ML20239A121

Sovran 1986 Annual Rept & Form 10-K

ML20239A121
Person / Time
Site:	Beaver Valley
Issue date:	12/31/1986
From:	Cutchins C, Mcgehee C SOVRAN FINANCIAL CORP.
To:
Shared Package
ML20239A003	List: ML20239A002 ML20239A004 ML20239A006 ML20239A009 ML20239A011 ML20239A018 ML20239A025 ML20239A121 ML20239A129 ML20239A135
References
NUDOCS 8709170090
Download: ML20239A121 (86)

Text

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l G709170090 870914 s

PDR ADOCK 05000412 I

PDR

SovranFinancia Conoration 1986 AnnualReport and ?orm10-K I

i CONTENTS i

FinancialHighlights-2 ToOurShareholders-3 BankingonQuality-5

)

Comparative Performance Review-12 i

Management's Discussion and Analysis-13 Consolidated FinancialStatements-33 Notes to FinancialStatements-37 I

Report ofAuditors-46 FinancialComparisons-47 Form 10 K-54 DirectorsandOfficers 56 Locations-6C BankAffiliates-64 k

Y, O

FinancialHighlights Sovran financial Corporation and Subsidiaries Increase (Decnase)

Year 1986 over 1985 Year 1985 over 1984 Year Ended December 31.

1986 1985 1984 Amount Percent Amount Percent Foe the Year (In thousands)

$ 147,956

$ 124.176 $ 107,503

$ 23,780 19.2 %

$ 16.673 15.5 %

Netinterem income 523,055 464.532 401,973 58,523 12.6 62,559 15.6 Nc income Net interen income on a fully taxable equivalent basis 631,174 547,729 473,112 83.445 15.2 74,617 15.8 Cash dividends declared on common stock 53,015 41,423 35,685 11,592 28.0 5,738 16.1 Weighted everage shares 42,447 41,984 40.031 463 1.1 1,953 4.9 Per Comisnon Share Net income 3.48 2.94 8

2.67 8

.54 18.4%

.27 10.1%

Cash dividends decland 1,32 1.20 1.06

.12 10.0

.14 13.2 20.43 18.31 16.59 2.12 11.6 1.72 10.4 Book value Mat's price at year end 33.75 32.25 25.75 1.50 4.7 6.50 25.2 Daily Aeerages (Dollars in millions)

$13,744.3

$11,606.8 8 9.678.9

$2,137.5 18.4%

$1,927.9 19.9 %

12,390.5 10,426.1 8,580.8 1,964.4 18.8 1.845.3 21.5 Assets loans net of unearned income 9,424.6 7,816.5 6,205.4 1,608.1 20.6 1,611.1 26.0 Earmng anects investment securities 2,183.4 1,757.1 1,654.0 426.3 24.3 103.1 6.2 10,344.9 8,808.4 7.575.3 1,536.5 17.4 1,233.1 16.3 Depxim 817.4 732.9 628.7 84.5 11.5 104.2 16.6 Total shareholders' equity 814.7 728.1 623.5 86.6 11.9 104.6 16.8 Common shareholders' equity At Peenod End (Dollars in millions)

$14,952.2

$13.041.4

$11,237.3

$1,910.8 14.7 %

$1,804.1 16.1 %

13.232.3 11,638.9 9,920.8 1.593.4 13.7 1,718.1 17.3 Anets loans net of unearned income 9,911.0 8,558.7 7,091.8 1.352.3 15.8 1.466.9 20.7 Earning aseets Invemment securities 2,145.5 2.053.6 1,697.4 91.9 4.5 356.2 21.0 I

11,610,6 9,716.3 8,390.6 1,894.3 19.5 1,325.7 15.8 864.3 763.1 695.0 101.2 13.3 68.1 9.8 1

Deposits Total shareholders' equity Common shareholders

• equity 862.1 759.4 689.9 102.7 13.5 69.5 10.1 Fl===d=1 Ration 1.08%

1.07 %

1.11%

Return on aseets 18.10 16.94 17.10 Return on equity 5.09 5.25 5.51 Net interem margin averages shares and per share data have rinancial data have been restated to reflect the pooling of-interesas merger wah Suburban 8ancorp on March 31,1986. W ' '

(

been remated to gm effect for the three-for4wo stock spla. in the form of a 50% s.ack dmdend, effectrve August 23,1985.

l Corpornaon's histoncal data.

Return on Assets Net income and Dividends Return on Equity ss so tis %

aos L

1.10 %

s 18 %

,.s 1.05%

16%

MIIIi

, <s.

1.03%

14 %

.95 12%

81 82 a3 se a5 06 st 32 a3 M ss M 31 32 33 84 ss M 3 Dmemb per Caense %m 2

t

'o To Our Shareholders n the 1985 annual report, you Iwere introduced to the "new" Sovran Financial Corporation.

the resuh of the Company's

~

,)

expansion beyond its traditional T

geographic boundaries through inter-state banking. At that time, we indi-cated that our primary goal was to remain a stmng competitor in the ever-changing banking industry.

Now, one year later, we are pleased i

to report that, during 1986, Sovran f

b achieved that goal by maintaining its 4

emphasis on quality service and stmng

.A financial performance, while con-

)

tinuing to gmw thmugh the effectiw and eficierit management ofits resources.

PROFITABLE GROWTH 5

Sovran's Gnancial performance during 1986 represented another year 6

of solid, profitable gmwth. Net income increased to $148.0 million in 1986, 19.2% above the 1985 level. On a per share basis,1986 earnings totaled

$3.48, up 18.4% from 1985.

Sovran's strong earnings perfor-C A. Catchins,Ill C Coleman McGehee mance was largely attributable to a 20.6% increase in average loans, which reflecting the economic stability of the announced during 1985, were con-a exemplified the economic strength and expanded market area and Sovran's summated in the first quarter of vitality of the Company a expanded.

conservative lending policies. The 1986. On March 10,1986, the Virginia / Maryland /Distria of Columbia Company's ratio of nonperforming Company merged with D.C. National market area. The gmwth in loans pn-assets to total assets was.19%, while BanCorpInc.,whereupon DC National 1

marily contributed to the 12.6% in.

net charge-offs represented just.38%

BankbecameSowan Bank /DC National.

crease m netinterest mcome m 1986.

of averageloans.

The merger with Suburban Bancorp, Noninterest income gmw 16.1%,

Once again, Sovran's profitability whose wholly-owned subsidiary bank Pnncipally from meressed service during the year compared favorably became Sovran Bank / Maryland, was charges, fees, and gains on sales of with that of banking companies of completed on March 31,1986. As part real estate. % offseuing these comparable size, as discussed in a of that merger, Suburban Bank's mereases m mcome was a 13.3% m.

comparative performance review on credit card subsidiary became crease m noninterest expense, which page 12. Return on average assets, Sovran Bank / Delaware.

7 oduce i

an em 1 nen ORGANIZATIONAL CHANCES co, e,

as expenses mlated to the Company a net income, totded 1.08%. The As a result of the consummation merger adivities.

Company's return on average equity, f these rnergers, the Company Total assets, aided by the strong which measures income earned in rela-changed fr m a one-bank to a multe demand for loans, grew to a level of

$15.0 billion. Even with the sigm6 cant tion to total equity capital, was 18.10%.

bank holdmg company. To facihtate the operation of Sovran IPmancial i'

increase in loans, the quality of the MERGER ACTIVITY Corporation, several orgamzational loan portfolio remained excellent, Sovran's two interstate mergers, changes were made.

~~

ammen 3

3 9

i i

The major change was the creation include various convenience and rating on Sovran Bank, N.Als long-of a new operatin6 arm, Sovran Ser.

credit features.

term certificates of deposit from Aa3 vices, which was established to pro-During 1986, Cash Row 1nc., a to Aa2. Additionally, McCarthy, t

8 vide a variety of support senices Sovran afEliate, renewed its debit Crisanti and Maffei upgraded the j

to our member banksand todirectthe card agreement with Mobil Oil Cor-short-term debt rating for Sovran 3

management of Sovran's bank-related poration, providing Cash Row card.

Bank, N.A. from MCM 3 to MCM 2.

}

subsidiaries. Sovran Senices provides holders with continued convenience In an effort to encourage investor l

marketing, financial management and at approximately 2,300 Mobil stations interest in the Company, Sovran's accounting, data processing, operations, across the country. Additionally, in senior management made an intro-funds management and investment, early 1987. Cash Row signed asimilar ductory visit to several European and pemonnel support for the entire agreement with Exxon Company, cities daring 1986. The visit repre-Company.The creation ofSovran Ser-U.S.A., that will allow Cash Row sented a significant step in an ongo-Vices represents an important step in cardholders to use their cards to ing commitment to expand access to controlling redundant operations in purchase products and senices at ap.

the capital markets.

the Company's expanded market.

pmximately 2,000 speciaHy. equipped DIVIDEND INCREASE In its new structure, the holding Exxon retail outlets. These agreements company coordinates the activities of provide the 800,000 customers who At its regular July meeting, the Board f Directors declared a 6.3% increase its various affiliates, aDowing each to hold Cash Row cards with the flexibility operate autonomously, while ensur-of paying for their purchases with their in the quariedy cash dividend declared ing that the Company's goals and debit cards and receiving the dis-n the Company a common stock,fmm financial objectives are met. One of count that both Mobil and Exxon 8.32 per share to $.34 per share.

the primary benefits of this structure offer for cash purchases.

On an annualized basis, per share dividends declared mereased to is its flexibility in meeting current UTHER ACTIVITIES

$1.36 from $1.28.

needs, while easily accommodating future acquisitions.

In theractionsduring1986,Sonan LOOKING AHEAD purchased approximately 170 acres NEW SERVICES ofland in Henrico County, Virginia Havingcompleted arewardingyear, During the year; the Company an-for the development of an operations we I k forward to continued gmwth nounced seveal new senice innova-center complex.

ver the coming months.The focus of tions designed to further enhance AdditionaDy, the Company began this effort wiu remain on quahty and our competiti,e position in the mar-construction of a 21 story office build-m enhancing our already strongcom.

ketplace. In August, Sovran became ing adjacent to Sovran's headquarters pendv7 position within the changm, g Snancial senices emimnment.

one of the first bank holding com-in Norfolk, Virginia. The building will panies in the nation at which cus-add 325,000 square feet to the finan.

%e appreciate the continued support f ur directors, shareholders and tomers could place ' wsits in out-cial center complex, providing much customers, and the dedication of the of state automated telle'r machines needed space for existing and future membem of Swan,a staE for delivery to their bank. This new requirements for employees and senice was developed in order to tenants. The projected cost of the new more effectively meet the banking building is appmximately $ 28 million.

needs of our customers who travel Ir order to meet these and other 2!b between Virginia, Maryland and the funding needs, Sovran filed a shcif C. A. Cutchins, III District of Columbia.

registration statement covering up to Chairman of the Board and Sovran also announced two new

$200 million of debt securities. Sub.

Gef Executive Of5cer credit card senices, designed to re-sequent to the filing, the Company g

g["

spond to the trend oflower interest issued $125 million of 91/4% Notes rates and to prmide increased flex.

Due 2006.

ibility in consumers' use of bank During the year,two respected firms C. Coleman McGehee credit pmducts. Both new senices raised their ratings on certain of President and offer interest rates which are indexed the Company's outstanding debt.

to the Sovran Bank prime rate and Moody's investors Senice raised the February 9.1987 4

x k

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j BankingonQuality Was an outstanding financialinstitution by hen Sovran Financial Corporation was formed in late 1983, it adopted as its corporate mission "to distinguish the Company high quality senices to our eustomenin a manner that enhances shareholder investment, prmides challenging and rewardmg careen to our staff, and contributesto the genemlwell-beingofthe communities and narket we sene" Dramatic changes have impacted the banlangindustryin thelast five years, changes that willcontinue to be feh for many years to come. Geographic, price and product deregulation: increased competition: more sophisticated, price-conscious consumen; a volatile interest rate environment: rapidly-evohing technologies; and a sudden rash of mergers and acquisitions hme allirrevocably changed the traditional banking business.

Mthin the hectic environment in which thefinancial I

a services industry must opemts however, Sovmn hasfound that three distinctivefactors ofqualityare constant inmeetingitscorporatemission:

1.

CUSTOMER RELU10NSHIPS b.

MARKET DYNAMISM I

3.

PROFESSIONAL EXCELLENCE These are thefactors ofquality upon which Sovmn willbuildin thepaisahead.

5

5 Service: Building Strong Customer Relationships T he winnersin taday's dynamic financialsenices thatforeseeandrespondtotheevolvingneedsofthemarketplace AtSowan, senice is a way oflife. While some bankers compete only on price or in sening limited markets, Sovran offers a full range ofquality senices. Company excellence is measured in customer satisfaction and market superiority.

" Relationship banking"-maximizmg the total customer relationship rather than the pmfitability ofindividual transactions or senices-is the key to Sonan's success. This modern-day, back-to-basics approach to bankmg has the customer as its central focus and meeting market needs as its primary objective.

Sovran maintains the most ertensive retailbanking networkin the Virginia-Maryland.

Distnd ofColumbia corridon prmiding unmatched eustomer convenience, senice and flexibility, plus an extersive selection oftraditional banbng produds, ranging fmm regular savings and demand deposit accounts to unsecured lines ofcredit. And Sovran stands ready to innovate For example, the Private Linel Secured amount was developed to respond to the elimination of the interest expense deduction on most consumerloans under the Tax Reform Act of 1986.

Sovran custome rs now have available a competitively priced revohing line ofcredit secured by homeowners' equity. Sovran has pioneered the marriage of advanced technology and superior senice, leading the field in the use of auto mated tcDer machines. The PersonalBankerprogramofferspm.

fessionalexpertise to tailor products fortheindhidualcustomet Commercial banking excellence also empha-sizes " relationship banbng" As the largest banking company in the Virginia Maryland DL. market, Sean provides exceptionalsenice and guidance to the corner store, the entrepreneur, the pmfessional, the established community business, the middle market company and the large corporate cutomet Indhidual senice is the cornerstone, with products designed to meet specific market needs. As an example, the Cash Management Department recently introduced MICROCA8 H, a comprehensive management program, custom-tailored for cor.

porate treasurers.

Sovran's Trust Department offers extensive investment, tax, real esta e and financial planmng senices. A new holding company subsidiary, Sovran Capital Management Corporation, presides dynanue investment and advisory senices to selected market segments. Sovran Mortgage Corporation, the 12thlargest mortgage senicerin the U S.,

prmidesthegmwing,mobileVirginia Maryland D.C.regionwithpremiercommercial and residentialsenice.

Sovran is a clearleader in innovative, non-traditional banbng pmduct development, as well. Sovran Financial Corporation offers discount brokerage, financial futures, investment banking, wnture capital, insurance and leasing senices. In fact, Sovran was the first bank holding company to receive Federal Resene Board appmval to sell shares of mutual funds and unit investment trusts thmugh an investment subsidiary.

Customer senice is an intnnsic factor in the Sovran philosophy ofbanking on quality.

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Lammmme Market:Seninga Dynamic Area An integral part of prosiding qual Unarguably,SovransVirginia-Maryhd D.C.marketisoneofthemostdynamic

,i-yet economically stable areas in the country.

3 The hallmark of the area is its diversity. Its centrallocation on the Atlantic Coast rnakes it attractive to many differentind ustries, but there is no single dominant industry.

I Rather here is Lund a synergetic blend of manufacturing, wholesale and retail trade.

l and senices. Moreover, combining the area's strategic location, which supports a high concentration of military installations, with the presence of the nation's capital makes this area "home" for many civilian, military and government personnel.

Different regions served in Sovran's primary operating market have unique flavors alltheir own. From the variety of manufactunng firms in western Virginia to the numemus agriculturalindustries i

in the central and southern parts ofVirginia to the internationalports of Hampton Roads and Baltimore to the high-tech firms in the Washington Metro area to the dherse economy of Maryland-the combination results in a l

growing monomy. This is a young market and one ofthe rnost affluentin the United States. In terms of per capita income, Washington. D.C. ranka first:

Maryland. sixth;and Yirginia. thirteenth in thecountn Significantly,theVirginia-Maryknd D.C.areasupports

' a commerrial banking deposit base in excess of $63 billion-a base i

that is growing at a compound annual rate of 12%.

WhiletheVirginia-Maryknd D.C.areasupportstheoperationsofagmwingnumber g

of banking companies, Sovran holds the coveted position as market leader with nearly 15% of the deposit aarket share. Through its extensive network of 356 banking offices 8

and311CashFlow Tellers,theCompanycurrentlyhasoperationscovering81%ofthe area's ll million people.This convenience factor has helped Sowanincrease its deposits at an esen faster pace than the market's gmwth Sovran continues to expand in the Chesapeake Crescent, the high-growth conidor stretching fmm Baltimore's industnahzed urban center to the nation's capitalthmugh the Richmond manufadunng and trade center and continuing east to the major military and shippinginstallationsofHamptonRoads.TheCrescent with77%oftheentiremarket's population and 81% of the employment growth, outpaces the nation in deposit growth.

While the Company's focus remains on its primary Firginia-Maryland-D.C. operating area, Sonan is continuing to explore other areas ofthe Southeast for possible expansion, to gain further strength thmugh geographie diversification. Virginia's bankinglaws permit interstate expansion on a regional recipmcal basis with 12 states throughout the South-east plus the Distnct ofColumbia. Like the Virginia-M aryland-D.C. area, the Southeast as a whole consistently outpaces the nation by most economic measures. In fact, the Southeast accounts for nearly one quaterofthe economic adhity afthe ertire United States.

Sovran FinancialCorporation currentiv operateu 130 offices of financial senices amhates in 10 states. 0utside ofits pnmary operating ama, Sovran maintains offices of these aEhates in high growth cities in Ficrida, Georgia, South Camlina, Tennessee and North Camlina in the Southeast, as well as in Delaware,0hio and Pennsylvania.

While the Company has gained fanubarity with these markets through its affiliates, it is exercising care as it looks to further expand its senice area.

Market attractiveness is at the center of the Sovran philosophy of banking on quality.

l 9

Professional Excellence: Cmating a Market leader Witself: a dynamie structure and exceptionalemp hile quahty senice and a quality market are two important factors in.the

" success equation,"an equally key elementis the quality of the organization T

FinancialCorporation completed an orgamzationalrestructunngin which each member bank operates autonomously under the guidelines and profitability standards set by the holding company. Individual banks continue to utilize the experience they have gained over the years that has resuhed in consistency profitable operations. At the same time,the banks draw upon the expertise ofthe holding eompany's newly. created senice l

support gmupSovranSenices.

E Considerable time, energy and resources wereimested during 1986in the deelopment ofthe Washington Metm Strategic Plan-a plan thar provides the framework for making the most ofopportunities throughout the metropolitan area by bringing together the best aspects ofeach bank's operations-pricins, senice offerings, product enhancements, market knowledge-to erente a stmnger, more efficient organization.

Already, Smran has resolved the pmblem of dissimilar pricing struc-tures and has enhanced its senice offerings and business develop-ment activities through these coordination efforts.

