESSMENTS
The FDIC reduced the insurance premiums it charges on bank deposits insured
by the Bank Insurance Fund ("BIF") to the statutory minimum of $2,000.00 for
"well capitalized" banks, effective January 1, 1996. Premiums related to
deposits assessed by the Savings Association Insurance Fund ("SAIF"), including
savings association deposits acquired by banks, continued to be assessed at the
rate of between 23 cents and 31 cents per $100.00 of deposits. On September 30,
1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed
into law. DIFA reduced the amount of semi-annual FDIC insurance premiums for
savings association deposits acquired by banks to the same levels assessed for
deposits insured by BIF. The Corporation currently estimates such reductions in
premiums may amount to approximately $35 million pre-tax per year.
DIFA also provides for a special one-time assessment imposed on deposits
insured by the SAIF, including such deposits held by banks, to recapitalize the
SAIF to bring the SAIF up to statutory required levels. The Corporation accrued
for the one-time assessment in the third quarter of 1996 in the amount of $86
million after tax in connection with the SAIF recapitalization.
DIFA further provides for assessments to be imposed on insured depository
institutions with respect to deposits insured by the BIF (in addition to
assessments currently imposed on depository institutions with respect to
SAIF-insured deposits) to pay for the cost of Financing Corporation funding. The
Corporation currently estimates assessments may amount to up to $14 million
after-tax in 1997 with similar assessments per year through 1999 (or earlier if
no savings associations exist prior to December 31, 1999) in connection with
such funding.
ADDITIONAL INFORMATION
Additional information related to certain regulatory and accounting matters
is set forth on pages 14 and 15 in the Annual Report and incorporated herein by
reference.
ITEM 2. PROPERTIES.
As of December 31, 1996, the Corporation and its subsidiaries owned or
leased 2,397 locations in 38 states, Washington, D.C., and six foreign countries
from which their business is conducted, including a multi-story office complex
in Charlotte, North Carolina, which serves as the administrative headquarters of
the Corporation. Listed below are the number of banking and nonbanking locations
that are leased or owned, as of December 31, 1996.
LEASED OWNED
First Union National Bank of Florida............................................... 225 335
First Union National Bank of North Carolina........................................ 117 183
First Union National Bank of Georgia............................................... 188 91
First Union National Bank of South Carolina........................................ 10 56
First Union National Bank of Tennessee............................................. 15 46
First Union National Bank of Virginia.............................................. 86 109
First Union National Bank of Maryland.............................................. 57 9
First Union National Bank of Washington, D.C....................................... 28 1
First Union Home Equity Bank, N.A.................................................. 127 --
First Union National Bank.......................................................... 217 331
First Union Bank of Delaware....................................................... 2 --
First Union Bank of Connecticut.................................................... 66 42
Nonbanking locations............................................................... 54 2
Total............................................................................ 1,192 1,205
Additional information relating to the Corporation's lease commitments is
set forth in Note 17 on page C-35 in the Annual Report and incorporated herein
by reference.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation and certain of its subsidiaries have been named as
defendants in various legal actions arising from their normal business
activities in which varying amounts are claimed. Although the amount of any
ultimate liability with respect to such matters cannot be determined, in the
opinion of management, based upon the opinions of counsel, any such liability
will not have a material effect on the consolidated financial position of the
Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is listed on the NYSE. Table 6 on page T-5 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,
1996, 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, 1996,
there were 103,538 holders of record of the Common Stock.
Subject to the prior rights of the holders of the Class A Preferred Stock,
holders of the Common Stock are entitled to receive such dividends as may be
legally declared by the Board of Directors of the Corporation (the "FUNC Board")
and, in the event of dissolution and liquidation, to receive the net assets of
the Corporation remaining after payment of all liabilities, in proportion to
their respective holdings. Additional information concerning certain limitations
on the payment of dividends by the Corporation and its subsidiaries is set forth
above under "Business -- Supervision and Regulation; Payment of Dividends" and
in Note 16 on page C-31 in the Annual Report and incorporated herein by
reference.
Each outstanding share of Common Stock currently has attached to it one
right (a "Right") issued pursuant to an Amended and Restated Shareholder
Protection Rights Agreement (the "Rights Agreement"). Each Right entitles its
registered holder to purchase one one-hundredth of a share of a junior
participating series of the Corporation's Class A Preferred Stock designed to
have economic and voting terms similar to those of one share of Common Stock,
for $210.00, subject to adjustment (the "Rights Exercise Price"), but only after
the earlier to occur (the "Separation Time") of: (i) the tenth business day
(subject to extension) after any person (an "Acquiring Person") (x) commences a
tender or exchange offer, which, if consummated, would result in such person
becoming the beneficial owner of 15 percent or more of the outstanding shares of
Common Stock, or (y) is determined by the Federal Reserve Board to "control" the
Corporation within the meaning of the BHCA, subject to certain exceptions; and
(ii) the tenth business day after the first date (the "Flip-in Date") of a
public announcement by the Corporation that a person has become an Acquiring
Person. The Rights will not trade separately from the shares of Common Stock
unless and until the Separation Time occurs.
