ML20212F681

Society Corp 1985 Annual Rept

ML20212F681
Person / Time
Site:	Perry
Issue date:	12/31/1985
From:	Heffern G SOCIETY CORP.
To:
Shared Package
ML20212F471	List: ML20212F465 ML20212F541 ML20212F569 ML20212F602 ML20212F637 ML20212F660 ML20212F681 ML20212F707 ML20212F741
References
NUDOCS 8703050137
Download: ML20212F681 (70)

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1 ociety Corporation is a fully integrated financial services company with an asset base of nearly 59 billion, operating more than 240 offices through four banking regions Focused on the Great Lakes Basin of the United States and tused in Cleveland. Ohio. Society's major business activities include providing traditional banking and, associated financial services to consumer. business and commercial markets. It provides domestic and international credit. cash management and trust services through its corporate banking activities.

The Corporation also offers to corporate. commercial and consumer customers a variety of complementary services. either directly or through one of its nonbanking subsidianes. Society. through its Green Machine

• automated teller machine network.

TABLE OF CONTENTS offers customers easy access to nearly 1.430 ATMs throughout Ohio.and 7.000 ATMs through an affiliated nationwide network. The Corporation also owns and operates SIGNIFICANT ACCOMPLISHMENTS . . 2 one of the nation's larger credit card processors. BancSystems Association. Inc.

LETTER TO SHAREHOLDERS . . ... 4 The mission of Society Corporation is to produce a profit sufficient to provide a flEGiONAL BANKS .. . . . 10 consistently high rate of return to shareholders, to safeguard depositors. to provide NONBANK SUBSIDIARIES 18 quality financial services to its markets.and to attract and retain quality employees FINANCIAL SECTiON . . ... 19 dedicated to the performance of their duties in a highly ethical and moral fashion.

SUMMARY

OF OPERATIONS . 48 in a major step toward accomplishing this mission. late in 1985 Society successfully OFFICERS . . 49 completed the acquisition of the $2.8 billion asset Centran Corporation.a bank holding BOARD OF DIRECTORS . 50 company based in Cleveland.

SHAREHOLDER INFORMATION . . 52 w

SIGNIFICANT ACCOMPLISHMENTS JANUARY 16. Society Corporation and Centran Corporation executed definitive Agreement of 1985 Merger. subject to approvals of regulatory authorities and the shareholders of both corporations.

FEBRUARY 21 Increased quarterly dividend for twentieth consecutive year, from S.425 per share to S.46 per share.

MARCH 22 Scioto Savings Association. Columbus. converted to a state bank under the name of Scioto Bank.

JUNE 27 Society Corporation announced major restructuring of its regional configuration with the formation of a new region in central Ohio, based in Columbus.

JULY 17 At separate meetings shareholders of Centran Corporation and Society Corporation approved the merger of the two companies.Of the shares represented, the favorable vote was 98.9% and 96.9%. respectively.

JULY 31 The Sutton State Bank. Attica. Ohio.a subsidiary of Centran Corporation. sold to local group of investors.

AUGUST 16 Definitive agreement signed to sell two affiliate banks in northwest Ohio (Society National Bank of Mid-Ohio. Bucyrus, and Society National Bank of Northwest Ohio. Fostoria) to Toledo Trustcorp. Inc. The sale was completed on November 1.

1985.

AUGUST 31 Central National Bank of Cleveland. a subsidiary of Centran Corporation, sold 18 branch offices to First National Bank of Ohio. Akron.

SEPTEMBER 3 Merger of Centran Corporation into Society Corporation completed.

OCTOBER 21 Chaner activated for new state bank headquartered in Port Clinton, Ohio. under the name of Society Bank of Northwest Ohio with offices in Put-in-Bay and Perrysburg. This bank opened for business on November 1.1985. retaining certain business formerly carned on by Society National Bank of Northwest Ohio.

NOVEMBER 1 Scioto Bank merged into Society Bank. Columbus.

DECEMBER 12 Society Corporation announced agreement in principle between its subsidiary.

The Third National Bank and Trust Company. Dayton. and Shawmut Bank of Boston. N A. for the sale of Third National's mortgage bank subsidiary. North Central Financial Corporation. The sale was completed on December 31.1985.

FEBRUARY 18. Completed mergers of Central National Bank of Cleveland and Centran Bank of Akron 1986 with Society National Bank. The new Society National Bank. Society Bank of the Firelands and Society Bank of Northwest Ohio form the Northem Region.

2

1' CONSOLIDATED FINANCIAL HIGHLIGHTS

. (dollars in thousands. except per share arnounts)

Percent For the year _ , _ _ _ _ _ _ _ _ _ _ . __ _

l985 1984 Change _

interest and fee income $ 681,431 S 551.808 23 5%

Net interest income 263,433 193.592 36.1 Noninterest income 100,245 51.203 95.8 Noninterest expense 270,807 178.295 51.9 Net income 60,307 43.617 38.3 Per common share Net income $ 6.01 S 5.43 10.7%

Common dividends 1.84 1.70 8.2 Book value at year end 43.58 40.62 7.3 $.y$ jsse At year end Assets S 8,749,066 S5.835.445 49.9%

sto Deposits 7,094,718 4.865.612 45.8 Loans 5,343,552 3.426.490 55.9 9 Allowance for loan losses 70,688 42.612 65.9 Sh'areholders' equity 532,422 354.785 50.1 8 Commori shares outstanding i1,068,931 8.733.359 26.7 6,672 48.9 7 Full-time equivalent employees 4.482 Average balances 6 Assets $ 6,946,544 S5.156.485 34.7 % 5 Deposits 5,569,692 4.123.475 35.1 Loans 4,244,453 3.0i f .626 40.9 4 3

Selected five-year ,

common share data 1985 1984 1983 1982 1981 Net income $ 6.01 S 5.43 S 4.53 S 4.17 5 3.53 i Book value (year end) 43.58 40.62 41.37 38.52 35.91 0

Common dividends 1.84 1.70 1.60 1.52 1.44 Dividend payout ratio 30.60% 31.30 % 35.30% 36.50 % 40.80 % HI 82 03 84 85

~

Performance ratios [ ., s Return on assets .87% .85% .74 % .67% .63%

Return on common equity 14.54% 13.64 % 11.41% 11.36% 10.24 %

hetum on total equity 14.39 % 13 64 % 11.41% i1.36 % 10.24 %

Capital ratios Primary capital to assets 6.84 % 6.76% 6.80% 6.86% 6.19%

Total capital to assets 7.99% 8 22 % 8 21% 8 61% 7.09% i i

3

RTo OUR SHAREHO ecord eamings were attained by Society Corporation in 1985 with per share results of $6 01.up nearly 11 % from the S5.43 camed in 1984.

The year was one of the most challenging and rewarding in the Corporation's history.

It was challenging in that the merger of Centran Corporation was completed, while three affiliate banks.18 branches and a mortgage banking subsidiary were sold.

It was rewarding in that these major structural changes are improving earnings, producing a stronger balance sheet and posinoning Society to be a leader in the rapidly evolving financial services industry.

Intramarket Growth Continues. Mergers and acquisitions always have played a major role in the development of Society The acquisition of the nearly S3 billion asset Centran Corporation last September 3.1985 was Society's largest and most COMMON STOCK PRICE AND BOOK VALUE PER COMMON SHARE significant.

m"* Over the last several years there have been many mergers oflarge bank holding 570 companies The merger of Centran into Society. however. is unique as the majonty 60 of the assets of both organizations were located in the same market area. Such an 50 intramarket merger provides opportunities for improving customer service while 40 realizing both major cost savings and increases in market share. Cost savings arise 30 from the ability to greatly increase volume of customers and transactions at existing 20 delivery and processing points We estimate that annual expense reductions of a 10 substantial amount will be realized on an ongoing basis.

O Lines Of Business Tied To Regional Banks. Society continues to focus on four Mt M2 M3 M4 M5 maj r business lines whose products and scrvices are delivered through four regional

- com un ne.mos seu

- < mm r. snu Pm W L s banks Our four major business lines are corporate banking. consumer /small business banking. trust / upscale banking and special financial services. such as leasing and credit card processing l

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. _ . . . <..../..<m. _s...~.i.x. _. .. ... + . .c. _._,~v,.s,.. .> . . . ~ ., . \ mm . in 1985. a decision to redeploy resources into targeted major markets led to a restructuring of the regional banks. Most of the former Northwest Region was divested with the remainder becoming part of the Northem Region. A new Central Region was created. headquartered in Columbus.The other regions are the Southem Region, headquartered in Dayton, and the Eastem Region, headquartered in Canton. Later la this annual report the regional banks address their business achievements in 1985 and their expectations and plans for 1986. Corporate Culture Provides Framework. To give further focus to our business efforts and help unify the diverse elements of an increasingly complex organization. SIX SHARED VALUES OF we decided to specifically identify the values that should dnve us in the future. SOCIETY CORPORATION There are six shared values that we seek to weave into all our activities.These are . noted in the column to the left.Our challenge is to ensure that we maintain these a An unwaivenng commitment to quality values in relationships with our customers, our shareholders, our communities, ,s A dedicauon to providing a consistently high rate of return to shareholders and our employees. J A dedicanon to providing supenor With an expanded market position to challenge our business units.and shared semce to the customer values to help shape their personality. Society Corporation is well-positioned to a A commitment to the well-being and growth of employees expand profitably its core banking business in Ohio. O An acuve concern for the well-bemg of Great Lakes Area To Rebound. The Ohio and G reat Lakes Regions are staged for our communities O An emphasis on iniaanve and innovauon endured a severe recession over the last decade. The increase in the value of the dollar in international markets encouraged foreign imports and made Amencan manufactured goods less competitive. Recently, however, the value of the dollar has declined and economic activity in European economies has rebounded Both trends presage renewed demand for U S. manufactured goods. The " Sixth Annual Study of General Manufacturing Climates." conducted by Alexander G rant. observes that the G reat Lakes area is making a comeback.and that the " region's manufacturing faciliues and infrastructure will contnbute to its future economic well-being." The study further notes that "the manufacturing skills of the region will become more valuable" o All six Great Lakes states are enjoying budget surpluses. Government and industrial leaders from those states are going farther and farther afield to attract business relocations and discover new business possibilities. In his book The Year Ahead 1986. John Naisbitt states that "all six Great Lakes states will experience an l economic renaissance that will stanle traditional economists." The area's.and Ohio's. abundance of water strong emphasis on small busine.,s entrepreneurship, tech-nological innovation such as robotics and favorable environment for venture capital form the foundauon for that viewpoint. Interstate Banking. Opportunities continue to develop for expansion by Society into markets outside of Ohio. InJuly 1985. Ohio passed a comprehensive interstate INTERSTATE BANKING banking law that permits banking companies in 13 specified states and the Distnct of Columbia to acquire Ohio banking companies. Before an acquisition may occur. the law of the state where the acquiring banking company has its pnncipal place h of business must allow an Ohio bank to acquire a bank in that state. To date,only Indiana. Kentucky, and Michigan have passed such complementary legislation. In addition. legislation is pending in Pennsylvania. NewJersey.and Wisconsin that would allow mergers with Ohio Banks in 1986 Beginningin October 1988 the Ohio kgislation permits a banking company from any state that has sucn complementary legislation to make acquisitions in Ohio. ' M M ENACTED RECIPROCAL L.EGISLATION Several Ohio-based holding companies have announced mergers with relatively smallinstitutions in at least one of the three permitted states Society's management and Board believe that initially,its merger interest should be directed primarily toward companies with significant posinons in major markets. Such companies would be most compatible with our core Ohio business. Concurrently, benefits to our shareholders will be greater from larger. properly structured acquisitions. Divestitures Strengthen Corporation. Our divestiture activities were under-taken to accomplish several objectives.The sale of Central National Bank branches in the Cleveland market and the sale of a Centran subsidiary bank were to meet regulatory requirements related to the Centran merger The sale of two banks in I l 7 l l northwest Ohio was pan of a strategy to redeploy resources to larger. growth onented markets. Early in 1986 it was announced that subsidiary banks in Mansfield and Loudonville similarly will be offered for sale.The sale at year end of our mortgage banking subsidiary, undertaken in accord with our strategic plan. reahzed a sub-stantial off balance sheet value. strengthened capital ratios and provided addiuonal financial resources with which we can continue to meet our strategic objectives Society remains committed to concentrating its resources in markets and businesses which are expected to ol'ter better than average economic opportunity RETURN ON ASSETS and in which it can command a competitive share of market. l The Years Ahead. While we are confident about Society's future, our indusuy faces io several significant challenges. Many believe that deregulation of the banking industry 09 wi I slow as congressional interest tums to possible re-regulation. The problems of the 08 thnft industry and some sectors of the banking industry. stemming from over-07 aggressive lending policies. are a major factor impeding deregulation. Continued 06 expansion and innovation by nonbank participants in the financial services industry 05 are not similarly constrained. to the detriment of our shareholders. Society is in its 04 strongest posioon ever to address these challenges Our balance sheet is in excellent 03 shape capital ratios are strong. loan reserves and quality is high. and debt is minimal. U2 with all debt incurred in the Centran merger retired in 1985, earnings as reflected 0I in Retum on Assets of 87% and Return on Total Equity of 14.4%. based on net income, reached more acceptable levels. 81 82 83 84 85 Reflecung Sociery's excellent financial condition. and confidence in its conunued growth and prospenty. in February.1986 your board of directors raised the quarterly dividend to S 48 per share, the twenty-first consecuuve annual increase in dividends.  ; l Retiring Directors. On behalf of the entire Corporation.1 would like to express my grautode to the following former Society and Centran directors. We are indebted to them f or their dedicated sencice and significant contnbutions to their institutions. l Otes Bennett Jr (Centran Director since 1977) Chairman, Chief Executive Olhcer and Director. The North American Coal Corporation Lester E. Coleman l 8 l I l l -- - . m . . . ~ .. l-J k I x s s (Society Director since 1978) Chairman of the Board cM , r.ief %rGm.e Officer. The Lubrizol Corporation. Kenneth E. Glass (Society Directcr sirre !'Hil Canton. Ohio businessman Elton Hoyt.111 (Society Director since 19ca) Retired President and Chief Executive Officer. Pickands Mather & CompanfJohn J. Lqftus (Centran ,,, Director since 1975) Retired Vice Chairman of Republic Steel Corporaiton. Robert 5. , Margolis (Society Director since 19P4) President. GZK, Inc. Patnck S. Parker (Society . Director since 1976) Chairman of the Boat. Parker-Hannilin Corporation. Jesse Phi!ips RETURN ON T-3TAL EQUITY (Society Director since 1984) Chairman and Chief Executive OlTicer. Philips Industries. .~.,, n inc. Thomas J Quigley (Centran Director since 1975) Partner, Squire. Sanders & is Dempsey ThomasJ.Quintrell(Centran Direc or since 1970) Partner. Arter & Hadden. 14 Karl H. Rudolph (Centran Director since 1967) Chanman of the Executive Committee o and a Director of the Cleveland Electric illunnnating Company. 12 - I would like to extend a special thanks to Wilson M. Brown.Jr.who as Chairman and Chief Executive Officer of Centran Corporation was instrumental in bringing ii ,'{ to , j about the successful merger of Centran and Society and their affiliates. 9 "hl .y. ll Wilson has stepped down from his position as President and as a Director of 8 y , Et < Society Corporation. He continues as a valued employee working difectly with me 7 r b fa on major strategic issues affecung the company I am pleased to announce that 6 & [, Robert W Gillespie was elected President of Society Corporation by the Board of 5 i i 1 Directors at its February meeting. At that meeting. Roger Noall was elected a Director 4 and Chief Administrative Officer of the Corporation. 3 s Finally.a thank you to a hard working dedicated cadre of employees, without 2 whose efforts the above mentioned results wou'd t.ot have been possible. i The past year indeed was a year of challenge and reward for Society Corpomaan. o 1 We expect 1986 to be a year of progress and accomplishment. 81 82 83 84 85 March 3.1986 Ch .orman of the thsid and Chief E. tecum e Officer ,_ < c (_ _ 4 NORTHERN REGION W y , he September 3.1985 merger of Centran Corporation into Society Corporation had a significant impact on the Northern Region. The merger of rentral Nanonal Bank and Centran Bank of Akron into Society 4 National Bank. Cleveland was completed in February 1986 This merger created a S5 billion financialinwution with more than 100 offices in northern Ohio. Thus, Society Natioro Bank has emerged as a greatly strengthened force in the highly competitive financial serv ces community of northern Ohio. The major business i nits at Society are descnbed below emphasizing areas of competitive advantage drived through the merger The hallmark of our new Corporate Banking Group will be top quality relationship , managers providing a high level of service to their customers. '. c, Ohio continues to have one of the largest concentrations of Fortune 500 com-panies of any state in the country Our large Corporate Banking Group has developed TP.U'diGVEt:rMENT EctX Y rfidORMANCE' range of sophisticated products, including Cash Management- - Ending 12n : /85 Great r Cleveland is developing into one of the world's top health care centers. ONE FIVE Mr' MRS" and we have deve!oped a specialty in servicing all aspects of this vital industry Com-Scacty fund . 36 2% 17.I% munications lending is another area where Society has developed regional expertise. Ohio tunk peers 29 1 13 4 We believe we are v' ell positioned to bumme t'e dominant provider of com-Nanonalnunbahh merCial banking services to the fastest growir:g and most important segment of our money rntuagers . 33 2 '15 2 commercial market namely. pnvately-held businesses.Our Private Industnes Group consists of alarge expenenced staff of commercial lenders who know how to provide DowJones Industnals . 33 6 35 8 the kind of Ellored. expedient soluuons business entrepreneurs require in order

• ^u nstus m row nwn osww rws to remain competitive.