Sovran's philosophical approach to sening the market is to prmide a" unified front," while respecting regula-tory requirements which mandate the operation ofseparate banks in each jurisdictional area. By positioning itself as "one" company, SmTan can better serve the needs ofits customers who travelthrou ghout the metropolitan market. For example, after the consummation ofSoire.n's mergers in M tryland and Washington D.C.. the most fre-quently customer-requested senice was to make deposits in any Soiran Bank, regardless oflocation. Because regulations prohibit direct acceptance ofinterstate deposits, Sovran devised a way ofmeeting this customer need within the parameters ofeunentlegislation. In so doing, SmTan became one of the firs bank holding companies in the nation at wWh nistomers could place deposits in out of-state automatedtellermachinesfordelin deirbans The campaign to introduce Sovranio the Washmgton Metropolitan Area increased the Company's consumer awareness by 130% by promoting"one" company throush advertising that spoke to the fast-paced, mobilelifestyle ofcustomen. Studies showed that by the end of the campaign, Sovran was known to 65% of the consumers and busmessesinthis area, contrasted to a 35% consumerawareness forthe nertlea6ng bank.

While the Company's revised structure and strategic plan are helping to strengthen marketleadership Sovran employees are the mostimportant determinant ofcontinued success. Sovran FmancialCorporation mauvains as a primary goal the attraction and retention of" quality" personnel. By utilizins national and regionalsalary suneys and studying the relevantjob markets, the Company has created a salary admirustration program that is both fair and competitive. This program includes pnnisions for merit increases, flexibility in usingperformance rstmgs, andincentise programs foremployees ranging from clerical workers to the most senior executive officen. These programs are unique in that they are " formula driven," with established measures and performance objeA 5'urthermore, the incentive plans are designed to measure individual rather thangn. opermance,therebypromotinganentrepreneunalspiritamongemployees.

The exes +ional qdty of the Company's staffis criticalin extending the Sovran philosophyof t.cnkingon pality.

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--- -- -- 7

(

Comparative Performance Review S to quality. This fact is particularly evident when ovran Financial Corporation's historical performance having increased bv 287 basis points since 1981.

record is indicative of the Company's commitment Sovran's credit quality, as measumd by both the level of nonperfortnin6 assets relative to loans and the net Sovran's performance is compared with the Keefe Bank charge-off ratio, was also signi6 candy better than the Index, a representative sampling of 24 leading banking Keefe Index in 1986, continuing the trend of prior years.

j institutions acmss the country, with asset sizes rangmg Speci6cally, the Keefe ratio of net charge-offs to loans of fmm $11 billion to $1% billion. This index, which is

.80% in 1986 was more than twice as high as the Sovran computed annually, pmvides an overview of the operating ratio of.38%. More significandy, Keefe's ratio of non.

performance of the Keefe composite bank for the past six performmg assets to loans in 1986, at 2.78%, was nearly years with respect to pmfitability, asset quality and ten times higher than the Sovran ratio of.29%.

capital strength.

Sovran's capital position also remained stmng in 1986, in comparisons of the key measures of pmntability, again outperforming 'he Keefe Index as it has in each of return on assets (ROA) and return on common equity the past six years. The decline in Sovran's capital ratio in (ROE), Sovran outperformed the Keefe Index in 1986, recent years is principally the result of Ae significant gmwth as it has done each year since 1981. Significantly, in loans during this period, reflectmg the economic strength Sovran's ROA has gmwn 11 basis points between 1981 and vitality of the Company's expanded market.

and 1986, while the Keefe Index has remained relatively In summary Sovran's 1986 financial results indicate a flat over the same period. Similarly, Sovran's ROE has continuation of the excellent comparative perforresace l

exceeded the Keefe index in each of the past six years, experienced in reces years.

Rewn on Ames Rewn on Common Eqmty Nor.performin6 ssetsIYear-Endloans*

A 1 20%

19 S%

3.20%

j L0eg A

18 On 2 60%

i ;

w 16.3 %

2.00%

'l u%

is on om ust u

/

I '

ng mm

~

?

,, 0%

a 0

0 0

82 82 83 H

85 86 81 82 83 84 83 86 81 82 83 M

8$

86 e s.. s a w es saw as sww

%==w mt Net ChargeMs/ Average loans Average Equny/Aversee Anem 90%

70%

.75%

J 6.5%

/

A A,

45 %

5$4

)

as s os -

as%

4s4 0

0 asd ad 8

e

F.

Management's Discussion and Analysis of Financial Condition and Results of Operations S onan Financial Corporation (Sonan or the Company)

PERFORMANCE

SUMMARY

i completed two interstate mergers during 1986: D.C.

Net neome of $148.0 million in 1986 was up 19.2% over National BanCorp, Inc. (DCNB) on Man h 10,1986, 1985. Net income increased 15.5% in 1985 over 1984. The and Suburban Bancorp (Suburban) on March 31,1986. The increased earnings in both years benefited from greater in-DCNB merger was accounted for as a purchase; therefore, the terest income generated fmm substantial gath in the average financial statements and other data presented herein include volumes of earning assets. Increases in net interest income and DCNB's assets, liabilities and resuhs of operations from the noninterest income enabled Sonan to absorb a 13.3% rise in i

date of merger. The Suburban merger was accounted for under noninterest expense and an 18.5% increase in the provision the pooling <f-interests method. Accordingly, the financial for loan losses during 1986 and still maintain substantial net statements and other financial data prior to the merger have income gath. Table 1 presents summary earnmgs informa-been restated. Additionalinformation regarding these mergers tion and other financial data for each of the six years ended l

is contained in Note B on page 38.

December 31,1981 through 1986.

i Table 1 l

Sovran Financial Corpornoon and Subsidanes j

5 elected financial Data five. Year C.ompound Year Ended December 31.

Growth R.n 1

1986 1985 1984 1983 1982 1981 1986/1981 l

For the Year I

i (In thousands, except per share dats)

Interest income 81.247.557 81.163.078

$1.038.172 8914.491 8879.218 8768.212 10.2%

Net mierest income 523.055 464.532 401.973 374.493 326.297 284.915 12.9 Pnmaion for loan loues 47,630 40.186 26.678 18.087 16.376 20,209 18.7 l

Namnterem income 247.1 %

212.848 178.432 148,107 116.553 101.621 19.5 Nonaterest expense 553.338 488.380 430.024 405.380 348.448 292.072 13.6 j

Net income 147,956 124.176 107.503 88.392 75.553 64.788 18.0 Fer common share 3.48 2.94 2.67 2.32 2.04 1.77 14.5 Dmdende decled on common stock 53.015 41,423 35.685 31.652 25.974 23.172 18.0 Ihr common sha 1.32 1.20 1.06

.98

.87

.75 12.0 Average Balances (In millions) l Aucts 8 13,744.3 8 11.606.8 8 9.678.9 8 8.884.5 8 7,778.4 8 6.645.8 15.6 %

Earning ats 12.390.5 10,426.1 8.580.8 7.814.6 6.743.1 5.742.6 16.6 Loans 9,424.6 7.816.5 6.205.4 5.187.5 4.512.5 3.928.1 19.1 invemment secunnes 2.183.4 1.757.1 1.654.0 1.660.0 1.325.8 1.269.4 11.5 Deposits 10.344.9 8.808.4 7.575.3 7.135.7 6.079.4 5,325.6 14.2

{

long. term borromngs 208.1 147.7 83.3 103.0 116.9 121.9 11.3 Shareholders' eqmtv 817.4 732.9 628.7 536.1 473.8 426.4 13.9 Ranos Return on average sssem 1.08%

l.07 %

1.11%

.99%

.97%

.97%

Return on average equay 18.10 16.94 17.10 16.49 15.95 15.19 Net interem margm 5.09 5.25 5.51 5.61 5.70 5.75 l

Dividend payout reno per common share 37.93 40.82 39.70 42.24 42.65 42.37 Average canung anets to awrage total aseem 90.15 89.89 88.71 88.01 86.74 86.47 Average shareholders' equity to average:

Total an,e 5.95 6.31 6.50 6.03 6.09 6.42 loans net of unearned income 8.67 9.38 10.13 10.33 10.50 10.86 Total deposas 7.90 8.32 8.30 7.51 7.79 8.01 Net charge ofb to average loans

.38

.27

.21

.25

.26

.32 Alkmance to penod.cnd loans 1.15 1.14 1.11 1.14 1.21 1.21 Fmancel data ksve been ruimed to re6ect the.. d merger wah Suburban Bancorp a March 31.1986. Wewheed = rase shares and per share data han been remissed to pve e6ect for the ihrefor.ewo stock sphi,in the form of a 50% stoch divulend. e5ecove 4uguai 23.1985 Dmdends per share represent Sovran Fmanc al Carpersone's humancal das.

13

~

9 Management's Disc ion and Analysis of Financial Condition and Results of Operaties (Continued)

DCNB acquisition. These repurchases of the Company's shares Table 2 resuhed in a slower growth rme in average equity which had a j

somo rmancial Corporzion and subsidianes

}

Components of Net income Per Common Sham positive effeet on R0E. & following table displays the Company's nternal capital generation rate.

Year Ended December 31.

Year Ended December 31.

1986 1985 1984 1986 1985 1984 1

Interest mcome

$29.39

$27.70 825.93 Return on average assets 1.08%

l.07 %

1.11 %

Interest expense 17.07 16.64 15.89 X

Net interem income 12.32 11.06 10.04 Average assem to average equity 16.811 15.84X 15.39X

{

Primsion for loan losses 1.12

.67 Return on sverage equity 18.10%

16.94 %

17.10%

l Net interest income after X

pronamn for loan losses 11.2*

10.10 9.37 Earnings Retamed 63.90%

66.11%

66.14 %

f Nomnterem income 5.82 5.07 4.46 Iniernal Capnal Ceneramn 11.5 7 %

11.2 0 %

11.31 %

l Naninterem expense 13.03 11.63 10.74 Income befe meome tam The foDowing table summarizes the contributions to net e

40 income h b various bran aba Ap Preferred dmdends declared

.01

.01

.02 Net income per common shm g$

g g$

l soon rmancialCorporm and subsiamrms Earmngs per common share of $3.48 in 1986 increased Con 18.4% when compared with those earned in 1985. Per share carrung of $2.94 in 1985 represented a 10.1% increase over d'(Ended 1984. Table 2 provides an analysis of contributions to earning'

, 1986 per share by major income and expense components.

Nei

% or income Totai Return on average assets (R0A) measures how efredisely a 3,,,,,3,,3,3,3, g,,,,,7 64.4%

company utilizes its assets to produce net iacome. The follow-somnsanewaryiana 33,920 22.9 ing table prmides an analysis of ROA.

somn sanvDelm=

9 75 44 i

Sovran BanUDC Nat nal 3.641 2.5 Year Ended December 31.

sovran Mortgage Corporumn 7,781 5.3 1986 1985 1984 Sovran Equay Corpersoon 2.809 1.9 As a percentage of sverage leasmg Corporumn

3. M 2.2 sovran Credit Corporaten 2,193 1.5 tasabl netinteremincome 5.09%

5.25 %

5.51%

Soma Wasunmce Company 1,445 14 Tax equivalent adjustment

(.87)

(.80)

(.83)

Sovran Insurance Agency 1.256

.8 Pronsion for loan losses

(.38)

(.38) 031)

Otbe companms. includmg chnunamns d 2.621)

(8.5)

Net overhead expense (2.47)

(2.64)

(2.93)

$147.956 g0%

Taxes

(.17) 024)

L19)

Return on average earning assem 1.20 1.19 1.25 x

NET INTERESTINCOME average total assen 90.15 89.83 88.71

% taxable equivalent net irderest income increased Return on average assen 1.08%

1.07%

3%

15.2% in 1986 over 1985 and 15.8% in 1985 mer 1984.

Several fadors may cause a change in net irnerest income, Another frequently used raio which measures earmngs per-ircluding changes in awrage wlumes, mix and rate sensithiry formance is the retum on average equity (ROE). ROE measures of earning assets and irserest bearing liabilities, market interest the amount ofincome earned in relation to the total equity rees, and the amous d nonirserest beanng funds which capital imested in a company. The Company's R0E raio run support earmng assets.

continuously imm 1981 to 1984 but declined shghtly in 1985.

During the 1984 to 1986 period, the Company consistently in 1986, the ROE ratio increased to the highest lewl reported experienced strong growth in the averay volume of both earning during the last six years. houghout 1986, r, hares were acquired essets and interest bearing liabilities. l@er volumes of average in the open market for the Company's dividend remvestment earning assets produced additional interest income, which was and empkpe benefit plans, and for use in mnnection with the partially offset by grener irserest expense generated by increased volumes of awrage interest bearing liabilities.

t

- - -. _ - -C Table 4 some rmascalCorPumma ed Subadanes Coopersaw Opermang Das l

Fub Tasable Equnalem Bass (Dollare in ihmmands)

Increase (Decrease)

Year Ended December 31.

Year 1986 over 1985 Year 1985 over 1984

~

1986 1985 1984 Anmum Percent Amous Percent laserest income:

[ mas

$ 1,060,791 $ 964,187 8 832.203

$ % 604 10.0% 8 131.984 15.9%

to,esansat secunties 238,049 206.094 198,900 31.955 15.5 7,194 3.6 Money. market invenumenes 56,836 75.994 78.208

_ 10.158)

(25.2)

(2.214)

(2.8)

(

Tasalinsman inconne 1,355,676 1.246,275 1.109.311 109,401 8.8 135.964 12.3 lanseest asp *que:

Depasas 564,338 549,448 509,803 14.890 2.7 39.645 7.8 Shnwere borrownsi 139,669 134,598 119,780 5,071 3.8 14,818 12.4 Imgersi borroiangs 20,495 14.500 6.616 5.995 41.3 7,884 100.0 +

Leslissuress espanse 724,502 698.546 636,199

__.25.956 3.7 62.347 9.8 Naiimerest income 631,174 547,729 473,112 83,445 15.2 74.617 15.8 Pnmans far lass issues 47,630 40.186 26.678 7,444 18.5 13.508 50.6 Net insras income sfeer prormion for loan lasses 583,544 507,543 446,434 76.001 15.0 61,109 13 7 Noemenesi incesse encimhng secunnes gems and Gosses) 238,910 209.194 178.025 29.716 14.2 31,169 17.5 Seewess guns and Gasses) 8,286 3.654 407 4.632 100.0 +

3.247 100.0 +

Tassi nnansmest income 247,196 212,848 178,432 34,348 16.1 34.416 19.3 Noemammi mpense 553.338 488.380 430.024 64.958 13.3 58.356 13.6 locoms baisse income imme 277,402 232,011 194.842 45,391 19.6 37.169 19.1 AMa incease esses 21.327 24,638 16.200 (3,311)

(13.4) 8,438 52.1 Tan equneism adjusteess.

loans 42,7e4 37.284 27,020 5.460 14.6 10.264 38.0 lovesteem escunnes 65,074 45.503 43,880 19,571 43.0 1.623 3.7 Odier snoecy. market invuemeen 301 410 230 (109)

(26.6) 171 71.5 J

I Net inoame 8 147,956 8 124.176 8 107.503 8 23.780 19.2% $ 16.673 15.5%

During 1986, market interest rates dechned sharply, in.

Net lares Ergin 1

cluding a 160 basis point decrease in Swran's average prime i,

rate. The efect d declining yields on earmng assets was more than OEnd by the increased interest income produced by j

grenser merage volumes. The efed d declining rases on in interest bewing habihties during this period had a positne

,,,. c ar.~..

impaa on interest expense end nearly equaled the efect of

%Q j

higher en ense due to irca merage volumes.

.~ h %_

a In 1985, increased income from gresser volumes of earn-

' N^@'A u.

ing assem moie than oEnet the additional expense resuhmg from increased vobmes of inserest beanng liabilities. How-ever, lower yields reduced income more than the bendit that was derned from lower rates paid on interest bearing liabilities.

1 0

61 82 83 H

85 86 m v.u. r e w 0'imlamesMaps an

.s.,,

m 15 A

e a

Management's Discussion and Analysis of I'mancial Condition and Results of Operations (Conunued)

Earning assets are supported by both interest bearing liabil-of these noninterest bearing funds declined as a percentage ities and noninterest bearing funds. The benefit derived from of earning assets during this period. The combination of the noninterest bearing funds decreased as the yield on earn-these two factors contributed to a decline in the net interest t:

ing assets declined from 1984 to 1986. In addition, the volume margin from 1984 to 1986.

J.

F l

d Table 5 Sovran Finannal Corpormion and Subsidianes l

Net interew Income Analysis fully Tuable Equivalent Basis (Average balance in mdlions. income or expense in thousands) 3; l

Aversae Balance

%verage Yicids' Rates 1986 1985 1984 1986 1985 1984 Earnmg Assem loans net of unearned income:

$ 2.974.3 8 2.347.6 81.720.3 9.22%

10.57%

12.56 %

Commersal 989.9 748.3 490.7 10.77 12.21 14.28 Real estaie-consruccan j

1,708.9 1,474.3 1.439.1 11.56 12.09 12.12 Real emate-mortgage

?.220.6 1.978.1 1.599.3 12.33 13.23 14.07 Consumer 593.1 518.4 441.4 16.08 16.06 15.97 Bank card 231.6 176.5 123.1 9.73 11.20 11.88 trase 6nancing l

28.8 30.0 40.9 9.29 10.60 13.07 Foreign i

677.4 543.3 350.6 12.96 14.44 16.00 Tax.exempi 1

9,424.6 7.816.5 6.205.4 11.26 12.34 13.41 Total loans I

invemment secunties:

824.8 834.0 748.9 8.96 10.67 11.21 L'nited States Treasury l

171.3 106 2 128.2 8.14 10.78 11.87 Federal agencies l

1,123.3 776.3 749.9 12.89 13.08 12.84 Staes and pohtical subdmsions I

64.0 40.6 27.0 8.42 10.11 12.60 Other I

2.183.4 1.757.1 1.654.0 10.90 11.73 12.03 Totalinvemment secunties Federal funds sold and secunues 287.3 283.4 327.8 7.03 8.51 10.54 purchased under agreements to resell l

301.1 445.1 349.9 7.74 9.27 11.09 Due from banks-mierem beanns i

11.8 11.8 9.3 8.88 10.50 13.01 Tradmg accouni secunties 182.3 112.2 34 4 6.74 8.38 10.61 Other

$ 12.390.5

$ 10.426.1 88.580.8 10.94 11.95 12 93 Total Ennung Assets Interem Beanng Liabilines Interest bearmg deposita:

718.0

$ 565.6 8 497.0 5.11 5.24 5.25 interes checking 2,063.4 1.498.6 1.101.8 6.08 7.35 8.85 Money. market accounts 922.5 842.8 876.0 5.45 5 43 5 39 Regular savmgs 2.962.4 2.726.9 2.392.8 8.38 9,51 10.36 Consumer certi6cmes 1.321.8 1.095.6 852.8 7.78 9.09 10.60 Cernficates of deposits. $100.000 or more 9.2 54.1 11.5 6.96 9.04 6.68 Foreyp 7,997.3 6,783.6 5.731.9 7.06 8.10 8.89 Total interest beanns deposits Federal funds purchased and secunnes 1,385.5 1.110.7 769.5 6.63 8.10 10.13 sold under speemenu io repurchase 730.1 579 4 418.7 6.54 7.7 I 9 98 Other short.ierm borrowinp 208.1 147.7 83.3 9.85 9.82 7.94 longerm bornnrmgs

$ 10.321.0 8 8.6214 g

7.02 8 10 9.08 Total Interes Beanng Liabihues 5.09%

5 25 %

5.51%

Net Interem Margm.1ncome l

1

~

I 16 6

InmeSt income interest income increased due to higher average volumes.

