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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(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, 1997
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
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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
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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, 1998, there were 648,595,299 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 $47.875 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 $31 billion.
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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
Report to Stockholders for the year ended and 8.
December 31, 1997 ("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 21, 1998 ("Proxy Statement").
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PART I
First Union Corporation (the "Corporation") may from time to time make
written or oral "forward-looking statements", including statements contained in
the Corporation's filings with the Securities and Exchange Commission
(including this Annual Report on Form 10-K and the Exhibits hereto and
thereto), in its reports to stockholders and in other communications by the
Corporation, which are made in good faith by the Corporation pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
These forward-looking statements include statements with respect to the
Corporation's beliefs, plans, objectives, goals, expectations, anticipations,
estimates and intentions, that are subject to significant risks and
uncertainties and are subject to change based on various factors (some of which
are beyond the Corporation's control). The words "may", "could", "should",
"would", "believe", "anticipate", "estimate", "expect", "intend", "plan" and
similar expressions are intended to identify forward-looking statements. The
following factors, among others, could cause the Corporation's financial
performance to differ materially from that expressed in such forward-looking
statements: the strength of the United States economy in general and the
strength of the local economies in which the Corporation conducts operations;
the effects of, and changes in, trade, monetary and fiscal policies, including
interest rate policies of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"); inflation; interest rate, market and monetary
fluctuations; the timely development of competitive new products and services
by the Corporation and the acceptance of such products and services by
customers; the willingness of customers to substitute competitors' products and
services for the Corporation's products and services and vice versa; the impact
of changes in financial services' laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes;
future acquisitions; the expense savings and revenue enhancements from the
Signet (as defined below) and CoreStates (as defined below) acquisitions being
less than expected; the growth and profitability of the Corporation's
noninterest or fee income being less than expected; unanticipated regulatory or
judicial proceedings; changes in consumer spending and saving habits; and the
success of the Corporation at managing the risks involved in the foregoing.
The Corporation cautions that the foregoing list of important factors is
not exclusive. The Corporation incorporates by reference those factors included
in the Corporation's Current Reports on Form 8-K dated July 21, 1997, August
20, 1997, November 18, 1997, November 28, 1997, and December 2, 1997 (the "1997
Current Reports"). 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 ("FUNB") and First Union Mortgage Corporation,
a mortgage banking firm acquired by FUNB in 1964, became subsidiaries of the
Corporation.
The Corporation provides a wide range of commercial and retail banking and
trust services through full-service banking offices in Connecticut, Delaware,
Florida, Georgia, Maryland, New Jersey, New York, North Carolina, Pennsylvania,
South Carolina, Tennessee, Virginia and Washington, D.C. Such offices are
operated by FUNB in Charlotte, North Carolina, except in Delaware, where such
offices are operated by First Union Bank of Delaware. See "; Interstate Banking
and Branching Legislation". The Corporation also provides various other
financial services, including mortgage banking, credit card, 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 over 70 banking-related
acquisitions and has three banking-related acquisitions pending, 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
Assets/ Consideration/
Name (1) Headquarters Deposits (2)(3) Accounting 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 3.7 billion common stock/ November 1986
Georgia ..................................... Georgia pooling
Florida National Banks of Florida, Inc. ....... Florida 7.9 billion cash/preferred January 1990
stock/purchase
Southeast Banking Corporation subsidiary 9.9 billion cash/notes/ September 1991
banks ("Southeast") ......................... Florida preferred stock/
purchase
Resolution Trust Corporation ("RTC") 5.3 billion cash/purchase 1991-1994
acquisitions ................................ Florida,
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") (1) ..... New Jersey 35.3 billion common stock/ January 1996
preferred stock/
pooling
Center Financial Corporation .................. Connecticut 4.0 billion common stock/ November 1996
purchase
Signet Banking Corporation ("Signet") (1) ..... Virginia 11.3 billion common stock/ November 1997
pooling
CoreStates Financial Corp
("CoreStates") (1) ........................... Pennsylvania 48.5 billion common stock/ Pending
pooling
The Money Store Inc. ("TMSI")(1) .............. New Jersey $3.1 billion common stock/ Pending
preferred stock/
purchase
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(1) Additional information (i) with respect to the CoreStates acquisition is
set forth on pages P-1 through P-5 in the Annual Report and incorporated
herein by reference, and (ii) with respect to the CoreStates acquisition
and certain other acquisitions is set forth in the Annual Report in Note 2
on pages C-12 and C-13 and incorporated herein by reference. Additional
information with respect to the Signet acquisition, the CoreStates
acquisition, and the acquisitions of Wheat First Butcher Singer, Inc., an
investment banking firm based in Richmond, Virginia, and Covenant Bancorp,
Inc., a bank holding company based in Haddonfield, N.J., which were
acquired in January 1998, is set forth in the 1997 Current Reports. See "
-- THE MONEY STORE INC. PENDING ACQUISITION" for additional information
with respect to the TMSI acquisition.