C APIT M M'PMCtATION) a Aswuum mst t" Our new Trustand Financial' Services Group becomes one of the largest providers of trust services in Ohio. Our goal is to continue delivering high quality corporate and fr nsuiner tmst products. investment management and execuuve and professional bankhg services in our markets. We have targeted middle market companies with s existing Society relanonships and with employee benefit plans in the S1 to $15 million asset range This segment provides ample opportunity for significant new business s qains Wewillaisocononue toemphasize thelargeremployee benefit plansgiven our location in Northern Ohio-one of the top corporate centers in America. 10 All business decisions at Society start with the requirement to provide quality i products and services Consequently.we are panicularly proud of our ranking in the first quartile comparing the more highly regarded professional money managers in the country, regarding equity and fixed income performance.The chart on the oprx) site page demonstrates our performance onentation which has made us a national leader in terms of investment results. As a natural adjunct to ourindividual trust services.we have developed tailored. upscale banking products for our areas' business executives professionals and health care providers. The Consumer / Business Banking Group comes together with the finest branch and electronic banking network in Northern Ohio. Our strategic objective continues to be automating the routine service and transaction requirements of our customers while building a staff of financial service experts to assist our customers in their total financial program.This means emphasizing convenience on the one hand and quality financial products and services on the other We are supporting our profes- NORTHERN sional staff with state-of-the-art integrated software systems and personal computer s T m se 126 U85 120084 terminals. Concurrently. we are restructunng our organization. and incorporating AsstTs . s5.244.328 s2.524.064 a stronger customer / sales organization through extensive training and customer D &osits. 4.111.888 2.098.316 contact LOANS. 3.155 608 1.479.513 The Northem Region is divided into four distncts: the Cleveland District. which Cariin . 356.232 160.779 consists of Cuyahoca County; the Akron District, which is composed of Summit. Ponage and Medina counties. the Lake East District, which includes 12ke and Geauga counties;and the Lake West Distnct, a newly formed district which includes Society Bank of the Firelands and Society Bank of Northwest Ohio Society Bank /Nonhem Region, the flagship bank of Society Corporation. intends to become recognized as the premier provider of financial services in the markets it serves. ROBERT W. GILLEsPIE President and Chief Executive Officer 1I SOUTHERN REGION For the banks of the So be a year full of opportunity, challenge and transition. Extending from Cincinnati through Dayton to Celina. Ohio, the region is geographically the largest within the corporation and encompasses the second largest economic market in the state of Ohio.The three banks which comprise the Southern Region-Third National Bank and Trust Company. Dayton. Society Bank NA. Springfield. Ohio; and Society Bank of Southem Ohio.liamilton-operate 61 banking offices throughout nine counties, serving individual and commertial customers with a wide range of financial products. 1 he Southem Region's earnings performance set a new record in 1985. with total deposiis up 12.7% and total loans increasing by 12.0% over 1984. Commercial loans grew by 21 % during the year as medium size businesses were targeted as a market with growth potential and special attention was given to increasing contact with these prospective customers. Commercial lending alTicers received specialized sales training to enhance their calling efforts. Consumer loans enjoyed a dramatic increase dunng the year, up 26%. Consimer lending and deposit growth benefited from training which emphasized consultative selling and cross-selling techniques. It is significant that commercial and consumer loan growth was realized dunng a time when competition for financial services was keen. At the end of 1985. North Central Financial Corporation. Third National Bank's mortgage banking subsidiary, was sold providing a signihcant contribution to the earnings of the Corporation. During the year, new product introductions and expansion of existing services enhanced Ihe growth of the Region."SocietyLease." a vehicular leasing program. was introduced inJuly.Over 2.400 new leases were wniten totaling nearly $29 million, and resulting in a 140% increase in automobile lease outstandings. Trust services were expanded inte the Cincinnati. Spnngfield and Hamilton markets. Business , development in these markets. combined with supenor investment performance. contributed to a record year for the Trust Division, with trust assets exceeding si billion at year end. 12 l I At Third National Bank, the hub and headquarters of the Southern Region. 1 extensive time and energy wa.s concentrated dunng the year on conversion to Society operating systems This represents the initial step toward formation of one regional , bank in Southem Ohio. New state-of-the-art ISC teller and platform terminals were installed through-cut the banking office system. The foundation of the successful implementation of the te!ler and back ollice systems was the extensive training provided and the teamwork exhibited by Third National employees.With the maintenance of quality customer service as the watchword, the bank can look forward to a future of advanced operational ef ficiencies and rewarding f.ustomer relationships. The success of the conversion in Dayton bodes well for furthes operational conversions planned in 1986 at Society Bank NA and Society Bank of Southem Ohio SOUTHERN The spnng of 1986 will see the legal formation of one regional bank. Society m >a 12 nims 12/31/84 Bank NA. headquartered in Dayton. with S17 billion in assets As this regional. client- Assets . S1.703.939 S t .513.632 centered financial institution becomes established. customers will benefit from the Deeosirs . 1.445.046 1.293.226 increased lending limit of the larger bank and from a wider range of sophisticated L.oANs . 1.019.194 909.884 services One early innovation of the regional bank will be the introduction to the CAPITAL . 95.012 94.281 Dayton market of the Society Personal Banking Center. This innovative banking office will be staffed by highly trained and experienced financial specialists. In addition to meeting clients' traditional banking needs. these specialists will offer significantly personalized financial services in lending. trust and investment areas not traditionally provided in branch offices. The Southern Region takes pnde in its performance in 1985. and is poised to provide consistent. high quality. and personalized service throughout the Society Southem Region in 1986 and beyond DOUGLAS L. HAWrHORNE Chairman and Chief Executive Officer 13 EASTERN REGION Expansion into new rn# facilities and the addition of new products and services were major accomplish-ments for Society Bank of Eastern Ohio. N A. in 1985. The 512 billion asset bank. headquartered in Canton, Ohio, marked its first year as a regional bank in 1985. following the merger in late 1984 of four Society affiliates: The Harter Bank & Trust Company in Canton. Farmers National Bank & Trust Company in Ashtabula. Society Bank of Eastern Ohio. Youngstown; and First National Bank of Salem. During 1985. the Bank was organized into tour districts: Canton. Youngstown. Salem and Ashtabula. In 1985. the Eastern Region gained recognition as a market leader with the introduction of several new products and services. Included in these were a Trust-Administered 40!(k) savings plan. an auto leasing program. a variable rate installment loan and " Society Securities Group"-a group of insestment specialists formed to assist customers with the purchase of municipal bonds and other investments. The 'ibungstown and Salem disincts further benefitted with the expansion of trust services in their markets. Regional commercial lending acavity also inc reased. particularly as it relates to semng the small and mid-size company market Most notably, the Ashtabula District continued to gain an increasing share of business from the expanding fiberglass / plasuc industry. as Ashtabula remains a leader in molded reinforced plasucs Retaining its position as an innovauve leader in consumer lending, the Eastern Region was able to take advantage of a brisk installment loan market in 1985. Also of particular significance was a substantiai increase in mortgage loans over 1984. The Fastern Region bank expanded into Tuscarawas County in 1985 with the purchase of deposits and facilities of Midland Buckeye Federal Savings & Loan , Association's New Philadelphia Office. Acquisition of the S16 million deposit office serves as a natural extension of the Canton Distnct which currently operates 19 of fices in conaguous Stark and Carroll counues l 14 l The Bank also announced plans to expand its Youngstown Distnct with a new f ull-service of fice in neighboring downtown Warren. The action represents funher penetration of a market already served by Society offices in Mahoningand Trumbull counties Anticipation of continued retail growth in Alliance and Carrollton resulted in changes to the offices serving these communities. In Alliance, the Bank expanded local trust and consumer lending services and relocated its off;ce to the city's new " Society Square" complex, a facility housing several financial-related businesses. The downtown Carrollton Office underwent extensive renovation, resulting in easier-to-use facilities and more private areas for customer financial counseling. Green Machine automated banking remained a popular way to perform routine EASTERN transactions as usage grew 40% in the past year it was introduced in the Salem n -~ 12/3i/ss 12/3t/84 Distnct last January and use of the fast and easy banking alternative has quickly ASSETS . 51.211.663 S t .084.916 achieved widespread acceptance. Conversion of several Green Machines to dnve-up DEPOSITS . 979.910 903.845 units and installation of an ATM in the lobby of a major Canton hospital have added loans. 705.612 600.455 more convenience to the around-the-clock banking capability CAPITAL . 79.130 72.507 For 1986. Society Bank of Eastern Ohio. N.A. expects continued growth in its customer base, and funher expansion of the mar set share it enjoys in all phases of the bank. ) RICHARD A. Wit.t.ET President and Chief Executive Officer 15 l CENTRAL REGION The newest of Society Central Region. formed in October.1985. is headquartered in Columbus. Ohio. The Columbus area is one of the fastest growing areas in the Midwest. making it one of the potentially most profitable regions for Society Corporation.Over 60 insurance companies are located in Columbus, second only to Boston. The world's largest non-profit research center-The Battelle Memonal institute-and the second largest university in the country-The Ohio State University-are also located in Ohio's capital city State government continues to be a large contributor to the growth and stability of the local economy The most important challenge facing the Central Region has been the successful blending of the strengths of its district banks in the most efficient. effective and profitable manner Currently the Central Region is made up of f our banks organized into two districts-Mansfield and Columbus. The Mansfield District is compnsed of The Richland Trust Company and the Farmers and Savings Bank. Both were subsidiaries of Centran. operating relatively autonomously Late in 1985 it was decided,and announced in 1986, that both banks would be offered for sale. in order to concentrate resources in larger, faster growing markets. The Columbus Distnct-Society Bank and The Franklin Bank-stems from the mid 1970s when Society Corporation. recogniang the potential of this market. acquired a small Columbus financial institution That foundation was dramatically expanded in the , ate 197L3 tbrough branch expansion and several small acquisitions The merger with interstate Financialin 1984 added Scioto Bank The 1985 merger with Centran brought in The Franklin Bank In Novemher 1985. Scioto Bank was merged into Society Bank In 1986. Franklin Bank also will be merged into Society Bank Following that merger. Society Bank will be the fourth largest bank in Columbus, with assets exceding $500 million and 24 banking of fices ,6 l l I Consumers continue to be offered many competitive banking products, with the focus on a heightened level of customer service. Leading the way in this regard is a dramatically expanded branch and ATM network, and market innovations such as Saturday banking. The district will continue to specialize in consumer lending as it has in the past. Society Bank's commercial lending division has made significant inroads in the market by establishing a relanonship style of banking with its corporate cus-tomers The bank currently offers to the Columbus market a complete menu of corporate banking services. including commercial loans and leaws. cash management. intemational banking and investments. An early participant. Society continues to CENTRAL be active in the State Treasurer's Linked Deposit program which assists qualified """- - 12/31/85 12/31/84 small businesses in securing loans at reduced rates. The addition of Franklin Bank Assets . 5689.604 S328.674 brings special expertise in lending to the small business market, particularly Small DEPOslTs . 631.080 310.284 Business Administration lending programs. loans. 455.985 237.630 Rounding out the region's spectrum of bank services is its newly formed Trust CAPITAL . 43.730 14.306 Services Division. Society administers and manages investments of pension, profit shanng and 401(h) programs for local companies as we!! as providing trust and investment management services to individuals. The Trust Division is supported by the resources of Society Corporation's Trust Group, which includes a statT of 325 people and 53.5 billion in managed assets. Clients of Society's Central Region now benefit from Society's supenor investment expertise as demonstrated by its outstanding perfomlance record in both equity and fixed income investments. 1 1 FREDERICK A. DEAL Chairman and Chief Executive O!Ticer 17 NONBANK SUBSIDIARIES he Corporation offers to customers a variety of comple-mentary services through its nonbanking subsidiaries. XYOvest. Inc., a wholly owned subsidiary of The Third National Bank. offers lease financing through offices located in Dayton.Cincinnau. and Columbus, Ohio; Indianapolis. Indiana; Atlanta. Georgia.and Orlando Florida. Lease volume reached an all time high in 1985. Sales act:vities are concentrated in relatively small transaction sizes thus avoiding the highly competitive lower yielding market dominated by national companies. A division of XYOvest offers factonng of medical receivables. a relauvely new activity which holds great promise for the future. Societylease. Inc., a subsidiary of Society Corporation, offers lease financing services through commercial officers of regional banks. Society Life Insurance Company provides credit life and accident and health insurance to consumer installment loan customers. A major sales training program was initiated in 1985. and the outlook for improved earnings from this already profitable subsidiary is excellent. BancSystems Association. Inc., acquired by Socicty in late 1984, is one of the larger third- party processors in the country. Studies we commissioned indicate that over the ncxt few years in-house processing will move to third parties BancSystems is prepanng to capture a large share of this market. Presently, the company serves over 130 financial institutions with 12 million cardholders. Plans in 1986 include major processing system enhancements and expansion of sales and marketing activities. Society owns 55 percent of Green Machine Network Corporation. Green Machine" is a shared ATM network and provides a wide array of electronic services. PEfUW B. WYDMAN Senior Vice Chairman 1 18 l MANAGEMENT'S DISCUSSION I L et incomein 1985 was a record $60.3 million. an increase of 38.3% over $43.6 million camed in 1984. Netincome per share in 1985 was S6.01.This compan.'s with 55.43 per share in 1984. Return on assets and retum on equity. two key measures of perfomlance, p reached near record levels. Return on assets was .87% in 1985 compared with m .85% in 1984 and .74% in 1983. Return on total equity for 1985 was 14.39%. up i from 13 64% in 1984 and 11.41% in 1983. L On September 3.1995. Centran Corporation (Centran) was acquired by Society Corporation.The results of the acquisition are reflected in the consolidated financial statements for the last four months of the year. The acquisition added $2.8 billion in assets and made Society the third largest bank holding company in Ohio. In addiuon to the acquisition of Centran.1985 camings were affected by a number of nonrecurring events and charges.

• In early 1985. at the time of the savings and loan difficulties in Ohio, a Society subsidiary. Scioto Savings Association. incurred an after-tax charge of $1.4 million. FINANCIAL SECTION or 5.14 per share for Society Corporation.This loss resulted from the write-off of TABLE OF CONTENTS its deposit in the defunct Ohio Deposit Guarantee Fund. Society converted Scioto into a state chartered bank which was then merged into another subsidiary. Society MANAGEMEWs Discussion 19 Bank. Columbus in October.1985. .

CONsout sTEo FINANCIAL STATEMENTS . 30 e Net income was also impacted by a net loss taken on the uvestiture of several affiliates, including two banks in Nonhwest Ohio.The net after-tax loss on these NorEs To CONSollDATED transactions was St.3 million or S.13 pershare. FiNAaCrat STATEMENTS . 34 = Another Society subsidiary, the Third National Bank and Trust Company, sold its REPORT OF MANAGEMENT . 45 wholly owned mortgage banking company. North Central Financial Corporation, on December 31.1985.The sale resulted in an after-tax gain of S63 million. or REPORT OF CERTIFIED PUBUC S 65 per share for Society Corporation. ACC UNTANTS . 45 Society made three acquisinons in 1984 which materially affect the companson E ^ NCEs. NE NTEREST of 1985 results with 1984 results. Interstate Financial Corporation. located in ]F oE southwestern Ohio, was acquired Anril 30.1984. adding S12 billion in assets. On

SUMMARY

OF OPERATIONS. Assets October 31.1984. Society acquired BancSystems Association. Inc., a credit card AND UABluTIEs . 48 processing company .vith $10.1 million in assets. Fifteen Akron Ohio area branch offices with over S140 million in deposits were acquired in November of 1984 These acqu:sitions are included for a full year for the first time in 1985 Net Interest income. Net interest income. the largest component of eamings, is defined as the ditTerence between interest camed on loans, secunties and shon-term investments and the interest paid on deposits and borrowed funds. In 1985 net interest income, on a fully tax equivalent basis, rese 361% to $296.1 million from S217.5 million in 1984.

10

NET INTEREST INCOME The net interest margin is coinputed by dividing net interest income by average m a* mu n" earning assets. In 1985. Society's net interest margin, on a fully tax equivalent pam in ns onu basis. {vas 4.80%. np 9 basis poiats from 4.71% in l'984. On a quarterly basis. the 320 net interest margin was relatively stable. ranging from 4.79% to 4.82%.

300 Several factors influence net interest income includmg the volume and mix 280 l of assets and liabilities held and interest rates paid and earned. Fluctuations in net 260 5 interest income can be classified into changes due to volume and those due to 240 rate Through management of the mix of assets and liabilities. the spread relation-220 ship of rates remained stable. Most of the growth in net interest income can be 200 traced to the higher volume of assets and liab.lities held by the Corporation. Ot the S78 6 million increase in net interest income in 1985. 577.0 million was due to 180 changes in volume and $1.6 million was due to rate fluctuations The table below 160 provides an analysis of the ef fect of changes in rate and volume on net interest 340 income for the year 120 A detailed analysis of the components of the net interest margin based on 100 quarterly average balances is included on pages 46 and 47 of this report.

80 gg Changes in Taxable Equivalent Net Interest income-Rate / Volume Analysis 40 Increase (Decrease) Increase (Decrease)

Year Ended December 31 1985 over 1984 1984 over 1983 20 _ - - - --- - ---

0 (dollars in millions) Volume Rate Total Volume Rate Total 81 82 83 84 85 Interest and fee income.

Loans-domestic S153 5 S(29 8) 5123 7 S132.1 514.1 5146.2

- foreign 35 (19) 16 01 1.2 1.3 Investment secunties

-subject to federal income tax 23 I (10 0) 131 10 0 (0 6) 9.4 NET INTEREST MARGIN -exempt from federal m e equw&nn income tax 87 1.3 10 0 1.1 01 12 Je" Fede:al funds sold and sectrity repurchase agreements (12 1) (7 6) (19 7) 20 1 35 23.6 I4 Due from banks-interest beanng i45 (5.1 ) 94 (23 7) 2.4 (21 3)

Trading account assets 0_.4 (

_ _0.l) _ _0.3 01 _0_1 __ __0 2 3

, - ~ Total interest income 191 6 (53 2) 138 4 139 8 20 8 160 6 12 /' interest expense Savings and transac tion 11.2 (0 6) 10 6 65 16 8I II 4m Money market certificates 38 (9 0) t5.2) 9.1 58 14 9 4M Money market investment 24 4 (12 l} 12 3 17.9 I9 19 8 m

4N Other consumer time 41.4 (7 8) 33 6 29 8 (4 8) 25 0 10 m Other ::me 15 3 (8.9) 64 94 35 12.9 9 Short-term borrowings '

14.1 (15 3) (1.2) 13 7 59 19 6

1. 44 09 00 09 Long-term debt (I I) 33 8 Total interest expense 59 8 87.3 13.9 101.2 Ii4 6 154 8) 7 Net interest income S

= _7 7 0 .S-.I6 5.. 78 6 5 525

- _5 6.9_

5 594

= . _ _

6 Noninterest Income. Society's total noninterest income, excluding secunties 81 W 83 M4 85 gains and losses, for 1985 was $99.7 million. an increase of $47.7 million froni

_ humu scom 1984. Secunties gains in 1985 were S 6 million compared with a loss in 1984 of

- an w Em ssr S 8 nulhon. As shown in the table, the increase in noninterest income, excluding secunnes transactions and the impact of acquisitions, was 55 8 million. Acquired affiliates added $27.6 million and the net gain on divesutures added $14.3 million.

The net gain on divestitures includes a $16 5 million pre-tax pain from the sale 20

~

' f the mortgage company, North Central Financial Corporation, and a S2.2 million o

pre-tax loss from the divestiture of two Northwest Ohio affiliates. The loss was reported in the third quarter as noninterest expense.

Noninterest income (dollars in thousands) 1985 1984 Pnor year noninterest income * .S 51,955- S 33.775 Adjustment for 1984 acquisitions 15,618 13.167 Adjustment for 1985 Centran acquisition 11,943 -

Net gain on divestitures 14,309 -

Increase not due to acquisitions:

Trust income l566 1.244 Deposit account income 2,844 503 Other _ I,43_4 _ 3.2_66 Total increase not due to acquisitions 5,844 5.013 Total noainterest income

• S 99,669 c ===

$===

51.955

• E::cludes secunties gains orlosses N:ninterest Expense. Noninterest expense increased $92.5 million over 1984.

' The acquired affihates accounted for $65.7 million of this increase. Excluding the impact of the acquired affiliates, stock appreciation rights expense and the 1984 capital stock tax refund, noninterest expenses increased $20.9 million over 1984.

Salaries and benefits increased $8.9 million, equipment and occupancy expense

. rose $3.9 million.and all other forms of nonintcrest expenses increased $8.1 million.

The higher levels of noninterest expense represent additional costs associated with the integration of Centran and a program to restructure the regional banks to better capture operating efficiencies in the future.

N:ninterest Expense _

(dollars in thousands) 1985 1984

~

. Prior year noninterest expense $178,295 Si27 3f5 Ohio capital stoch tax refund- 1984 3,095 (3.005)

Adjusted noninterest expense 181,390 124.283 Adjustment for 1984 acquisioons 31,695 41.437 Adjustment for 1985 Centran acquisition 34,037 -

Increase not due to acquisitions Salanes and benefits 8,872 5.543 Equipment and occupancy 3,9 I i 1.64I Other 8,108 5.477 Totalincrease not due to acquisinons 20,89I 12.661

. Increase in stock' appreciation nghts expense 2,794 (86)

Total noninterest expense .$270,807 5178;2,95

The Corporation grants stock options to Executive Of ficers, and an equal number of Stock Appreciation Rights (SAR's) are granted in tandem Under current SEC rules, stock received from exercised options must be held for six months before the stock is sold. In lieu thereof, SAR's can be exercised and the related options cancelled.

Upon exercising SARs. the officer receives cash for the difference between the market value at the date of grant and the market value at the date exercised. Cash received in this transaction is considered compensation to the officer. Accounung pnnciples require the Corporation to recognize this potential compensanon as a charge to earnings as the market value of the Corporanon's stock increases, even :f the SAR 21

is not exercised during the accounting period. Due to the increase in the per share value of Society Corporation _ Common Stock.SAR expense was S2.8 million higher than in 1984. On an after-tax basis. SAR expense reduced eamings S.23 per share in 1985.

Loans and deposits. As the accompanying table shows, commercial and con-sumer lending experienced significant year over year growth since December 31,1984. A large part of this increase was due to the Centran acquisition.

Society has been developing expertise in the fields of health care and com-munications, which are viewed as having excellent growth potential. During 1985, the commercial banking division focused on lending to companies with activities in these fields as well as other medium size mid-western companies.

Consumer lending balances increased as a result of acquisitions continued demand for consumer credit and aggressive marketing programs focusing on variable rate instruments. Mortgage loans grew during the period, primarily in variable rate categories.