As a result oflower market rates during 1986, yields earned Loan growth accounted for the greatest percentage of the on Inost categories of earning assets declined when compared increase in interest income, with the commercial, mal estate Wth yields earned in 1985. However, fully taxable equivalent and consumer categories producing the largest increases.

w e

from 1986 in 1985 from 1985 to 1984 Increase IDecrease) increase (Decrease)

Income / Expense Due to Changes in:'

Due to Changes In?

1986 1985 1984

%1ume Rae Net

%lume Rme Nei r

8 274,374 8 248.124 8 216.137 8 60,626 8 (34.37N

$ 26.250 4 70.030 8(38.043) 8 31.987 106.630 91.389 70.071 26.958 (11,717) 15.241 32.619 (11.3011 21.318 197,595 178,227 174.395 27.3 %

(8.028) 19.368 4.247 (4151 3 832 273,825 261,771 225 074 30.681 (18.627) 12.054 50.770 (14,0731 36.697 95,399 83.267 70.472 12.020 112 12.132 12.368 427 12395 22,528 19,777 14.619 5.602 (2.851) 2.751 6.026 (868 5.158 2,674 3.183 5,348 (129)

(380)

(509)

(1.267) i898) i2.165 87,766 78.449 56.087 17.965 (8.648) 9.317 28.273 15.911) 22.362 1,060,791 964.187 832.203 186.174 (89.570)

%.604 202.827 (70.8431 131.984 73,934 89,001 83 % 3 (969)

(14.098)

(15.067) 9.214 14.1766 5.038 13,938 11.454 15,224 5.786 (3,302) 2.484 (2.452)

(1.318) i3.770i 144,785 101.537 96,308 44,742 (1.494) 43.248 3.439 1,790 5.229 5.392 4.102 3.405 2.068 (778) 1.290 1,463 (766i 697 238,049 206.094 198,900 47.277 (15.322) 31,955 12,177 (4.983) 7.194 20,205 24.115 34.533 327 (4.237)

(3.910)

(4.303) i6.1151 t 10.418) 23,298 41.244 38,818 (11.885)

(6.061)

(17.946) 9.483 (7,057) 2.426 1,048 1.234 1.210 6

(192)

(186) 283 (259) 24 12.285 9.401 3.647 4.993 (2.109p 2.884 6.670 19166 5354 1.355,676 1.246.275 1.109.311 220.910 (111.509) 109.401 225,630 (88.666) 136.% 4 36,721 29.618 26.107 7.850 (747) 7,103 3,562 iSI) 3.511 125.448 110,151 97.500 36.598 (21.301) 15.297 31.066 (18.4151 12.651 50,297 45.779 47.221 4.345 173 4.518 (1.804) 362 tl.442i 248,381 259,384 247,781 21.274 (32.277)

(11,003) 32.824 (21,221) 11.603 102.853 99.626 90,426 18.824 (15.597) 3.227 23.298 114,098) 9.200 638 4.890 768 (3.329)

(923)

(4.252) 3,762 360 4.122 564,338 549.448 509.603 90,940 (76.050) 14,890 87,921 148.276) 39.645 i

91.921 89.946 77,979 19.935 (17,960) 1.975 29.794 (17.827) 11.967 l

47.748 44.652 41.801 10.498 (7.402) 3.0%

13,754 (10,903) 2.851 20,495 14.500 6.616 5,950 45 5.995 6.034 1.850 7.884 1

724,502 698.546 636.199 126.570 (100.614) 25.956 136.054 (73.707) 62.347 8 631.174 8 547.729 8 473.112

$ 100.545 8 (17,100) 8 83,445 8 97,783 8(23.166) 8 74.617 mm chany a mwrw de in both rue and volume has twes allaemed in "due in change a averne volumm" and "de in change m everup rue" a proporoon to the relanonslup dilw absolue donar samune of the chane in eack The chanes a unerem and expense are calculand edependend, far each luw e inn table. The sacals for the,ohune and raw columns are j

ani the som d the indrndual knas.

g 17

-K_

Management's Discussion and Analysis of Financial Condition and Results of Operations (continuea Interest income from investment securities also increased in In 1986, total interest expense increased only 3.7% despite 1986, primarily due to income earned on tax-exempt obliga-a 19.7% increase in the average volume ofinterest bearing tions of states and political subdivisions. The Company took liabilities. This mmimal increase in interest expense was a advantage of favorable market conditions by increasing its direct resuh oflower rates paid for these funds during 1986 holdings of these securities in late 1985. Therefore, the 1986 when compared with 1985. The average rate paid on interest tax equivalent yield on tax <xempt investment securities was bearing liabilities declined 108 basis points when compared almost equal to the 1985 yield.

with 1985.

Money-market investments have short maturities and when The 9.8% increase in 1985 interest expense over 1984 reinvested during periods of declining rates, generally result was also affected by declining rates. While average volun es in lower yields. In 1986, the Company reduced its money-ofinterest bearin6 abilities grew, the resulting increase in li market investments. Consequently, intemst income from money-expense lewis was partiaHy offset by a 98 basis point decline market investments declined in 1986 due to the combination in the average rate paid on these liabilities.

of reduced rates and lower average volumes.

Dunng 1985, additional interest income was produced by PROVISION FOR LOAN LOSSES greater earmng asset volumes, primarily loans. However the The pmvision for loan lases, the charge to earnings for interest rate decline during 1985 produced a 98 basis point Potential losses associated with lending actmties, mcreased decline in the average yield on earning assets when com.

18.5% in 1986 compared with 1985 and 50.6% in 1985 pared with 1984. The benefit derived from increased c mpared with 1984. The aignhnt loan growth experienced volumes of earning assets was partially offset by the decline during the past three years, as weH as increased charge-offs in yields.

mntribed to the imase in the provision in all years under

/eresExpeu comparison. For additional information regarding the pro-vision for loan losses, refer to the discussion, loans and the Since deposits are the Company's primary funding source, the volume, as well as pricing of deposits, plays an important Allowance for loan losses, beginning on page 22.

role in interest expense. As a market leader, Sovran exercises NONINTERESTINCOME j

considerable care in determuung its deposit pricing structure, As shown in Table 6, noninterest income increased 16.1%

taking into account various external factors that can affect the in 1986, compared with 1985. Dunng 1986, the Company 8

Company's competitive position. The Company's cost and revised its deposit service fee schedules to ali n charges at its 6

ability to invest these funds profitably are also considerations subsidiary banks that operate within the same market area.

in deternuning the pricing structure.

This service charge revision, along with increased business Quarterly Key Interest Rmes Prmision and Net Charpefk us sso us.e 47 4 12%

$40 40.

h 10%

$30 F

j mm N

I I

S 4

0 0

to I w eelte 2as w eello 2 w **

81 82 83 M 85 %

R"" @-d-5 Feders Fumb Ray 18 f

Table 6 1

Sorran financial Corporaten and Subsidane.

%nuuerest income

,pollars m thousandel Increase 1 Decrease)

Year Ended December 31.

Year 1986 Over 1985 Year 1985 Owr 1984 1986 1985 1984 Amount Percent Amount Percent 3 32.897 8 28.812 8 26.555 8 4.085 14.2 % $ 2.257 8.5%

Trust ecome l

Scruce charges on deposit accounts 57,407 49.540 41.003 7.867 15.9 8.537 20.8 l

oiber servre charges. mcome and fees l

Bank card fees 61.037 57,970 50.922 3.067 5.3 7.048 13.8 Monsage servicing fees 24,158 22.012 19.048 2.146 9.7 2.964 15.6 Cans on sales of real estase 9.223 9.223 Other 47,292 45.049 37.898 2.243 5.0 7.151 18.9 Tradmg account pru6ts and commissions 6.8%

5.811 2.599 1.085 18.7 3.212 100.0 +

238,910 209.194 178.025 29.716 14.2 31.169 17.5 Secunnes sama and dossesi on:

Debe securmer 5,693 2.197 346 3.4%

100.0 +

1.851 100.0+

Eqmty.ecunnes 2.593 1.457 61 1.136 78.0 1.3%

100.0 +

8 247.1 % $ 212.848 8 178.432 8 34.348 16.1% $ 34.416 19.3%

activity, contributed to the higher level of senice charges on also had a positive effect on noninterest income in 1985 deposit accounts. Trust income for 1986 also grew consider-when compared with 1984.

abb primarily due to increases in the volume of assets under NONINTEREST EXPENSE management. Total trust assets under management at December 31,1986 were $5.1 billion mmpared with 84.3 billion Sonan's management is firmly committed to the contain-at December 31,1985. Additional 4 the Company implemented ment of controllable noninterest expense. Mana6ement has various fee changes related to personal trust senices.

taken several important steps toward this goal. In 1986, the

]

In 1986, the Company realized $9.2 million in nonrecur.

Company offered an early retirement plan to several senior i

ring real estate gains resulting from sales of bank premises.

officers, refined its merit increase program, and reemphasized These gains were used to offset the effects of certain nonre.

its program of allowing increased noninterest expenses only curring expenses also incurred during 1986.

w undWed het gains on securities transactions, as well as trading ac-Operating income

• I count profits and commissions contributed to the increased noninterest income. During 1986, the Company took advan-tage of favorable market conditions to realize gains on sales of both equity and debt securities.

Noninterest income was up 19.3% in 1985 over 1984. The 1985 increase in noninterest income was principally a result of greater income from deposit account service charges, additional bank card fees and other senice fee income. The s,

increase in senice charges on deposit accounts resulted 4

primarily from a new fee structure implemented at Sovran Bank, N.A. in 1985. The growth in bank card fee income m

was 3rincipally due to the implementation of a new bank card fee c uring the fourth quarter of 1984. Nonrecurring income

)

in the other category approximated $4.2 million in 1985.

j This nonrecurring income was primarily due to a gain on the j

sale of mortgage senicing rights and additionalincome from i

underwriting and letters of credit fees. Increased nonmterest

- o#

income fmm trading account activities and securities gains

,g" O"",,"" ~

19 N

1

k.

Management's Disc ion and Analysis of financial Condition and Results of Operations (Continued)

Table 7 Sovran nnancial Corporanon and Subexlianes Nomnterest Eapense (Dollars in thousands)

Increase (Decrease)

War F.nded December 31.

Year 19% Over 1985 Year 1985 Over 1984

)

1986 1985 1984 Amount Percent Amount Pment

[

l Salanes and emplovce bene 6 n 8297,411 8 259.114 8 231,506 8 38.297 14.8 % 8 27.608 11.9%

Net occupancy expense 33,067 29,452 26.737 3.615 12.3 2.715 10.2 Furmture and equipment erpense 38.248 50.347 45.313 7.901 15.7 5.034 11.1 i

Adverusmg 10.376 9.643 10.787 733 7.6 (1,144)

(10.6)

I Amoruzanen of irmgible anacts 12.533 7,772 7.736 4.761 61.3 36

.5 i

Bank card expenses 25.519 26.917 24.563 (1.398)

(5.2) 2.354 9.6 Commurucanons 13.530 14,758 13.175 (1.428)

(9.7) 1.583 12.0 Postage and shipping 14.390 11.791 11.064 2.599 22.0 727 6.6 Professional fees 11,843 11.384 8.910 459 4.0 2.474 27.8 Sianonery and supphes 14.129 11.866 10.037 2.263 19.1 1.829 18.2 Other 62.492 55.336 40.1 %

7.156 12.9 15.140 37.7 8 553.338 8 488.380 8 430.024 8 64.958 13.3 % 8 58.356 13 4 %

when supported by increased income generation or ultimate to early retirements and resignations under employment con-cost benefits.

tracts. Existmg staff have assumed the duties of the position.-

Noninterest expense increased 13.3% in 1986 over 1985.

vacated. Additionally,1986 included approximately $5.6 mil.

Contributors to this increase were expenses for salaries and lion in expense for the salaries and benefits of Sman Bank /

employee benefits, occupancy, furniture and equipment.

DC National employees. Since the DCNB merger was accounted l

amortization ofintangible assets, and other expenses related for as a purchase.1985 did not include expenses for these i

to increased business activity.

employees. Increases were also experienced in insurance, payroll in an effort to attract and retain a quality staff, Sovran offers taxes and pension expense. While pension expense increased in an excellent compensation and benefits package. Salaries and 1986 compared with 1985, the Company's adoption of FASB employee benefits, the primary component of noninterest ex-Statement Na 87 " Employers' Accounting for Pensions" re-pense, were up 14.8% in 1986. Affecting this increase was duced 1986 pension expense by approximately $2.2 million.

approximately $6.5 million of nonrecurring expense rela:ed Table 8 presents information relating to personnel expense for Table 8 Sovran Fmancial Corporanon and Subsidianes Average Annual Full.Tirne Compensanon (Dollars m thousands. cacept per employee data)

Ir. crease (Decrease)

Year Ended December 31.

Year 1986 Over 1985 Year 1985 Over 1984 1986 1985 1984 An.ount Percent Amount Percent I

Salanes

$ 247.999 8216.529 8191.373 831.470 14.5%

$25.156 13.1 %

Emplom benefits 49.412 42.585 40.133 6.827 16.0 2.452 6.1 Total salance arsd emplovee bene 6:s

$297.411 8259.114 8231.506 838.297 14.8 g

11.9 Averste annual compenannon per employee g

y 8,,2,3.335 g

5.4 10.1 Number of full. cme equivalent emplovees:

Yeund 10.961 10.314 9,991 647 6.3 323 3.2 Average 10.981 10.088 9,921 893 8.9%

167 1.7%

20

~

F l

l the three-year period ended December 31,1986.

Reform Act of 1986 will not have a material effect on the During 1986, occupancy expense rose due to increased Company's future annual results of operations, financial posi-rent expense while computer equipment purchased in late tion, and liquiditv.

j 1985 contributed to higher depreciation charges included in During 1986, the Financial Accounting Standards Board furniture and equipment expense in 1986. The Company's issued an exposure draft on accounting for income taxes that 1986 merger activity, as well as increased business activity included a change in the method of accounting for deferred l

resulted in additional noninterest expense. Amortization of income taxes. If enacted in 1987 as proposed, this account.

intangible assets expense was up in 1986, due in part to the ing change is expected to have an immaterial but favorable purchase of DCNB. Increased business activity caused higher impact on Sovran's annual results of operations and financial expenses in such items as processing fees, FDIC insurance, position.

and other items that are directly associated with the volume FINANCIAL CONDITION of activity.

A financialinsu.tuton s pnmary sourtes of revenue are In 1985, noninterest expense was up 13.6% over 1984.

The principal contributors to this increase were salaries and generated by its earning assets, while its major expenses are employee benefits, furniture and equipment, and other non-Produced by the funding of these assets with interest bearing interest expense which includes smaller categories of ex-liabilices. Effective management of a company's sources and uses of funds is critical in obtaining maximum profitability bnse. The increased 1985 expense in salaries and employee with a minimum amount of risk. The following discussion is ne6ts was due to normal merit increases, higher incentive compensation, increased salaries for part-time employees, Provided to assist in an analysis of the Company's financial e ndition.

and approximately $4.0 million associated with the exercise of stock appreciation rights by certain senior Suburban em-EARNING ASSETS P oyees. These stock appreciation rights became exercisable During the past three years, average earning assets have l

as a result of the Sovran / Suburban merger. The majority of experienced significant grewth. The 6ve year compound the increase in furniture and eqmpment expense resulted pth rate of aver e earning assets was 16.6%. Imns. the from increased operatmg expenses, as well as depreciation Company's princip earning asset, end investment securities for new data processmg eqmpment acqmred in the latter part have shown the largest increases during the three years under of 1984. The pnneipal reason for the merease m, other non-comparison. Money market investments decreased in 1986 interest expense was higher expense associated with greater over 1985 but increased between 1984 and 1985.

business activity. Also meluded in t}us category in 1985 was an expense of approximately $2.0 million related to a promo-tional campaign designed to enlarge Sovran Bank, N.A.'s cus-krar Earning hm tomer base. as well as a provision of approximately $2.2 mil-O"-"

tion related to the termination of a contract for the processing of certain bank card transactions.

APPUCABLE INCOME TAXES mo income tax expense was $21.327 million for the year ended December 31,1986, representing a decrease of 13.4% com-pared with 1985. Higher levels of tax-exempt income and the net effect of the Tax Reform Act of 1986 accounted for the majority of the decrease. The enactment of the Tax Reform no Act of 1986 and the related change in assumed future tax rates requurd a recomputation of projected leveraged lease j

income This resuhed in a net benefit to tax expense of us

$3.328 million. Additionally, income tax expense was in-creased by $1.117 million due to the repeal ofinvestment tax credits. For additional information, refer to Note L on page 44.

o In the future, the previsions of the Tax Reform Act of 1986 w3l adect the income tax treatment of many aspects of Sovran's j g - g- --

business activities. However, it is anticipated that the Tax au-ammma 21 K.

Management's Discussion and Analysis of

~

Financial Condition and Results of Operations (Continued)

Table 9 Sowan Financial Corporanon and Subsidianes Summary cfloans Net of L'nearned Income (in milhons)

December 31.

1986 1985 1984 1983 1982 Domente Commercial

$3.202.4 82.502.7 82.090.7 81.533.2 81.278.2 Real estate-construenon 1,068.6 843.3 626.1 396 6 343.4 Real estate-mortgage 1,721.8 1.566.5 1.396.8 1.420.2 1.372.4 Consumer 2.328.4 2.146.6 1.755.1 1.463.4 1.152.4 Bank card 651.7 591.0 512.9 430.9 372.3 leaae fmancmg 248.0 229.3 160.0 107.4 48.2 Tax-exempi 661.1 650.0 520.8 321.2 280.1 Total domesoc losa 9.882.0 8.529.4 7.062.4 5.672.9 4.897,0 i

Fore, 29.0 29.3 29.4 65.1 44.0 I

$9.911.0 88.558.7 87.091.8 85.738.0 84.941.0 I

loans and the Allowancefor loan losses economic conditions. During the three-year period ended The Company aggressively pursued expansion of the loan December 31,1986, the allowance for loan losses was at portfolio during both 1986 and 1985. A contributing factor least three times the amount of net charge offs. Additionally.

to the growth in the loan portfolio is the heahby economy in the allowance for loan losses was at least 6ve times the which the Company operates. The Company's market area amount of nonperforming loans for each of the three years provides both diversity and relatim stability, thereby creating ended December 31,1984 through 1986. Table 13 on page 24 an excellent growth emironment. While loan growth has been presents a summary of the allowance for loan losses and i

substantial during the last three years, the Company has main-selected loan loss statistics for the past five years, i

tained high credit standards in order to obtain quality loans.

Sovran, like other financial institutions, has exp< rienced in-l In conjunction with its lending activities the Company creasing losses in the consumer lending area. Rising levels of j

maintains an allowance for loan losses which is available to personal bankruptcies and consumer debt have contributed absorb potential future losses. The basis for judging the ade-to the industry-wide increased charge-offs in 1986. As a l

quacy of this allowance considers the Company's past charge-result of these higher charge-offs, Sovran has taken action to j

off experience, level of nonperforming loans, and external minimhe its future losses. Steps taken include increasing thtribution ofloans Distnbution of loans by Type of Borrower by Type of Borrwer 1981 Averages 1986 Averages l

)

t,w "8

1.s.