(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, (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"), and (iii) the dollar amount relating to CoreStates is as of
December 31, 1997.
(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.
2
The Corporation is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. 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 10 through 15 and in Table 4 on pages T-3
and T-4 in the Annual Report and incorporated herein by reference. Information
relating to the Corporation only is set forth in Note 18 on pages C-36 through
C-39 in the Annual Report and incorporated herein by reference.
The Money Store Inc. Pending Acquisition
On March 4, 1998, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with TMSI and FUNB, providing for, among other
things, the merger (the "Merger") of a direct, wholly owned subsidiary of FUNB
with and into TMSI. Pursuant to the Merger Agreement, at the effective time of
the Merger (the "Effective Time"), each outstanding share of TMSI common stock,
no par value (the "TMSI Common Stock"), will be converted into the right to
receive that number of shares of the Corporation's common stock (the "FUNC
Common Stock") equal to the result (the "Exchange Ratio") of dividing $34.00 by
the average of the per share closing sales price of FUNC Common Stock on the
NYSE for each of the five trading days in the period ending on the trading day
prior to the Effective Time. At the Effective Time, each outstanding share of
TMSI $1.72 Mandatory Convertible Preferred Stock (the "TMSI Preferred Stock")
will be converted into the right to receive the number of shares of FUNC Common
Stock equal to the product of the Exchange Ratio and 0.92. If any approval of
the holders of TMSI Preferred Stock that may be required in order to deliver
FUNC Common Stock in exchange therefor shall not be received, then each share
of TMSI Preferred Stock outstanding at the Effective Time shall instead be
converted into the right to receive a share of a new series of the
Corporation's convertible preferred stock containing substantially similar
terms as the TMSI Preferred Stock, as adjusted to reflect the Merger.
The total purchase price is approximately $2.1 billion. In connection with
the transaction, the Corporation expects to repurchase a number of its
outstanding shares of FUNC Common Stock equal to the number of such shares to
be issued in the Merger, which the Corporation currently estimates will be
approximately 41 million shares, based on the recent market price of FUNC
Common Stock. The transaction will be accounted for as a purchase.
In his capacity as a stockholder of TMSI, Marc J. Turtletaub, Chief
Executive Officer of TMSI, entered into a stock option and voting agreement
dated as of March 4, 1998, with the Corporation pursuant to which, among other
things, Mr. Turtletaub granted the Corporation an option, exercisable following
the occurrence of certain contingencies set forth therein, to purchase up to
14,547,261 shares of TMSI Common Stock (approximately 24.9 percent of the
outstanding shares of TMSI Common Stock) owned by him at a price, subject to
certain adjustments, of $34.00 per share, payable in FUNC Common Stock.
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.
3
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 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 national bank
subsidiaries. The prior approval of the Comptroller is required if the total of
all dividends declared by a national bank in any calendar year will exceed the
sum of such bank's net profits for that year and its retained net profits for
the preceding two calendar years, less any required transfers to surplus.
Federal law also prohibits national banks from paying dividends which would be
greater than the bank's undivided profits after deducting statutory bad debt in
excess of the bank's allowance for loan losses.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of the Corporation's nonbanking subsidiaries, as of
December 31, 1997, the Corporation's subsidiaries, without obtaining
affirmative governmental approvals, could pay aggregate dividends of $426
million to the Corporation during 1998. In 1997, the Corporation's subsidiaries
paid $1.3 billion in cash dividends to the Corporation.