The Rights Agreement provides that a person will not become an Acquiring
Person under the BHCA control test described above if either (i) the Federal
Reserve Board's control determination would not have been made but for such
person's failure to make certain customary passivity commitments, or such
person's violation of such commitments made, to the Federal Reserve Board, so
long as the Federal Reserve Board determines that such person no longer controls
the Corporation within 30 days (or 60 days in certain circumstances), or (ii)
the Federal Reserve Board's control determination was not based on such a
failure or violation and such person (x) obtains a noncontrol determination
within three years, and (y) is using its best efforts to allow the Corporation
to make any acquisition or engage in any legally permissible activity
notwithstanding such person's being deemed to control the Corporation for
purposes of the BHCA.
The Rights will not be exercisable until the business day following the
Separation Time. The Rights will expire on the earliest of: (i) the Exchange
Time (as defined below); (ii) the close of business on December 28, 2000; and
(iii) the date on which the Rights are redeemed or terminated as described below
(in any such case, the "Expiration Time"). The Rights Exercise Price and the
number of Rights outstanding, or in certain circumstances the securities
purchasable upon exercise of the Rights, are subject to adjustment upon the
occurrence of certain events.
In the event that prior to the Expiration Time a Flip-in Date occurs, the
Corporation will take such action as shall be necessary to ensure and provide
that each Right (other than Rights beneficially owned by an Acquiring Person or
any affiliate, associate or transferee thereof, which Rights shall become void)
shall constitute the right to purchase, from the Corporation, shares of Common
Stock having an aggregate market price equal to twice the Rights Exercise Price
for an amount in cash equal to the then current Rights Exercise Price. In
addition, the FUNC Board may, at its option, at any time after a Flip-in Date,
elect to exchange all of the then outstanding Rights for shares of Common Stock,
at an exchange ratio of two shares of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the Separation Time (the "Rights Exchange Rate"). Immediately
upon such action by the FUNC Board (the "Exchange Time"), the right to exercise
the Rights will terminate, and each Right will thereafter represent only the
right to receive a number of shares of Common Stock equal to the Rights Exchange
Rate. If the Corporation becomes obligated to issue shares of Common Stock upon
exercise of or in exchange for Rights, the Corporation, at its option, may
substitute therefor shares of junior participating Class A Preferred Stock upon
exercise of each Right at a rate of two one-hundredths of a share of junior
participating Class A Preferred Stock upon the exchange of each Right.
7
The Rights may be canceled and terminated without any payment to holders
thereof at any time prior to the date they become exercisable and are redeemable
by the Corporation at $0.01 per right, subject to adjustment upon the occurrence
of certain events, at any date between to the date on which they become
exercisable and the Flip-in Date. The Rights have no voting rights and are not
entitled to dividends.
The Rights will not prevent a takeover of the Corporation. The Rights,
however, may cause substantial dilution to a person or group that acquires 15
percent or more of Common Stock (or that acquires "control" of the Corporation
within the meaning of the BHCA) unless the Rights are first redeemed or
terminated by the FUNC Board. Nevertheless, the Rights should not interfere with
a transaction that is in the best interests of the Corporation and its
stockholders because the Rights can be redeemed or terminated, as hereinabove
described, before the consummation of such transaction.
The complete terms of the Rights are set forth in the Rights Agreement. The
foregoing description of the Rights and the Rights Agreement is qualified in its
entirety by reference to such document. A copy of the Rights Agreement can be
obtained upon written request to the Rights Agent, First Union National Bank of
North Carolina, Two First Union Center, Charlotte, North Carolina 28288-1154.
Additional information relating to the Common Stock is set forth in Note 13
on page C-25 in the Annual Report and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
In response to this Item, the information set forth in Table 1 on page T-1
in the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In response to this Item, the information set forth on pages 1 through T-26
in the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
In response to this Item, the information set forth on page T-5 and on
pages C-1 through C-39 in the Annual Report is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Corporation are elected to their offices for
one year terms at the meeting of the FUNC Board in April of each year. The terms
of any executive officers elected after such date expire at the same time as the
terms of the executive officers elected on such date. The names of each of the
current executive officers of the Corporation, their ages, their current
positions with the Corporation and certain subsidiaries and, if different, their
business experience during the past five years, are as follows:
Edward E. Crutchfield (55). Chairman and Chief Executive Officer, the
Corporation.