FN 24%

t g :.

y-f 22

~

i 4

l e

Table 10 govran Rnancial Corporanon and Subsidianes Allocanon of Allowance for loan loanes

[

tDollars in millional December 31.

j 1986 1985 1984 1983 1982

)

loans net of unearned income:

Commeraal. real estate and other

$6.930.9 69.9%

$5.821.1 68.0 %

$4.735.6 66.8 %

$3.883.5 67.7 %

$3.471.6 70.3%

Insud1 ment 2.328.4 23.5 2.146.6 25.1 1,843.3 26.0 1.423.6 24.8 1,097.1 22.2 Bank card 651.7 6.6 591.0 6.9 512.9 7.2 430.9 7.5 372.3 7.5 89.911.0 100.0%

$8.558.7 100.0 % $ 7,091.8 100.0%

$5.738.0 100.0 %

$4.941.0 100.0%

=ames sumsse snussa s===:n

-====:=

docanon of allowance forloanlosses:

Commernal, real estme and other 8 34.5

$21.6

$22.6

$16.8

$18.0 Inmallment 15.9 11.2 8.0 7.7 8.8 8ank card 9.0 5.3 6.8 4.6 4.4 i

Unallocsed 54.1 59.7 41.7 36.6 28.7 i

{

$113.5

$97.8 879.1 865.7

_859.9 1

pmvides information on nonperfolming assets and loans l

l Table 11 contractually past due ninety days or more for the years i

s ran nnancial Corpor.non and sub.idarie.

1982 through 1986.

I Msunty Schedule of Selected loan.

During 1986, interest income recogmzed on loans that j,",'[""'"d '"****

were on nonaccrual status or had been restructured at December 31,1986 was 8.844 million. Had these loans ecem 1.

6 been Derforming in accordance with their original terms,

$2.503 million would have been earned. The Company had o,, y,,,

o,,,

or to.

m vem % ve.

T al no material commitments to provide additional funds on such loans at December 31,1986.

Co nmernal

$2.096.1 8 819.0 8 287.3

$3.202.4 Real estate-construcuan 741.7 260.0 66.9 1.068.6 Taz.exempi 124.1 120.2 416.8 661.1 Table 12 82.% 1.9 81.199.2 8 771.0

$4.932.1 Sonan Fmancial Cwporsuon and Subsidianes

%nperforming Assem and loans Contractually Pam Due j

Rxed rue 8,3 $ 167.6

,p,gg, g,,;ig;,,,,

l Vanable rate 8 928.5 8 603.4

)

year Ended December St.

collection and recovery staffs, introducing a new credit point scoring system and continuing an intensive training program Sg,[*"*

l

, 7,,

, 7,,

,3 4, l

for loan 0$cers, gg,, io,n,;

Nonperforming Assets snaccrual 17.3 12.1 12.3 12.9 24.5 an m und 4.s 2.2 rs u

8.7

)

Since 1982, total nonperforming essets have decreased Total nonPufanning awn

$283

$22.1 825.2 83H $4M

]

41.0% to $28.9 million at December 31,1986. This reduc.

nPnfonnin6 *** k tion has occurred while Sovran's loan Portfolio has Pn 7,,,j,,,,,

,3,%

.17%

.22%

.37%

.55%

i significantly.Th..is Improved asset quality is Indicative of con.

7,,i io,,,,,a,,s,,

1 tinued monitoring of the Company's credit policies and care-resi e.iair

.29

.26

.35

.63

.99

{

I ful evaluation of its credit risk. While loans past due ninety Cow pan de

$3u

$28.7 s24.2 sin 333.3 i

days or more have risen o.er the past three years. they repre.

sented.40% ofloans at December 31,1986. Table 12

> osia repre ni. io.n. p.= do, pnneipei or mier i ror 90 da. or more.

Loans clann6cd se euher nonaccruel er meructured are escluded from the caregoev, l

23

.K_

~ ~

Management's Discussion and Analysis of l

financial Condition and Results of Operations l

(Continued) l

'l t

l Table 13 Sovran Financial Corporation and Subsidianes Summary of AUo*ance for loan losses and Se'ected loan Ion Stanstics j

(Dollars in thousands)

Ye r Ended December 31.

1986 1985 1984 1983 1982 Allowance for loan loanes at begmning of year

$ 97,784

$79.053

$65.676

$$9.948

$52.%7 Allowance of purchased banks at daies of acquisition 3.814 400 2.454 l

l Pnmsion forloan losses 47.630 40.186 26.678 18.087 16.376 l

149.228 119.239 92.354 78.435 71.797 Commercial 15.666 13.117 8.673 5.462 5.243 Real estaie-conuructen 41 2

434 1.192 Real estate-mortgage 4

241 46 1.059 183 Consumer 15.390 9.605 6.803 9.570 7.360 Bank card 12.971 8.224 7.784 6.252 5.331 lease Gnancing 541 185 89 592 108 Total charge. offs 44.572 31.413 23.397 23.369 19.417 Recovenes of loans prenously charged oE:

Commercial 3.547 5.518 3.469 3.914 2.233 Real esime-congruenon 149 50 1.904 746 92 Real estate-mortgage 24 35 27 109 132 Consumer 3.281 2.754 2.792 3.970 3.453 Bank card 1,778 1.569 1.873 1.860 1.489 lease (mancing 77 32 31 11 169 Total recovenes 8.856 9.958 10.096 10.610 7.568 Net loans enarged off 35.716 21.455 13.301 12.759 11.849 Allowance for loan losses a year.end

$113.512 897.784 879.053

$65.676 859.948 i

Loans net of unearned mcome:

Outstandmg at year end

$9.911.032

$8.558.748

$ ~.091.816

$5.738.044 84.941.048 4verage 9.424.594 7.816.542 6.205.412 5.187.465 4.512.494 Rctos:

Allomance to year end loans 1.15 %

1.14%

1.11 %

l.14 %

1.21 %

Recovenes to charge. offs 19.87 31.70 43.15 45.40 38.98 Net charge.uns to average loans

.38

.27

.21

.25

.26 loan loss coverage' 5.841 8.64X ll.28X 10.llX 9.11X Allowance to net charge-offs coverage 3.18 4.56 5.94 5.15 5.06 Pronson for loan joues to; Net charge.ons

)

1.33 1.87 2.01 1.42 1.38 Averase loans

.51%

.51%

.43%

.35%

.36%

' Income before meone iam and munnes transecnons plus the pnmemn for inan leases, dmded by ses chstge.e5s.

Foreign Outstanding i

pmblems are being maintained on deposit in those countries.

As shown in Table 14 foreign outstanding have declined Management believes that these outstanding will not have significantly in the past three years. Of the total foreign loans a material adverse impact on the Company's resuhs of outstanding, less than $1 million were on nonaccrual status at operations.

l!

December 31,1986. The Company has minimal foreign out.

During 1986, the Company wrote offits remaining $1.5 mil-I standing in countries that are experiencing economic and lion equity investment in Allied Bancorp International (Allied),

liquidity pmblems. The terms of certain of these outstanding an Edge Act Corporation. The Company still pmvides funding have been modified or may be in the pmcess of renegoti-to Allied in the form ofloans and a noninterest bearing deposit ation. Cunently, the Company has no commitments to lend of appmximately $6.8 million and $7.5 million, respectively, additior.al funds to those countries experiencing liquidity at December 31,1986. Management believes that its curre' t problems. Repayments of principal and interest on the out-and possible future supoort of Allied will not have a materialI n

i standing of some countries that are experiencing bguidity impact on results of operations.

I 24

'f.

~

Nonperfonning Aases Allowance and Charp-Off Ratios

$50INJmnsi i 25 %

49 0 1.21 L21 1 14 1.14 1.15 g

440 1 00%

g M0 t

$30

.73%

a,-

25 3 11 2'

7 azo

.s0%

E 25%

91 82 83 84 85 86 81 82 83 84 85 46.

o om., w r e e v w a.m %,.w w aww a w am,a% w a%w I

Table 14 Sovran Financial Carperanon and Subsidianes Fwey Outstandmgs (in millions)

Decernber 31.1986 December 31.1965 December 31.1984 I

Due From Due From Due from Banke-Bar.ks-Ban 6 Interest Interes Interes loans' Acceptances Bearmg Total leans' Acceptances Bearmg Total 14ana' Acceptances Branng pi EuropcWiddle EastCanada United Kingdom

$25.0 825.0 8150.1 8150.1 8200 8214 0 Smuerland 12.3 12.3 25.0 25.0 haly 85.0 5.0 Other 8

.5

.2

.7 8

.5 82.5 40.7 43.7 t

.5 81.8

. 60.5 62.8

.5 5.2 37.3 43.0

.5 2.5 215.8 218.8

.5 1.8

' 260.5 262.8 Asian / Pacific Lpan 15.0 15.0 China

.5

.5

.6

.6

.6

.6

.5 15.0 15.5

.6

.6

.6

.6 i

North AmencaCambean Bahamas 20.0 20.0 102.0 102.0 92.0 92.0 t

lann Amence I

Brasil 1.6 1.6 1.6 1.6 1.6 1.6 I

Chile 2.4 2.4 2.4 2.4 2.4 2.4 Ecuador 2.7 2.7 2.8 2.8 2.8 2.8 Meuco 16.9 18.8 35.7 16.9 18.8 35.7 17.0 20.9 i

37.9 besuela 4.4 4.4 4.5 4.5 4.5

_4.5_

28.0

_18.8 46.8 28.2 18.8 47.0 28.3 20.9 49.2 bal outstanding

$29.0 824.0 872.3 8125.3 829.3 821.3 8317.8 8368.4 829.4 822.7

$352.5 8404.6 sammum samma.

saamm amma

- sammma samme

==

=

m:=:=mm hal outsiandmgs as a percene of total anecs

.84%

2.82%

3.60%

'In aA years, bJances pnmardy represem loans to governmenu and ebelinsanmons.

usumans.

25 A

m m

7 a.

x p

I tg

-l

$i Management's Discussion and Analysis of 3

financial Condition and Results of Operations 4

IContinued)

,,+

Table 15 Sovran Financial Corporation erd hba& ann 1

Invemment Secunnes Matunty Distnbution and Average Yield 4Dollm in millions)

December 31.1986 Average Weighted Book Market Matunty Average Value Value in Wars Yield' l'.5. Treasury secunties:

Wahin one year

$ 161.1 8 I64.2

.6 9.60%

After one but mthin Eve years 587.2 598.3 2.1 7.44 Total U.S. Treasury secunties 748.3 762.5 1.8 7.90 Federal agencies:

Mangage backed securha After ten years 2.2 2.1 14.9 7.77 Other federti agencies k, Withm one year 21.4 21.6

.6 8.56 After one but mtbin Svc years 226.0 228.9 2.9 7.31 Total federal agencies 249.6 252.6 2.8 7.42 Obliganone of main and political subonisions:

Within one year 106.9 108.1

.4 14.43 After one but within ave ye.us 337.6 360.1 3.2 13.04 After Sve but mthm een yem 411.4 451.7 7.0 13.78 After ten years 209.0 211.8 17.7 18.11 Total mane and pohncal subdwisions 1,064.9 1,131.7 7.2 13.68 Other secunties:

Stock of the Federal Reserve bk 5.6 5.6 Other stocks and bonds 77.1 76.6 Total other secunties 82.7 82.2 Totalinvemment secunnes

$2.145.5 82.229.0 4.5 10.41%

J

'Compuird on a fully lamable equivalent basis usms the starutory federslincome tan rue of 44%

l Inrestment Secunties I

The Company increased iu holdings in investment securi-Table 16 ties between 1984 and 1986. Favorable market conditiom Sovran Fmancial Corporanon and Subsidanes made it advantageous for the Company to hold obligatkm of Ratmgs of Stain and Mocal subdwiens v-states and political subdivisions. The invesment portfolic an-j,'"*j,,""

tinues to be of excellent quelity, with 71.4% of the municipal securities rated AA or better. As a result of the Tax Reform D'*""'" 3 l'86 l

Act of 1986, the Company intends to pursue alternative tax-P'C '

g,,ay.,g,,,,

goog y,,,,

able investment opportunities. Future acquisioons of tax-exempt secunties will be made when the related yield is equal

$^

'88j 8}7 to or greater than an alternative taxable investment. v addi-AA 288.0 27.0 tionalinformatioe pertaining to investment securities,' refer to Al 127.4 12.0 1

Tables 15 and 16.

88 ]

7]

l

~A

,rri

%ney-Market Investments Iy

]

In 1936, average money market investments declined over BA 1.0

.1 I

the 1985 lesel. The principal decline in 1986 was in Euro-i 1.0

.I

' dofiar certificates of deposit and commercial paper. Due to

,5.3

..I the interec.t sensitivity of these investments, the Company con.

s1.064.9 ms centrated on investin'6 ts funds in higher yielding assets as i

ar A

26 1i

Table 17 I

feran Financial Corporation and Subsidianes Average Depouts and Borrowinp iDollars in mdlionet 1986 1985 1984

~

%d

% of

% of Amount Total Amount Total Amount Total i

Depositt l

Inierest beanng deposits:

Non1nterest beanns depossui 8 2.347.6 18.5%

8 2.024.8 19.0%

$ 1.843.4 20.8%

i Interest checking 718.0 5.7 565.6 5.3 497.0 5.6 Manev. market accout.m 2.063.4 16.3

!.498.6 14.1 1.101.8 12.5 Regular savmp 922.5 7.3 842.8 7.9 876.0 9.9 l

Consumer cernficates 2.962.4 23.4 2.726.9 25.6 2.392.8 27.1 l

Cendicates of depouts. 8100,000 or nore 1.321.8 10.4 1.095.6 10.3 852.8 9.6 i

Foreign 9.2

.1 54.1

.5 11.5

.1 I

Totalinserem beanns deposits 7.997.3 63.2 6.783.6 63.7 S.731.9 64 8 Total deposiis 10.344.9 81.7 8.808.4 82.7 7.575.3 85.6 I

1 Shonacrm borrowmp:

Federal funds purchased and secunnes sold under agreements to repurchase 1.385.5 10.9 1,110.7 10.4 769.5 8.7 Commercial paper 41.5

.3 35.6

.4 15.1

.2 Diher shon-serm bonowmp 688.6 5.5 543.8 5.1 403.6 46 Totalshon4crm borrowmp 2.115.6 16.7 1.690.1 15.9 1,188.2 13.5 tong.ierm borrannp 208.1 1.6 147.7 1.4 83.3 9

$ 12.668.6 100.0%

$ 10.646.2 100.0 %

$8246.8 100.0%

==

l market rates declined in 1986. Average money market invest-ments increased between 1984 and 1985 since the Company 2

was able to take advantage of favorable spreads between shon-term investments and borrowings in 1985.

^##*

INTEREST BEARING LIABILITIES Average interest bearing liabilities, the primary source of

'"*^-

funds that support earning assets, were up in all three years sio under comparison. As a percentage of total earning assets, interest bearing liabilities have increased slightly each year during this period. Tab!e 17 presents data pertaining to 4

average interest bearing liabilities for 1984 through 1986.

l Deposits Over the past three years, there have been various shifts I

between deposit categories. Today's depositors are more H

cognizant of funds management techniques and are constant-U u

j ly seeking to increase returns on their funds. This custorner l

awareness and the competition among financialinstitutions

)

for deposits has resulted in a higher cost of funds for the l

l Company over the past three years.

o Average total deposits increased 17.4% in 1986 over 1985 j

and 16.3% in 1985 over 1984, well above the 14.2% com-e o.

i pound growth rate over the past five years. In both years.

Ih%

i most categories showed strong growth. During 1986, in an

. $"',, "iP.oss >.o l

r l

27 A

\\

Management's Discussion and Analysis of financial Condition and Residts of Operations l

l (Continued) l l

effort to expand its deposit base and to continue to attract new custoraers, the Company developed a new service pro.

Table 18 viding for customers to place deposits in out of state 8"*" f**""'I C"Puniten and Sub.dann automated teller machines.

b'""",8 f 8unh" O M83C n

8" Posit $16 w Mon I

OtherInterest Bearingliabilities oecemw 31.1986 Average borrowed funds were up 26.4% in 1986 compared 3 months or le.s 8 597.7 with 1985 and up 44.5% in 1983 over 1984. Favorable short-on,3 monihe through 6 mondu 237.7 term rates during 1986 resulted in an increase in short-term 0*' 6 =aom ihragh 12 mona.

228.5 l

"r 12 inond.

mr borrowings as a funding source. The average volumes of federal

{

Tus funds purchased and epurities sold under resale agreements, St.4 n 6 as well as other shortene borruwings rose significandy in

= o s.r ri. i986. an ae, m in so sic

.< sioo.ooo.r. e.

]

1986 over 1985. Aven ge kng-term borrowings in 1986 were i

affected by the issuanc of $125 million 9.25% notes and stock. In addition, approximately.9 million shares were the maturity of $30 million 8.875% notes. Affecting the issued ia connection with dividend reinvestment and em-increase in 1985 over 1984 was the issuance in Jaauary 1985 of $75 million floating rate notes ployee bene 6t plans Another factor affecting the increase l

in shareholders' equity was the retention ofincome after SHAREHOLDERS' EQUITY, the payment of dividends.

The 11.5% growt in aver ge shareholders' equity in 1986 Reported cash dhidends per share represent the historical

)

h was slightly below th; Sve ysar compound gmwth rate of cash dividends on the common stock of Sovran Financial i

13.9%. During 1986, the gmwth in average shareholders, Corposon. At December 31,1986 Sovrans annualized

']

equity was slowed by the repurchase of the Company's dhidend per common share was $1.36. Dividends declared share's. Upon consummation of the DCNB merger, the Com.Per common share m 1986 were up 10.0% over 1985,

{

pany issued approximately 1.9 million shares of common f 11 wm, g an m, erease of 13.2% m 1985 over 1984. Table 1 Tsble 19 l

Sowan Financial Corporation and Subsuhance 1

Summary of ShoriTerm Borrowms.

(Dollars in millions) i i

1986 1985 1984 l

Ammw Rate Amount Rate Amount Rate l

At year end:

I Federal funds purchased 8 396.1 9.19%

$ 744.2 10.74 %

$ 751.1 9.00%

Secunues sold under 86reements a repurchase 632.7 11.38 690.3 7.70 635.5 9.56 Mamer a 323.1 10.00 251.2 7.80 219.9 8.03 Commercial paper 85.3 7.04 39.8 7.82 17.1 8.16 Other 502.4 7.67 412.2 7.82 217.1 8.49 Total g

9.55 g

8.52

,$ ]

9.02 Average for the year:

(

Federal funds purchased 8 759.0 6.80

$ 731.3 8.23 8 470.7 10.34 Secunun sold under agreemenn e npurchase 626.5 6.44 378.9 7.84 298?J 9.81 Mamer notes 288.9 5.88 227.8 6.97 179.7 9.45 Commercul paner 41.5 6.73 35.6 8.27 15.1 9.74 j

other 399.7 6.99 316.0 8.17 223.9 10.36 I

beal

$2.115.6 6.60%

$ 1.690.1 7.9%

10.08%

5 Maximum momh end balance:

Federst funds purchased

$1,058.3 8 744.2 8 751.1 Secunra sold under afreemenn so repurchase 719.7 778.8 635.5 l

Master noire 356.3 259.6 226.8 Commercal paper 83.3

'I.1 19.0 other 502.5 412.2 298.0 Totaj 2.403.4 1.690.1 1,840.7 28 j. i

1 I.

l l'

?

l I

Table 20 Sovran rmancial Corporanon and Subsidianes Selected Shmbolders' Equity Data (Dollan in mdlions, except per shm data)

Year Ended December 31.