Society has been deemphasizing foreign tending. Foreign loans increased to Sil5.1 million from S71.8 million at year end 1984; this increase was entirely due LOAN MIX AT DECEMBER 31,1985 to the Centran acquisition. The ratio of foreign loans to total loans remained stable iA e m ar.u uenu at about 2%.

22% Distribution of Loans By Category

< December 31 (dollars in millions) 1985 1984 1983 1982 1981 25 7% ,

i Commercial. financial

-i and agncultural, 39 2 % Commercial and industrial-taxable $ 1,456.8 $ 729.1 5 6940 $ 513.3 S 441.4

[- .' ' , Commercial and industnal-tax exempt 302.8 196.1 N/A N/A N/A Loans to depository institutions 66.6 49 6 38.5 455 49 4 Loans for purchasing or 32 9% 31.4 60 36 46 52 carrying secunties Loans to farmers - 22.0 27.8 64 51 4.4 Other loans 106.2 91.4 66 8 37.0 25.3 men cowmklR hMNOAL AuucUtrunAL Total commercial 1,985.8 1.100.0 809.3 605.5 525 7 i t Aww Real estate-construction 77.0 44 0 15 8 12 O I 1.7 seen Rui bun Real estate-mortgage 1,683.2 1.269.7 727.8 635.3 616 0 an issun uts r Total reat estate 1,760.2 1.313 7 743.6 647.3 627.7 mme FORHO Consumer installment 1,080.6 694 4 530 6 400 6 386.7 Consumer credit card 294.5 169.9 125 4 105 0 96 6 Total consumer 1,375.1 864 3 656 0 505 6 483 3 Lem financing 107.4 76 7 R3 oo o6 Foreign:

Govemments and official institutions 67.5 30 0 33 9 31.4 32.3 Banks and other financial institutions 4.9 26 8 95 10 6 26 9 Commercial and industnal 42.7 15 0 24.7 19 8 24.3 Total foreign i15.1 7i 8 68 1 61.8 83 3 Total loans (net of uneamed income) 5,343.6 3.426 5 2.285 3 1.826 8 1.726 8 Less allowance for loan losses 70.7 42 6 27 1 23 7 22 4 Net loans $5,272.9 53.383 9 S2.258 2 S t .8031 51.704 4

==. = .

N/A = Not Avaliable 22

l Total deposits. Society's primary source of funding, increased 45.8% from year-end 1984 to year-end 1985. The Centran acquisition accounted for a major portion of this increase. The company's deposit structure did not experience any significant changes.

Impact of Acquisition Activity on the Balance Sheet. Thetable belowsummarizes changes in balance sheet categories as a result of acquisitions. The column "without acquisitions ~ removes the impact of the 1984 acquisitions of Interstate Financial Corporation. BancSystems Association. Inc., the Akron branches, and the 1985 l Centran acquisition.

Excluding the impact of acquisitions. carning assets grew by 5.4%.This reflects loan growth of 12.5% and a decline in investment securities of 7.8%.The investment secunties [x>rtfolio was managed to adjust for the effects of the merger with Centran, and to take advantage of favorable investment opportunities.

The tab!c also shows that the growth in interest bearing liabilities, consisting of time and savings deposits and borrowed funds, was primarily the result of acquisitions. The growth in borrowed funds of 32.3% was due exclusively to the acquisition activity.

DEPOSIT MIX AT DECEMBEft 31,1985 Balance Sheet Impact of Acquisition Activity m, ,,,, t. ou w , _

(do!!ars in milhons) 1985vs 1984 1985 vs.1984 1984 vs.1983 1984 vs 3983 Variance Without Vanance Without il 3%

As Percent Acquisi- Percent As Percent Acquisi- Percent 2' d Averagc balances Reported Change tions Change Reported Change tions Change Loans S t.232 8 40 9% S375 0 12.5% $1.025 2 51.6% S412 0 20.7%

Investment .i secunties 309 5 19 2 (125 0) (7.8) ' 71.6 4.7 (102 8) (6.7)  !

Total earning assets 1.542.3 33 4 250 0 54 1.096 8 31.1 309 2 88 50 % '/ H) W Allowance for /

loan losses 15.3 41.8 30 82 11 3 44 6 4.7 18 3 '

f Other assets 263 0 46 0 70 7 12 4 119.3 26 4 14 8 33 Total assets $ i .790 0 34 7 $317.7

=

62 51.204 8 30.5

~

S319 3

=

8.1 Time and savings l deposits S l .149 9 34 3 $237.2 71 5 813 8 32 ' S202 9 80 m Tm onws tws snow Borrowed funds 202 2 32 3 (21.9) (3 5) 155 0 33 0 77.7 16.5 ame DmANo Dawrs hAVING5 AsD IRANNA(.T!UN Df.h BtTs interest-beanng liabihties I.352.1 34 0 215.3 54 968 8 32.2 280 6 93 m (f N ^"So&DH w "> m M$ne "

Other liabilities 338 6 39 3 75.3 8.7 173 4 25.2 15 8 23 Shareholder's equity 99 3 31.1 27.1 85 62 6 24 3 22 9 89 Total habiliuc .

and equity 51.700 0 34 7 S317 7 6.2 S t.204 8 30 5 5319.3 81 l

t I

i 1

23

t Allowance for Loan Losses. Society increased the allowance for loan losses to 1.32% of loans outstanding. compared with 1.24% at year-end 1984.

Loan losses net of recoveries were SI 1.2 million in 1985, representing .27%

of average loans outstanding for the year. Net charge offs in 1984 were S7.4 million, or .25% of loans outstanding. The table below summarizes loan loss experialce within each loan category Allowance for Loan Losses (dollars in thousands) 1985 1984 1983 1982 1981 Allowance for loan losses-Januanji $42,612 S27.116 523.671 S22.357 $21.8; f Loans charged off.

Commercial 6.237 3.748 4.170 2.445 1.663 Real estate 1,543 997 195 216 534 Installment 10.474 7.501 5.613 6.773 8.440 L. case financing 519 305 N/A N/A N/A Foreign 1,445 144 45 51 N/A Total loans charged off 20,218 12.695 10.023 9.485 10.637 Recovenes dunng the year.

Commercial 4,581 1.799 730 210 218 Heal estate 300 276 81 54 48 LOAN LOSS ALLOWANCE Installment 3,757 3.067 2,681 2.861 3.23o AND NET LOAN LOSS RATIOS Lease hnancing 296 149 N/A N/A N/A Foreign 67 N/A N/A N/A N/A g yp.,y Total recovenes 9,001 5.291 3,492 3.125 3.502 1.3 Net charge offs (11,217) g7.404) (6.531) (6.360) (7.135) 1.2 1.1

""'%%~ fa'r "'#. .# Provision for loan losses Allowance of acquired tnnhs 18,559 23,004 13.620 9.280 9.826 150 7.174 500 7.256 415 1.0 Allowance of affiliates sold (2,270) - - - -

E9 Allowance forloan losses -

0.8 December 31 $70,688 542.612 ---- - - - -S27,116

= ==== = ~ = $22.357 523.671 ==

0.7 0.6 Allowance for loan losses as a percent oIloans outstanding at December 31 1.32% l.24 % 1.19% 1.30% 1.29%

0.5 04 Net charge offs as a percent of average g3 O. I N 2"d"ra"!

25' ' "4

n g, g3 g4 g3 Nonperforming Assets. Nonperforming assets were 576 7 million .o the er:d of 33 1985. an increase of $35 0 million from December 31,1984. This incre s e was e Auowascr eon toss Lossis t osss av my largely due to the addition of Centran assets, which included $15.5 million inter-um wr inw3 cnwuo om Aunru torss national loans classified as nonperforming. The ratio of nonperforming assets to total loans and other real estate owned increased to 1.43% at year-end 1985 from 1.21% at year-end 1934.

24

[

t i

The accompanying table summarizes individual categories of nonperforming assets. Details on the interest foregone on nonaccrual loans is located in the Notes to the Consolidated Financial Statements.

Nonperforming Assets December 31. 1985 1984 1983 1982 1981 (dollars in thousands)

Nonaccrualloans-domestic $32,874 $21.223 $ 13.204 s 7.561 S 7.151 -l

-foreign 19,588 2.067 3.190 2.914 -

I Restructured loans-domestic 1,744 4.238 3.466 11.821 10.039 Past due 90 days-domestic 10,512 8.305 5,242 5.257 5.614

-foreign 89 938 _ 16 Total nonperforming loans 64,807 35.833 25.102 28.491 22.820 Other real estate owned 11,869 5.818 4.131 3.273 2.526 Total nonperforming assets $76,6p $g51, SJ9.233 $3(7,64 525.346 International Activities. During 1985 international lending strategy focused on providing fee generating services for Ohio based corporations to facilitate their export and import functions. Loans to the commercial and industrial sector were generally only to foreign subsidianes of domestic customers in connection with fee generating services such as letters of credit and documentation services.

Over the past few years, Centran has focused on strategies to reduce foreign loan exposure. During 1984 Centran reduced its foreign exposure from $146 million to $126 million. During that year Society's foreign exposure increased slightly from 568 million to S72 million. By year-end 1985 the total foreign loan exposure of Society including that related to Centran, declined to $121 million.

Society has always had a very conservative international lending policy. As a result, there are only four countries in which intemational loans exceed $5.0 million; Mexico ($52.5). Venezuela (S12.6). Brazil ( $8 0), and Columbia ( $6.7).The table below presents a summary of the Corporation's international portfolio, including $6.0 million of stand-by commitments, by area as of December 31.1985.

Fjpign Exposure Asia! Latin Middle United (dollars in thousands) Pacific Europe Canada Amenca East States Total Loans.

Banks and other financial institutions S 2.225 $ 51 5 S 2.633 5 2s -o- S 4.911 Governments and official institutions 2.251 7.204 46.396 8.250 3.347 67.448 Commercial and lndustnal companies _ 200 3.273 1.831 35.112 9 8.309 48.734 Total 4.676 10.528 1.831 84.141 8.26 11.706 121.143 Eurodollar placements 57.400 40.999 35 000 4.000 121 078 308 477 Short-term investments 40.000 20.000 15.000 75.000 Investment secunties 3_2.000 35._7_45 5.000 __0__

,_0 - 10.951 83 606 Total i29 400 146.744 55.000 4 000 l 32 029 467.173 Total Portfolio $ 134.076 $ 157.272 $56,831 588.141 58.261 5143.735 5588.316

- _ _ _ _ . ~ _ _ _ _

l 25

P y

1 Liquidity and Balance Sheet Management. Through liquidity management. Society monitors the availabi!ity of funds to satisfy the needs of depositors and borrowers.

Liquidity is provided by maintaining assets with short-term maturities which can be sold readily.such as short-term government securities and money market assets, as wc!! as by management of the types and sources of liabilities held.

In 1985 the caming asset mix shifted to accommodate loan growth. Total loans as a percent of eaming assets grew from 68.9% at year-end 1984 to 69.7% at year-end 1985. Concurrently, short-term investments and portfolio securities dec!i.ied as a percent of earning assets from 31.1 % at year-end 1984 to 30.3% at year-end 1985.

The following table presents a maturity distribution of selected loan categones at December 31.1985 and 1984. Based on scheduled pnncipal repayments. S I .269 million in loans will mature or the interest rate will be adjusted. in one year or less.

Maturity and Rate Sensitivity Analysis of Selected Loan Categories Within I-5 Over fdollars in millions) 1 Year Years 5 Years Total At December 31.1985 Commercial. financial. agncultural S1.169 9 $500 6 5315.3 S t .985.8 Real estate-construction 27.9 49.1 -

77.0 Foreign 71 3 27.9 15 9 115.1 Total -.$ 1.2 69.1 - 5577. 6 .$.331 2

-- 5.2. _177.9.

Loans with predetermined interest rates $2341 5116 I Loans with floating or adjustable rates 343 5 215 1 Total S577.6 S331.2

.:. =

At December 31.1984 commercial. financial. agncultural S 616 2 $296 0 $ 187.8 S1,100 0 Real estate-construction 35 1 5.2 3.7 44 0 Foreign 34 9 94 27.5 71.8 Total S 686 2 -

=S31

,0.6, S219 0 $ 1.215 8

.= - = = . - = .

Loans with predetermined interest rates 5121.1 S 94 8 Loans with floating or adjustable rates 189 5 124 2 T ota' $310 6 $219.0

-.- .~ - . . - . - . - . - - _ - . . -

In late 1985. a program was initiated to restructure the investment portfolio in order to capitalize on an unusual spread relationship between taxable and tax exempt secunnes and to realign the portfolio in light of the Centran acquisioon As a part of this restructuring. S343 million of high quality municipal securities were acquired Of the secunties purchased $168 million have maturitiesgreaterthan one yearand have an avera,qe maturityof 3 5 years. About $60 million of these secunties were acquired to replace the lost earnings power resulting from the sale of the mortgage companyThe balance of secunnes acquired repnce over various ome intervals out to one year and generally provide the corporation an option to "put" the secunnes to the issuer at each repncing date.

26

- The accompanying table presents the maturity distribution of all investment securities as of December 31. for the last three years. The average maturity of the portfolio declined because of a continuing program to limit the acquisition of new securities to those with relatively short maturities. As of year-end 1985, the average maturity of the securities portfolio was 3.4 years compared with 4.4 years at year-end 1984.

Investment Securities at December 31 Weighted U.S. Federal State and Average (dollars in thousands) Treasury Agencies Municipal Other - Tota! Yield 1985 Matunng:

Within one year $350.513 S-13.550 S242.875 $ 35.088 $ 642.026 10.55%

One to five years 445.756 111.730 219.953 20.461 797.900 10.35 Five to ten years 294 642 133.035 27.249 161.220 12.46 Over ten years 1.298 198.739 77.043 33.017 310.090 9.66 Book value $797.854 5324.661 5672.906 S115.815 S t .911.236 10.48 Market value 814.842 329.094 649.377 118.539 1.911.852

%bi$ted average yield 9 80% 9 69% 11.73% 1020%

. Average matunty 1.4,_ yrs. 7.6 yrs. 3.2 yrs. 6 0 yrs. 3.4 yrs.

1984 Book value S447.423 5290.458 S249.865 S 71.801 St 059.547 Market value 453.406 277.669 209.372 72.667 1.013.114

%bighted average yield 10.81% 11.84 % 10 89% i1.92% 1120%

Average matunty 16 yrs- 5 2 yrs. 6 8 yrs. 9.1 yrs. 4.4 yrs 1983 Book value 5281.165 5361.539 5209.216 S 58.743 S 910.663 Market value 281.593 348.580 164.836 59.105 854.114

%bighted average yteld 11.01% 12.16% 10 70% 11.37 % 11.42%

Average matunty 1,7 yrs. 4 8 yrs. 8.2 yrs. 9.9 yrs. 5 0 yrs.

%tighted Average Yiehts Are Calculated on the Basts of Book Value. Such Yields Have Been Adjusted to afully Tax Equtva_ lent Basis.

As a part of liquidity management, dependence on purchased funds, including time deposits over $100.000, is closely monitored. At December 31.1985, such deposits represented only 9.8% of total liabilities and were almost exclusively provided by customers of the various regional banks. The table below shows the maturity distnbution of time deposits over $100.000 as of year-end 1985 and 1904.

_ _ . _ . _ Maturity Distribution of Time Deposits $100,000 or More December 31. 1985 1984 (dollars in millions) Domestic Foreign Domestic Foreign Time remaining to matunty.

Three months or less $497.1 S 98 5 S228.7 524 2 Three through six months 390 2.2 78 4 Six through twelve months 65 6 .1 30 8 Over twelve months 29 4 20.1 Total 5701 i S100 8 S358 0 524 2

. --.n n.=-= . = .

e. - . . , . . - , . . --,._-_m _-...--w_ - - - - . .~.----.---.__,.....-,-+.m . -- ---

27

f a

t t

I l

F 1

I i

i l The Corporation and its regional banks have access to a variety of sources of

! short-term borrowings. The details of these borrowings for the last year are included -

j in the Notes to the Consolidated Financial Statements.

[ Interest Rate Sensitivity. Society Corporation's interest rate risk management -

i ,

philosophy is one of maintaining approximate balance between fixed rate assets and

) fixed rate liabilities of a longer term nature. whi!e actively managing interest rate-

?

sensitivity gaps over shorter time intervals. Therefore, monitoring the repridg characteristics of the Corporation's assets and liabilities is crucial in order to minimize vulnerability to changing interest rates while maximizing current and expected yields. Effective interest rate management seeks to ensure that assets and liabilities respond to interest rate changes in a similar time frame.

The Corporation's management of asset and liability repricings is based on the segmentation of the balance sheet into two conceptual parts: the core banking segment and the discretionary balance sheet. The. core banking segment refers to

• hose deposits from, and loans to. customers. Given the Corporation's long time oientation of relying on core deposits. the core banking segment compnses over 90% of total assets. Core banking activities do not always produce desired asset liabd.ty positions. To the extent mismatches result, discretionary balance sheet adjus'ments are made to achieve corporate balance sheet management objectives.

The accompanying table is a summary of repricing dates within the next year for various assets and liabilities as of December 31.1985. The table shows the excess or shortfall of interest sensitive loans less deposits and investments less borrowed funds. This excess or shortfall is called the " gap:'

Through asset /liubility management the Corporation maintains a basically balanced gap position at the one year period The one year gap at the end of 1985 was $51 million or .7% of average earning assets. This is well within management's guideline that the one year gap not exceed plus or minus 3.5% of average caming assets.

Interest Rate Sensitivity Analysis December 31.1985 1-30 1-90 1-18n 1-365 (dollars in millio:.s) Days Days Days Days Core balance sheet segment:

Loans 52.209 $2.475 52.999 S3.597 Deposits 1.632 2.612 3.307 3.733 Core banking gap 577 (l37) (308) (136)

Discreconary balance sheet segment-Investments 485 627 825 1.243 Borrowed funds 1.002 1.052 1.052 1.056 Discrenonary gap (517) (425) (227) 187 Conschdated rate sensitivity gap S 60 S (562) ((535) { SJ 28

t I

i l l

1 ,

l c

Capitaland Dividends. At year-end Society's equity capital, which now includes 4 $50 million of perpetual preferred stock, totaled $532.4 million. This is up from

. - S354 8 million at year-end 1984. The equity issued in the acquisition of Centran added 2.2 million shares of common stock or $84 millic~ of additional common equity.  ;

Society continues to be well capitalized as measured by regulatory guidelines for capital adequacy. Primary capital was 6.84% or assets at the end of 1985. well

. above the 5.5% minimum regulatory guideline. Total capital at 7.99% substantially

!~ exceeds the 6% minimum regulatory guideline.

O*1 a per share basis, common dividends increased 8.2% in 1985 to an annual dividend rate of S 1 84. This continues Society's policy of dividend increases at least commensurate with the rate of inflation, and reflective of the company's capital j position and earnings growth.

1 Long-term debt as a percent of capital (equity plus long-term debt) was 17.0% at December 31.1985. As a result of the merger with Centran. Society assumed Slg CAPITALTO ASSETS AT DECEMBER 31

~ ~

milhon of 7 85% debentures due May 15.1997, and S 19 million of 4.75% subordinated debentures due December 1.1989.

In order to finance the merger with Centran an existing $50 million revolving 9 credit line was replaced with a S75 million. 7-year revolving credit line. By year-end.

. S60 million of the credit line was repaid with internally generated funds. ByJanuary 8 31.1986, the remaining S 15 million had been repaid. in addition, a short-term note  ;

7 i for $40 million was issued in September and repaid in early December. ' '

{ With the streamlining of the balance sheet basically complete and the total g 7 i repayment of debt incurred in the Centran acquisition. Society is well positioned ~l i >

y 1

! to fund future acquisitions or business line expansions. 5 4

3 l ,

a i'

l i

o i si s2 83 84 85 l

l aums TotAt ( AmAL I

- PamARY CAMAL h

i l

I i

-my l 20 l

Society Coqx>ratwn CONSOLIDATED BALANCE SHEET December 31, (dollars in thousands. except per share amounts) 1985 1984 Assets -

Cash and due from banks S 655,404 S 454.066

' Due from banks-interest bearing 308,477 265.982 Fcderal funds sold and security resale agreements 94,800 219.600

' Trading account assets .