John R. Georgius (52). Vice Chairman, the Corporation, since January 1,
1996. President, the Corporation, from June 1990 to January 1, 1996.
Chairman and Chief Executive Officer, FUNB-NC, from October 1988 to February
1993.
Anthony P. Terracciano (58). President, the Corporation, since January 1,
1996. Mr. Terracciano, who was formerly Chairman of the Board, President and
Chief Executive Officer of FFB, was elected to his present office by the
FUNC Board pursuant to the FFB acquisition agreement.
B. J. Walker (66). Vice Chairman, the Corporation.
Robert T. Atwood (56). Executive Vice President and Chief Financial Officer,
the Corporation, since March 1991.
Marion A. Cowell, Jr. (62). Executive Vice President, Secretary and General
Counsel, the Corporation.
In addition to the foregoing, the information set forth in the Proxy
Statement under the heading "General Information and Nominees", and in the
paragraph under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" under "Other Matters Relating to Executive Officers, Directors and
Principal Stockholders" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
In response to this Item the information set forth in the Proxy Statement
under the heading "Executive Compensation", excluding the information under the
subheadings "HR Committee Report on Executive Compensation" and "Performance
Graph", is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In response to this Item the information set forth in the Proxy Statement
relating to the ownership of Common Stock by the directors, executive officers
and principal stockholders of the Corporation under the headings "Voting
Securities and Principal Holders" and "General Information and Nominees" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In response to this Item the information set forth in the Proxy Statement
under the headings "General", "Santander" and "Certain Other Relationships"
under "Other Matters Relating to Executive Officers, Directors and Principal
Stockholders" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The consolidated financial statements of the Corporation, including the
notes thereto and independent auditors' report thereon, are set forth on pages
C-1 through C-39 of the Annual Report. All financial statement schedules are
omitted since the required information is either not applicable, is immaterial
or is included in the consolidated financial statements of the Corporation and
notes thereto. A list of the exhibits to this Form 10-K is set forth on the
Exhibit Index immediately preceding such exhibits and is incorporated herein by
reference.
(b) During the quarter ended December 31, 1996, a Current Report on Form
8-K, dated October 16, 1996, was filed by the Corporation with the Securities
and Exchange Commission pursuant to Item 5, relating to an amendment and
restatement of the Corporation's Shareholder Protection Rights Agreement.
9
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 12, 1997 By: MARION A. COWELL, JR.
MARION A. COWELL, JR.
EXECUTIVE VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the date indicated.
SIGNATURE CAPACITY
EDWARD E. CRUTCHFIELD* Chairman and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal
JAMES H. HATCH Accounting Officer)
EDWARD E. BARR* Director
EDWARD E. BARR
G. ALEX BERNHARDT* Director
G. ALEX BERNHARDT
W. WALDO BRADLEY* Director
W. WALDO BRADLEY
ROBERT J. BROWN* Director
ROBERT J. BROWN
ROBERT D. DAVIS* Director
ROBERT D. DAVIS
Director
R. STUART DICKSON
B. F. DOLAN* Director
B. F. DOLAN
RODDEY DOWD, SR.* Director
RODDEY DOWD, SR.
10
SIGNATURE CAPACITY
JOHN R. GEORGIUS* Director
JOHN R. GEORGIUS
ARTHUR M. GOLDBERG* Director
ARTHUR M. GOLDBERG
WILLIAM H. GOODWIN, JR.* Director
WILLIAM H. GOODWIN, JR.
BRENTON S. HALSEY* Director
BRENTON S. HALSEY
HOWARD H. HAWORTH* Director
HOWARD H. HAWORTH
FRANK M. HENRY* Director
FRANK M. HENRY
LEONARD G. HERRING* Director
LEONARD G. HERRING
JUAN RODRIGUEZ INCIARTE* Director
JUAN RODRIGUEZ INCIARTE
JACK A. LAUGHERY* Director
JACK A. LAUGHERY
MAX LENNON* Director
MAX LENNON
Director
RADFORD D. LOVETT
JOSEPH NEUBAUER* Director
JOSEPH NEUBAUER
HENRY D. PERRY, JR.* Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS* Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW* Director
RUTH G. SHAW
11
SIGNATURE CAPACITY
CHARLES M. SHELTON, SR.* Director
CHARLES M. SHELTON, SR
LANTY L. SMITH* Director
LANTY L. SMITH
Director
ANTHONY P. TERRACCIANO
Director
DEWEY L. TROGDON
JOHN D. UIBLE* Director
JOHN D. UIBLE
B. J. WALKER* Director
B. J. WALKER
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
MARION A. COWELL, JR.