In addition, the Corporation and its banking subsidiaries are subject to
various general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
bank or bank holding company that the payment of dividends would be an unsafe
or unsound practice and to prohibit payment thereof. The appropriate federal
regulatory authorities have indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsound and unsafe
banking practice and that banking organizations should generally pay dividends
only out of current operating earnings.
Borrowings by the Corporation
There are also various legal restrictions on the extent to which the
Corporation and its nonbank subsidiaries can borrow or otherwise obtain credit
from its banking subsidiaries. In general, these restrictions require that any
such extensions of credit must be secured by designated amounts of specified
collateral and are limited, as to any one of the Corporation or such nonbank
subsidiaries, to ten percent of the lending bank's capital stock and surplus,
and as to the Corporation and all such nonbank subsidiaries in the aggregate,
to 20 percent of such lending bank's capital stock and surplus.
Capital Adequacy
Under the risk-based capital requirements for bank holding companies, the
minimum requirement for the ratio of capital to risk-weighted assets (including
certain off-balance-sheet activities, such as standby letters of credit) is
eight percent. At least half of the total capital is to be composed of common
stockholders' equity, retained earnings, a limited amount of qualifying
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill and certain intangibles ("tier 1
capital" and together with tier 2 capital "total capital"). The remainder of
total capital may consist of mandatory convertible debt securities and a
limited amount of subordinated debt, qualifying preferred stock and loan loss
allowance ("tier 2 capital"). At December 31, 1997, the Corporation's tier 1
capital and total capital ratios were 8.41 percent and 13.40 percent,
respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These requirements provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
less certain amounts ("leverage ratio") equal to three percent for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a leverage ratio
4
of from at least four to five percent. The Corporation's leverage ratio at
December 31, 1997, was 6.81 percent. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible tier 1 leverage ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve Board has not advised the Corporation of any specific minimum leverage
ratio or tier 1 leverage ratio applicable to it.
Each of the Corporation's subsidiary banks is subject to similar capital
requirements adopted by the Comptroller or other applicable regulatory agency.
Neither the Comptroller nor such applicable regulatory agency has advised any
of the Corporation's subsidiary banks of any specific minimum leverage ratios
applicable to it. The capital ratios of the bank subsidiaries of the
Corporation are set forth in Table 18 on page T-15 in the Annual Report and
incorporated herein by reference.
Support of Subsidiary Banks
The Federal Deposit Insurance Act, as amended ("FDIA"), among other
things, imposes liability on an institution the deposits of which are insured
by the FDIC, such as the Corporation's subsidiary banks, for certain potential
obligations to the FDIC incurred in connection with other FDIC-insured
institutions under common control with such institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the Comptroller is authorized to require
payment of the deficiency by assessment upon the bank's stockholders, pro rata,
and to the extent necessary, if any such assessment is not paid by any
stockholder after three months notice, to sell the stock of such stockholder to
make good the deficiency. Under Federal Reserve Board policy, the Corporation
is expected to act as a source of financial strength to each of its subsidiary
banks and to commit resources to support each of such subsidiaries. This
support may be required at times when, absent such Federal Reserve Board
policy, the Corporation may not find itself able to provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Prompt Corrective Action
The FDIA, among other things, requires the federal banking agencies to
take "prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements. FDIA establishes five capital tiers:
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized". A
depository institution's capital tier will depend upon where its capital levels
compare to various relevant capital measures and certain other factors, as
established by regulation.