3,335 -

itwestment securities (market value S1.91 I.852 in 1985; S1.013.114 in 1984) 1,911,236 1.059.547

. Loans (net of unearned income S84.663 in 1985; 576.237 in 1984)? '

• an 2x 1,985,740 1.099.945 '

Commercial Real estate-construction financial and agricultural / jP 76,982 44.033 Real estate- mortgage .# 1,683,202 1.269.686 I,375,077 Installment 864.272 Lease financing 107,408 76.714 Foreign . 115,143 71.840 Total loans 5,343,552 3,426.490

_L_ess: Allowance for loan losses _

70,688 42.612 ,

. Net loans 5,272,864 3.383.878 Mortgage loans and mortgage-backed secunties held for sale -

108.041 Premises and equipment 181,649 103.350 Customers' liability on acceptances 29,666 30.922 Accrued interest and other assets 291,635 210.059 Total assets 58,749,066 S5.835.445 Liabilities and shareholders' equity Deposits in domestic offices:

Noninterest beanng S1,528,357 S t .030.621 Interest bearing . 5,459,934 3.810.832 Deposits in foreign of fices:

Noninterest bearing 5,622 -

Interest bearing __ _

100,805 24.159 Total deposits 7,094,718 4.865.612 Short-term borrowings 873,215 416.866 Acceptances outstanding 29,666 30.922 Other liabilities 110,258 89.498 Lons!-term debt 108,787 77.762 Totalliabilities 8,216,644 5.480.660 Shareholders' equity:

Preferred Stock. no par value; authonzed- 5.000.000 shares Adjustable Rate Senior Preferred Stock. stated value 5100, authonzed and outstanding - 500.000 shares in 1985 50,000 -

Common Stock. Si par value, authorized-40.000.000 shares.

issued- 11.221.200 shares (9.002.408 in 1984) 11,221 9.002 Capital surplus 227,897 145.463 Retained eamings 246,411 205.683

_Comm_on Shares in treasury. at cost- 152.269 shares (269.049 in 1984) _ _ ____

_ (3.,107)_ _ (5_.363)

Total shareholders' equity 532,422 354.785 58,74(A066 m * "?i!!de nd sha!eholdus}quity -

55.835;445 See notes to consonda:edfmanctal statements l 30

W l Society Corporation

. CONSOLIDATED STATEMENT OF INCOME Year ended December 31, (dollars in thou nds, except per share amounts) 1985 1984' 1983 Interest and fee income:

Loans-subject to federalincome tax $473,165 ' $365.300_ S232.728-Loans-exempt from federal income tax 18,687 13,773- 8.924 Investment securities-subject to federal income tax 101,419 88,299 78,811-

. Investment securities-exempt from federal income tax 20,225 ' 14.788 14.148 Due from banks-interest bearing ~51,976 27.565 43 851 Federal funds sold and security resale agreements 20,751 40.441 16.833

. Trading account assets 783 . 485 306 Mortgage loans and mortgage-backed securities held for sale 14,425- 6.157- ' -

Total interest and fee income 681,431 551,808 395.601 Interest expense:

Deposits 352,537 294.921 214.245 Short-term borrowings 53,995 55.150 35,535 Long-term debt 11,466 8.145 7,224 Total interest expense 417,998 '358,216 257,004 Net interest income 263,433 193,592 138.597 Provision for loan losses 18,559 13.620 9.826 Net interest income after provision for loan losses 244,874 179.972 128,771 Nininterest income:

. Trust income 16,936 10.207 6.753 Service charges on deposit accounts 24,225 16.092 12.611

' Itwestment securities gains (losses) 576 (752) (3.537)

- Net gain on sale of subsidiaries 14,309 - -

gher it.come 44,199 25.656 14.4 l 1 Total noninterest income 100,245 51.203 30.238

~

oninterest expense:

Salaries and employee benefits 130,379 91,606 68.194 Net occupancy 21,744 14.446 10.949 Equipment 22,539 14.613 10.546

. Other expen_se 96,145 57.630 37.689 Total noninterest expense 270,807 178.295 127,378 inceme before taxes 74,312 52.880 31,631 Provision forincome taxes 14,005 9,263 2.300 Netincome S 60,307 S 43.617 $ 29.331 Net income applicable to Common Shares S 58,543 $ 43.617 5 29.331 Net income per Common Share $6.01 $5.43 S4.53 Common dividends declared per share $1.84 S1.70 $160 Weighted average Common Shares outstanding 9,733,956 8.032.608 6.474.671 See notes to consohdatedfinancial sta:ements 31

Societv Corp <wanon CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY l

Preferred Common Capital Retained Treasury (douars in thousands. except per share amounts) Stock Stock Surplus Earnings Stock BalanceJanuary 1.1983 S 6.724 5 89.097 $ 156.868 5(6.54I)

Net income for the year 1983 .

29.331 Cash dividends declared. $1.60 per share (10.272)

_Com_ mon Shares issued upon exercise of stock options 14 749 Balance December 31.1983 6.724 89.281 175,927 (5.792)

Net income for the year 1984 43.617 Cash dividends declared. S t.70 per share (13.861)

Common Shares issued upon exercise of stock options 81 429 Common Shares issued in acquisition 2.278 56.101 Balance December 31.1984 9.002 145.463 205.683 (5.363)

Net income for the year 1985 60,307 Cash dividends declared:

Common Stock. St.84 per share (18,235)

Preferred Stock. $2.69 per share (1,344)

Common Shares issued upon exercise of stock options 432 2,256 Common Shares and warrant issued in acquisition 2,219 82,002 Adjustable Rate Senior Preferred Stock issued in acquisition $50,000 Balance December 31.1985 $50,000 $11,221 $227,897 $246,411 $(3,107)

See notes to consohdatedfinancialstaternents.

32

t Socwty Corporation CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION Year ended December 31, (dollars in thousands) 1985 1984 1983 Financial resources were provided by Operations:

Net income $ 60,307 5 43.617 $ 29,331 Items not requiring the use of funds.

Deprecianon. amortization. and provision for loan losses 36,228 21.903 17.250 Financial resources provided by operations 96,535 65.520 46.581 Cash dividends declared (19,579) (13.861) (10.272) 76,956 51.659 36.309 Deposits and other financing activities:

Deposits 2,229,106 1,498.505 347,235 Short-term borrowings 456,349 (98.581) 76.604 Long-term debt 31,025 16.266 (7.628)

Preferred Stock issued 50,000 Common Stock issued 84,221 58.379

_ Treasury shares sold 2,688 510 933 2,853,389 1.475.079 417.I44

~ Other aAlv'ities-(increase) decrease in nonearning assets:

Cash and due from banks (201,338) (97.446) (45.886)

Premises and equipment (91,827) (44.407) (10.446)

Other. net (6_4,957) (67.480) (6.718)

(358,122) (209.333) (63.050) increase in financial resources invested in caming assets $2,572,223 S1.317.405 S390.403

_m_ == __ = = - - = .

Increase (decrease) in earning assets:

Due from banks-interest bearing $ 42,495 S (104.018) S(159.139)

Federal funds sold and security resale agreements (124,800) 25.201 80.805 Trading account assets 3,335 Investment secunties 851,689 148.884 3.850 Loans 1,907,545 1.139.297 464.887

_ _M0!tgagqjoans and ngtgage-backed secunties held for sale _____(108,041_). 108.041 52,572,223 51.317.405 S390.403 See notes to cornoitJa:edfinancialstatements 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of signiScant accounting policies. The account- are recorded for the total of lease payments and estimated ing policies of Society Corporation conform with generally unguaranteed residual value, less unearned income. The accepted accounting principles and with general practices investment in leveraged leases is further reduced by debt in the banking industry. service on nonrecourse borrowings.

Principles of consolidation. The consolidated financial For direct financing leases, unearned income is the total statements include the accounts of Society Corporation and lease receivable less the cost of the related equipment after its subsidiaries, with significant intercompany transactions deducting any unguaranteed residual value. A ponion of eliminated. unearned income is recognized at the inception of the lease in an amount sufficient to cover the estimated cost of obtain-Business combinations accounted for as purchases are ing the lease. Lease income is recognized under a method included from the respective dates of acquisition.The assets which provides for a level rate of return on the net invest-and liabilities of acquired organizations are recorded at fair ment outstanding.

value at the date of acquisition with the premiums and dis-counts being amortized over the average remaining lives of Allowance for loan losses. The allowance for loan losses the respective assets or liabilities. The excess of cost over fair is the amount which. in the opinion of management. is neces-value of net assets acquired is being amortized on the straight- sary to absorb potential losses in Ihe loan portfolio. The line method over the estimated period to be benefited. allowance is detemiined by each bank subsidiary by reference generally not exceeding 25 years. to: the market area it serves; local economic conditions; the composition of its loan portfolio with respect to the mix Securities. Securities are held for both investment and between the various types of consumer and commercial loans trading purposes. Investment securities are carried at cost. and their related risk charactenstics; and the results of regular adjusted for amonization of premium and accretion of dis- reviews of loan quality by its management and corporate staff.

count. Gains and losses on the sale of investment securities (computed on the specific identification method) are shown Premises and equipment. Premises and equipment are separately in the consolidateu statement of income. Tradmg stated at cost less accumulated depreciation and amortization.

assets are carried at market value. Gains and losses on sales. Depreciation of premises and equipment is determined using and adjustments to market value of trading account assets the straight-line method over the estimated useful lives of and liabilities, are included in other noninterest income. the respective assets. Leasehold improvements are amonized Loans. Interest income on loans is primanly accrued based on principal amounts outstanding (level yield methodt income income taxes. For income tax purposes. certain items of on certain discount-basis installment loans is recognized on income and expense are recognized in taxable years other the sum-of-the-months-digits method. which is not materially than those in which such amounts are recognized in the dif ferent from the level yield method. financial statements. Appropriate provisions are made in the financial statements for any deferred taxes that inay anse in Accrual of interest is discontinued,and accrued but unpaid recognition of these timing differences. The pnncipal items interest on a loan is reversed.when circumstances indicate which are recognized in different years are the provision for that collection is questionable. Loans are retumed to accrual loan losses. lease financing transactions, and accretion of dis-status when management determines that the circumstances count on investment secunties have improved to the extent that both pnncipal and interest are deemed collectible Investment tax credits applicable to equipment leased to others are amortized over the terms of the lease. Other in-IKsc financing. Investments in lease contracts are vestment tax credits are applied as a reduction of income taxes recorded by the finance method of accounting and receivables on the flow-through method 34

Net income per Common Share. Netincome perCommon These transactions have been treated as purchases and Sture is computed by dividing net income, less the dividend accordingly the Corporation's consolidated financial state-requirement on preferred stock, by the weighted average ments include the acquired companies results of operations riumber of Common Shares and common equivalent shares from the date of acquisition. The following table presents

- outstanding during the year. The weighted average shares unaudited pro forma combined results of operations for the used in the computation of net income per Common Share three years ended December 31.1985 assuming that the are as follows: Centran merger had occurred on January 1,1984 and the other mergers had occurred onJanuary 1,1983.

1985 1984 1983 Pro Forma (unaudited)

. Common Shares outstanding 9,515,561 7.969.824 6.417.642 Year ended December 31.

Common equivalent shares- (dollars in thousands. except stuk options I11,025 62,784 57.029 1985 1984 1983 per share amounts)

Q mmon equivalent shares- ,

Net income 74,530 62,758 40.600 9,733,956 8.032.608 6,474.671 Net income per Common Share 6.05 5,22 4 64 Restrictions on cash and due from banks. Under the Pro forma information does not purport to be indicative provisions of the Federal Reserve Act, depository institutions of the results that actually would have been obtained if the are required to maintain certain average balances in the form combined operations had been conducted during the periods of cash or noninterest bearing balances with a Federal Reserve presented and is not intended to be a projection of future results.

Bank. Average reserve balances of $127.7 million in 1985 were Investment securities. A summary of the book values and maintained in fulfillment of these requirements. market values of investment secunties at December 31,1985 Mergersandacquisitions. In 1984, the Corporation acquired and December 31.1984 follows:

all of the assets of Interstate Financial Corporation the First - ~ -

National Bank of Salem. and BancSystems Inc.. a major credit Ivxak value card processor, for a combbation of cash and common stock totaling $93 million.' The excess of cost over fair value of (dollars in thousands) 1985 1984 net assets acquired was $43 million and is being amortized -- -

on a straight-line method over 25 years. fde ageIcy obligations 4 On September 3.1985. Centran Corporation was merged 0% "SsufIUs on" 672,906 249.865 into Society Corporation. Under the terms of the merger other securities 115,815 _ 7i,801 agreement, Centran common shareholders received 2.219.000 Total investment secuntics s1,911,236 $ 1.059.547 shares of Society Corporation Common Shares (valued at _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _

$34.125 per share)and $66 2 million in cash. Marine Midland "^'"C' ""I""

Banks. Inc. received $50 million of Adjustable Rate Senior Preferred Stock, $26 million in cash, and a warrant to pur- (dollars in thousands) 1985 1984 chase 1,259,687 shares of Society Common Stock at $40 per 5 8:4,842 5 453,406 share. The excess of cost over fair value of net assets acquired Us Treasury ' ' "' "

was $5 million and is being amortized on the straight-line hb ati $"oYst s d method over 25 years. political subdivisions 649,377 209.372 Other secunties $ 18,539 72.667 Total investment secunties $1,911,852 S t .013. ! !4 Pledged assets. Corporate assets, primarily investment secunties, with a book value of approximately $18 billion, at December 31,1985, were pledged to secure public and trust deposits. to secure secunties sold under agreements to repurchase.and for other purposes required or permitted by law.

35

Le:se financing. The Corporation's subsidiaries lease Allowance for loan losses, Changes in the allowance for various types of equipment to customers with lease terms loan losses are as follows:-

ranging from 3 to 20 years. Automobiles are leased primarily

. for 3 and 4 year terms.

Year ended December 31.

The composition of the net investment in lease financing included in loans is as follows: (dollars in thousands) - 1985 1984 1983-Balance at beginning of year $42,612 527.116 S23.671 Recoveries 9,001 5.291 3.492 December 31, Charge offs (20,218) (12.695) (10.023)

Net charge offs (11,217) (7.404) (6.531)

(dollars in thousands) 1985 1984 Provision for loan losses 18,559 13.620 9.826

$122,468 $84 001 Allowancesof a uired banks 23,004 9.280- 150 Direct financing leases Leveraged leases 2,987 6.697 All wances of a liates sold j2,270) - -

125,455 90.698 Balance at end of year $70,688 S42.612 $27.116 Unearned income (24,821) (18.953) ---

Leveraged leases:

Deferred income (389) (396) Nonaccrual and restructured loans. Nonaccrual and re-Deferred investment tax credit (465) (723) structured loans included in the loan portfolio are summarized 99,730 70.626 below Residual value of leased equipment 7,628 6.088 Net investment in direct financing and leveraged cases $107,408 $76.714 December 31.

(dollars in thousands) 1985 1984 At December 31.1985. minimum lease payments to be received on direct financing leases for each of the five suc- N na tN' $32,874 s21.223 ceeding years are as follows: 1986- $34.9 million; 1987- Foreign 19,588 2.067 S30.3 million; 1988- $22.1 million; 1989- $27.0 million: Restructured loans-domestic 1,744 4.238 and 1990- $4.8 million. Interest income on loans includes Total nonaccrual anc' restructured loans $54,206 $27.528 lease financing revenue of $78 million, $5.2 million and S.6 million for 1985,1984, and 1983, respectively.

The effect on interest income from loa is classified as non-R:1:ted party transactions. In the ordinary course of accrual and restructured for the three years ended December business. the Corporation's banking subsidiaries have mace 31,1985. was as follows:

loans at prevailing interest rates and terms to directors and executive officers of the Corporation and its subsidiaries and their associates. Such loans. in management's opinion. Year ended December 31.

did not involve more than normal risk of collectibility or --

present other unfavorable features. The aggregate dollar (dollars in thousands) 1985 1984 1983 amount of these loans was $146.6 million and $62.4 million Interest mcome which would have at December 31,1985 and 1984. respectively. During 1985. been recorded if loans had been approximately $157.5 million of new loans were made, currcar under original terms

- Domestic $3,040 s4.078 $2.087 including $474 million ofloans outstanding at acquired sub.

sidiaries at the time of acquisition, and repayments totaled LessInter sbncome recorded approximately $73.3 million- dunng the penod

- Domestic 383 1.733 640

- Foreign 312_ 63 _ 95 Net reduction to reported enterest income $3.785 $2.682 S i .583

,_:.=_=__=.= ._. _ . _ _

At December 31. 1985. commitments to lend addiuonal funds to borrowers with nonaccrual or restructured loans were not significant.

36

g . - -

n- m -

- 3

= - . .

. a_

+

y s

1 ,

4 y s' i

n I Premises and equipment. Premises and equ.ipment are - less. The details of short-term borrowings c0vering the last-

'summarind as follows:-

three years are as follows:

' December 3t. - (dollars in thou ands) 1985 1984 1983 1 dollars in thousands) 1985 1984 At December 31: 1 Balance $873,215 S416.866 $515.447 Land . $ 19,893 $ II.729 Weighted average rate 7.98% 7.86 % 9,32% -

z Buildings and leasehold improvements 166,250 89.729 Daily average:

Fumiture and equi 7 ment 124,683 82.065 Balance $716,911 $554.866 $407.415 310,826 183.523 Weighted average rate 7.53% 9 94% 8.72 %

Accumulated depreciation and amortization (129,177) (80.173) Maximum outstanding at any month- end ' $993,597 $818.531 5515.447 Premises and equipment $181,649 5103.350 -.__1 - . _ _ . -..

- . . . - - . _ -... - - . n =w== -

At December 31,1985, the Corporation had unused lines

. Depreciation and amonization expense related to premises of credit totaling $25 million with various nonaffiliated and equipment was S13.5 million. $9.1 million, and S6.9. banks.The lines primanly suppon commercial paper activitie, million in 1985,.1984 and 1983, respectively. . Commercial paper outstanding at December 31,1985 totaled

$7.6 million. Borrowings under the lines can be for varying At December 31,1985. banking subsidiaries of 'the maturities at varicus money market or fixed rates.

Corporation were obligated under a number of noncan-cellable feases for land and buildings and for other property Long-term debt. Long-term debt consists of:

consisting principally of data processing equipment. Rental expense under all ! cases aggregated: $11.9 million in 1985.

S6.2 million'in 1984; and $4.8 million in 1983. Many of the Dp,emberji realty lease agreements contain renewal options for varying (dollars in thousands) 1985 1N4 periods. In many cases, renewal terms must be negotiated

- at the renewal date, including annual rentals to be paid under 9.75% Senior Notes, due through 1996 $ 17,i90 Sie 75 ;

12% notes payable.due 1985 387 the renewed lease. 12.5% notes payable.due 1992 (nct of unamortized discount) 29,862 29.850 Minimum future rental payments under noncancellable 14% notes payable, due through 1987 2,968 4.451

- capital and operating leases at December 31,1985 are as 12% notes payable.due through 1988 470 627 follows: 1986- S10.5 million; 1987- $8.5 million; 1988- S7.4 Floanng rate revolving credit. duc 1992 15,000 million; 1989 - 56.0 million; 1990- $4.6 million; and sub. Roanng rate revolving credit. due 1987 l 1.000 7.85% Debentures.due through to97(discounted se9uent Ycars $24.7 million. to 11.5% interest rate in connecuon with

. Shrrt-term borrowings, Short-term borrowings consist cap ~NicasIohtions primanly of federal funds purchased and secunties sold under ~

agreements to repurchase, which generally represent over-iEaiissued bsMir~ nt e company ~~ 1 551 R s067 4.75% subordinated capital note. due 1989 night borrowing transactions. Other short-term borrowings (discounted io 10 5% interest rate in

.' consist primarily of Treasury Tax and loan demand notes and connemon with Centran mergen 17,399 commercial paper of Society Corporation, which is issued in noatmg rate whonhnated capital note.due 1900 3mo amounts of S100.000 or more with matunties of 270 days or industnal rmnue b nds %037 ws ,

Total long-term debt $ 108,787 $77.762 The 9 75% Senior Notes require serial payments of

$1.6 million annually through 1996. Prepayments not exceed-ing SI 6 million may be made annually on October 1. without I

premium, or all or part of the notes may be prepaid at any ume at a premium The 12.5% notes are due on December 1.