Date: March 12, 1997
12
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
(2) FFB acquisition agreement. Incorporated by reference to Exhibit (99) to
the Corporation's Current Report on Form 8-K
dated June 21, 1995.
(3)(a) Articles of Incorporation of the Corporation, as amended. Incorporated by reference to Exhibit (4) to
the Corporation's 1990 First Quarter Report
on Form 10-Q, to Exhibit (99)(a) to the
Corporation's 1993 First Quarter Report on
Form 10-Q and Exhibit (4) to the
Corporation's Current Report on Form 8-K
dated January 10, 1996.
(3)(b) Bylaws of the Corporation, as amended. Incorporated by reference to Exhibit (3)(b)
to the Corporation's 1995 Annual Report on
Form 10-K.
(4)(a) Instruments defining the rights of the holders of the *
Corporation's long-term debt.
(4)(b) The Corporation's Amended and Restated Shareholder Protection Incorporated by reference to Exhibit (4) to
Rights Agreement. the Corporation's Current Report on Form 8-K
dated October 16, 1996.
(10)(a) The Corporation's Amended and Restated Management Incentive Plan. Incorporated by reference to Exhibit (10)(a)
to the Corporation's 1995 Annual Report on
Form 10-K.
(10)(b) The Corporation's Deferred Compensation Plan for Officers. Incorporated by reference to Exhibit (10)(b)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(c) The Corporation's Deferred Compensation Plan for Non-Employee Incorporated by reference to Exhibit (10)(c)
Directors. to the Corporation's 1989 Annual Report on
Form 10-K.
(10)(d) The Corporation's Supplemental Executive Long-Term Disability Incorporated by reference to Exhibit (10)(d)
Plan. to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(e) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit (10)(f)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(f) The Corporation's Retirement Plan for Non-Employee Directors. Incorporated by reference to Exhibit (10)(g)
to the Corporation's 1988 Annual Report on
Form 10-K.
(10)(g) The Corporation's 1984 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(h) The Corporation's 1988 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(i) The Corporation's 1992 Master Stock Compensation Plan. Incorporated by reference to Exhibit (28) to
the Corporation's Registration Statement No.
33-47447.
(10)(j) Employment Agreement between the Corporation and Edward E. Incorporated by reference to Exhibit (10)(k)
Crutchfield, as amended. to the Corporation's 1994 Annual Report on
Form 10-K.
(10)(k) The Corporation's Management Long-Term Cash Incentive Plan. Incorporated by reference to Exhibit (10)(m)
to the Corporation's 1992 Annual Report on
Form 10-K.
(10)(l) Employment Agreement between the Corporation and Anthony P. Incorporated by reference to Exhibit (99)(c)
Terracciano. to the Corporation's Registration Statement
No. 33-62307.
(10)(m) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10) to
John R. Georgius. Amendment No. 1 to the Corporation's
Registration Statement No. 33-60835.
(10)(n) The Corporation's Elective Deferral Plan. Incorporated by reference to Exhibit (4) to
the Corporation's Registration Statement No.
33-60913.
(10)(o) The Corporation's 1996 Master Stock Compensation Plan. Incorporated by reference to Exhibit (10) to
the Corporation's 1996 First Quarter Report
on Form 10-Q.
(12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges. Filed herewith.
(12)(b) Computations of Consolidated Ratios of Earnings to Fixed Charges Filed herewith.
and Preferred Stock Dividends.
(13)(a) The Corporation's 1996 Summary Annual Report to Stockholders.** Filed herewith.
(13)(b) The Corporation's 1996 Annual Report.** Filed herewith.
(21) List of the Corporation's subsidiaries. Filed herewith.
(23) Consent of KPMG Peat Marwick LLP. Filed herewith.
(24) Power of Attorney. Filed herewith.
(27) The Corporation's Financial Data Schedule.***
(99) First Union Corporation of Virginia and Subsidiaries Summarized Filed herewith.
Financial Information.
* The Corporation agrees to furnish to the Securities and Exchange Commission
upon request, copies of the instruments, including indentures, defining the
rights of the holders of the long-term debt of the Corporation and its
subsidiaries.
** Except for those portions of the Summary Annual Report and the Annual Report
which are expressly incorporated by reference in this Form 10-K, the
Summary Annual Report and the Annual Report are furnished for the
information of the Securities and Exchange Commission only and are
not to be deemed "filed" as part of such Form 10-K.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.