1986 1985 1984 1983 1982 Shareholders' equay at year end 8 864.3 8763.1 8695.0 8579.1 8506.5 Shmholders' equiry and long term borrowings at year end 1,119.4 919.7 776.6 664 4 621.1 ilook value per common shm 20.43 18.31 16.59 14.91 13 56 Capaal growth rarei 13.26%

9.80%

20.02 %

14.34 %

12.14 %

Dmdenda decled as a percent of net income 36.10 33.89 33.86 36.62 35.33 Year end shmholders' equay as a percent of year end:

f 5.78 5.85 6.18 5.91 5.73 Assets Imana net of unearned income 8.72 8.92 9.80 10.09 10.25 l

7.44 7.85 8.28 7.59 7.21 I

Depoes Shar holders' equity and long. term borrowings 77.21 82.98 89.49 87.16 81.54 Internal capital generauon:

j Return on average assets 1.08%

1.07%

1.11%

0.99%

0.97%

Muluphed by Average asses to everage total equity 16.81X 15.84X 15.39X 16.57X 16 42X Return on average total equity 18.10%

16.94 %

17.10%

16.49%

15.95 %

Muluphed by Earrungs reuuneds 63.90 %

66.11 %

66.14%

63.38 %

64.67%

Internal capnal generation rese 11.57%

11.20%

11.31%

g%

g%

~' increase e shareholders' egiar, divuled h begmmns shareholders' equay.

i 8100% aunus divulend psyout rana on page 13 provides dividend information for each of the six Refer to Note J on page 42 for information regarding the years ended December 31,1981 through 1986.

Company's commitments and contingencies.

The common stock of Sovran Financial Corporation is traded During 1986, the Company began construction of an office in the over the-counter market and is quoted on the National building to be added to its headquarters complex in Norfolk.

Association of Securities Dealers Automated Quotation Completion of the building is expected in early 1989, at a l

System (NASDAQ) under the symbol S0VN. On January 31,1987, l

there were 30,174 holders of the Company's common stock.

i capa. lstructure l

a Table 21 on page 30 presents quarterly common stock data for t

the years ended December 31,1985 and 1986. The Company's gi.oso aru.,

Series A $2.37 cumulative convertible preferred stock is j

quoted on NASDAQ under the symbol SOVNP. During both f..

1985 and 1986, the Company declared regular quarterly dividends of 8.5925 per share on its preferred stock, s

Federal regulatory agencies impose certain restrictions on

{

the payment of dhidends, extensions of credit and transfer of yggp i

cally, these restrictions have had no impact on Sovran's divi-

' -,.i y h A h assets from subsidiaries to bank holding companies. Histori-

"4 ms dend policy and it is anticipated that they will not have any

,33, impact in the future. For additional information on these re-strictions, see Note N on page 45.

• 5 In addition to dividend restrictions, capital requirements I

are also affected by off. balance sheet risk. This includes such j

items as standby and other letters of credit, commitments to o

8 a

83 "a

a extend credit, and various interest rate futures and hedges.

a w.s. t, e A.emar tons esi tMs 29 l

1

a e51 Management's Discussion and Analvsis of Financial Condition and Results of Operations

{

IContmued)

{

l l

Table 21 Sovran financial Corporauon and Subsidianes Quarterly Common Stock Data 1986 1985 4th 3rd 2nd let 4th 3rd 2nd 12:

Quarter Quarier Quarter Quarter Quarter Quarter Quarter Quarter Per share:

Cash dividends declared' 8.34 8.34 8.32 5.32 8.32 8.32 8 28 8.28 Book salue 20.43 19.84 19.45 19.38 18.31 18.04 17.59 17.03 hrket pnce:'

High 36.75 42.63 44.50 36.25 32.88 31.25 31.38 28.25 tow 32.65 33.00 34.75 32.25 23.88 23.38 26.38 25.38 Penod+nd 33.75 35.38 41.88 34.75 32.25 23.63 29.63 26.13 Shares outstandmg 10001:

Penod.end 42.192 42.147 42.277 42.962 41.482 41.847 27.940 27.824 kghted average 42.365 42.382 43.155 41.875 41.838 42.001 42.1 %

41.993 Tradms volume t0007 5.783 5.227 7.516 5.984 5.499 2.765 2.531 2.099 Shareholders 30.220 31,683 31.715 30.084 29.856 28.856 29.646 30.723 Market capiiahzanon tmil)'

$ 1.424 81,491

$ 1.771

$ 1.493 8829

$612 8769 8674 P/E Muluplei 9.70X 10.95X 13.30%

11.36%

9.21X 6.95X 9 0lX 8 09%

hrket / Book' 165.20%

178.33 % 215.32%

179.31%

150.35 %

111.04 %

143.77%

130.45 %

' Represems 5ovran Fmannal Corporanon's 1985 hmoncal data. For penods pnor to Auguai 23.1985, dain has been adjusted for the ihree.for.rwo siock sphi, in the form of a 50% stock dmdend, e n,p,enenis bran Fmannel Corporaimn's hmonral dais.

cost of approximately $28 million. In addition, the Company excellent primary and total capital ratios of 6.99% and purchased 170 acres ofland in Henrico County, Virginia for 7.97%. respectively, at December 31,1986. Both of these the development of an operations center complex.

ratios are well above the the Federal Reserve's required Capu. Nguacy minimum ratios of 5.5% for primarv capital and 6.0% for a

total capital. Note issuances in both 1986 and 1985 affected During the past five years, Sovran has experienced sub-the capital ratios, with the 1986 issuance of $125 million stantial growth while maintaining its strong, sound capital qualifying as secondarv capital and the 1985 issuance of 875 position. This capital strength is evidenced by the Company's million qualifying as primary capital.

Table 22 Sovran Fmancial Corporanon and Subsidianes Capital Adequacy (Dollars m mi?mnen December 31.

1986 1985 1984 1983 1982 1981 Pnmary Capital; hal shareholders' equity 8 864.3 8763.1 8695.0 8579.1 8506 5 8451.6 Allowance for loan losses 1I 3.5 97.8 79.0 65.6 59.9 53.0 Equiry commitment notes 75.0 75.0 Pnmary capital g

Q9 g

g 4

g Total Capital:

Pnmarv capital

$ 1.052.8 89357

$7740 8644.7

$566.4 8504.6 Allowable long.ierm debt 148.1 56.0 57.0 57.9

.4 80.5 Total capital 81.200.9 89919

$831.0 8702.6 864 som:,3.8 8585.

m:::::sm 1

==

ma Capital adequaev:

Pnmary 6.99%

7.12%

6.84 %

6.53 %

6.36%

6.73 %

Total 7.97 7.55 7.34 7.12 7.23 7.81 30

Table 23 Sovran financial Corporsuon and Subsidianes Interem 5cnsiemry Analyus December 31.1986 iDollars m mdlionsi Months Over Over or.c three Over sia Othm through ihmugh thmugh Total

%n.

one thice sin twelve One Year Sensiute Total Earmng Amets:

loans 8 4.705 8570

$500 8 752 86.521 8 3.384 8 9.911 Investment secunben 77 34 69 139 319 1.826 2.145 Money. market mvestments 997 y

79 1.176 1.176 Total earmns asseis 5.779 y

648 891 8.022 5.210 13.232 treerem Beanng L.iabibues:

Deposits 3.126 720 936 641 5.423 3.232 8.655 Shortaerm borrowings 1.773 78 81 6

1.938 2

1.940 tong <erm borrowmgn 255 255 Total interem beanng liabilities 4.899 798 1.017 647 7.361 3.489 1u.850 Net Namnterem Beanng Liabihtics:

Demand deposit accounts net of tash 1.791 1.791 Other 591 591 Toud net nonmterem beanns habibues 2.382 2.382 Interest Sensmvity Cap 8 880 8194l 81369)

$ 244 8 661 8 6661) 8 Cumulauve Gap 8 880 8786 8 417 8 661 8 661 8 -

{

Ratm of interes sensitive assets to mteren sensmve habihties 1.18X

,.88X

.64X 1.38X 1.o9X c===s

==

=:===s LIQUIDITY INTEREST SENSITIVITY Liquidity is the ability to satisfy demands for extensions of Interest sensitivity management allows for the maximization credit, deposit withdrawals or other corporate needs. Liquidi-of net interest income by managing interest rate risk. through ty is generally provided from investments, loan repayments, planning and controlling the mix and maturities of assets and deposits and the Company's ability to obtain funds at a h' abilities. The Company monitors its interest sensitivity reasonable price. The Company's liquidity position is moni-position over varying time intervals, while assessing changes tored by the asset / liability committee under guidelines in external factors which might affect the targeted mix and established by management.

maturities of assets and liabilities. The Company may use a Net purchased funds, the relationship of core deposit gmwth variety of techniques to achieve its desired interest sensitivity i

to average asset gmwth, total average loans to total average position, such as the purchase and sale of securities and the assets, and a company's ability to obtain funds at a reason-establishment of appropriate rates on consumer deposits.

I able cost are all measures of a financialinstitution's liquidity Within prescribed limits, the Company also may use financial j

position. Since 1984, Sovran has increasingly used short-instruments such as interest rate swaps and financial futures term borrowed funds as a funding source. The use of these to control its interest sensitivity position.

i funds has enabled the Company to take advantage of rate Table 23 presents an interest sensitivity analysis as of spreads when they have existed. In 1986, average net pur-December 31,1986. The analysis displays a static view of the chased funds to average assets was 19.47%, compared with interest sensitivity position. As such, the analysis does not 17.22% in 1985 and 13.85% in 1984.

take into consideration external factors which reight affect the 31 W -__-_ - _

E a

Management's Discussion and Analysis of Financial Condition and Results of Operations tcontinued) sensitivity of assets and liabilities, nor does it consider the from those of companies that have si nificant investments in 6

limited effect of financialinstruments, such as interest rate fixed assets or inventories. Management believes that the most swaps or fmancial futures. Therefore, the analysis should be significant impact on its financial results is the Company's used in conjunction with the other financial data found in ability to react to changes in interest rates rather than changes this report.

in the generallevel of prices.

IMPACT 0F INFLC10N AND CHANCING PRICES QUARTERLY DATA The majority of the assets and liaisilities of a financialin.

Table 24 presents quanerly results of operations of the stitution are monetary in nature and therefore differ greatly Company for the years ended December 31,1985 and 1986.

Table 24 Sovran Financial Corpornton and Subsidanes Quarterly income Statement Data (in thousands. acept per share data) 1986 1985 Three Months Ended nice Months Ended March June Sept.

Dec.

March June Sept.

Dec.

31 30 30 31 31 30 30 31 Inwres income 8310,591 $315.331 $312,395 8309,240 8 276.529 8 288 848 8 294.856 8 302.845 Interest expene 185.827 183.370 100.691 174.614 169.991 173.250 175.664 179.641 Ne imerem income 124,764 131, % I 131,704 134,626 106.538 115.598 119.192 123.204 Provuwn for loan losses 9.569 10.908 13.103 14.050 8.474 9.653 8.363 13.6 %

Net interem income after pronsion for loan losses 115,195 121,053 118,601 120,576 98.064 105.945 110.829 109.508 Norunterem meome excluding secunties gauw and Gosses) 54,629 57,735 57.710 68.836 48.199 51.143 50.526 59.326 Secunnes gams and Oosses) 1,158 2,763 2,957 1,408 1.042 2.373 246 (7)

Norunerem expense 130.246 140.532 139.007 143.553 112.876 118.651 119.517 137.336 Income before income taxes 40,736 41,019 40.261 47.267 34.429 40.810 42.084 31.49)

Applicable income taxes 6.410 4.164 2.%7 7.786 5.049 8.292 8.659 2.638 Net income 8 34.326 8 36.855 8 37.294 8 39.481 8 29.380 8 32.518 8 33.425 8 28,853 Net income per share 8.82 8.85 8.88 8.93 8.70 8.76 8.80 8.68 e

32

i P CONS 0lidated Balance Sheet 1

Sovran Financial Corporation and Subsidiaries l

(Dollars in thousanda, exept per share data)

December 31, 1986 1985 1984 Cash and due from banks-Note J

$ 1,164,624 8 926,986 8 810,267 Assets Money, market investments:

federal funds sold and securities purchased I

under agreements to resell 715,007 422,548 485,523 j

i Due from banks-interest bearing 336,418 473,064 575,110 Trading account securities 32,465 23,153 20,716 Other 91,861 107,754 50,206 Total money. market investments 1,175,751 1,026,519 1,131,555 Investment securities (market value: 1986-82,228,978:

f 1985-82,066,641: 1984-81,652,232)-Note C 2,145,498 2,053,622 1,697,425 j

loans (net of unearned income of: 1986-8281,046:

1985-8311,908; 1984-8284,753)-Note D 9,911,032 8.558,748 7,091,816

.l Allowance for loan losses-Note E (113,512)

(97,784)

(79,053)

Net loans 9,797,520 8,460,964 7,012,763

{

Premises and equipment-Note F 295,477 270,753 249,038 J

Due imm customers on acceptances 40,733 29,581 25,959 l

Other assets 332,553 272,938 310.341 1

Total Assets

$ 14,952,156 813.041,363 811,237,348 I

I Liabilities Deposits:

4 Noninterest bearing

$ 2,955,233 $ 2,320,805 4 2,111,057 Interest bearing 8,655,366 7,395,526 6,279,500 Total deposits-Note G 11,610,599 9,716,331 8,390,557 Short-term borrowinp:

Federal funds purchased and securities sold under agreements to repurchase 1,028,798 1,434,514 1,386,547 Other short-term borrowinp 910,823 703,178 454,172 l

Total short-term bonowinp-Note H 1,939,621 2,137,692 1,840,719 Iong term borrowinp-Note 1 255,087 156,565 81,639 Acceptances outstanding 40,733 29,581 25,959 Other liabilities 241,781 238,069 203.483 I

Total Liabilities 14.087,821 12,278,238 10,542,357 Shanimiden' Equity Commitments and corsi,-M.-Notes I and j Shareholders' equity-Notes I, K, M and N Pnferred stock-par value $25.00 per share (Net of discount of: 1986-8976: 1985-81,594:

1984-82.201) 2,277 3,718 5,134 l

Common stock-par value 85.00 per share 210,960 210,484 138,656 l

Surplus 24,840 4,876 71,582 Retained earmngs 626,258 561,711 479,619 Treasury stock (17,664)

TotalShareholders' Equiry 864,335 763,125 694,991 Total Liabilities and Shareholders' Equity

$ 14,952,156 813,041,363 811,237,348 Preferred stock-Series A $2.37 cumulative convertible Shams authorized 5,000,000 5,000,000 5,000,000 Shares issued 130,110 212,493 293,402 Common stock Shares authorized 100,000,000 100,000,000 50,000,000 Shams issued 42,191,929 42,096,824 27,731,350 Shares outstanding 42,191,929 41,482,228 27,731,350 See accompanytn6 nmes to fmannal statements.

33

^

Consolidated Statement ofIncome Sovran Financial Corporation and Subsidianes i

(Dollars in thousands, except per share data)

Year Ended December 31, 1986 1985 1984 i

Interest income loans, including fees

$ 1,018,047 8 926,903 8 805,183 l

Investment securities:

']i Taxable 91,605 104,198 102,408 Tax exempt 81,370 56.393 52,612 ll Totalinvestment securities 172,975 160,591 155,020

.l Money-mnket investments:

Federal funds sold and securities l

purchased under speements to resell 20,205 24,115 34,533 f

Due from banks-interest bearing 23,298 41,244 38,818 a

Trading account securities 839 998 971 l

other 12,193 9,227 3.647 Total money-market investments 56,535 75.584 77.969

)

Total Interest Income 1,247,557 1,163,078 1,038,172 1

l Intemt Expense Deposits-Note G 564,338 549,448 509,803 Short-term borrowinp:

Federal funds purchased and securities sold under agreements to repurchase 91,921 89,946 77,979 Other short-term borrowing 47,748 44.652 41.801 Total short-term borrowing 139,669 134,598 119,780

' )

long term burrowing 20,495 14,500 6,616 Total lnterest Expense 724,502 698,546 636,199 Net latemt income Net Interest Income 523,055 464,532 401,973 Provision for loan losses-Note E 47,630 40,186 26.678 Net interest Income After Provision g

for lean losses 475,425 424,346 375,295 Nonintemt income Trust income 32,897 28,812 26,555 i

Service charges on deposit accounts 57,407 49,540 41,003 l

Service charges, fees, and other income 141,710 125,031 107,868

{

Trading account profits and commissions 6,896 5,811 2,599 Securities gains and (losses) 8,286 3,654 407 TotalNoninterest Income 247.196 212,848 178.432 Noninscrest Expenne Salaries end employee benefits-Note K 297,411 259,114 231,506 Net occupancy expense 33,% 7 29,452 26,737 Furniture and equipment expense 58,248 50,347 45,313 other 164,612 149,467 126,468 Total Noninterest Expense

' 553,338 488,380 430,024 Net locome Income Before Income Taxes 169,283 148,814 123,703 Applicable income taxes-Note L 21,327 24,638 16,200 Net laceme

$ 147,956 8 124,176 i 107,503 Net income Pee Share-Note M

$3.48 82,94

$2.67 1

$ce accompanymg notre b financaal statements.