Federal regulatory authorities have adopted regulations establishing
relevant capital measures and relevant capital levels applicable to
FDIC-insured banks. The relevant capital measures are the total capital ratio,
the tier 1 capital ratio and the leverage ratio. Under the regulations, an
FDIC-insured bank will be: (i) "well capitalized" if it has a total capital
ratio of ten percent or greater, a tier 1 capital ratio of six percent or
greater and a leverage ratio of five percent or greater and is not subject to
any order or written directive by any such regulatory authority to meet and
maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total capital ratio of eight percent or greater, a
tier 1 capital ratio of four percent or greater and a leverage ratio of four
percent or greater (three percent in certain circumstances) and is not "well
capitalized"; (iii) "undercapitalized" if it has a total capital ratio of less
than eight percent, a tier 1 capital ratio of less than four percent or a
leverage ratio of less than four percent (three percent in certain
circumstances); (iv) "significantly undercapitalized" if it has a total capital
ratio of less than six percent, a tier 1 capital ratio of less than three
percent or a leverage ratio of less than three percent; and (v) "critically
undercapitalized" if its tangible equity is equal to or less than two percent
of average quarterly tangible assets. An institution may be downgraded to, or
deemed to be in, a capital category that is lower than is indicated by its
capital ratios if it is determined to be in an unsafe or unsound condition or
if it receives an unsatisfactory examination rating with respect to certain
matters. As of December 31, 1997, all of the Corporation's deposit-taking
subsidiary banks had capital levels that qualify them as being "well
capitalized" under such regulations.
The FDIA generally prohibits an FDIC-insured depository institution from
making any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be "undercapitalized". "Undercapitalized" depository institutions
are subject to growth limitations and are required to submit a capital
restoration plan. The federal banking agencies may not accept a capital plan
without determining, among other
5
things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. In addition, for a
capital restoration plan to be acceptable, the depository institution's parent
holding company must guarantee that the institution will comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of (i) an amount equal to five percent of the
depository institution's total assets at the time it became "undercapitalized",
and (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards applicable with
respect to such institution as of the time it fails to comply with the plan. If
a depository institution fails to submit an acceptable plan, it is treated as
if it is "significantly undercapitalized".
"Significantly undercapitalized" depository institutions may be subject to
a number of requirements and restrictions, including orders to sell sufficient
voting stock to become "adequately capitalized", requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator. A bank that is not "well capitalized" is subject to
certain limitations relating to so-called "brokered" deposits.
Depositor Preference Statute
Under federal law, deposits and certain claims for administrative expenses
and employee compensation against an insured depository institution would be
afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of such an institution by any receiver.
Interstate Banking and Branching Legislation
The Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA"), authorized interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, it authorized, beginning June 1, 1997, a bank to merge with a bank in
another state as long as neither of the states opted out of interstate
branching between the date of enactment of the IBBEA and May 31, 1997. In
addition, a bank may establish and operate a de novo branch in a state in which
the bank does not maintain a branch if that state expressly permits de novo
branching. It was pursuant to authority from IBBEA that the Corporation
reorganized certain of its subsidiary banks in 1997 and in February 1998, as a
result of which FUNB, based in Charlotte, North Carolina, operates in 11 states
and Washington, D.C.
Additional Information
Additional information related to certain regulatory and accounting
matters is set forth on pages 26 and 27 in the Annual Report and incorporated
herein by reference.
Item 2. Properties.
As of December 31, 1997, the Corporation and its subsidiaries owned or
leased 2,997 locations in 38 states, Washington, D.C., and 7 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, 1997.
Leased Owned
-------- --------
First Union National Bank .............. 1,394 1,406
First Union Bank of Delaware ........... 2 --
First Union Home Equity Bank, N.A. ..... 130 --
Nonbanking locations ................... 63 2
----- -----
Total ................................. 1,589 1,408
===== =====
Additional information relating to the Corporation's lease commitments is
set forth in Note 16 on page C-33 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.
FUNC Common Stock is listed on the NYSE. Table 6 on page T-6 in the Annual
Report sets forth information relating to the quarterly prices of, and
quarterly dividends paid on, FUNC Common Stock for the two-year period ended
December 31, 1997, and incorporated herein by reference. Prices shown represent
the high, low and quarter-end sale prices of FUNC Common Stock as reported on
the NYSE Composite Transactions tape for the periods indicated. Such prices
have been adjusted to reflect a two-for-one stock split effected in the form of
a 100 percent common stock dividend paid on July 31, 1997, to stockholders of
record on July 1, 1997. As of December 31, 1997, there were 120,437 holders of
record of FUNC Common Stock.