1992. The notes are not redeemable prior to December 1.

1989. but are subject to redempuon in whole or in part. at 37

3_-

t 3 s i .

t.!

r r

I s

the option of the Corporanon.at a redemption price of 100% Preferred stock. Dividends on the adjustable rate senior of the pnncipal amount after that date.The 14% notes require preferred stock are cumulative.The dividend rate is deter-annual principal payments of $1.5 million through 1987 and mined quarterly based on a formula which considers certain the 12% notes, due 1988. require principal payments of short- and long-term interest rates. The dividend rate per 5 2 mil hon annually All of the above notes issued by the Parent annum for any dividend period will not be less than 7.5% nor mmpany are unsecured obligations. greater than 14%.The stock is nonvoting and is redeemable in whole or in part at the option of the Corporation after Onlune 10.1985, the Corporation entered into a 7-year September 3.1990.

revolving credit agreement with three major banks providing for the extension of credit of up to $75 million. Borrowings Mrrant. Pursuant to the Agreement of Merger and to the under the credit agreement may be in the form of domesuc Exchange Agreement between Society and Marine Midland loans. at pnme or money market rates. or in the form of Banks. Inc.. Marine received a fifteen-year Warrant to purchase Eurodollar loans priced off the London Inter-Bank Offered 1.259.687 shares of Society Common Stock at an initial Itate A fee of 1/4% i, payable quarterly on the unused portion exercise price of $40.00 per share. The initial exercise price of the commitment.The unused portion of the credit facility and the number of shares are subject to adjustment to prevent at December 31.1985 was $60 million. dilution of Marine's interest in the event of stock dividends, stock splits. reclassifications or similar transactions relating The 7 85% Debentures due May 15.1997, assumed in the to Society Common Shares.

merger with Centran Corporation require annual sinking fund payments of $ 9 million with the option to repay at a The Warrant may be exercised, subject to Federal and premium until 1992 not more than S.9 milhon each year At Ohio banking laws. in whole or in part for cash at any time December 31.1985. S17 million of Debentures previously until September 3,2000.The Warrant may not be transferred acquired. but not retired.were available to satisfy future sinking by Manne prior to September 3.1989, except to an affliate, fund requirements Also assumed in the Centran merger were or to Society or an acquirer of Society as descnbed m the capital lease obhgations on equipment. Exchange Agreement. After September 3,1989, the Warrant is transferrabic. subject to the terms and provisions of the The 4.75% subordinated capital notes due December 1. Agreement. Private sales of the Warrant are subject to the 1989, assumed in the Centran merger, are subordinated in right of first refusal.

right of payment to the depositors and certain other creditors of the bank. Stock option and stock appreciation rights (SAli) plans.

The Compensation Committee of the Boani of Drectors admin-The industrial revenue bonds held by subsidiary banks isters five stock option plans and two stock appreciation nghts of the Corporation have varying maturities extending to 1998 plans which authorize the granting of stock options or rights and have a weighted average annual interest rate of 9.8%- to selected ollicers of Society Corporation and its subsidia'nes.

The aggregate of annual maturines and smking fund The 1977 Stock Option Plan, as amended.and the 1984 requirements for all iong-term debt obligations for the years Stock Option Plan provide for the granting of options to 1986 through 1990 are $3 8 milhon. $4 9 milhon. $3 0 million- purchase Common Shares of Society at an option price not S2 8 milhon and 52 9 milhon. respectively less than the fair market value of the shares at the date of The note a gyant Mnay Shau or opuons to pudaw mstnad

< ontain restric'greements. debentures and preferred common Shares at a price related to the book value of the tive covenants relatmg to addnional bor- stoch shares at the date of grant (Book Value Shares) The opuans mwings. the payment o! dividends and the sale of assets. are generally exercisable in not less than one year, and expire Under' the most restrictive terms. $65 8 milhon of retained not later than 10 years after the date of grant Although both camings were unrestncred as to the payment of cash dividends plans provide for the granung of incentive stock options, no at De[ ember 31.1985 such grants have been made as of December 31.1985.

g

'r L

The 1977 SAR Plan.as amended.and the 1984 SAR Plan . Stock Options authorize the granting of stock appreciation rights in respect 1985 1984 of outstanding options to purchase Ordinary Shares or Book Value Shares. or a combination of both.The holders of SARs Shares Opthn price Shares Option price may elect to receive the excess of the current market value (in the cay of Ordinary Shares) or the current book value OPtonsmtstanding at tynningof yca- 371,200 s t i.56-M.25 286350 sn 56-27.13 (in the case of Book Value Shares). over the option price in heu of exercising the related option.The amount of the excess 3du ed

' may be paid in cash, or Common Shares. or a combination in acquisinon 210.038 15.54-21.96 of both. Whenever SARs are exercised, the related stock opuons exercised 171,461 11.56-29.25 49.850 1156-27. t 3 options are surrendered. SARs are exercisable not less than opn psed or six months after the date of grant and only if the related ' '

stock option is exercisable. In anticipation of the settlement OPu nsw5tanding at en er 6%,7{7 s143846.75 37L200 si NW 25 of outstanding SARs. S41 million, $14 million and $1.4 million