34

i I,

Consolidated Statement of Changes in Financial Position l

Sovran Financial Corporation and Subsidiaries (Do[ars in thousands)

Year Ended December 31, 1986 1985 1984 funds Provided Operations (Applied)

Net income

$ 147,956 8 124,176 8 107,503 Non. cash charges:

Provision for loan loues 47,630 40,186 26.678 Depreciation and amortization, deferred taxes and other 61,193 46,092 39,903 loans charged off net of recoveries (35,716)

(21,455)

(13,301)

Cash dividends declared (53,409)

(42,084)

(36.399) 167,654 146,915 124,384 Deposits and Other financing Activities:

Liabilities acquired through acquisition 427,644 Noninterest bearing deposits 539,703 209,748 167,770 l

Interest bearing deposits 929,574 1,116.026 589.312 Short-term borrowings (200,724) 296,973 547,065 Iong term borrowings 98,522 74,926 (3,652)

Purchased and acquired common stock (87,521)

Purchased and acquired treasury stock (33,953)

(11,802)

Issuance of common stock for DCNB 69,030 Other issuances of common stock 25,263 20,107 56.620 Cash in lieu of fractional eares (109)

(112) 1,801,382 1,683,715 1,345,313 Other Activities:

Other, net acquired through acquisition (44,037)

Cash and due from banks (200,861)

(116,719)

(28,999)

Premises and equipment, net (62,182)

(54,948)

(46.059)

Other, net (64,857) 59,488 (24.593)

(371,937)

(112,179) 199.651)

Total Funds Provided (Applied)

$ 1,597,099 81,718,451 8 1.370,046

%ds Applied Changein Earning Aucts:

.evided)

Earning assets acquired through acquisition 8 413,946 8

8 Money market investments 133,232 (105,028) 11.583 Investment securities 18,773 357,482 5,739 loans net of unearned income 1,031,148 1,465.997 1,352.724 TotalFunds Applied (Provided)

$ 1,597,099 8 1,718.451 81,370,046 See nampannns notes to fmancel aemenn.

ad A

t t-Consolidated Statement of Changes in Shareholders' Equity 50vran Financial Corporation and Subsidiaries (Dolle in thmmands, except per she dais Preferred Stock Common stock Retained Tnasury Sinck Shares Amount 5 hares Amount Surplus Earninals

$ bares Cous Total FOR THE YEAR ENDED DECEMBER 31.1984:

Balance at bepnning of year 304.002

$5.320 25.855.027 8 129.2".5 8 42.156 8 408.515 (192.507) 8 46.1971 8 579.069 Net income 107.503 107.503 Dnidends declared on:

Common mock-81.06 per share (35.685)

(35.685)

Preferred stock-82.37 per sha (714)

(714t Treasury mock:

(

Purchased (317.000)

(10.825)

(10.825:

l Acquired through stock option exercise (29,384)

(977) 19771 Shares moued pursuant to dmdend reinvemment, stock purchase, employee ihnft, and stock opimn plans 741.648 3.708 15.608 537.988 17.965 37.281 Shares inued upon conversmn of comeruble preferred stock (10.600) 1186) 13.042 65 87 903 34 Shares inued pursuant to sale of stock be an acquaed bank 1.121.633 5.608 13.731 19.339 a

Balance as and of year 293.402 85.134 27.731.350

$ 138.656 8 71.5 8 479.619 8

- 8 694.94I

. _82

-=

FOR THE YEAR ENDED DECEMBER 31.1985:

Balance at bapnning of year 293.402 85.134 27.731.350 8 138.656 8 71.582 8 479.619

- 8

- 8 694.991 Net income 124.176 124.176 Dwidends decimJ on:

Common mock-S t.20 per she (41.4231 141.423:

Pref rred mock-82.37 per share (661) 1661)

Treasurv stock:

Purchased 1961.181)

(32.001) i32.00li Acquired through stock opten excreme l48.630) t 1.95b i1.952i 5 hares issued pursuant to dmdend remvestment, stock purchase, emplovce ihnft. and mock opean plans 311.546 1.558 5.141 379.469 13.408 20.107 Shms usued upon conversmn of convertible preferred stock q80.909)

(1.4161 61.983 310 (1,7751 93.940 2.881 Isauance of common stock to effect 3-for 2 mock spbt 13.991.945 69.960 (70.072) 178.194) i12)

Balance at end of wear 212.493 83.718 42.096.824 8 210.484 8 4.876 8 561.711 i614.5 %) 8 t17.6641 8 763.125 x

~,,

FOR THE YEAR ENDED j

DECEMBER 31.1986:

l Balance as begmning of year 212,493 83.718 42.096.824 8210,484 8 4,876 $561,711 (614.596) 8(17,664p 8763.125 Reclanificatwn. pursuant to a change in %rpma law of shares held on Januarv 1.1986 1614,596)

(3,073)

(14.591) 614,596 17.664 Transfer of retamed earnmp to surplus 30,000 (30,000)

Net income 147,956 147.956 Dmdends declared on:

i Common stock-81.32 per ihm 453,015)

(53.0156 Preferred stock-82.37 per shm (394)

(394p i

Shms purchased (2.196,992)

(10,985)

(73.107) iB4.092) i Shares acquired through mock i

opimn cieecue 107.518)

(438)

(2,991)

(3,429) l Shes maued pursuant to dmdend l

I remvestment, mock purchase, emphree l

l thnft and mock opoon plans 904.560 4.524 20,739 25.263 Shares usued upon conversion of eomertible preferred mock (82.383)

(1.441) 162,585 813 628 Shws usued upon acqumnon of DCNB 1,930.098 9.650 59J80 69,030 Cash in heu of fractenal shares (3,032$

(15)

(94) i109)

Balance a end of vear 130.110 82.277 42,191,929 8210.960 824.840 8626.258

- 8 8864.335 munums See accompanying notes to fmancial statements.

36 Ll

I Notes to Financial Statements The Company discontinues the accrual of interest on loans NOTE A-ACCOUNTING POLICIES based on delinquency status, an evaluation of the related

{

~

The accounting and reporting policies of Sovran Financial couatereJ and the financial strength of the borrower. Ioans Corporation and subsidiaries (Sovran or the Company) foUaw other than installment and credit cards are genrrauy placed generally accepted accounting principles and practices within on nonaccrual status when the collectibility of interest is i

the financial ser ices industry. The foUowing is a summary of uncertain. Income recognized on installment and credit card i

the more signi!icant policies.

loans is discontinued and the loans charged off after a delin.

a Principles of Consolidation 9uency Period of 90 and 90 to 120 days, respectively.fhen a

The consolidate ( financial statements include the accounts jnterest a cruals are discontinued, interest credited to mcome l

of Sovran Financial Corporation and its subsidiaries. Princi.

in the current year is reversed and interest accrued in prior pal subsidiaries of the Company include Sovran Bank, N.A.

years a charged to the allowance for loan losses.

and its subsidiaries (Sovran Bankh and Sovran Bank / Mary.

Allowance for loan Losses land and its subsidiaries (Sovran Bank /Marylandh aU of The adequacy of the allowance for loan losses is based which are wholly owned. All significant intercompany balances upon the growth and composition of the loan portfolio the and transactions have been eliminated in consolidat' ion, Company's past loan loss experience, an evaluation of the Money Market Investments I an Ponfolio and the exercise of judgment and assumptions i

Money-market investments, with the exception of trading with respect to economic conditions.

l account securities, are carried at cost, which approximates Premises and Egidpment market. Trading account securities are carried at market.

Premises and equipment are carried at cost,less accumu-Gains or losses resuhing from sales and adjustments to lated depreciation and amortization. For financial reporting I

market are included in noninterest income.

purposes, the Company principally uses the straight line Securities method of depreciation and amortization for buildings, Investment securities are carried at cost, adjusted for amor-furnhure, equipment, and leasehold improvements.

tization of premiums and accretion of discounts. The adjusted CapitaHeases am recorded at the lower of the present value cost of a specific security sold is used to compte gain or loss f muu, mum lease payments at the begmmng of the lease on the sale of that security.

term r the fair market value of the leased property at that Financial Futures and Interest Rate Swape date. The capitallease asset is amortued on the straight hne Financial futures and interest rate swaps are valued at method over the lease term, and the amortization is included market, except for those instruments that function as hedges.

n depreciation expense, Both realized and unrealized gains and losses are meluded in Otlin Assete trading account revenue. Gains and losses related to financial Included,m other assets is real estate held for resale, which futures and the termination of interest rate swaps thet function

.IS Pnncipally acquired through foreclosure and is carried at as hedges are deferred and reflected as an adjustnwnt to in.

the I wer f c st r estimated net realizable value. Any write-terest revenue or expense. Payments made or received under downs at the date of acquisition a:e charged to the allowance interest rate swaps that function as hedges and offsetting in-f r 1 an 1 sses. Expenses incurred in connection with owner-terest raze swaps arranged at the request of customers are ship of the properties, subsequent write-downs, and gains and recognized as received.

losses upon sale are included m other expenses.

Also included in other assets are intangible assets, which I""""

loans are carried at the pn.ncipal amount outstandm.g net include mortgage servicing acquisition costs, deposit in-of unearned income. Interest on loans and amortization of tangibles, and the excess of cost over equity in net assets of unearned income is computed by methods wh;ch generally acquired subsidiaries. Mortgage servicing acquisition costs resuh in level rates of return on pnncipal amounts outstand-are amortized in proportion to the estimated income net of ing.C 1pment leased to others is genera y accounted for related expenses derived from servicing the related mortgage D

usmg the direct financing method for financial reporting loans. Deposit intangibles represent the net present value of purposes.

37

Notes to Financial Statements (Continued) the future income streams related to assets and liabilities transactions with Suburban and followed substanuaDy the acquired through mergers and are amortized on an acceler-same accounting practices.

ated basis over lives ranging generally from 3 to 20 yeam.

For the three months ended March 31,1986, Suburban The excess of cost over equity in net assets of acquired sub-had net interest income and net income of $31.417 million sidiariesis amortized on the straight-line method over periods and $7.631 million, respectively. A reconciliation of net

[.

ranging from 6 to 25 years. The components of net intangible interest income and net income as previously reported and l'

assets are as follows (in millions):

as restated follows (in thousands):

December 31.

Year Ended December 31.

1986 1985 1984 1985 1984 Mortgage semcing acquisition cose

$ 36.0 828.1 824.3 Net Interest income l

Deposn intangibles 22.4 25A 29.1 Sovran 4345.140 8307.451 Escens of com owr eqsuty 45.0 4.5 4.9 Suburban 119.392 94.522

$103.4 g

g Pooled Sovran g

8401.973 Net income lacome Taxes Sa'raa

$ 92.577 8 80.636 Suburban 31.599 26.867 When income and expenses are recognized in different W Sovran

$124.176

$107.5o3 periods for financial reporting purposes than for income tax purposes, deferred taxes are provided in recognition of these On March 10,1986, the Company acqmred D.C. National timing differences.

Investment tax credits generated from leasing activities are BanCorp, lac. (DCNB), a bank holding company with con-recognized on the deferral method. Other investment tax solidated assets of $457 million,in exchange for 1,930,098 shares of the Company's previously reacquired common credits are recognized in the year the asset is acquired.

stock. The total cost of the acquisition was $70.3 million.

The Company files a consolidated federal income tax return. Provmons for current income taxes are allocated to The merger was accounted for as a purchase and, accord-the members of the consolidated group on the basis of the ingly, the resuha of operations of DCNB have been included effect of their respective operations on consolidated mcome.

s nee the des of acquisition. The acquisition of DCNB in-Provisions for deferred income taxes are allocated on the cluded intangible assets of approximately $44 million, which basis of the related timing differences.

will be amortized over their estimated lives of 6 to 25 years.

Reclassifications The following unaudited pro forma information summarizes 1

the effect of the merger on the Company's restated results of Certain previously reported amounts have been reclauified operations, assuming consummation on January 1,1985, and j

to conform to current presentation.

includes the effects of amortization ofintangible assets. These pro forma results are not representative of the actual results N(ITE B-MERGERS AND ACQUISITIONS that would have occurred or may occur in the future if the On March 31,1986, the Co merged with Suburban tranuctons had been in effect a the date indated (in th= sands, I

Bancorp (Suburban), a bank h7 ding company with con-excePt per share data):

solidated assets of $3.150 billion. The Company issued l

15,846,695 shares of common stock in exchange for all of br Ended December 31.

j the outstanding shares of Suburban common stock. The 19e6 1985 I

meger was accounted for as a pooling.of-interests transaction Net irneres income

$519,983

$473.598 I

and, accordingly, all financial data has 14cn restated. The Netmeom.

14s.221 120.637 i

Company did not have any previous material intercompany E*'mnP Per share 3.41 2.86 i

I

\\;

1 I

l s

l l

l N(TTE C-INVESTMENT SECURITIES Investment securities are summarized as foUows (in thousands):

l l

December 31.

l 1986 1985 1984 l

Book Value Market Value

$ok Value Market Value Book Value Market \\alue l

Umsed States Treasury

$ 748,299 8 762,484 8 838.274 8 853.127 8 822.630 8 835.541 Federal asencies 249,550 252.561 64.282 65.412 106.600 105.735 Simes and pohtical subdivisions 1,064.907 1,131.699 1.098.193 1.093.374 740.860 682.992 Other 82.742 82.234 52.873 54.728 27.335 27.964 82.145,498

$ 2.228,978 8 2.053.622 8 2.066.641 8 1.697.425 8 1.652.232 Investment securities with aggregne book values of appmumately law. The carrymg Value of underlying securities which have I

l

$617.0, $519.5, and $474.2 million at December 31,1986, been sold under agreements to repurchase was approximately 1985 and 1984, respectively, were pledged to secure public

$650.5,8712.3 and $632.4 million at December 31,1986, I

l deposits, trust deposits and for other purposes as required by 1985 and 1984, respectively.

1

\\

t N(TTE D-LOANS NET OF UNEARNED INCOME for comparable loans to other customers. These. v..a did not Totalloans net of unearned incom-are summarized as invobe more than normal risk of collectibility. loans to these follows (in thousands):

related parties in excess of $60,000 had outstanding balances of $90.4 million, $77.6 million and $47.7 miDion

{

at December 31,1986,1985 and 1984, respectively. During i

oecember 31.

1986, $250.1 million of new loans were made and repay-

{

1986 1985 1984 l

ments totaled $237.3 million.

4; Domestic:

Commercial

$3.202,417 82.502.677 82.090.655 Real estate-conaruccon 1,n68,642 843.289 626.131 N(TTE E-ALLOWANCE FOR LOAN LOSSES rs ons in 6e hce for loan be are surnmar-3 l

Bank card 651,712 590.970 512.932 ized as follows (in thousands):

Consu r I

lease Gnancmg 247,966 229.352 160.000 Taa. exempt 661.045 649.972 520.751 Total domeone loans 9.882.014 8.529.418 7.062.423 1986 1985 1984 Foreyen 29.018 29.330 29.393

$9.911.032

$8.558.748 87.091.816 be6 anmg

$ 97,784

$79.053

$65.676 The effects on ineome of nonaccrual and restructured 3,gg-non gay m7,

,,7, loans, as well as their outstanding balances were not loans charged of (44.572)

{31.413)

(23.397) inaterial. The Company did not have any material com-Recovenes on loans 8.856 9,958 33 mitments to provide additional funds on such loans at Net charp.o6s (35,716)

(21.455}

ll3.3N December 31,1986.

Exce= of pnmaion o'er am charp.cas 11.914 18.731 13.377 i

loan transactions with directors, executive officers, and 1

Bal'"'* " "I of enod

$113.512 H7.784

$79.o53 P

their associates were made in the normal course of business on substantially the same terms as those prevailing at the time 4

39

Notes to Financial Staternents (Continued)

NOTE F-PREMISES AND EQUIPMENT cancellable and noncancellable operating leases amounted to Premises and equipment include the following (in thousands):

814.0 million in 1986, $13.3 million in 1985 and 816.2 million in 1984.

I December 31.

Most of the operating leases provide that the lessee pay 1986 1985 1984 taxes, maintenance, insurance, and certain other operating land 8 30,962 8 25.672 8 24.678 exPen n ap #, @ m b b d M.

8uildmgs and improvements 207,036 189.054 181.398 The future m rumum lease payments under capitalleases I

f Furnnure and equipment 257.551 219.366 180.855 and noncancellable operating leases with remaining terms l

495,549 434.092 386.931 in excess of one year at December 31,1986, are as follows Issa accumulated depreciation (in thousands):

l and amortuahon 202.640 166.440 141.841 292,909 267.652 245.090 Property under capiialleases 8.037 8.284 11.549 Capital Operaung Total less accumulated amortuaton 5.469 5.183 7.601 Year Leases leases Commuments 2.568 3.101 3.948 1987 81.144 8 14.848 8 15,992 8295.477 8270.753 8249.038 1988 1.006 11.760 12.766 i

~

1989 861 9.035 9.8%

The Company occupies cenain facilities and uses certain 4l

[8g spj 73 equipment under vanous cancellable and noncancellable beer years 1.753 16.201 17.954 lease arrangements. Those leases having contractual at-Toiai mmimum icase payments 5.972 8 65.210 8 71.182 tributes normally associated with purchased property are 4,,,,,,,,,,,,,,,,io,,,,,,

2.085 capitalized and are included in the table above. Rent ex-p,esent value or nei minunum pense Det of sublea&C rental income applicable to both capitallease payments NOTE G--DEPOSTIS Deposits outstanding at December 31,1986,1985 and 1984 and the related interest expense for the years follows (in thousands):

1986 1985 1984 Amount Expense Amount Expense Amount Expense Nonmterest beanng

$ 2,955,233 8 2.320,805 8

8 2,111.057 8

Interest beanng:

Intercat checkmg 917,041 36,721 655.875 29.610 539.163 26.107 Money market accounis 2,301.738 125,448 1.737.350 110.151 1.239.733 97.500 Regular sanngs 1,046,027 50.297 854.981 45.779 833.523 47.221 Consumer cerufrates 2,959,934 248,381 2.876.465 259.384 2.557.968 247.781 Certdicates of deposa. 8100.000 or more 1,409,638 102,853 1.256.572 99.626 1.050.329 90.426 Foreign 20.988 638 14.283 4.890 58.784 768 Total interesi beanns 8.655,366 8564,338 7.395.526 8 549.448 6.279.500 8 509.803

$ 11.610,599 8 9.716.331 8 8.390.557 j

i

%y.

4 -

t i

NME H-SHORT. TERM BORROWINGS The 7.80% unsecured capital notes due October 1,1996, Short-term borrowings are summarized as follows (in were issued by a subsidiary bank and are subordinated to thousands):

deposits and certain other liabilities. They ere redeemable at the bank's option at prices declining from 103.9% to 100% of l

principal. The 9.25% unsecured notes of the Parent Company

]

oceember 31.

due June 15,20% were issued on June 24,1986. Interest j

1986 1985 1984 payab Mady n hne M d DeceM M.

Federal funds purchased 8 396,135 8 744.235 6 751.066 s,,,,,ne. nota und,,

The unsecured floatin6 rate subordinated notes issued m, asreemems so repurchase 632,663 690.279 635.481 January 1985 by the Parent Company require the crea: ion of Term federal funds purchaard 244,135 176.198 113.346 a note fund to qualify the notes as primary capital for bank Master notes 323.096 251.209 219.858 Commercial paper 85.275 39.807 17,157 regulatory purposest however, the note fund vill not secure Demand noies to the the notes and note holders will have no rig'ht thereto. Sovran

. Treasury 25 19 103.

has agreed that it will sell or issue capital in amounts suf-Peu dePoss e h ne knd. hugh sl.939.621 82.137.692 81.840.719 the use of an interest rate swap agreement, the effective 1

nterest cost on the notes was converted to a fixed rate of l

Sovran maintains lines of credit for commercial paper back up and general operating urposes, on which rates approximately 113/4% thmugh January 31,1992.

generally approximate prime le ding rates at the time of Mortgage mdebtedness consisted of notes secured by deeds Itru8t n Premises with carrying values of $20.1 million.

borrowing. Unused lines amounted to approximately 877.8

$20.9 million and $57.7 million in 1986,1985 and 1984, million at December 31,1986. Sovran's financing arrange-ments require maintenance of compensating balances which re8Petively.

were not material at December 31,1986. Withdrawals of The aggregate maturities and sinking fund requirements of j

the compensating balances were not legally restricted.

I ng-term borrowings at December 31,1986 are summarized as follows (in thousands):

NME I-LONG-TERM BORROWLNGS IAng-term borrowings are summarized as follows (in 1987 1988 1989 1990 1991 e

usanM Parent 8 137 8 150 $ 164 8 179 81% $206.889 Other 5.258 5.466 5.659 9.256 2.850 18.883 December 31.

Consobdased 85.395 85.616 85.823 $9.435 83.046 8225.772

~ " " ~ "

1986 1985 1984

" 08

%ies pavable:

1 7.80% capital notes due in connection with its borrowings, the Company has agreed

)

October 1.19%

8 20.311 8 20.311 820.311 due fan $'e'au"1 ord n

~

~

to certain restrictions dealing with, among other things, the i

o r

d o, sale or issuance of capital stock of certain subsidiaries, the r.ary 31.1997 75.000 75.000 priority of liens associated with its indebtedness, and lease 8.875% notes due Augue: 1.1986 30.000 30.000 commitments. It is not anticipated that these restrictions will have any effect on the Company's current operating policies.

l Mortgage indebiedneu long term obbganons under capitallease.-Note F 3.887 4.414 6.016 Other long4erm borrowmp 18.140 13.208 10.887

$255.087 4156.565 881.639 n

41

^

-- - - - =.