Subject to the prior rights of holders of any outstanding shares of the
Corporation's Preferred Stock or Class A Preferred Stock, holders of FUNC
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 18 on page C-36 in the Annual Report and incorporated herein by
reference.
Each outstanding share of FUNC 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 FUNC Common
Stock, for $105.00, subject to adjustment (the "Rights Exercise Price"), but
only after the earlier to occur (the "Separation Time") of: (i) the tenth
business day (subject to extension) after any person (an "Acquiring Person")
(x) commences a tender or exchange offer, which, if consummated, would result
in such person becoming the beneficial owner of 15 percent or more of the
outstanding shares of FUNC 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 FUNC 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 FUNC
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 FUNC Common Stock, at an exchange ratio of two shares of FUNC 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
7
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 FUNC Common Stock equal to the Rights Exchange Rate. If the
Corporation becomes obligated to issue shares of FUNC Common Stock upon
exercise of or in exchange for Rights, the Corporation, at its option, may
substitute therefor shares of junior participating Class A Preferred Stock upon
exercise of each Right at a rate of two one-hundredths of a share of junior
participating Class A Preferred Stock upon the exchange of each Right.
The Rights may be canceled and terminated without any payment to holders
thereof at any time prior to the date they become exercisable and are
redeemable by the Corporation at $0.01 per right, subject to adjustment upon
the occurrence of certain events, at any date between the date on which they
become exercisable and the Flip-in Date. The Rights have no voting rights and
are not entitled to dividends.
The Rights will not prevent a takeover of the Corporation. The Rights,
however, may cause substantial dilution to a person or group that acquires 15
percent or more of FUNC 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, Two First Union Center, Charlotte, North Carolina 28288-1154.
Additional information relating to FUNC 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 8 through 30,
pages P-1 through P-5 and pages T-1 through T-24 in the Annual Report is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
In response to this Item, the information set forth on pages 23 through 26,
pages T-16 through T-21 and pages C-31 through C-33 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 6 on page T-6
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 executive officers of the Corporation in office on December 31, 1997,
their ages, their positions with the Corporation on such date, and, if
different, their business experience during the past five years, are as
follows:
Edward E. Crutchfield (56). Chairman and Chief Executive Officer. Also, a
director of the Corporation.
John R. Georgius (53). Vice Chairman, since January 1, 1996. President,
from June 1990 to January 1, 1996. Mr. Georgius was elected President of
the Corporation upon the retirement of Mr. Terracciano on December 31,
1997. Also, a director of the Corporation.
Anthony P. Terracciano (59). President, since January 1, 1996. Formerly
Chairman of the Board, President and Chief Executive Officer of FFB. Mr.
Terracciano retired from the Corporation on December 31, 1997. Also, a
director of the Corporation.
B. J. Walker (67). Vice Chairman. Also, a director of the Corporation.
Robert T. Atwood (57). Executive Vice President and Chief Financial
Officer.
Marion A. Cowell, Jr. (63). Executive Vice President, Secretary and
General Counsel.
In addition to the foregoing, the information set forth in the Proxy
Statement under the heading "General Information and Nominees", and under the
subheading "Section 16(a) Beneficial Ownership Reporting Compliance" under the
heading "Other Matters Relating to Executive Officers and Directors " is
incorporated herein by reference.
Item 11. Executive Compensation.
In response to this Item, the information set forth in the Proxy Statement
under the heading "Executive Compensation", excluding the information under the
subheadings "HR Committee Report on Executive Compensation" and "Performance
Graph", is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
In response to this Item, the information set forth in the Proxy Statement
relating to the ownership of Common Stock by the directors, executive officers
and principal stockholders of the Corporation under the headings "Voting
Securities and Principal Holders" and "General Information and Nominees" is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
In response to this Item, the information set forth in the Proxy Statement
under the subheadings "General" and "Certain Other 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) Pro forma financial information and the consolidated financial
statements of the Corporation, including the notes thereto and independent
auditors' report thereon, are set forth on pages P-1 through P-5 and pages C-1
through C-39, respectively, of the Annual Report, and are incorporated herein by
reference. In addition, the audited historical financial statements of
CoreStates, including the notes thereto, set forth in Exhibit 99(a) to this Form
10-K, and certain related independent auditors' reports set forth in Exhibits
99(b) and 99(c) to this Form 10-K, are incorporated herein by reference. All
financial statement schedules are omitted since the required information is
either not applicable, is immaterial or is included in the consolidated
financial statements of the Corporation and notes thereto. A list of the
exhibits to this Form 10-K is set forth on the Exhibit Index immediately
preceding such exhibits and is incorporated herein by reference.