- were charged'to expense in 1985,1984.and 1983.respectively.. Og"d e obe5 s ble s 38 3025 407J77 500 smn3

~~~~ ~~ ~

The above stock option plans provide for the granting of options to purchase either Ordinary or Book Value Shares.

Under the terms of the plans a maximum of 550,000 and Stock Appreciation Rights 500.000 Ordinary Shares or 700.000 and 750 000 Book Wlue - 1985 1984 Shares can be issued at any time prior to Fubruary 9. l67

- and Febmary 15,1994, respectively. The 1973 Stoch i 9 Shares Option price Shares Opuon pnce Plan has expired, but unearcised options granted for Ordina:

"g at Shares remain outstandinh At December 31,1985,245.506 $nnin ea 206.250 $14.50-30.25 145.200 si1 56-27.13 Ordinary Shares and 972,78o T ek Value Shares remained SARs granted 128,000 46.75 1 9.500 29 25-30 25 available for the granting of future options under all the SARs exercised 53,250 14.50-29.25 28.450 11 56-27.13 above plans. SARs outstanding at end of year 281,000 s14.50-46.75 206.250 s14 50-30 25 Under the temTs of the merger with Centran Corporation SARs exercisable at on September 3,1985. Society assurrM mn-qualif;ed and end of year 153.000 $14.50-30.25 119.750 si4 50-27 13 incent;ve options issued under Centran3 .W4 e.nd 1973 stock op0on plans. At December 31,1985, such options were out-starcling covenng i41,627 shares All assumed options are Employee benefit plans. The Corporation and its subsidiaries exercisable and will expire if not exercised ten years from have noncontributory pension plans covering substantially their respective dates of grant. all employees. During 1985 the primary plan was amended The following tables summarize pertinent information to include certain subsidiaries previously acquired by the with respect to the Corporation's stock option and SAR plans. Corporation and certain retirement plans were assumed in in the tables, options granted in tandem are included on the the merger with Centran Corporation Total pension expense basis that represents the economically preferable attemative was S1.5 million. St.7 million and $2.9 million for 1985.

to the optionce. 1984 and 1983. respectively Revisions in certain actuarial assumptions, pnmanly increases in the assumed rate of retum on plan assets. had the elTect of reducing pension expense by approximately S15 million in 1985 and 52 0 million in 1984.

The Corporation's policy is to fund pension expense in accordance with ERISA standards 39

A comparison of accumulated plan benefits and plan net Commitments and contingent liabilities. In the normal ,

assets for the Corporauon is presented below based on actuarial course of business, various commitments and contingent valuation dates ofJuly I for the primary plan and January 1, liabilities anse. including commitments to extend credit. letters 1985 for plans assumed in the Centran merger. of credit. future contracts and guarantees. Outstanding com-

'mitments under standby !ctters of credit issued by banking subsidiaries amounted to S139.4 million at December 31, (dollars in thousands) 1985 1964 1985 and $59.5 million at December 31,1984. Management -

Actuanal present value of accumulated does not anticipate any material losses as a result of these plan benefits. transaCuons.

Wsted S 59,968 s31,183 Nonvested 5.109 4.668 Pending litigation and claims. In the ordinary course of

$ 65,077 535.851 business the Corporation and subsidiaries are subject to legal -

actions which involve claims for monetary relief. Based on Nci assets avadable for bencrus $125,684 s62.447 information presently available to management and its counsel, it is management's opinion that any legal and financial responsibility arising from such claims will not have in 1985. changes were made in the actuarial rate assump- a material effect on the financial position of the Corporation.

tions relating to the assumed rate of retum and compensation levels. The rate of retum used in determining the actuarial Noninterestincome and expense. Includej in noninterest present value of accumulated plan benefits was 9% in 1985 and income for 1985 is a net gain of 514.3 million on the sale of rates ranged from 6% to 8% in 1984.The plan amendment subsidiaries. A pre-tax gain of $16.5 million was recorded in in 1985 increased the actuarial present value of accumulated December of 1985, when a subsidiary of Society. The Third plan benef ts by $11.3 million and the change in actuarial National Bank and Trust Company, sold its mortgage banking assumptions reduced such benefits by $4.7 million. Also subsidiary, North Central Financial Corporation, to the Shawmut included above are $29.0 million of such benefits related to Bank of Boston, N A.The mortgage subsidiary, which had assets plans acquired through the Centran merger in 1985. of approximately S175 million,was sold in a cash transaction.

During the third and fourth quarters of 1985,a net pre-tax loss in December,1981 the Financial Accounting Standards of $2.2 milion was recognized on the sale of several affiliates.

Board issued new rules with respect to accounting for pension primarily. Society National Bank of Mid-Ohio and Society -

plans Management beheves that if the new rules were apphed National Bank of Northwest Ohio. The banks, which had in 1985. pension expense would have been reduced. assets of $250 million, were sold in a cash transaction on Certain health care and life insurance benefits are provided for retired employees. Those benefits and similar benefits for included in the other income category of noninterest active employees are provided through insurance companies income were credit card fee income of $12.0 million, $9.2 and self-insured medical plans. The cost for providing services million and S7.7 million for the years 1985.1984 and 1983, to all employees was 56.9 million for 1985.The cost of providing respectively.

those benefits for 1,253 retirees is not separable from the cost of providing benefits for 6,672 active employees. Included in the other expense category of noninterest expense are: taxes and assessments of S14.4 million. $6.5 Subsidiary dividend and lending mstrictions. At December r.illion and S4,1 million; stationery and supplies of $8.3 million.

31.1985. consolidated retained earnings of Society Corpora- S5.5 million and S4.0 million; and marketing expenses of tion included $130.1 million of undistributed income of its S6.9 million. 56.5 million and $4.2 million, eachin the years subsidiary banks. Dividends paid by the subsidiary banks are 1985.1984 and 1983. respectively.

subject to certain restnctions as set forth in national and state banking laws and regulauons. At December 31.1985. undistri-buted eamings of $103 5 million were free of such restnctions and available for the payment of dividends to the parent company.

40 I

l

[

b in addition, other noninterest expense includes the wnte- Foreign activities. The Corporation conducts international off in the first quarter of 1985 of a $2.6 million deposit of banking activities through its intemational and funds manage-Scioto Savings Association in the Ohio Deposit Guarantee Fund ment departments Edge Act subsidiaries and off-shore (ODGF). The wnte-off represented Scioto's required investment branches in Nassau. Bahamas.  ;

with the private insurance fund which insured certain thrift i institutions 'n Ohio.The failure of the fund's largest member in Foreign activities primarily involve business trans-mid-March resulted in the failure of the fund.Scioto Savings actions with customers domiciled outside of the United States, ,

I was subsequently convened to a state bank under the name including foreign branches of U.S. Banks.

of Scioto Bank and was merged into Society Bank, Columbus .

in the fourth quarter of 1985. .Because of the integrated nature of the Corporation's business it is not possible to determine precisely the operating income taxes. The provision for income taxes includes results attributable to foreign activities.Therefore certain ct'rrent tax expense of $16.0 million, $13.3 million,and $4.4 assumptions and estimates are made in allocating income and million in 1985.1984 and 1983, respectively. The amounts expenses to foreign operations. An allocation of the cost of include current tax expense on investment securities trans. domestic funds supporting foreign assets is made based on actions of S.3 million in 1985 and current benefits of S.3 the average cost of selected short-term funds. Administrative, million and $1.6 million in 1984 and 1983, respectively The overhead and other expenses are allocated through the use sources of timing differences resulting in deferred tax pro- of management estimates and a portion of the provision for visions (credits) are presented below: loan losses is allocated to foreign loans based upon methods consistent with those used to determine the total provision

--- for loan losses.The provision for income taxes is computed (dollars in thousands) December 31. based on the U.S. statutory rate.

1985 1984 1983 The following table presents total loans (net of allowance for loan losses). due from banks-interest beanng total assets Lease financing transactions 52,002 S( 513) S( 644) and related income statement information for each of the past IcScrItionof Yo nf three years pertaining to foreign and domestic operations.

Pension (273) (571) (896)

Other (1,583) (145) (146)

Total deferred income taxes (credit) S(1,956) S(4.073) S(2.122)

======.===========_:.===~._--___

A reconciliation of the provision for income taxes to the amount computed by applying the federal statutory rate of 46% to income before taxes follows:

Year ended December 31.

( # "

o[nN 1985 1984 1983 Amount Percent Amount Percent Amount Percent income tax at statutory rate 534,184 46.0% S24.325 46 0% S14.550 46 0%

Tax-exempt interest income (16,771)(22.6) (13.138)(24 8) (10.613)(33 6)

Invutment tax credits (1,857) (2.5) (1.212) (2 3) (67's ) (2.1)

Other. net (1,551) (2.1) (712) (14) (960) (3 0)

! Provision for mc7me taxes $14.005 18.8% $ 9.263 17 5% S 2.300 73%

41

[ _ - _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

I f

FEreign Activities Due from banks- Income Total interest Total Total before Net (dollars in thousanth; loans beanng assets revenue taxes income 1985 Domestic activities $5,162,426 $8,153,315 $734,229 $69,169 $57,970 1 l

Foreign activities _I10,438 $308.477 _ 59_5,75_I_ 47,447 _ 5,l_43 _ 2,337 Total $5,272.864 5308,477 $8,749,066 $781,676 $74,312 $60,307 1984 Mmesuc acuvines S3.313.123 5 2.500 $5.395.214 $560.373 $52.395 S43.421 Foreign acovines 70.755 263.482 440.231 42.638 485 196 Total 53.383.878 5265.982 $5.835.445 S603.011 S52.880 S43.617 1983 Dnmesuc activines $2.191.212 $3.751.799 5369.992 $27.6M S27,188 f oreign activines 66.989 $370.000 531.043 55.847 4.006 2.143 Total $2.258.20 ! S370.000 $4.282.842 S425.839 531.631 S29.331

:==-=.=======_=_-__==============-- = = - - - - -- - - - -

P_ rent Company Condensed Statements. Condensed financial statements for Society Corporation (parent company only) are as follows:

Condensed Balance Sheet Condensed Statement ofIncome December 31. Year ended December 31, (dollars in thousands) 1985 1084 (dollars in thousands) 1985 1984 1983 Asset income Due from banks- interest beanng with Dividends from subsidianes $72,057 S33.095 S l 7,403 bank sutisidiary $ 33,800 Interest income 605 342 1.453 Secunues purchased from bank sutrsidianes Fees received from subsidianes 9,460 - 5.891 6.572 undct resale agreements 4,399 5 3.700 Other income 252 445 617 Cash and other assets 13,429 8.364 Total income 82,374 39.773 36M investments m subsidianes Egense-Bank subsidianes 583,508 412.257 Interest expense 10,863 7.479 7.031 Nonbank subudianes 7,2_37 4.3.M. Noninterest expense 20,547 9.867 10.609 Total assets $642,373 S428.635 Total expense 31,410 17.346 17.640 income before income tax benefit Uabihues and shareholdeli equity. and equity in undistnbuted net Comrrercial pger S 7,633 income of subsidianes 50,964 22.427 8.405 Other habihties 16,384 S 8.783 income tax benefit 9.066 4.243 4.017 Long-term dcht _ 85.934 65_067 income ttfore equiry in undistnbuted Total habilines 109,951 73.850 net income of substoianes 60,030 26.670 12.422 Shareholders' equity * - ^~

532,422 354.785

~~

Equity in undistnbuted net income of subsidianes 277 16.947 16.uo9 Total habihues and shareholders' equity $642,373 54.8.635

. . . - __ __ - _ _ _ _ _ _ . . _ _ _ _ _ . _ _ _ Net income $60,307 S43617 529.331 we comohdred Stawmen m Sharche 4ders' Eqwry on page 32 --- -- - --- - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

42

4 Condensed Statement of Changes in Financial Position Quarterly Financial Data (unaudited)

Year ended Decernbcr 31. p"ars in thousands. except per share amounts) l Second Mt idollars in thousands) 1985 1984 1983 Quaner Quaner Quaner Quaner Financial resources were provided by: 1985 Operanons:

Net income $ 60,307 5 43.617 s 29.331 Interest and fee income $207,594 $173,576 $151,050 5149,211 Net interest income 82,663 67,917 57,442 55,4 I I Items not requinng (providing) funds.

Provision forloan losses 9,892 4,278 2,127 2,262 Equityin undisdibutaf netincome Noninterest income 44,979' 19,374' 19,063 16,829 of subsidianes depreciation Noninterest expense 88,578 65,356 58,669' 58,204 and amortizauon 1 _,292 (17.775) (16.407)

Income before mcome Financial resources provided taxes 29,172 17,657 15,709 I1,774 by operanons 61,599 25.842 12.924 Net income 22,216 14,286 12,887 10,918 Cash dividends declared (19,579) (13.861) (10 272) Net income per .'

42,020 11,981 2.652 Common share 1.81 1.44 1.46 1.24 3984 Dmosits and other financing acuvioes.

Commercial paper 7,633 Interest and fee income $ 153.438 S154.750 5135.736 5107.884 Long-term debt 20,867 6.206 (7.423) Net interest income 53.108 53.491 50.174 36.819 Preferred stock issued 50,000 Provision for loan losses 3.646 3.723 4.517 1.734 Common stock issued 84,221 58.379 -

Noninterest income 18.225 12.859 11.204 8.915 Treasury shares sold 2,688 510 933 Noninterest expense 52.712 47,352 42.514 35.717 Income before income 165,409 65.095 (6.490) taxes 14.975 15.275 14.347 8 283 Net income 12.517 12.371 11.308 7.421 Other acuvines - increase (decrease) ,

in net nonearningassets 2,380 13.923 (10.666) Net income per Common Share 1 43 1.42 _ _1 44 1.14 increase in financial resources invested in caming assets $209,809 S 90.999 $(14.504) (1) Noninterest income includes a gain of Sl6 5 milton from ihe sale of inc rease (decrease) in caming assets. North Central Financial Corporanon on December 31.1985 Due from banks-interest beanng (2) Noninterest income includes a net loss of 517 milhon from divestiturts deposits $ 33,800 dunng the quaner Secunties purchased from bank (3) Noninterest expense includes the wnte -eff of an af fihate's investment under resa!c agreements 699 S(12.700) $(16.600) in the Ohio Deposit Guarantee Fund (ODGF) totahng $2 6 million investments in subsidianes 175,310 103.694 2.096 _ . . . _ _ _ _ . _ _ _ _ . _ _ . _ _ _ _ _ _ _ _ _ _ _ . _ . . _. _. _

$209,809 5 40.499 S(14.504) u = === = == : = = = = = = = - ----== --

\

i h

e

y.

Effects of changing prices. (unaudited) Selected financial reported for tax purposes.The income tax expense for the year data for the five years ended December 31,1985, are presented shown in the historical financial statements is included in below as required by the Financial Accounting Standards income adjusted for the changes in purchasing power.

Board (FASB) Statement No. 33, Financial Reporting and Changmg Prices.

Since the Corporation's monetary assets are greater than its monetary liabilities, an increase in the Consumer Price The information presented in the table reDects financial Index results in a decline in the purchasing power of the net data in two ways.The historical data are as presented else- monetary assets. Holders of net monetary assets lose pur-where in this annual report. The data expressed in terms chasing power during periods ofinflation because monetary

.of average 1985 dollars reDect information derived from the . assets buy fewer goods and services as the general level of l Unancial statements adjusted to give effect to the impact of prices rise.The loss from decline in purchasing power for inflation on an estimated basis. The estima*cd impact of 1985 is the difference between net monetary assets at the -

innanon is denved from restating historical costs in units of : beginning of the year, adjusted for the change in those assets -

general purchasing power using applicable Consumer Price during the year,in terms of average 1985 constant dollars.

Indices. The underlying principles of accounting are Net monetary assets represent shareholders' equity reduced not changed by nonmonetary items (primarily banking premises and equipment). For earlier years a similar computation was made Net income has been adjusted by restating the historical with the results being further restated in average 1985 con-cost of depreciable and amortizable assets to average 1985 stant dollars.

dollars and using the revised amounts to compute depreciation and amonization for the year with the same useful lives, However, because there is no evidence that t.here is a -

salvage values and depreciation methods as used in the significant relationship between the purchasing power of a -

financial statements.The innation adjustment to depreciation financial institution's net monetary assets and its camings and amortization was 510.4 million for 1985. stream, the purchasing power loss on net monetary assets .

is not necessanly reflective of the effect ofinflationary trends in accordance with FASB Statement No. 33, for the pre- on the Corporation's future operations. Reference to the sentation of income on a constant dollar basis no adjustment Management's Discussion and other financial data in this :

has been made to income tax expense for any deferred taxes report is recommended for assistance in understanding how that might have ansen as a result of the difference between well the Corporation is positioned to react to changing interest income reported on a constant dollar basis and income rates and inDationary trends.

Year ended December 31. ,

(do!!ars m thousands. except per share amounts) 1985 1984 1983 1982 1981 Net mterest mcome after provision for loan losses As reported S 244.874 S' 179.972 S 128.771 $ 121.533 S 99.944 In average 1985 dollars 244,874 186.393 139.042 135.447 118.216 .

' Net income As reponed 60,307 43.617 29.331 26.754 22.744 In average 1985 dollars 48,103 40.451 27.692 26,115 21.976 Net income per Common Share As reported 6.01 543 4.53 4.17 3.53 in average 1985 dolhrs 4.94 5 03 4 28 4 07 3.42 Net assets at year-end As reported 532,422 354.785 266.140 246.148 228.637 in average 1985 dollars 659,411 463.221 359.867 327.960 329.772

- Average awets As reported 6,946,544 5.156.485 3.951.684 4.009.242 3.622.836 In average 1935 dollars 6,946,544 5.340.468 4.266.865 4.468.278 4.285.166 Purchasmg power loss f rom holdmg net monetary assets dunng the year m ascrage 1985 dollars 7,808 7.111 6.490 6.495 16.189 cash dmdends dedared per Common Share As rmorted 1.84 ' 70 1 60 1 52 1.44 in as erage 1985 dollars 1.84 1 76 1.73 1 70 1 71 Market prxe per Common Share at end of penod t hstoncal $4,00 36.13 30 00 22 38 18.25 In aerage lo85 dollars 53.11 36.89 31.85 24.70 20 92 Average consumer Pnce Index for all Urban Consumers 322.2 311 1 298 4 289.1 272.4 44

REPORT OF MANAGEMENT REPORT OF CERTIFIED PUBLIC ACCOUNTANTS The management of Society Corporation is responsible for the The Board of Directors and Shareholders preparation. content and integnty of the financial statements Society Corporation l and related information included in this Annual Report.The financial statements have been prepared in accordance with We have examined the accompanying consolidated balance sheet of Society Corporation at December 31.1985 generally accepted accounting principles applied on a con- and 1984, and the related consolidated statements ofincome.

sistent basis Society maintains a system of intemal controls designed shareholders' equity and changes in financial position for to provide reasonable assurance as to the protection of assets each of the three years in the period ended December 31.

and the integnty of financial statements.This corporatewide 1985. Our examinations were made in accordance with system of controls includes wntten policies and procedures, generally accepted auditing standards and. accordingly.

proper delegation of authority and organizational division of included such tests of the accounting records and such other responsibility and the careful selection and training of qualified auditing procedures as we considered necessary in the personnel. In addition an effective internal audit function circumstances.

pc dodically tests the system of internal controls. In our opinion. the statements mentioned above present Management believes that the system of intemal controls fairly the consolidated financial position of Society Corporation at December 31.1985 and 1984, and the consolidated results provides reasonable assurances that financial transactions are recorded properly to permit the preparation of reliable financial f perations and changes in financial position for each of statements. the three years in the period ended December 31.1985,in The Audit Committee of the Board of Directors is composed conformity with generally accepted accounting principles of outside directors and has the responsibility for the recom, applied on a consistent basis dunng the period.

mendation of the independent certified public accountants for Cleveland Ohio ARTHUR YOUNG & COMPANY the Corporation The Audit Committee meets regularly with February 3.1986 the independent public accountants and intemal suditors to review the scope of their audits and audit reports and to discuss any action to be taken. The independent certified public accountants and the intemal auditors have free access to the Audit Committee.

GORDON E. HEFFERN. Chairman of the Board and Chief Executive Officer ROBERT W GILLEsPIE. President and Chief Operating Officer ROBERT M. PATRICK. Senior Vice President and Chief Financial Officer 45

r AVERAGE BALANCES, NET INTEREST INCOME, YIELDS AND RATES tranable equivalent basis)

(dollars in thousands) 1985 1984 Average Yield / Average Yield /

Balance Interest Rate Balance Interest Rate Assets Due from banks-interest bearing (1) S 357,239 $ 31,976 8.95% S 209.856 S 22.566 10 75%

Federal funds sold and security resale agreements 254,239 20,751 8.16 383.520 40,441 10.54 Trading account assets 8,037 783 9.74 4.412 485 10.99 investment secunties: (2)

U S. Treasury 613,826 62,338 10.16 377.077 41.796 II 08 Federal agency obligations 269,487 29,633 11.00 333.087 40.044 12.02 Other secunties 93,213 9,448 10.14 56.021 6.461 11.53 Total taxable secunnes 976,526 101.419 10.39 766.185 88.301 1 f .52

< State and pohtical subdivisions 323,575 37,192 11.49 246.133 27.196 11.05 Total investment secunues 1,300,101 138,611 10.66 1.012.318 115.497 11.41 Loans- (2)(3)

Commercial. financial. agncultural . 1,443,897 167,485 11.60 978.673 130.482 13 33 Real estate-including loans and mortgage-bac ked secunces held for sale 1,434,040 174,265 12.15 1.031.173 124.302 12.05 Installment 1,199,042 161,478 13.47 887.029 l 27.353 14 36 Lease financing 63,257 7,838 12.39 40.729 5.244 12.88 Foreign 104,217 10,917 10.48 74.022 9.339 12.62 Total loans 4.244,453 521,983 12.30 3.011.626 396.720 13.17 Total cammg assets 6,164,069 5714,104 11.58 4.621.732 5575.709 12.46 Cash and due from bani,s 448,606 319.490 Allowance for loan losses (51,877) (36.583)

Premises and equipment 130,747 84.150 Customeriliabihty on acceptances 31,856 20.013 Accrued interest and other assets 223,143 147.683 Total assets $6,946,544 S5.156.485 Taxable equivalent adjustment S 32.673 S 23.901 Uabilities and shareholders' equity Transaction accounts S 383,271 S 21,022 5.48% S 269.605 S 15.847 5 88%

Savings 562,565 28,619 5.09 465 079 23.198 4 99

. Money market cernhcates 818,293 70,659 8.63 777.461 75.917 9.76 Money market investment accounts 886,784 60,881 6.87 569.675 48.594 8 53 Other consumer time 1,345,546 132,679 9.86 939.640 99.066 1054 Other time 503,568 38,677 7.68 328.652 32.299 9 83 Total interest beanng deposits 4,500,027 352,537 7.83 3.350.112 294.921 8 80 Shon-term borrowings 716,911 53,995 7,53 554.866 55.150 9.94 Long-term debt 110,745 11,466 10.35 70.564 8.145 11.54 Total interest beanng habiliues 5,327,683 $417,998 65 3.975.542 $358.216 9.01 Demand deposits I,069,665 773.363 Acc rued interest and other habihties 130,154 87.869 Preferred stock 16,438 ,g Lommon shareholders' equity 402,604 319.711