1 i

(

Notes to Hnancial Statements (Continued 1'

)

NUTE J-COMMITMENTS AND CONTINGENT executive retirement plans covering two separate groups G LIABILITIES officers. These non-qualified plans provide certain office a with In the normal course of business, there are outstanding various defined pension benefits in excess oflimits imposed by a eral commitments and contingent liabilities, such as guarantees, tax law. Addinonally, the Company sponsors an unfun ed sur.

commitments to extend credit and interest rate swap transactions.

viving spouses plan that provides benefits to certain retiret s.

Generally accepted accounting principles recognize these These plans are referred to as the Unfunded P!sns.

transactions as contingent liabilities and, accordingly, they are in 1986, the Company adopted FASB Statement No. 87 l

not n flected in the consolidated financial statements. Management

" Employers' Accounting for Pensions" (FASB 87), which is I

conducts regular reviews of these financialinstruments and does applicable to the Plan and the Unfunded Plans. The effect of not anticipate any material losses as a result of its current this accounting change was to reduce 1986 net periodic pension l

outstanding. A summary of these commitments and contingent cost by approximately $2.2 million. Pension expense for 1985 liabilities at the date indicated follows (in thousands):

and 1984 has not been retroactively restated. Plan changes effective January 1,1986, resulted in an increase in expense Dwember 31.1986 f approximately 81.6 million. During 1986, the Company also

-l offered an early retirement program to certain senior officers.

S '"dj,,l'",,'"g,'di d " " "" " * " ' " ' ' * " " "

8 ' yj As a result of the early retirement program, the Company y

l 2

Compliments so extend creda 2.068,744 incurred a one time charge to net periodic pension cost of Commitments so purchase and sell approximately $2.2 million.

'""5" naanse 38.ss6 A summary of the components of 1986 net periodic pension ss.114.33s cost for the Plan and the Unfunded Plans, including the 1986 woonal woe ainieren rue.=p.

s as2. ass special charge, and pension expense for 1985 and 1984 follows (in thousands):

In connection with its mortgage bankmg adivities, the Company uses a variety ofinterest rate risk management techniques.

1986 1985 1984 including put and call options, and purchase and sale commit-semce co : for benefita earned s 4.443 ments. The Company a net positions to purchase or sell mortgag~

inierem com on proycied benern obliganon 10.s20 related assets are recorded at market value. Resulting unrealized Mual amrn on plan anacia (24.315) losses, if any, are included in income.

anu>nuan n and ddmal 13.746 nma e a s 4.694 sap sa w Restrictions on Cash and Due From Bank Accounts Sovran's subsidiary banks maintain reserve balances as Assumptions used in accounting for the Plan and the Unfunded required by the Federal Reserve Bank. Average required resenes Plans in 1986 as of December 31, were:

during 1986 were $324.8 million of which $158.7 million was satisfied by vault cash.

Weigheed sverage dacouni rues 7.75 %

Pending Litigation nan aincrea e in compen.aoon i,,ei.

5.73 Sovran is a defendant in various lawsuits generally incidental to Especied longaerm rue of return on annem 9.00 its business. Management is of the opinion that Sovran's finan.

The following table sets forth the funded status of the Plan clal position will not be materially affeCfPd by the uItimate resolu-and amounts recognized in the consolidated balance sheet at tion oflitigation pending or threatened at December 31,1986.

December 31,(in thousands):

NUTE K-EMPLOYEE BENEFIT PLANS i,86 39g3 Pension Plans

,,,,,,,,,,,, g g %

The Company has a noncontributory defined benefit pension w.umuised benen obbgnmn plan (the Plan) covering substantially all employees who qualify

(=cludmg venied amoun= of s112.982 as to age and length of service. The Plan has assumed the p$'",djsy,3 3,,,n fpg sg jg 8 g2l in i i

9 pension obligations of predecessor plans in connection with r!an assem a fair value 156.931 140.51I i

various mergers. Benefits under the Plan are based on the em.

etan a eein oc.,apso i,.692 29.280 ployee's years of service, age at retirement, and pensionable Unacesn=ed na laa 7.632 Pno com no recognued in nei earnings during employment. The Company's funding policy is to contribute annually the maximum amount that can be Unacogmaed na n.a a adopimo ame 87 deducted for federalincome tax purposes.

• • al amart==non 111.7ss>

a2.ssa The Company also sponsors two unfunded supplemental Nei Penen anna s 15.796 8 16.693 42 A

l

II e

c The net pension asset of $15.8 million consists of prepaid The plans allowed employees, after one to three years of ser.

pension costs of $16.7 million less accrued pension costs of vice, to make periodic contributions of up to certain percentages l

8.9 million which are included in other amets and other liabilities, of defined compensation. The Company matched all or part of respectively. At December 31,1986, approximately 24% of the these contributions and made additional contributions for the plan assets were invested in pooled funds,23% in equity benefit of participating employees, based upon income of the securities,22% in corporate debt obligations,19% in government Company. Effective January 1,1987, the combined plan's and agency obligations, and 12% in money. market investments.

eligibility requirements of three years, matching limitations Aggregated accumulated plan benefit information and plan of 6%, and other features were conformed.

net assets of the predecessor plans at the actuarial valuation The Company also sponsors a related defined contribution dates of January 1, and July 1, were (in thousands):

plan. Certain employees of an acquired subsidiary participate in separate defined contribution plans. The effect of these other defined contribution plans is not material.

1985 1984 Actuanal rewn value of l

accumubed plan benefits:

The Company sponsors a Stock Option Plan, which also Vested 8 82.453 8 72.810 grants stock appreciation rights (SARs) to qualified officers.

• • ""med 5.838 8.39 The Stock Option Plan also admimsters various stock options s 88.291 s 81.20i and SARs granted under various inactive plans of predeces.

Net assets available for benefim 8112.923

$101914 sor organizations.

The Stock Option Plan provides that incentive or non-qualified The assumed rates of return used in determmmg the actuarial Pti n8 t Purchase shares of the Company a common stock Present value of accumulated Ian benefits in 1985 and 1984 and SARs may be granted to key officers and employees. All for the predecessor plans were 7%% to 9%, and the projected options and SARs are granted at market value at date of grant unit credit and entry age.normalcost funding methods were used.

and are exercisable over periods of two to ten years. SARs The aggre6 ate projected benefit obligation of the Unfunded entitle the holder to receive payment equal to the increase in Plans was roxunately $12.3 million at December 31,1986.

the market value of the Company's common stock from the date

.Approxim 85.8 million of the obligation, which primarily of grant to the date of the exercise. SARs may be granted only represents th adjusted unrecogruzed net obligation at adoption in tandem with options, and once options are granted, SARs in 7

i of FASB 84, is subject to later amortization. The remammg tandem may be added at any time through expiration. SARs 86.5 million is meluded m other liabilities.

issued under the Stock Option Plan may be paid in cash or the Thrift Plans Company's common stock, at the election of the holder. Certain The Company sponsored two contributory thrift plans that were SARs issued under an inactive plan of a predecessor organization combined on December 31,1986. The plans allowed substantially may be exercised only in the occurrence of specified events.

all employees to participate after sarMaction of the service The remaining options outstanding under inactive plans have recnirements of each plan. The Company's thrift plan expense substantially identical terms to those of the Stock Option Plan.

was $12.0 million, $11.3 million and $10.6 million in 1986, The followins is a summary of the transactions in the Stock 1985 and 1984, respectively.

Option Plan, including those of inactive stock option plans:

Shares Under Seck Opuen Plan Range of Exerene Price.

Year Ended December 31.

High tm 1986 1985 1984 l

Outstandmg at begmnmg of year 990,839 1.166.122 1.278.454 Add ideducil:

Granted

$39.75

$32.88 153,722 211.210 94.613 CanceDed. expired. or expued due e cierene of relmed mock apprectanon nghis 32.88 10.47 (205,904) t63.551) 0 5.887)

Escremed 32.88 6.58 (397,722)

(322.972) 0 90.715)

Exeremed bue nos issued (343)

Outmandmg a end of year 39.75 7.04 540.935 990.839 1.166.122 Awrige price per share:

l Excremed dunna the year

$17.60 813.81 811.13 I

Oumaandmg a end of year 24.60 17.87 15.47 Optens eurenablei 295,049 479.100 362.031 Shar.e svadable for future Frants' 389.667

$24.4o2 620.655

' Das does nas include inmunis under macave plans of predecessor organuanons At Dramber 31, SARs had been issued in tandem with 428,309 outstandmg opoons in 1986; 500,738 in 1985; and 538,652 in 1984.

43

l i

Notes to Financial Statements (Continued) i i

l i

l f

The following is a summary of non-tandem SARs transac.

Other Poetretirernent Benefits tions ofinactive plans:

The Company provides'certain health care and life insurance l

benefits to active and retired employees. Substantially all of NonTandem Stock Appreciation Rights the Company's employees may become eligible for the retired aanse a employees health care and life insurance benefits if they reach Emerene Pnces Year Ended December 31, normal retirement age while working for the Company. Life Ngh tow 1986 1985 1984 insurance benefits are provided through an insurance policy

{

outmandm,.

maintained by the Company. The cost of providing this benefit bernnmg of year 87,045 154.491 283.571 was recognized by expensing the insurance premiums which Add peduco:

E".$d or expred

~

~

~

approximated $1.1 million in both 1986 and 1985, and 8.857 million in 1984. The cost of providing life insurance for Eneremed 817.% $9.67 (43.241) 167.4466 (129.0801 the 1.020; 971; and 974 participating retirees in 1986,1985 Outstandmg m end and 1984, respectively,is not separable from the cost of providing I

d

1736 to?,43;804 87;045 ),5g4.9 this benefit for the 10,494; 9.930; and 9,662 participating active Y

Average share:

employees. The Company is selfinsured for its heahh care h ar

$14.05 814.46 813.44 benefits except for that portion covered by health maintenance i

Outstandmg e end orgaruzations. The cost ofproviding this beaefit is recognized by of year 15.12 14.59 14.53 expensing claims and administrative costs as incurred. Such costs SARs cieresable 43.804 87,045 154.491 approximated $ 13.7, $10.9 and $10.0 million in 1986,1985 As of December 31,1986, there were 182,422 SARs and 1984, respectively. The cost ofproviding health care benefits i

for 978: 923; and 825 participating retirees in 1986,1985 and l

exercisable under which payment could be made m, the.

1984, respectively, is not separable from the cost of providing Company a common stock. These options and SARs expire benefits for the 8,699; 7.885; and 7,540 participating active

{

on vanous dates through January 1996. SARs expense employees. The costs given above for providing both life insurance was $1.0, $4.6 and $1.6 million for the years ended and health care benefits are before any allocation of con-December 31,1986,1985 and 1984, respectively.

tributions or salary redistributions from active employees.

NOTEI INCOMETAXES The components of tax expense (benefit) are summarized f 11 wing revenue and expense items for income tax purposes j

as follows (in thousands):

in periods different than for financial reporting purpons J

(in thousands):

Year Ended December 31.

1986 1985 1984 har EnM December 31.

1986 1985 1984 Curreni

$16,727 820.148 8 9.002 I

Deferred 4.600 4.490 7.198 Lease fmancmg 8 6,935 812.944 86.669

-816.200 I*an l0** Pronssons (5.733) 18.5941 t5.4641

$21.327 824.638 De innon 1.547 3.213 2.623 0'

n aflTC carrybrward 764 3.074 Taxes resulting from securities transactions included in nevenue and expense recognaed on a income taxes amounted to tax expense of $3.653 million, caah ba*= for mea =' t*I Purposes (891)

(3.697) 11.0081

$1.528 million and 8.188 million for the years ended

$)

8N)

Mi

$i i8 December 31,1986,1985 and 1984, respectively.

s 4.600 8 4.490 87.198 Defened taxes (benefits) resulted from recognition of the

=

The ratio of applicable income taxes to income before income taxes differed from the statutory federal income tax rate of 46%. The reasons for the differences and their effects on the Company's effective tax rate are as follows (dollars in thousands):

Year Ended December 31.

1986 1985 1984 Amount Amount Amount Tax expense at war ory rue 877.870 46.0%

8 68.454 46.0 %

8 56.903 46.0%

increase (decreasel resulung from:

Taa.exempi interem income (54.585) (52.2) q43.153)

(29.0)

(36.291)

(29.3)

Imesiment tax credan (3.323)

(2.0) 14.818)

(3.21 (4.052)

(3.3)

Other ineo 1.365 8

4.155 2.8 1360)

L3)

,,,,,,7 M M%

82,4638 g%

$ 16.200 gl%

7 44

.1 I.

.}

l NOTE M-PREFERRED SIDCK. COMMON STDCK.

NOTE N-PARENT COMPAST FLNANCIAL AND NET INCOME PER COMMON SHARE INFORMATION Preferred Stock During 1986, the Parent Company obtained direct ownership y

Each share of the nonvoting Series A $2.37 cumulative of Sovran Bank / Delaware through a $25 million non-cash convertible preferred stock is convertible into 1.974 shares of dividend from Sostan Bank / Maryland. Additionally, direct owner.

L common stock and became redeemable at the option of the ship of certain of Sovran Bank, N.A.'s direct subsidiaries was l

Company at prices declining from $27.25 on July 1,1986 to obtained through a non-cash dividend of $17.2 million. Con-825.00 on January 1,2003, and thereafter. Holders of the densed financial information for Sovran Financial Corporation preferred stock are entitled to a cumulstive cash dividend of (Parent Company only) is as follows (in thousands):

$2.37 per share before any dividends may be paid to holders of the Company's common stock.

Condensed B. lance Sheet December 31.

Common Stock

• • ""' Company entvi 1946 1985 1984 Punuant to a change in Virginia law effective January 1,1986, ASSE15 8

8 8

treasury shares are no longer deemed to exist; accordingly, d j'"Ng,n,,

416 N 8 6$6 shares held at December 31,1985, have been reclassified invesimenin 116.539 217.562 168.318 as a reduction of issued common stock. All acquisitions of Invemmeniin bank subsaanes s43.557 738.073 658.435 Erna of in na shes of the Company's common stock since January 1,1986, g,

w g

are treated as decreases in common stock issued.

Invemment in bank relmed During 1986, a transfer of $30 million was made from subadann 51,9s6 27.249 17.145 l

Exc f over net retained earnings to surplus. The transfer had no effect on total shareholders eqmty.

oiher assas is.674 43.579 30.987 i

Sovran's Board of Directors declared a three.for-two split of Total Anaets

$1.512.723 81.189.541 8987.947 f

l its common stock effected in the form of a 50% stock divi-uABluTIES AND dend paid on August 23,1985. Weighted average shares and SHAREHOLDERS' EQUITY f

I

]

per share amounts have been restated to give effect to the Shoriierm bono ine s 40s.372 8 291.016 8241.215 stock split. Shares outstanding prior to the effective date of oD,E;3gbone me ag7 ig g

the stock split, which are presented on the Balance Sheet and Toialsh-holden equity 864.335 763.125 694.991 in the Statement of Changes in Shairholders' Equity, have not Toial Liablines and been restated.

Shmholders' Equiry

$1.512.723 31.189.541 8987.947 l

Net Income Per Common Shan i

Net income per common share is based upon the average Condensed Swemem ofincome Year Ended December 31.

l number of shares of common stock outstanding and common m== Company onlv>

19e6 i985 1984 j

stock equivalen's of dilutive stock options. The following table INCOME sets forth the number of shares and the net income used to Cah dividends from:

Bank subaaiano s 59,566 8 43.550 8 38.054 determine earnings per share for the applicable years (in Bank rein subsidianes 1,060 1.200 1.150 thousandsh interesi end uu.er income in m subsidianes 19,440 40.805 22.890 Other imerest 17.378 17.471 7.849 Year Ended December 31.

Other 930 1.206 1.766 1986 1985 1984 Total Income 98,374 84.232 71.709 EXPENSE l

Average shares outuanding 42.190 41.754 39.813 Interes 37,053 30.605 22.001 Effect of common unck opuons 257 230 218 and employee bene 6m hghted average shms ouintandmg 42.447 41.9n4 40.031 Net income

$167.956 8124.176 8107.503 Total Expense 62.690 48.421 36.508 less dmdends on prefened stock 394 661 714 income beim income iam and l

equity in undistnbuted mcome Net income apphcable to of subadianes 35,644 35.811 35.201 carnings per common she

$ 147.562 8123.515 8106.789 Applicable mcome tax bene 61s 9,944 4.460 2.478 income bdore equity in undenbuted income of subsidianes 43,628 40.271 37.679 Equiry a undatnnuted income of subedanca:

Banks 96.466 80.711 67.911 Bank.relaied 5.862 3.194 1.913 Net income

$147.956 8124.176 8107.5o3 45

) I' Notes to Financial Statements Report of Ernst & WhinneY (Continued)

Independent Auditors Condensed Statement of Changes in Financial Position Year Ended December 31.

Shareholders and Board of Directors (Parent Company onh) 1986 1985 1984 Funds Provided ( Applied) an finand Opnn Operanons:

Net income

$ 147,956 $124.176 8107.503 We have examined the consolidated balance sheet of

'",$$d'9""

Sovran Financial Corporation and subsidiaries as of (102,328)

(83.905)

(69.824, Non<=h charges 2,166 852 860 December 31,1986,1985, and 1984, and the related Cah dividends declared (53.409)

(42.084)

(36.3991 consolidated statements ofincome, changes in shareholders' 6.615)

(96n 2.i' equity, and changes ia financial position for the years Short4crm borrowmgs 117,356 49.801 38 821 then ended. Our examinations were made in accordance ng term be ngs 92,297 74.295 (714' with generally accepted auditing standards and, accordingly, Purchased and acquired treasury included such tests of the accounting records and such stock (87,521)

(33.953)

(11.802) other auditing procedures as we considered necessary in i

Imuance of common stock for DCNB 69.030 the circumstances.

In ur opinion, the financial statements referred to I.I

$'EIie"'"' inn"IshaY

• i!N)

• ijf[

above Present fairly the consolidated financial position 62 216,316 110.138 82.925 j

Other Ativines:

of Sovran Financial Corporation and subsidiaries at Premises and equipmem (11,404)

(124)

(100)

December 31,1986,1985, and 1984, and the consolidated Other. net 30.026 (3.642)

(12.942) results of their operations and changes m. their financial i

18.622 (3.766) a 3.042, Total Funds Pronded (Applied)

$ 229.323 8105.411 8 72.023 Position for the years then ended, in conformity with Funds Apphed(Provided) genedy accepted accounting principles applied on a

{

Change in earning amets:

consistent basis.

Investment m bank subsidiaries 8 9,018 8 (1,073) 8 19.745 Investment in bank-relased Norfolk, Virginia subsidianes 18,875 6,910 4.080 se of cost over equity January 26,1987 m net amets 44,030 Investment secunues (101,023) 49.244 (7.815) leans to bank subsidianes (88,096) 80.746 leans to bank-related subsidianes 346.519

_ 30.416) 56.013

(

TotalFunds Applied (Provided) 8 229.323 8105.411 8 72.023 Regulatory agencies impose restrictions on the transfer of assets and retained earnings from subsidiaries to the Parent Company At December 31,1986, net assets restricted from transfer by subsidiaries to the Parent Company amounted to

$538.7 million.

Dividends of $142.3 million plus 1987 profits may be paid to the Parent Company by its national banks under applicable regulations. Additionally, the Company's state chartered banks may pay dividends in the amount of

$73.3 million to the Parent Company.

l t l l

i, 46

\\

O

1 P.

i Selected StatisticalInformation Somin financial Corporation and Subsidiaries Year Ended December 31, 1986 1985 1984 1983 1982 1981 Earning.