(b) During the quarter ended December 31, 1997, Current Reports on Form
8-K, dated November 18, 1997, November 28, 1997, and December 2, 1997, were
filed by the Corporation with the Securities and Exchange Commission.
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 23, 1998
By: Marion A. Cowell, Jr.
-------------------------------------
Marion A. Cowell, Jr.
Executive Vice President,
Secretary and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated and on the date indicated.
Signature Capacity
- ------------------------------------ ----------------------------------------------------------
EDWARD E. CRUTCHFIELD* Chairman and Chief Executive Officer and Director
- ----------------------------------
Edward E. Crutchfield
ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer
- ----------------------------------
Robert T. Atwood
JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal
- ---------------------------------- Accounting Officer)
James H. Hatch
- ----------------------------------
Edward E. Barr Director
G. ALEX BERNHARDT* Director
- ----------------------------------
G. Alex Bernhardt
W. WALDO BRADLEY* Director
- ----------------------------------
W. Waldo Bradley
ROBERT J. BROWN* Director
- ----------------------------------
Robert J. Brown
A. DANO DAVIS* Director
- ----------------------------------
A. Dano Davis
R. STUART DICKSON* 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
Director
- ----------------------------------
Arthur M. Goldberg
WILLIAM H. GOODWIN, JR.* Director
- ----------------------------------
William H. Goodwin, Jr.
HOWARD H. HAWORTH* Director
- ----------------------------------
Howard H. Haworth
FRANK M. HENRY* Director
- ----------------------------------
Frank M. Henry
LEONARD G. HERRING* Director
- ----------------------------------
Leonard G. Herring
JACK A. LAUGHERY* Director
- ----------------------------------
Jack A. Laughery
MAX LENNON* Director
- ----------------------------------
Max Lennon
RADFORD D. LOVETT* Director
- ----------------------------------
Radford D. Lovett
MACKEY J. MCDONALD* Director
- ----------------------------------
Mackey J. McDonald
MALCOLM S. MCDONALD* Director
- ----------------------------------
Malcolm S. McDonald
JOSEPH NEUBAUER* Director
- ----------------------------------
Joseph Neubauer
RANDOLPH N. REYNOLDS* Director
- ----------------------------------
Randolph N. Reynolds
RUTH G. SHAW* Director
- ----------------------------------
Ruth G. Shaw
CHARLES M. SHELTON, SR.* Director
- ----------------------------------
Charles M. Shelton, Sr.
11
Signature Capacity
- ---------------------------------------------- ---------
LANTY L. SMITH* Director
- ----------------------------------
Lanty L. Smith
ANTHONY P. TERRACCIANO* 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 23, 1998
12
EXHIBIT INDEX
Exhibit No. Description Location
- ------------- ------------------------------------------------------- ------------------------------------------
(2)(a) CoreStates acquisition agreement. Incorporated by reference to Exhibit (2)
to the Corporation's Current Report on
Form 8-K dated November 28, 1997.
Omitted exhibits to be filed upon request
of the Securities and Exchange Commission.
(2)(b) Signet acquisition agreement. Incorporated by reference to Exhibit (2)
to the Corporation's Current Report on
Form 8-K dated July 21, 1997. Omitted
exhibits to be filed upon request of the
Securities and Exchange Commission.
(3)(a) Articles of Incorporation of the Corporation, as Incorporated by reference to Exhibit (4)
amended. 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, to Exhibit (4) to
the Corporation's Current Report on
Form 8-K dated January 10, 1996, and
to the Articles of Amendment dated
March 4, 1998 filed herewith.