$6,946.544_

=  ! b' b'.and shareho_lders' equi _ty _ _

$5.156.48_5 Net interest earnings $296,106 5217.493 Net yield on earning assets 4.80% 4 71%

(I) Duefrom banks-mterest ocanng are pnncipally Eurodollar deposits.

(2) Interest income on tax-exempt secunnes and loans is calculated on afully taxable eqwvalent basis (D Nonaa rual kmns are mcluded m the daily average 10 m amounts outstandmg 46

1983 1982 1981 Average Yicid/ Average Yield / Average Yield /

Balance interest Rate Balance Interest Rate Balance Interest Rate S.437.829 S 43.851 10 02% 5 653.019 5 94.968 14 54 % $ 525.853 S 91.848 17.47%

180 678 16.833 9 32 113.272 13.416 11.84 81.282 13.489 16 60 3.313 306 9 24 18.756 2.273 1212 2.192 251 11.45 252.198 27.635 10 96 285.926 34.534 .12.08 377.790 42.966 11.37 373.263 44.963 12.05 341.289 40.608 11.90 224.855 22.249 9 89 54 646 6.213 11.37 37.948 5.075 13.37 29.593 3.911 13.22 680.107 78.811 11.59 665.163 80.217 12.06 632.238 69.126 10.93 236.567 26 073 11 02 258.503 28.990 11.21 282.265 31.230 11 06 916.674 104.884 11 44 923.666 109.207 11.82 914.503 100.356 1097 l

687.719 84.086 12.23 600.020 87.680 14 61 480.603 80.355 16.i .' p 611.550 68.74I i1.24 587.164 62.590 10 66 570.245 54.803 9 61 613.794 88.329 14.39 518.690 80.559 15.53 537.930 77.451 14 40 i n a. n a. na na na n a.

l 73.404 8.098 11.03 77.822 11.507 14 79 62.590 10.256 16 39 1.986.467 249.254 12.55 1.783.696 242.336 13 59 1.6.368 222.865 13.50 3.524.461 $415.128  ! ! 78 3.492.409 S462.200 1323 3.175.198 $428.809 13.50 260.847 272.806 267.410 (25.293) (23.243) (21.892) 67.017 65.126 56.483 38.815 108.622 69.307 85.337 93.522 76.350 53.951.684 S4.009.242 $3.622.8 36 S 19 527 S 21.212 5 23.067 S 180.486 S 10.150 5 62% S 147E'^ S 7.846 5 31 % S 104.910 $ 5.536 5.28%

428 437 20.791 4 85 477.554 23.028 4 82 464.186 21.939 4.73 680.477 60.982 8 96 756.815 95.576 12 63 661.967 92.659 14 00 354.797 28.814 8 12 2.397 243 10 14 - - -

664 688 74.049 11 li 635.661 67.747 10 66 487.534 38.819 7.96 226.978 19.459 8 57 314.043 36.732 11.70 342.721 49.250 14.37 g 2.536.363 214.245 845 2.334 330 231.172 9V0 2.061.318 208.203 10.10 407.415 35.535 8 72 630.837 75.882 12 03 580.639 91.645 15.78 62.984 7.224 1147 46.217 5.227 11.31 38.826 4.192 10.80 3 006.762 S257.004 8 55 3.011.384 S312.281 10 37 2.680.783 S304.040 11.34 601.S05 601.543 602.729 85.982 160.777 117.195 257.135 235.538 222.129 53.951.684 $4.009.242 S3.622.836 5158,124 .Sijg;p!? Sl y 69 4 49% 4 29% 3 93%

• == - = . - -

=

47 ,

n - -

SUMMARY

OF OPERATIONS, ASSETS AND LIABILITIES '

(dollars in thousands. encept share data)

Five-Year

- U*P ""

_ . Year ended December 31. Rate o 1985 1984 1983 1982 1981 Change Int 2 rest and fee income:

Loans S 491,852 5 379.073 5 241.652 S 234.393 S 219.573 20.0%

Investment securities - 121,644 103.087 92.959 95.938 86.079 11.1 Other 67,935 69.648 60.990 110.657 105.588 6.6 Total interest and fee income' 681,431- 551.808 395.601 440.988 411.240 16.4 Interest expense:

Deposits _

352,537 294.921 214.245 231.172 208.203 18.4 Short-term borrowings 53,995 55.150 35.535 75.882 91.645 (0.4) ~

Long-term debt - 11,466 8.145 7.224 5.227 4.192 27.7 Total interest expense 417,998 358.216 257.004 312.281 304.040. 14.8 Net interest income 263,433 193.592 138.597 128.707 107.200 19.4 Provision for loan losses 18,559 13.620 9.826 7.174 7.256 19.6

' investment securities gains /(losses) 576 (752) (3.537) (4.965) (4.333) l Other noninterest income 99,669 51.955 33.775 30.027 26.463 35.7 Total noninterest income 100,245 51.203 30.238 25.062 22.130 42.1 Noninterest expense _ 270,807 178.295 127.378 120.559 103.59 l 23.6.

Income before taxes 74,312- 52.880 31.631 26.036 18.483 25.0

- Provisien for income taxes 14,005 9.263 2.300 (718) (4.261)

Net income _

S 60,307 5 43.617 5 29.331 S. 26.754 S _

22.74_4, 18. !

Per Common Share:

Net income S 6.01 5 5.43 S 4.53 S 4.17 S 3.53 9.0

~ Dividends 1.84 1.70 1.60 1.52 1.44 6.9 Book value 43.58 40.62 41.37 38.52 35.91 5.7' Average shares 9,733,956 8.032.608 6.474.671 6.418.371 6.433.832 7.6 Assets:

Cash and due from banks -S 655,404 S 454.066 S 356.620 S 310.734 S 344.465- 19.2 investment securities 1,911,236 1.059.547 910.663 906.813 1.094,049 16.2 Loans 5,343,552 3.426.490 2.285.317 1.826.811 1,726.741 25.9 Allowance forloan losses (70,688) (42.612) (27.116) (23.671) (22.357) 26.5 Other assets 909,562 937.954 757.358 890.286 889.879 9.0 Total assets $8,749,066 S5.835.445 S4.282.842 S3.910.973 54.032.777 20.6 Licbilities and shareholders' equity:

Demand deposits . $1,533,979 S1.030,621 S 703.770 S 627.537 5 730.036- -17.7 Interest bearing deposits 5,560,739 3.834.991 2.663.337 2.392.335 2.180.173 23.7

. Total deposits 7,094,718 4.865.612 3.367.107 3.019,372 2.910.209 22.2 Other liabilities 1,013,139 537.286 588.099 575.829 855.887 12.1 Long-temi debt 108,787 77.762 61.496 69.124 38.044 26.0 Shareholders' equity 532,422 354.785 266.140 246.148 228.637 19.1 Total liabilities and shareholders' equity $8,749,066 S5.835.445 S4.282.842 S3.910.973 S4.032.777 20.6 48

SOCIETY CORPORATION MAJOR SUBSIDIARIES SOCIETY CORPORATION OFFICERS (Decemtwr 3L 1985) (December 31.1985)

NORTHERN REGION Society National Bank. Centran Bank of Akron

• Chairman of the Board and Chief Cleveland. Akron ROBERT B. HElsLER.Jft. President Executive Officer GORDON E. HEFFERN. Chairman GORDON E. HEFFERN ROBERT W GILLESPIE President Society Bank of the Firelands. Vermilion Deputy Chairman and Chief '_

Central National Bank GEORGE R. MAYER. Chairman Operating Officer of Clevelanda ROBERT W.GIL1LsPIE c---

WILSON M. BROWN.JR., Chairman Society Bank of Northwest Ohio. .

Port Clinton President and Chief Administrative e ROBERT W. GILLESPIE. President Officer JAMES E. LANNEN. Chairman WILSON M. BROWN.jR.

FREDj. ROYNON. President SeniorVice Chairman of the Board EASTERN REGION PERRY B.WYDMAN ,

1 Society Bank of Vice Chairman of the Board -

Eastern Ohio. N.A.. JOHN B. ROOT Canton, Youngstown. ~

Executive Vice President Ashtabula. Salem ROGER NOALL JOHN B. ROOT. Chairman RICHARD A. WILLET. Picsident SeniorVice President and Chief JACK E. ZABACK. Vice Chairman Financial Officer ROBERT M. PATRICK

-g SOUTHERN REGION Senior Vice Presidents:

The Third National Bank & Trust. Society Bank. N.A. Springfield.

Cincinnat RICHARD W. EPPs Dayton WILLIAM G. LAMBACilER, Chairman RICilARD C.GARRETsON DOUGtAs L HAWTitORNE Chairman ANTI NY HEYWDRTH HENRY L. MEYLR I!I. President R. KEITH MANOR. President D

Society Bank BRUCE C. MURRAY of Southern Ohio. Hamilton ROBERT G. NEMER ROBERT S SUDBROOK. Chairman W ROBERT PERKINs FRANK G. PONCHAK JOHN P. REINARTZ CENTRAL REGION DAVID L S t ITH Society Bank. Columbus The Richland Trust Company, fTE' EN '^E." \V FREDERICK A. DEAL Chairman Mansfield .

JAMES W.WERT WILUAM P.JILEK. President The Frank lin Bank, Colum'ous V ce President TINEY MCCOMB. Chairman The Farmers and Savings Bank. E Scorr O'DONNELL Loudonville DwlGHT D. MATHIAS. President Treasurer RICHARD 1. LINHART ,

NONBANK SUBSIDIARIES General Counsel and Assistant BancSystems Association.Inc. Society Lease. Inc. Secretary PERRY B.WYDMAN Chairman DENNIS P. SYNECKY. Executive LAWRENCEj CARUN!

Centran Life Insurance Company General Auditor CARL C. HEINTEL.jR., President Society Life Insurance Co. EDWARDj. SEINK Central Cleveland Auditor International Bank XYOvest Inc. WituAM H. low GEORGE POLLARD. President JOHN C. WHITE. President Secretary Green Machine Network Corp. NEILj. BYRNE RONALD ADAMS. President

• Merged tnth Soacry Nanonal EMnk of Cleveland on IIhruary 18. I 986 49

i SOCIETY CORPORATION DIRECTORS

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U1'T TO RCHT WilDAM E HAUSERMANI STEPHEN R.HARDISI 3 Chairman of the Board and Executive Vice President-Chief Executive Officer Finance and Administration HAUSERMAN,INC. EATON CORPORATION GORDON E. HEFFERNI 4 mini Chairman of the Board and J AMES S. REID,jR.2 Chief Executive Officer Chairman of the Board and President THE STANDARD PRODUCTS COMPANY

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ROBERT W.GILLESPIEI 4

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SHAREHOLDER INFORMATION ANNUAL MEETING. The 1986 annual shareholders meeting of Society Corporation will be held at One Cleveland Center.1375 East Ninth Street at St. Clair Avenue.

Cleveland. Ohio, at 10:30 a m. on Wednesday. April 16.1986.

ANALYST CONTACT D. Allen McDar.iel. Senior Vice President (216) 622-8111.

TRANSFER AGENT AND REGISTRAR Society National Bank. Cleveland.

FORM 10-K Copies of the Corporation's Form 10-K filed with the Securities and Exchange Commission. will be available after March 31.1986. upon written request without charge to shareholders. Please direct inquiries to: Richard I. Linhart. Treasurer.

Society Corporation. 800 Superior Avenue. Cleveland. Ohio 44114.

DIVIDEND REINVESTMENT For information please write to: Richard I. Linhart.

Treasurer. Society Corporation. 800 Superior Avenue. Cleveland. Ohio 44114.

ADDITIONALINFORMATION Foradditionalfinancialandshareholderinformation, contact: Richard I. Linhart. Treasurer. Society Corporation. 300 Superior Avenue.

Cleveland. Ohio 44114.

STOCK TRADING AND DIVIDENDS The common stock of Society Corporation, symbol-SOCI. is traded in the national over-the-counter market and is quoted on the National Association of Secunties Dealers Automated Quotation System (NASDAQ) National Market. The quotations show the reported high and low last sale price on the NASDAQ National Market (except prior to February 15.1984. the quotations represent interdeak/ orices). At December 31.1985, there were 32.125 shareholders.

1985 1984 Cash Cash Sale Price Dividends Sale Price Dwidends High tow Paid High Low Paid First Quarter $43% $36 S.460 533 528h 5425 Second Quarter 47% 40 .460 31 285 .425 Third Quarter 54 46 .460 34% 29 425 Founh Quarter 54 % 46% .460 365 31 425 SOCIETY CORPORATION HEADQUARTERS 800 Supenor Avenue Cleveland. Ohio 44114 52 1

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l CONSOLIDATED FINANCIAL HIGilLIGHTS (dollars in thousands.except per share amounts) Period ended Three Months Percent Nine Months Percent September 30 1986 1985 Changt; _ 1986 1985 Change Interest and fee income $ 192,637 s 173.576 :LO% $ 586,671 S 473.837 23 8% Net mterest income 81,0l8 67.917 19.3 242.540 180.770 34 2 Noninterest inc ome 32,638 19.374 68 5 87,493 55 2ex> 58 3 Noninterest expense 81,920 65.356 25 3 242,241 182.229 32.9 Net income 21,549 I4.286 50 8 62,822 38.091 64.9 Per Common Share ' Nct irk ome S 1.77 5 1.44 22 9 L S 5.07 5 4 14 22 5% Dividends declared .48 46 43 1.44 1.38 43 EARNINGS PER COMMON SHARE Book value at September 30 47.17 42.17 11.9 Average balances 52 0 Assets $8,783,373 S7.095.104 23 8% $8,667,741 Set 327.046 37.0% Deposits 6,956,339 5 665.135 22 8 6,935,069 5 094 549 36 1 18 Loans. net of unearned income 5,359.579 4.181.384 28 2 5,346,672 3.711.512 44 1 16 Performance ratios 14 Return on assets .97% 80 L .97% .80% Rerum on common equity 15.89 13 50 15.81 13 30 1.2 Return on total equity 15.38 13 44 15.21 13 28 10 At September 30 Assets 59,059,272 59 027.640 041 08 Deposits 7.079,933 7.218.331 (19) Loans net of unearned O6 income 5,440,720 5.308.374 25 Allowance for loan losses 75,464 69.015 93 04 Shartholders'eqc y 553.095 516.475 7i Common Shares 02 outstanding I1.194,598 11.061.566 I2 Full-time equivalent 0 employees 6,211 6 893 (9 9) 3 Qtr 4 Qtr i Qtr 2 Qtr 3 Qtr. Capital ratios at September 30 85 85 86 86 86 Pnmary capital to assets 6.88% 6 44 % Total capital to assets 8.63 8 21

TO OUR SHAREHOLDERS et income of Society Corporation in the third quarter was a record $1.77 per share.22.9% above the 5144 earned in the same quarter in 1985. For the nine months. net income was

              $5 07 per share. up 22.5% over the 5414 per share in the nine-month period of 1985.

Retum on assets and return on equity ratios continue at much improved levels when compared with 1985. Return on assets increased to .97% for the third period, from .80% last year Return on total equity was 15.38% for the third quarter. compared with 13.44% last year.The excellent performance of the Curporation thus far this year is due in large part to the achievement of expected economies from the acquisition of Centran Corporation. A general downturn of common equities. including most regional bank stocks. COMMON STOCK PRICE AND 00U occurred in the third quarter As shown in the accompanying chart the market pnce of Society Corporation Comr.1on Stock reflected this dechne. Society Common Stock " """ continues to perform well compared with its regional peers. sso The Corporation's voluntary early retirement program was implemented in the third quanet Of 465 employees eligible for the program. 369. or nearly 80%. elected to participate As a result. salary expense savings should be realized in future quarters 60 as managers have been charged with keeping replacements to a minimum. The early retirement program provides an excellent opportunity for these long-so [ 40 standing employees to enjoy the benefits of their many years of dedicated service. and, at the same time, it gives remaining employees an opportunity to realize 30 cateer opportunitt s on an accelerated basis- 20 Efforts continued at all four regional banks to streamline their managerial #

                                                                                                         'U and operational resources Operations of key product areas were combined in the Eastem Region,which should result in many economies The Southern Region has               _o made significant progress toward a total systems integration later this year The                    81   82 83  84  85 86 Central Region will be unihed in November,when The Franklin Bank is merged into           IIMI Book VALUE Society Bank. Columbus.                                                                   sus cOWON STOCK PRICE l

The strategic planning process has been completed. and the crucial task of implementing ihe recommendations is already underway.One early product of the planning process was a strong focus on the need to view the Corporate Banking and Investment Banking needs of customers in a new and a more integrated fashion } As a result, a newly structured Corporate Finance Sector was unveiled in early October One of the major components of that structure is a new Capital Markets A I

Group to pursue expanded business opportunities with our current customers. Society's professional skills are well suited to providing a number of products to these customers in a highly professional. efficient manner. Such a move should assist in boosting important fee income to the regional banks. The merged Trust Services Group has found its synergies especially rewarding. and it continues to record a particularly stronginvestment record.The Trust Group's achievements have led to Society National Bank's appointment as investment adviser to The Emblem Fund mutual funds. Emblem consists of four money market portfolios and is administered and marketed by The Winsbury Corporation, a registered broker-dealer headquartered in Ohio. Management continues to remain optimistic about the long-term prospects for Ohio and the Great Lahes economy Supporting our confidence is a recent report from the U.S. Bureaa of Labor Statistics.which said Ohio ranked third in the nation in the creation of newjobs during the one-year period ended August 1986. With its skilled workforce and abundant resources. the region-our pnncipal market-should continue its growth. In summary.we remain confident about the prospects for the Corporation. As we maintain asset quality and sustain eamings growth. our highest prionty is to provide a consistent, rewarding performance for our shareholders. M'y N Gordon E. lleffern Robert W Gillespie Roger Noall Chairman of the Board and President and Executive Vice President and Chi *f Executive Officer Chief Operating Oficer ChiefAdministrative Oficer SIGNIFICANT ACCOMPLISHMENTS FEBRUARY 18 The merger of Central National Bank of Cleveland and Centran Bank of Akron with Society National Bank completed. FEBRUARY 19 Board of Directors increased quarterly dividend for twenty-first consecutive year from S.46 per share to S.48 per share. APRIL 16 Annual shareholders meeting held in Cleveland. Ohio, with 84.9% of voting shares represented. APRIL 21 Third National Bank and Trust Company. Society Bank N. A.. Springfield,and Society Bank of Southern Ohio merged to form Society Bank N A.. based in Dayton. APRIL 23 Society Corporation filed Form S-3 registration statement with Securities and Exchange Commission for sale of up to $200 million of debt secunties. MAY 21 Board of Directors declared second quarter dividend of S.48 per share. AUGUST I Society Corporation purchased and retired 250.000 shares of non-voting Adjust-able Rate Senior Preferred Stock from a subsidiary of Manne Midland Banks Inc. AUGUST 20 Board of Directors declared third quarter dividend of S 48 per share. 2

t SOCIETY CORPORATION MAJOR SUBSIDIARIES (dollars in thousands) NORTiiERN REGION NORTiiERN REGION 9/30/86 12/3i/85 Society National Bank, Society Bank of Northwest Ohio, A m m.. . s532 m6 ss.244328 Cleveland. Akron Port Clinton GORDON E. HEFFERN. Chairman FRED j. ROYNON. Chairman Deposits. . 3.962.844 4.111.888 ROBERT W. GILLESPIE. President 1.oans . 3.131.280 3.I55.608 Society Bank of the Firelands. Vermilion capital . 322.372 356.232 GEORGE R. MAYER. Chairman SOUTiiERN REGION sOUTiiERN REGION 9/30/86 12/31/85 Society Bank, N. A., . si,794.765 A m m.. s1.703.939 Dayton. Springfield. Cincinnati Hamilton Deposits. . 1.531.148 i.445.046 DOUGtAs L. HAWTiiORNE. Chairman HENRv L. MEYER 111. Presiden! Loans. 1.061.539 1.019.194 Capital . 100,176 95.012 EASTERN REGION EASTERN REGION 9/30/86 12/31/85 Society Bank of

                                                                                  ^*'8'             . si.226.028  s1.211.663 Eastern Ohio, N.A.,

Canton, Youngstown, Deposits. . 995.254 97o.9 0 Ashtabula, Salem JOliN B. ROOT. Chairman toans. 754.6 1 705.612 RICIiARD A. WILLET, President capital . 77.82: 79.130 JACK E. 2 ABACK. Vice Chairman CENTRAL REGION CENTRAL REGION 9/30/86 12/3I/85 Society Bank, Columbus The Richland Trust Company, A m u.. .s 706355 s 689.604 FREDERICK A. DEAL. Chairman Mansfield I " 610.721 631.080 The Franklin Bank. Columbus NPosim. . TINEY MCCOua. Chairman The Farmers and Savings Bank- toans. 441.056 455.985 Loudonville DWIGitT D. MATHIAs. President capital . 45.806 43.730 NONBANK SUBSIDIARIES BancSystems Association,Inc. Society Life Insurance Co. PERRY B.WYDMAN, Chairman STEPitEN E. WALL. President STEPilEN E. WALL. President JAMES W. MUNRO. Executive Vice President Green Machine Network Corp. STEPHEN E. WALL. Chairman XYOvest Inc. RONALD ADAMS President JOHN C. WHITE. President Societylease,Inc. JAMES W. WERT. Chairman STEPHEN E. WALL President 3

   ~

V Scarn> cwporanon CONSOLIDATED BALANCE SHEET E September 30. December 31. September 30. (doDars in thousands, except per share arnounts) 1986 1985 1985 Assets Cash and due from banks S 603,308 S 655.404 s 711.709 Due from banks-interest beanng 628,434 308.477 416.677

      . Federal funds sold and security resale agreements                               184,725                94.800                    316.380 Trading account assets                                                            10,838                 3.335                       19.665 Investment secunues(market value: S1.864.510. $1.91I.852 and 51.593.817)      1,816,763            1.911.236              1.636.095 Loans (net of unearned income: S62.739. 584.663 and $69.490):

Commercial, financial and agricultural 2,080,744  !.985.740 2.035.468 Real estate-construction 106,088 76.982 83.685 Real estate- mortgage 1,601,306 1.683.202 1.503.430 Installment 1,444,559 1.375.077 1.457.930 Lease financing 121,121 107.408 86.778

         .-. Foreign..                                                                   86,902 115.I43    -         . - .

141.083 Total loans 5,440,720 5.343.552 5.308.374 Less: Allowance for loan losses 75,464 70.688 69.015 Net loans 5,365,256 - .- - 5.272.864 -_ 5.239.359 Mortgage loans and mortgage-backed secunues held for sale 11,179 - 177.799 Premises and equipment 180,705 18 t .649 179.985 Customers' liability cn acceptances 15,907 29.666 42.662 Accrued interest and other assets 242,157 291.635 287.309 Total assets $9,059,272 58.749.066 59.027.640 Liabilities and shareholders' equity Deposits in domestic offices: Noninterest bearing 51,394,281 s1.528.357 S t .549.263 Interest beanng 5.563,906 5.459.934 5.555.028 Deposits in foreign offices: Noninterest bearing 13,854 5.622 14.909 Interest bearing 107.892 100.805 90.131 Total deposits 7,079,933 7.094.7I8 7.218.331 Short-term borrowings 1,132,180 873.215 941.592 Acceptances outstanding 15,907 20.666 42.662 Other habihties 113,439 110.258 138.801 Long-term debt _ 164,718 108.787 169.779 Total liabilities 8,506,177 8.216.644 8.511.165 Shareholders' equity: Preferred Stock. without par value; authonzed - 5.000.000 shares Adjustable Rate Senior Preferred Stock. stated value 5100. authonzed-500.000 shares. issued- 250.000. 500.000. and 500.000 shares 25.000 50 000 50.000 Common Stock. SI par value; authorized-40.000.000 shares. issued- 11.221.200 shares 11,221 11.221 I I .221 Capital surplus 227,286 227.897 227.878 Retained earnings 290,144 240.4 I I 230.629 Common Shares in treasury.at cost-26.602.152.269 and 159.604 shares (556). D.107) _ _ (3.253) Total shareholders' equity 553,095 532.422 516.475 Total liabilities and shareholders' equity 59,059,272 68.749.066 59 0271>40 s+ e wes w a mwMxcajn:nm,' s ::cmen

     '4

l Socc.y Capnranon CONSOLIDATED STATEalENT OF INCOME Three months enued Nine months ended September 30. September 30. oloiurs in ihousintis. e xcept per share amounh> 1986 1985 1986 1985 Interest and fee income: Loans-subject to Federal income tax S136,591 5119.975 S422,915 $324.490 Loans-exempt from Federal income tax 5,541 4.641 17,520 !3.281 Investment secunties-subject to Federal income tax 29,858 24.558 89,129 71.605 investment securities- exempt from Federal income tax 9,183 4.930 31,610 13.012 Due hom banks-interest bearing /,685 9.298 18,411 23.254 Federal funds sold and secunty resale agreements 1,222 5.274 5,762 17.693 Trading account assets 181 141 948 158 J1ortgage loans and mortgage-backed secunaes held for sale . _ _ 376] 4.750_ _ _ _ 376_ _ l0344 Totalinterest and fee income 192,637 173.576 586,671 473 837 Interest expense: Deposns 92,901 88.223 290,490 249.368 Short-term borrowmgs 14,472 14.578 43,632 36.327- _ Long-term debt 4,246 2.858 10,009 7.372 Total interest expense 111,619 105.659 344,131 293.067 Net interest income 81,018 67.917 242,540 180.770 Provimon for loan losses 4,069 4.278 12,694 8 667_ Net interest income after provision for loan losses 76,949 63.639 229,846 172.103 Noninterest income: Trust income 7,623 4.088 22,026 10.794 Service charges on deposit accounts 8,054 6.318 23,327 16.453 Investment securities gains dosses) 528 (184) 18 1.501 Other income 16,433 9.152 42,122 26.518 _. Total noninterest income 32,638 19,374 87,493 55.266 Noninterest expense: Salaries and employee benetits 38,112 33.671 117,406 F9.477 l Net occupancy 6,634 5.467 19,173 14.984 l Equipment 7,558 5.634 22,774 14.798 Wnte-off of ODGF deposit - - - 2.600 Other expense 29,616 20.584 82,888 60.370 Total noninterest expen.se 81,920 65.356 242,241 182.229 Income before taxes 27,667 17.657 75,098 45.140 Provision for income taxes 6,I18 3.371 12,276 7.049 Net income $ 21,549 S 14.286 5 62,822 S 38.091 Net income app!wahle to Common Shares S 20,924 S 13.828 $ 60,063 S 37.633 Net income per Common Share $ 1.77 $ 1.44 S5.07 $4.14 Dividends declared per Common Share S.48 5 46 S t .44 $ 1. 38 Weighted aserage Common Shares outstandmg 11,800,341 0.617.211 I I,838,496 9.092.738 l 1 sec rcics w wn.. ,W  ! %n ut:u:cmcs . 5

Society corparation

       - CONSOLIDATED STATEMENT OF CHANGES IN SilAREHOLDERS' EQUITY Preferred Common       Capital      Retained Treasury
        ; (dollars in thousands.except per share amounts)                                                              Stock      Stock   Surplus       Eamings          Stock