(3)(b) Bylaws of the Corporation, as amended. Incorporated by reference to Exhibit
(3)(b) to the Corporation's 1995 Annual
Report on Form 10-K.
(4)(a) Instruments defining the rights of the holders of the *
Corporation's long-term debt.
(4)(b) The Corporation's Amended and Restated Shareholder Incorporated by reference to Exhibit (4)
Protection Rights Agreement. to the Corporation's Current Report on
Form 8-K dated October 16, 1996.
(10)(a) The Corporation's Amended and Restated Management Incorporated by reference to Exhibit
Incentive Plan. (10)(a) to the Corporation's 1995 Annual
Report on Form 10-K.
(10)(b) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit
Officers. (10)(b) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(c) The Corporation's Deferred Compensation Plan for Incorporated by reference to Exhibit
Non-Employee Directors. (10)(c) to the Corporation's 1989 Annual
Report on Form 10-K.
(10)(d) The Corporation's Contract Executive Deferred Filed herewith.
Compensation Plan.
(10)(e) The Corporation's Supplemental Executive Long-Term Incorporated by reference to Exhibit
Disability Plan. (10)(d) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(f) The Corporation's Supplemental Retirement Plan. Incorporated by reference to Exhibit
(10)(f) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(g) The Corporation's Retirement Plan for Non-Employee Incorporated by reference to Exhibit
Directors. (10)(g) to the Corporation's 1988 Annual
Report on Form 10-K.
(10)(h) The Corporation's 1984 Master Stock Compensation Incorporated by reference to Exhibit (28)
Plan. to the Corporation's Registration
Statement No. 33-47447.
(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
Edward E. Crutchfield. (10)(k) 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) Employment Agreement between the Corporation and Incorporated by reference to Exhibit
Anthony P. Terracciano. (99)(c) to the Corporation's Registration
Statement No. 33-62307.
(10)(o) Employment Agreement between the Corporation and Incorporated by reference to Exhibit (10)
John R. Georgius. to Amendment No. 1 to the Corporation's
Registration Statement No. 33-60835.
(10)(p) The Corporation's Elective Deferral Plan. Incorporated by reference to Exhibit (4)
to the Corporation's Registration
Statement No. 33-60913.
(10)(q) 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)(r) Employment Agreement between the Corporation and Incorporated by reference to Exhibit
Malcolm S. McDonald. (99)(d) to the Corporation's Registration
Statement No. 333-36839.
(10)(s) Employment Agreement between the Corporation and Incorporated by reference to Exhibit
Terrance A. Larsen. (99)(c) to the Corporation's Registration
Statement No. 333-44015.
(12) Computations of Consolidated Ratios of Earnings to Filed herewith.
Fixed Charges.
(13) The Corporation's 1997 Annual Report to Filed herewith.
Stockholders.**
(21) List of the Corporation's subsidiaries. Filed herewith.
(23)(a) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(b) Consent of Ernst & Young LLP. Filed herewith.
(23)(c) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(d) Consent of KPMG Peat Marwick LLP. Filed herewith.
(24) Power of Attorney. Filed herewith.
(27)(a) The Corporation's Financial Data Schedule- 1997.***
(27)(b) The Corporation's Financial Data Schedule- 1996.***
(27)(c) The Corporation's Financial Data Schedule- 1995.***
(99)(a) CoreStates Historical Financial Information. Filed herewith.
(99)(b) Independent Auditors' Report of KPMG Peat Marwick Filed herewith.
LLP.
(99)(c) Independent Auditors' Report of KPMG Peat Filed herewith.
Marwick LLP.
- ---------
* The Corporation agrees to furnish to the Securities and Exchange Commission
upon request, copies of the instruments, including indentures, defining the
rights of the holders of the long-term debt of the Corporation and its
subsidiaries.
** Except for those portions of the Annual Report which are expressly
incorporated by reference in this Form 10-K, the Annual Report is furnished
for the information of the Securities and Exchange Commission only and is
not to be deemed "filed" as part of such Form 10-K.
*** Filing by Electronic Data Gathering, Analysis and Retrieval System only.