                                                                        ~

Balancejanuary 1.1985 . S 9.002 $ 145.463 S205.683 S(5.363) Net income for the nine months ended September 30 38.091 Cash dividends declared. 51.38 per share (13.145) Common Shares issued upon exercise of stock options 413 2.110 Common Shares and warrant issued in acquisition 2.219 82.002 Adjustable Rate Senior Preferred Stock issued in acquisition $50,000 Balance Saptember 30.1985 S50.000 S11.221 S227.878 $230.629 S(3.253) BalanceJanuary 1.1986 $50,000 $11.221 $227.897 S246.41 i S(3.107) Net income for the nine months ended September 30 62.822 Cash dividends declared. Comrnon Stock 51.44 per share (16.099) Preferred Stock 56.29 per share (2.990) Redemption of 250.000 wares of Adpstable Rate _ Senior Preferred Stock (25.000) (2.500) Common Shares issued upon exercise of stock options _ l.889 2.551 Balance September 30.1986 $25.000 SI 1.221 S227.286 $290.144 ~ $ (556) CONSOLIDATED STATEMENT OF CilANGES IN FINANCIAL POSITION - For the nine months ended September 30. (dollars in thousands) 1986 1985 t Financial resources were provided by Operations: Net income S 62,822 S 38.091 Items not requinng the use of funds:

                    ,_ Depreciation. amortization.and provision for loan losses                                                                 30,754                  15.487 Financial resources provided by operations                                                                                93,576                  53.578 Cash dividends declared                                                                                                    (19,089)                (13.145) 74,487                  40.433 Deposits and other fmancing activities:

Deposits (14,785) 1.770.630 Short-term borrowings 258,965 524.726 Long-term debt 55,931 92.017 issuance of common shares - 84.221 issuance (purchase) of preferred stock (27,500) 50.000 Treasury shares sold 4,440 2.523 277,051 2.524.117 Other activities-(increase) decrease in nonearning assets: Cash and due from banks 52,096 324.446 Expenditures for premises and equipment (14,473) (85.402) Qther. net _ ___ ._ _ _ _ 50,0 6_ Q increase in financial resources invested in eaming assets $439,177 $2.777.594 increase (decrease) in earning assets: Due from banks-interest beanng $319,957 S 150.695 Federal funds sold and secunty resale agreements 89,925 96.780 Trading account assets 7,503 19.665 Ins estment securines (94,473) 576.548 Loans 105,086 1.864.148 J1ortgage loans and rnortgage-backed secunnes held for sale 11,179 69.758

                                                                                                                                             $439,177              S2.777.594 See notes to consohda ed)irkincial statt>ments-6

   ' saaen cwpomnon I     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Basis of presentation. The unaudited censolidated financial                    Pledged assets. Corporate assets, primarily investment statements include the accounts of Society Corporation and                     secunties, with a book value of $1.8 billion at September 30, its subsidiaries. Significant intercompany accounts and trans-                  1986. were pledged to secure public and trust deposits to actions have been eliminated. The financial statements                         secure securities sold under agreements to repurchase and contain all adjustments and disclosures which are,in the                       for other purposes required cr permitted by law opinion of management. necessary for a fair presentation of the results of the interim penods presentea and should be                      Investment securities. A summary of the book values and l      read in conjunction with the Notes to Consolidated Financial                   market values of investment secunues at September 30,1986.

l Statements included in Society Corporation'; Annual Report December 31,1985.and September 30.1985 follows: for the year ended December 31.1985. The results of opera-tions for the first nine months of 1986 are not necessarily September 30,1986 indicanve of the results to be expected for the full year. < dollars in thnmands) Book value Market value Certain amounts previously reported in the financial state- - ments have been reclassified to conform with the current U S Treasu sec s , s presentation obhganons or states and pohtical subdivisions 547,812 557,894 Net income per Common Share. Net income per Common other secunnes 97,624

                                                                                                                                       ~~-

100,192-~ Share is computed by dividing net income. less the accrued Total inmuunt wunnes $1,816,763 s i,864,510 dividend on preferred stock, by the weighted average number of Comman Shares and common equivalent shares out- December 31.1985 standing dunng the penod. Book value Market value Acquisition. On September 3,1985 Society Corporation us Treasury secunnes s 797.854 s 814.842 acquired Centran Corporation (Centran) a regional bank Federal agency obhganons 324.661 329.094 O ates and holding company based in Cleveland. Ohio. The transaction 'jso c g g m gg, 5p was accounted for as a purchase and accordingly. the Cor- otner secunnes --i 15.8 i 5 118.539-- poration's conschdated financial statements include Centran's results of operations from the date of acquisition. The assets T talinmunent mnnes s t .911.236 si .9i t.852 and liabilities of Centran were recorded at their estimated fair value as of the acquisition date. g[{['Qr t alue The following schedule precents pro forma condensed _ _ results of operations for the intenm periods ended September U s Treasury secunnes s 832.831 s 840, t 64 30,1986 and 1985, assuming the merger of Centran into Federal agency obhganons 206.781 290.584 Obhgations of states ana Society Corporation had occurred on January 1,1985. This polincal sutxhvisions 391.556 348.009 pro forma information is not necessanly indicative of the Other secunnes 114.927 115.060 actual results of operations which would have occurred had Total investment secunties s i .636.095 s1.593.817 the combination taken place as of that date. Employee benefit plans, Dunng the first quarter of 1986. Nine months ended Society complied with Statement of Fmancial Accounting hg"[*h 50 i9g5 Standard No. 87 which required changes in the computation l _ . _ _ _ _ _ _ . - -~ _ . - - - -_ of pension costs. Pension expenses were lower by S2.2 million Reported in the third quarter and S5.0 million for the first nine months

      $            r s$"b"kounts)                            Pro Fe n    Pro Forma     of 1986 than they would have been had the changes not n ade Total employee benefits expense for the third interest income and nonmterest income                  $674,164     s757.541 Net income                                               62,822        52.314   quarter of 1986 and198a were $4.3 million and S5.5 million.

Net mcome apphcable to Common Shares 60,063 48.377 respecovely For the first nine months such expenses were Net m(ome per Cammon Share 5.07 4 28 516.1 million in 1986 and $15.8 milhon in 1985 l Commitments and contingent liabilities. In the normal Divestitures. Society Corporanon has entered into definitive mum agreements to sell two ofits bank subsidianes: The Richland ness. va@us mmnemens and wndngent T' rust Company. Manslield and The Famlets and Savings Bank. H ues andndudng mmmume to enhR kners f credit. forward and futures contracts and guarantees Out-Loudonville,which had total assets at September 30.1986 of tanding commitments under standby letters of credit issued

        $169 million and S37 million. respectively. The sales are sub-.    ..

by banking subsidianes amounted to $132 o million at ject to the approval of regulatory authonties. It is anucipated September'30.1986. S139 4 million at December 31.1985 and that the sales will be completed by the first quarter of 1987- st 26 3 million at September 30.1985 l l Preferred stock. On August 1,1986, the Corporation pur-l chased and retired 250.000 of its shares of Ad.justable Rate Senior Preferred Stock from a subsidiary of Manne Midland Banks,Inc. for S27 5 million plus accrued dividends. 7 m..

MANAGEMENT'S DISCUSSION et income per share for the third quarter was 5177, a 22.9% increase over $144 per share camed in the third quarter of 1985. In the first nine months of 1986 net income per share increased 22 5% to 55.07 from S414 in the same pencxl m 1985 Compansons between results in 1985 and 1986 are affected ! by the acquisition of Centran Corporanon in September 1985. and the two l divesutures in the last half of 1985. l Net interest income. The table below segregates the impact of rate and volume changes on interest and fee income and interest expense for the three months and nine months ended September 30.1986 compared with the same penods a year earlier i Taxable Equivalent Net Interest Income Three months codcd Septembu 30 Chant;e (dollars in thousands) 1986 1985 Volume Rate Total Intc[est and fee incnn$e '$204.648 $181.o29 M4N67 5(21[848 52 5019 Interest expense 311,619 105 659 21.151 ( t 5.191) 5.960 Net interest income $ 93.029 $ 75 97n S23.716 $( 6h57) S I7.059 Net mterest martsn 4.72% 4 82% Nme months ended

                                        -                   _ . _ . . _                _ Y"*@ _                  _ _        __OU"E _ _ _ _

, 1986 1085 Volume Ra'e Total ink res[and fee income 5626,438 5495.920 5185.5l5 5(54.407) S i 30.5 f 8 Interest expense 344,131 95.071 (40.007; _ 29 {.no? 5[%4 Net interest in(ome 5282.307 5202 853 S 44 444 W I4 outh S 74454 NET INTEREST MARGIN Net mterest martpn 4.88% 48 % l t,cy ew.n - Noninterest income. Society's total noninterest income for the third quaner war i4 S32.6 milhon, an increase of $13 3 million from the correspondmg 1985 period. j Contnbuting to the mcrease in noninterest income m the third quaner, was an ! 13 additional gain of SI.9 milhon (pretax) from the sale of the Corporation's mongage ____ gg subsidiary in December 1985 The mortgage subsidiary gain was the result of 12 finalizing certain contingent events that were part of the sales agreement. For the

                             % nme months ended September 30. noninterest income was 587.5 milhon. an increase over last year of S32.2 milhon.
  ] {}  4M      4 81  '> W   4%   4 72 Noninterest expense. Third quarter total noninterest expense was 581.9 million l    9                                  compared with 565.4 milhon in the third quarter 1o85 For the nine months ended l                                       September 30. lo86.noninterest expense was S242.2 million.an increase of $60 0 8                                  milhon from the same penod in 1985.

The increase over the prior year can largely he attnhuted to the acquisitions 7 COSI and divestitures in 1o85 Several nonrecurnng fauors also af fected noninterest g expense in the third quarter First.a S2 2 milhon reduction in pension expense was permitted under the recently adopted Fmancial Accountmg Standard Board rule 87

                           ~

(FASB 87) A S14 million reducuon in pension expense was rec ognized in each of the previous tuo quarters Second, stoch appreciauon nghts expense. which is _% 4$ I $ 2$ 3$ indexed to the movement of Society's stock price, accounted for an S853.000 reducuan in noninterest expense. Largely offsetung these posiuve adjustments to l l sum isTrarsr 1scos e noninterest expense were several nonrecumnq merger-related expenditures. l aus INTrnesr Exrn -E Asset quality.1he loan loss provision was $41 milhon for the third quarter.dow n from $4 6 milhon for the second quarter 198t> 1he lower prousion was consdered appropnate by management in hght of slower loan growth The provision includes si million added at the time of the mortgage subsidiary transacuan mennoned earher Net charge-off expenence ( ontinues to be ext ellent At September 3n. the allowance as a percentage of loans rano increased to I 39 K. whh h is sery fatorable when compared with similar sue banks l l 8

Analysis of Allowance for Loan Losses Three months ended Nmc months ended September 30. September 30. (doibrs in thousandu 1986 1985 1986 1985 lubate at t o@nning of psa! 573.574 S44,182 S70,688 542.612 Restne of acquired tunhs - 23.004 - 23.004 Pros hion ( harged to operatmg expenses 4,069 4.278 12,694 8.667 Nc: c harge-oth (2.179) (2.449) (7.918) (5.268) lubnt e at end of penod $75,464 560 0 p $75,46_4 569.015 Alhnvanc e for loan loues as a percent of haans outstanding at pt nod end 1.39% 130% 1.39% 1.30% Annuahzed rano of net charge-offs as a percent of average loans .16% .23% .20% 19 % Nonperforming assets. As shown in the table below nonperforming assets at September 30.1986.were $89.0 million a change of S16.7 mi!! ion fromJune 30, 1986. Dunng the quarter 58 6 million outstanding to the finance subsidiarv of LTV Corporanon,was placed on nonaccrual status The outlook for collection of this amount is sery favorable The remaining increase in domestic and foreign nonaccrual loans reflects several individual credits. Despite the ' agher level of loans classified as nonperfomaing the allowance for loan losses as a pucent of nonperforming assets, now stands at 84 76% which compares favorably with peer banks. Nonperforming Assets September 30, December 31. September 30. (du brs m thousands) 1986 1485 1985 Nonat ( rum loans-domestit 549,258 532.874 S34.233

                    - foreiga                          12,215                            19.588                              13.598 Restructured loans- domestic                             1,193                            1.744                               2.746 Past due loans- domesoc                                 16,917                           10.512                              13.991
                - forugn                                       -

89 - rotal r.onperforming loans 79,583 64.807 64.568 0:her ru! estate no ned 9,446 11.869 10.301 Tout nonperformmg assets $89,029 S76.676 __ S74.869 Tota! nonterforming loans as a percent of total !aans and OREO 1.63% 143% 1 41% Key ratios. Performance ranos have improved over 1985 levels, as shown in the table below Capital ranos are significandy above regulaton/ minimums On August 1. 1986. Society purchased and reared 250.000 shares of its adjustable rate senior preferred stock Irom a subsidiary of Marine Midland Banks. Inc. Key Ratios Nne months Twtive months Nine Months endcd ended coded September 30 Deceml>er 31. September 30. 1986 1985 1985 Rt rum on aw. Is .97% 87 T, 80 L Renun on totar equny 15.21 14 39 13 28 Pnnury tagal to awets ya rud end) 6.88 6 84 6 44 Totai captal to aswis ipened endt 8.63 7 OO 8 21 4

0 1 AVERAGE BALANCES, NET INTEREST INCOME, YlELDS AND RATES f taxable equivalent basis) Third Quarter 1986 Sewnd Quaner 1986 Average Yield / Average Yield / (dollars in thousands) Balance Interest Rate tulance Interest Rate Assets Due from banks-interest tranng S 552,877 5 9,685 6.95% S 288.921 S 5.300 7 36% Federal funds sold and secunty resale agreements 76,694 1,222 6.32 141.672 2.480 7 04 Trading account assets 10,230 181 7.02 10.322 169 6.57 Investment secuntics. (1) US Treasury 945,937 21,170 8.88 88&459 20 672 9 33 Federal agency obligations 256,822 6,455 t0 05 271.500 6 849 10 04 Other set unoes 99,449 2.233 8.98 104.742 1.989 7.60 Total taxab!c secunucs 1,302,208 29,858 9,12 1.264.701 29.510 9 35 State and pohta al sulxhvisions 561,718 16,699 11.89 649.583 14 336 11.91 Total investment secunnes 1,863,926 46,557 9.95 1,914.284 48.846 10.22 Loans (t)(2)

           ' Commeraal. fmancial anct agncultural                                     2,121,552          51,408        9.61      2.112.444         54.590      10.37 lh al estate-incluchng loans and mongage-bac hed secunues held for sale                                         1,493,504         42,963    11.51          1.511.946        44.940      11 89 instailment                                                               1,586,362         47,994     12,10         1.543.432        47.302      12 26 Lease financing                                                               74,377          2,218    I I .83           72.78I         2.240     12 34 Foreign                                                                       98,839          2.420       9,71         104.042          2.986     11.51 Totalluans                                                           5,374,634        147,003     10.91        5.344.645        152.067      I I 39 Total caming assets                                                  7,878,361      $204.648      10.35         7.699 844     S208 868       10 86 Cash and due from banks                                                         312,698                                    354 494 Ahowanc e for hun losses                                                         (74,371)                                   (72.690)

Premises and equipment 181,724 184.700 Customers' habthty on acceptances 21,178 34,425 A< crued interest and other awer, 263,783 282.434 Total asseis $8,783,373 $8.683.213

                                                                               ~

5xable cquivalent adjustment $ 12,0 : 1 S 12.864 Liabilities and shareholders' equity Transaction accounts S 539,369 5 7,081 5.21% 5 507.374 5 6.640 525%  : Savings 764,971 9,981 5.19 773.694 10.593 549 Money marhet cuahcates 885,561 14,725 6.60 41I.446 1o.474 7 25 Money market iniestment accounts 1.281,427 17,896 5.54 1.211.126 18 2/3 6 05 Othe r consurner nme 1,402,813 30,740 8.75 1.407.528 31.762 9 03 Other time 776.738 12,478 6.37 835 088 14. l(N 6 78 lotal interest beanng deposits 5,650,879 92.90 6.54 5646256 97.851 6 95 Short-temt borrowings 968,475 14,472 5.93 hh4 608 14.346 6 66 1.ong-term <lebt 166,406 4.246 10.12 115 914 3 057 10 58 Total inte. rest beanng habihnes 6.785,760 $ 111.619 6.54 o.626.783 5115.254 6 97 Demand deposits 1,305,460 Ili1240 Au rued interest anil other haluhues 136,262 184 405 Preferred stot.h 33,333 50 000 Common shareholders' equity 522,558 509.279 Total liabilities and shareholders

• etjuity $8,783,373 58 083 21_3 Net inttrest cammgs S 93 029 5 43.614 Net yield on carning awts 4.72 % 4 80%

        ; il) 11 elds on lax -exempt secunt:es and loans are caleu! tied e a Miy t naNe equnnb n hans (2) Nonaccmal! mets are meluded in the daqr awray hm amount 8 ostant: y l

l 10 l l

6. ..

First Quarter 1986 Fourth Quarter 1985 Third Quarter 1985 l Average Yicid! Average Yield! Average Yield / lblance Interest Rate IMlance Interest Rate Balance Interest lute l l S 169.721 5 3.426 8 19% 5 421.160 S 8.722 822% S 427.390 S 9298 . 8 63% 104.296 2.054 7 49 162.487 3.058 7.47 264.095 5.275 7.92 26.852 598 ' 9 03 25.255 625 9 82 5.521 140 10 06 805.I96 19.I50 9 65 802.417 19.290 9.54 630.726 15.807 9.94 304 010 7.529 9 91 313.251 7.609 9.72 235.380 6 357 10 80 13!.411 3.082 9 38 122.387 2.915 0 53 89.356 2.394 10.72 f .210.617 29.761 9 68 1.238.055 29.814 9 58 955.462 24.558 10 23 673.297 21.124 12 55 449 277 13.282 1183 314.391 4.049 11 58 1.913.914 50 885 1069 f .687.3 32 43.096 10.18 1.264.853 33.657 10.56 2.06n,654 56.524 I I 09 1.974.940 54 854 1! 02 1.466.048 40.990 l 109 1.527.653 45.098 11 81 t .726.069 52.375 1214 1.478.861 46.043 12.45 1.554.657 48.822 12.56 1.519,463 44.142 12 94 1.215.071 41.354 13 61 71.233 2.143 12 20 63 A 36 1,981 12 39 63.574 1.875 11.70 115.330 3.3 / 2 11 86 173 757 4.331 9 89 118.083 2.997 10 07 5 335.527 155.959 11.76 5.457.665 161083 11 89 4.341.642 I R 259 12.24 7.550.310 S212.922 11 34 7.753.919 s218.184 11 22 6.308.501 S181.629 11.48 563.318 593.695 454.418 (72.045) (67 686) (52.305) I82.760 183.307 128.260 34.331 37.850 22.874 275.273 283.753 233.356 S8.5 H 897 58.784.838 57.095.104 5 14 892 5 10.590 S 8.053 I 5 473 854 5 6. I n t 527% S 474.569 s 6A07 5 36"t 5 391.754 S 5.353 '542% 760 855 10.344 548 703.923 0.002 5 15 567.419 7.274 5 10 982 676 18.333 7 57 787.051 15 014 7.57 817.048 16.968 8 24 1.170.970 18W)8 648 1.175.204 19A49 6 57 915.360 15.148 6 57 1.374.138 32.033 0 35 1 658 774 38.862 9 37 1.370.I67 33 694 9 78' 800 072 14.I69 7. I 8 768.333 14.345 7 41 520.49i 9.786 7.46 5.56!.565 99.738 7 24 5.567 854 103169 7 37 4 582.239 88.223 7 65 813 789 14 814 7 38 945.274 17.608 742 781.142 14.578 7.40 9u458 2.706 Ii 32 16st435 4.094 9 70 112.327 2.838 t o 09 6.473 312 S I I 7.258 7 32 n.679 503 S I 24 431 743 5.475 708 5105 659 7 66 i 1 327 070 1.411.774 l.081896 l 142.353 I o8.703 114.703 l 50 (UO 50 000 15217 l 491.102 474.738 406.520 l pspwn __ s8.784 838 _ _ Srna nu __ t 5 956o4 5 93 253 S 75 970 l 5 07 ? 4 8ti l82% l __ 11

SOCIETY CORPORATION OFFICERS SOCIETY CORPORATION DIRECTORS (September 30.1986) (September 30.1986) Chairman of the Board and GORDON E.HEFFERNi 4 T.RAYMOND GREGORY 2 Chief Executive Officer Chairman of the Board and Chairman of the Board and GORDON E.HEFFERN Chief Executive Officer Chief Executive Officer GREGORY GALVANIZING & METAL President and ROBERT W.G11.1.ESPIEI 4 PROCESSING. INC. Chief Operating Officer President and ROBERT W Git 1ESPIE Chief Operating Officer STEPHEN R. HARDis L 3 Vice Chairman. Chief Financial and Vice Chairman of the Board RICHARD C.GARRETSONI Administrative Officer RICHARD C.GARRETSON Vice Chairman of the Board EATON CORPORATION Executive Vice President and ROGER NOALLL4 . WlulAM E HAUSERMANI Chief Administrative Officer Executive Vice President and Chairman of the Board and ROGER NOALL Chief Administrative Officer Chief Executive Officer HAusERMAN. INC, ROBERT E ANDERSON I Senior Vice President and Chief Financial Officer Chairman of the Executive W H. KIEFABER,jR.3 ROBERT M. PATRICK Committee Chairman or the Bord M. A. HANNA COMPANY THE W H. KIEFABER COMPANY SeniorVice Presidents JOHN W. BERRY, SR. MAURICE E KRUGI RICHARD W.EPPS ROUAND D.jOHANNSEN VICe Chairman of the Board Chairman of the Board and D. AllIN MCDANIEL L. M. BERRY & COMPANY Pr ' dent ROBERT G.NEMER BETTY COPE 2 KRUG INTERNATIONAL CORP. O Prc dent and General Manager h5 ROBERT D.McCREERY2 .4 FRANK G.PONCHAK President DAVID L STITH EDWARD C.GENDRON .4 3 MCCREERY CORPORATION MICHAEL N.TRIGG President GLENN H. MEADOW 52 JAMES W WERT E. C. GENDRON ENTERPRISES President and Treasurer Chief Executive Officer RICHARD I. LINHART ROBERT M.GINN1 3 MCNEIL CORPORATION Chairman of the Board and 4 RANK E. MOSIERI' 3 Vice President Chief Executive Officer CENTERIOR ENERGY CORP 0u rION President and JEROME G. McCIAIN _:ti ef Operating Officer L3 rue STANDARD OIL COMPANY General Counsel and JOSEPH T.GORMAN Assistant Secretary President and MERLE R.RAWSON lAWRENCEj.CARUNI Chief Operating Officer TRW INC. Chairman of the Board and General Auditor President EDWARDj.SEINK THE HOOVER COMPANY Secretary J AMES 5. REID,jR.2 NEILj.BYRNE Chairman of the Board and President Assistant Secretary THE STANDARD PRODUCTS COMPANY SHEtDON R. HARTMAN 12

SHAREHOLDER INFORMATION A.WiwAM Hm Stasi Analyst Contact President and D. Allen McDaniel. Senior Vice Chief Execus 9 Per President (216) 622-8111. GENCORP Dividend Reinvestment Plan JOllN B. ROOT' For information please write to: Chairman of the Bem, Richard I. Linhart. Treasurer SOCIETY BANK OF EAs#L% * ). N A. Society Corporation 800 Superior Avenue FREDERICK C.Sumi2 Cleveland Ohio 44114. Retired Chairman of the Board and Chief Executive Officer Tr1tnsfer Agent and Registrar HurFY CORPORATION Society National Bank, Cleveland. WARD SMmil Form 10-Q President and Shareholders may obtain a copy of Chief Executive Officer Form 10-Q. filed with the Securities NACCO INDUSTRIES, INC. and Exchange Commission, upon 3 written request to Richard I. Linhart. J MAURICE STRUCllEN Retired Chairman of the Board Treasurer.(Address Above) REF40LD D.TilOMPsON2 President and Chief For additional financial and shareholder information, contact Executive Officer OGLEBAY NORTON COMPANY ' (Address Above) KARL E. WARE 4 Retired Vice Chairman and Chief Administrative Officer WillTE CONSOLIDATED INDUSTRIES. INC. CilARLES E ZODROW4 Chairman of the Board and Chief Executive Officer ROADWAY SERVICES. INC. WALTER E LINEBERGER.jR. Chairman Emeritus i Mern.er of Lututne Comminee 2 ?.tcmtwr of Audit Committee 3 Memix r of Compenenon Committee 4 Momfx-r cf hoance Commitat-13

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