Net income (dollars in thousands) 8147,956

$124,176

$107,503

$88,392

$75.553

$64,788 Net income per common share 3.48 2.94 2.67 2.32 2.04 1.77 Performance Ratios l

Return on assets 1.08 %

l.07%

1.11%

.99%

.97%

.97%

)

l Return on equity 18.10 16.94 17.10 16.49 15.95 15.19 l

Interest spread' 3.92 3.85 3.85 4.01 3.71 3.31 l

Net interest margin' 5.09 5.25 5.51 5.61 5.70 5.75 lean lose Ratios Net charge offs to average loans

.38%

.27%

.21%

.25%

.26%

.32%

Allowance to period-end loans 1.15 1.14 1.11 1.14 1.21 1.21 j.

Ioan loss coverage 5.84X 8.64X 11.28X 10.1IX 9.11X 8.02X Liquidity and Capital Ratios i

Average shareholders' equity to average:

Assets 5.95%

6.31%

6.50%

6.03 %

6.09%

6.42%

loans 8.67 9.38 10.13 10.33 10.50 10.86 j

Deposits 7.90 8.32 8.30 7.51 7.79 6.01 Average loans to average deposits i

and borrowed funds 74.39 73.42 70.14 63.38 63.63 64.41 Average long4crm borrowings to average long term borrowings i

and total shareholders' equity 20.29 16.77 11.70 16.12 19.79 22.24 j

Capital adequacy:

(

Primary 6.99 7.12 6.84 6.53 6.36 6.73 I

Total 7.97 7.55 7.34 7.12 7.23 7.81 Common Stock Data

{

Common shares outstanding (in thousands):

1 Weighted average 42,447 41,984 40,031 37,795 36,667 36,311 Period.end 42,192 41,482 27,731 25,663 24,641 24,249 Book value at period.end

$20.43

$18.31

$16.59

$14.91

$13.56

$12.27 Non. Financial Data Common and preferred shareholders 30,592 30,322 31,599 30,605 28,688 27,216 Full time equivalent employees 10,961 10,314 9,991 10,035 10,152 9,557 Domestic bank offices 357 351 351 363 387 361

)

Bank related offices 131 119 104 90 79 65 l

Automated teller machines 311 296 278 245 196 162 Market Prices and Dividende Declared l

Market prices:

High

$44.50

$32.88

$25.75

$22.13

$13.63

$13.13 tow 32.25 23.38 16.88 13.13 9.38 7.63 Dividends declared on common stock 1.32 1.20 1.06

.98

.87

.75 iCompuwd on a fully te.xable eqwvalets basa Dividends per share represent Sovran Fmancial Corpornnon's hisioncal das. Weighed everage shares and per share des have been resissed so give e6ect so the three-for.two stock sph.a the forin of a 50% mock dmdend, e6ectne Augum 23.1985.

4 47

F l

v i

H Financial Comparisons Consolidated Average Balance Sheet Sovran Financial Corporation and Subsidiaries

( Average balances in millena, income and expense in thousandst Year Ended December 31.

1986 1985 1984 m

laterest Average laterest Average Interest Averase j

Average income /

Yields /

Average Income /

Yields /

Average income /

Yieldst

{

Balance Expense n Rmes:

Balance Expense n Rates:

Balance Expense n Rates:

4 i

Assets Loans net of unearned income:

- 5 Commercial

$ 2,974.3

$ 274,374 9.22%

8 2.347.6 8 248.124 10.57%

$1,720.3 $ 216.137 12.56 %

Real emaw-construction 989.9 106,630 10.77 748.3 91.389 12.21 490.7 70.071 14.28 I

Real estase-mortgage 1,708.9 197,595 !!.56 1,474.3 178.227 12.09 1,439.1 174.395 12.12 i

Consumer 2,220.6 273,825 12.33 1.978.1 261,771 13.23 1,599.3 225.074 14.07 l

Bank card 593.1 95,399 16.08 518.4 83.267 16.%

441.4 70.472 15.97 i

lease fmancmg 231.6 22,528 9.73 176.5 19.777 11.20 123.1 14.619 11.88 j

Foreign 28.8 2.674 9.29

• 9.G 3.183 10.60 40.9 5.348 13.07 Tan. exempt 677.4 87,766 12.%

543.3 78.449 14.44 350.6 56.087 16.00

{

Totalloans 9,424.6 1,060,791

!!.26 7.816.5 964,187 12.34 6,205.4 832.203 13.41 invemment securines:

Unned Stame Treasm 824.8 73,934 8.96 834.0 89,001 10.67 748.9

83. % 3 11.21 i

i Federal agenews 171.3 13,938 8.14 106.2 11,454 10.78 128.2 15.224 11.87 l

Staes and pahocal subdmsions 1,123.3 144,785 12.89 776.3 101,537 13.08 749.9

%.308 12.84 l

)

Other 64.0 5.392 8.42 40.6 4.102 10.11 27.0 3.405 12.60 q

l l

Totalinvestment securmes 2,183.4 238,049 10.90 1.757.1 206,094 11.73 1.654.0 198.900 12.03 l

Federal funds sold and securmes purchased under menn to reseO 287.3 20,205 7.03 283.4 24.115 8.51 327.8 34.533 10.54 Due fmm inserest bearms 301.1 23,298 7.74 445.1 41,244 9.27 349.9 38.818 11.09 Tradmg account secunnes 11.8 1,048 8.88 I1.8 1.234 10.50 9.3 1.210 13.01 Oiher 182.3 12.285 6.74 112.2 9.401 8.38 34.4 3.647 10.61 1

Total earning assem 12.390.5 1,355,676 10.94 10.426.1 1,246.2:5 !!.M 8,580.8 1.109Jll 12.93 Allowance for loan losses (107.7)

(88.4)

(71.4)

Cash and due imm banks 830.0 740.3 666.9 Other ansee 631.5 528.8 502.6 Total Assem

$13,744.3 811.606.8

$9.678.9 IIABIUTIES AND SHAREHOLDERS' EQl! FIT Interen bearms deposim:

Interes checkm' g

$ 713.0 36,721 5.11 8 565.6 29.618 5.24 8 497.0 26.107 5.25 Money market accoune 2.063.4 125,448 6.08 1.498.6 110,151 7.35 1.101.8 97.500 8.85 1

Regular savmss 922.5 50.297 5.45 842.8 45,779 5.43 876.0 47.221 5.39 J

Consumer eero6cmes 2.%2.4 248,381 8.38 2.726.9 259.384 9.51 2.392.8 247,781 10.36 L

Ceru6 cans of deposit,8100,000 or more 1,321J 102,853 7.78 1.095.6 99.626 9.09 852.8 90.426 10.60 Foreign 9.2 638 6.%

54.1 4.890 9.04 11.5 768 6.68 j

i

~'66,338 7.06 6,783.6 549.448 8.10 5.731.9 509.803 8.89 l

Totalinteres bearing deponim 7,997.3 5

Federal funds purchased and secunnes sold under agreemenn to repurchase 1,385.S 91,921 6.63 1.110.7 89,946 8.10 769.5 77,979 10.13 j

Other shorHerm borrowmss 730,1 47,748 6.54 579.4 44,652 7.71 418.7 41,801 9.98 tongaerm bormwmss 208.1 20,495 9.85 147.7 14,500 9.82 83.3 6.616 7.94 Totalin=rea beanns habuities 10,321.0 724,502 7.02 8.621.4 698.546 8.10 7.003.4 636.199 9.08 Nonsterest beanng depoens 2,347.6 2.024.8 1.843.4 Other habihties 258.3 227.7 203.4 Total Liabilsies 12,926.9 10.873.9 9,050.2 Total Shareholders' Equny 817.4 732.9 628.7 Totallambihnes and Shareholders' Equky

$13,744.3 811,606.8 89.678.9 Interest spread 3.92%

3.85 %

3.85 %

Net interem mcome/ margin 8 631,174 5.09%

$ 547.729 5.25 %

$ 473.112 5.51%

Total depoens

$10,344.9

$ 8.808.4

$7.575.3 8 Includes fees on loans of approximmely $38.188; $24,354; $18.660; $21,213; $16.809; $14.549; for the years 1986 through 1981 respecovely aComputed on a fully taxable erivalem basis unmg the mannery federal tax rese of 46% and includmg the eHect of nonaccrums loans.

48 1

.l k

j c

q f

Average Balance 1983 1982 1981 Increase (Decrease)

Y Inwres Awrage inwres Average Imerem Average One. Year FiveYear Compound Average incomel

. helds/

Aserage income /

Yieldal Asernge Incomel Yields /

Change Gro.th Rae j

n Rus2 Balance Expense' Rmee8 1986/1985 1986/1981

-j Balance Expennet Raen' Balance Expenne 81.320.0

$ 155.700 - 11.80%

$ 1.172.5 8 174.486 14.88 %

$ 987.8 8 169,627 17.17 %

26.7 %

24.7%

380.5 52.609 13.83 -

318.1 52.569 16.53 298.5

$8.608 19.63 32.3 27.1 1.411.8 170.865 12.10 1.306.9 154.266 11.80 1.176.4 129.884 11.04 15.9 7.8 1.289.0 193.148 14.98 1.056.1 170.568 16.15 956.6 145.311 15.19 12.3 18.3 364.8 57.047 15.64 292.6 44.342 15.16 263.8 39.482 14.97 14.4 17.6 99.6 12.460 12.51 85.8 11.837 13.80 58.4 7J80 13.32 -

31.2 31.7 45.5 5.126 11.27 45.1 7.369 16.34 26.7 4.946 18.52 I4.1) 1.5

(:

276.3 42.431 15.36 235.4 39.648 16.84 159.9 26.005 16.26 24.7 33.5 f

5.187.5 689.386 13.29 4.512.5 655.085 14.!2 3.928.1 581,643 14.81 20.6 19.1 687.9 76.923 11.18 426.6 55.075 12.91 415.4 50.176 12.08 11.1) 14.7

]

188.9 21.620 11.45 176.4 20.357 11.54 181.9 20.617 11.33 61.3 11.2) 760.0 94.123 12.38 694.2 83.678 12.05 634.1 68.034 10.73 44.7 12.1

)

23.2 2.833 12.21 28.6 2.743 9.59 38.0 4.469 11.76 57.6 11.0 j

l.660.0

-195.499 11.78 1.325.8 161.853 12.21 1.269.4 143.296 11.29 24.3 11.5 1

1 444.3 41.626 9.37 452.5

$7.031 12.60 360.5 58.707 16.28 1.4 (4 4)

)

480.1 47.878 9.97 426.1 60.371 14.17 170.3 27J34 16.29 (32.4) 12.1

]

6.0 698 11.63 4.7 616 13.11 7.9 1.056.

13.37

.1 8.4

(

36.7 3.444 9.38 21.5 2.449 11.39 6.4 998 15.59 62.5 95.4 l

7.814.6 978.531 12.52 6.743.1 937.405.

13.90 5.742.6 813.434 14.17 18.8 16.6 j

164.7)

(57.0)

(50.1) 21.8 16.5 I

]I 651.3 600.1 585.2 12.1 7.2 483.3 492.2 368.1 19.4 11.4

$ 8.884.5 87.778.4 81645.8 18.4 %

15.6 %

1 sammummes l

l 1

8 480.7 25.259 5.25 8 437.4 23.633 5.40 8 278.0 14.531 5.23 26.9 %

20.9%

1 i

637.3 51.181 8.03 2.6 240 9.23 37.7

)

973.7

$0.305 -

5.17 986.7 51.401 5.21 971.5 50.585 5.21 9.5 it.01

.l 2.448.6 251.400 10.27 2.272 0 275.085 12.11 1.858.7 221.626 11.92 8.6 9.8 1

749.9 69.830 9.31 6W.3 85.932 12.29 552.7 82.594 14.94 20.6 19.1

)

96 868 9.04 13.9 2.096 15.08 17.6 2.986 16.97 (83.0)

(12.2) 5.299.8 448.843 8.47 4.411.9 438.387 9.94 3.678.5 372.322 10.12 17.9 16.8 654.7 58.140 8.88 678.6 80.030 11.79 486.7 76.472 15.71 24.7 23.3 290.8 24.779 8.52 217.4 24.940 11.47 164.1 24.641 15.02 26.0 34.8 103.0 8,236 8.00 116.9 9.564 8.18 121.9 9.862 8.09 40.9 11.3 6.348.3 539.998 8.51 5.424.8 552.921 10.19 4.451.2 483,297 10.86 19.7 18.3 1.835.9 1.667.5 1.647.1 15.9 7.3 154.2 212.3 121.1 13.4 16.4 8.348.4 7.304.6 6.219.4 18.9 15.8 536.1 473 8 426.4 11.5 13.9 88.884.5 87.778.4 86.645.8 18.4 %

15.6%

mummmmme 4.01 %

3.71 %

3.31%

8 438.533 5.61 %

8 384.484 5.70%

$ 330.137 5.75 %

17.4 %

14.2%

$ 7.135.7 86.079 4========

$5.325.6 sumammer 49

~

! r L

Financial Comparisons Consolidated Balance Sheet Sovran Hnancial Corporation and Subsidiaries (Dollars in thousands, except per she de)

December 31.

1986 1985 1984 l

Amets Cash and due fmm banks

$ 1,164,624 8

926,986 8

810.267 Money-market investments:

{-

Federal funds sold and securities purchased under agreements to resell 715,007 421548 485,523 Due from banks-interest bearing 336,418 473, % 4 575.110 Trading account securities 32,465 23,153 20,716 l

Other 91,861 107.754 50,206 Total money-market investments 1,175,751 1,026,519 1,131,555 investment securities 2,145,498 2,053,622 1,697.425 loans net of unearned income 9,911,032 8,558,748 7,091,816 Allowance for loan losses (113,512)

(97,784)

(79,053) i Net loans 9.797,520 8,460,964 7,012,763 Premises and equipment 295,477 270,753 249,038 Due from customers on acceptances 40,733 29,581 25,959 Other assets 332,553 272,938 310.341 i

i Taal Amets

$ 14,952,156 8 13,041,363

$ 11,237,348 lI liabilities Deposits:

l

{

Noninterest bearing

$ 2,955,233

$ 2,320,805 8 2,111,057 I

Interest bearing 8.655,366 7,395,526 6,279,500 Total deposits 11,610,599 9,716.331 8,390,557 Short term borrowing:

Federal funds purchased and securities

{

sold under agreements to repurchase 1,025 798 1,434,514 1,386,547 I

4

)

Other short-term borrowing 910,823 703,178 454,172 Total short-term borrowing 1,939,621 2,137,692 1,840,719 long-term borrowinp 255,087 156,565 81.639 Acceptances outstanding 40,733 29,581 25,959 i

Otherliabilities 241,781 238,069 203,483 Total Liabilities 14,087,821 12,278,238 10.542,357 Shareholders' Equity Preferred stock 2,277 3,718 5,134 Common stock 210,960 210,484 138,656 i

Surplus 24,840 4.876 71,582

{

Retained earning 626,258 561.711 479,619 j

Treasury stock, at cost (17,664)

)

TotalShareholders' Equity 864,335 763,125 694,991

j Total Liabilities and Shareholders' Equiry

$ 14,952,156 8 13,041.363 8 11.237,348 Preferred stock-par value $25.00 per share:

ij

)

Shares authorized 5,000,000 5,000,000 5,000,000 i

Shares issued 130,110 212,493 293,402 Common stock-par value 85.00 per share:

Shares authorized 100,000,000 100,000,000 50,000,000 i

Shares issued 42,191,929 42,096,824 27,731,350 Shares outstanding 42,191,929 41,482,228 27.731,350 l

1 1

' t i

4 50 l

i t

1

,V h r fiveYear Compound Growth Itate 1983 1982 1981 1986S981 8 781,268 8 752,334

$ 737,742 9.6%

I I

435,365 559,385 350,566 15.3 616,800 500,037 255,359 5.7 3,2 %

3,283 15,864 15.4 l

1 64,464 31,731 10,595 54.0 1,119,925 1,094,436 632,384 13.2 1,690,833 1,584,676 1,287,609 10.8 5,738,044 4,941,048 4,389,293 17.7 (65,676)

(59,948)

(52,967) 16.5

]

1 5,672,368 4,881,100 4,336,326 17,7 I

229,726 223,949 205,959 7.5 l

28,360 47,897 63,557 (8.5) l 280,242 261,292 178,481 13.3 l

$9,802,722

$8,845,684

$7,442,058 15.0 %

$1,943,287

$1,955,358

$1.805,956 10.4 %

5,690,188 5,072.124 4,019,460 16.6 7,633,475 7,027,482 5,825,416 14.8 l

l 765,789 710,484 686,768 8.4 l

527,865 290,519 177.276 38.7 l

1,293,654 1,001,003 864,044 17,6 85,291 114,646 119,839 16.3 l

28,360 47,897 63.557 (8.5) 182,873 148,201 117,573 15.5 9,223,653 8.339,229 6,990,429 15.0 l

l 5,320 5.321 5,321 (15.6) 129,275 126,520 123,002 11.4 42,156 31,834 24,292

.4 l

408,515 352,4 %

303,639 15.6 (6,197)

(9,716)

(4,625) i 579,069 506,455 451,629 13.9 l

$9,802,722

$8,845,684

$7,442,058 15.0 %

5,000,000 5,000,000 5,000,000 304,002 304,050 304,050 50,000,000 50,000,000 50,000,000 25,855,027 25,304,080 24,600,351 25,662,520 24,641,440 24,249,011 51

i m

(

Fi #.ccial Comparisons l

Consolidated Statement ofIncome

}

Sovran financial Corporanon and Subsidiance l

(Dollars in thousanda)

Year Ended December 31.

1986 1985 l

Interest income loans, including fees

$ 1.018,047 68.1%

$ 926.903 67.4%

investment securities:

Taxable 91,605 6.2 104,198 7.5 Tax exempt 81,370 5.4 56,393 4.1 Total investment securities 172 975 11.6 160.591 11.6 l

Money-market investments:

Federal funds sold and securities purchased under agreements to resell 20,205 1.3 24.115 1.8 Due from bankr-interest bearing 23,298 1.6 41.244 3.0 Trading acccuni securities 839

.1 998

.1 other 12,193

.8 9.227

.6 Total money market investments 56,535 3.8 75.584 5.5 TotalInterest income 1,247,557 83.5 1.163.078 84.5 Interest Expense Deposits 564,338 37.8 549.448 39.9 Short-term borrowinp:

Federal fundt purchased and securities sold under agreements to repurchase 91,921 6.1 89.946 6.5 Other short-term borrowings 47,748 3.2 44.652 3.3 Total short term borrowfags 139,669 9.3 134.598 9.8 long-term borrowings 20,495 1.4 14.500 1.1 Totalinterest Expense 724,502 48.5 698,546 50.8 Net laterest Iaeome Net interest incon,

523,055 35.0 464,532 33.7 Provision forloan tones 47,630 3.2 40.186 2.9 Net Interest income After Provision for loan losses 475,425 31.8 424.346 30.8 Noninterest income Trust income 32,897 2.2 28.812 2.1 Service charges on deposit accounts 57,407 3.8 49.540 3.6 Service charges, fees, and other income 141,710 9.5 125,031 9.1 Trading account profits and commissions 6,896

.5 5,811

.4 Securities gains and (lones) 8,286

.5 3.654

.3 Total Noninteres: income 247,196 16.5 212,848 15.5 Noninterest Expense Salaries and employee benefits 297,411 19.9 259.114 18.8 i

Net occupancy expense 33,067 2.2 29.452 2.1 Furniture and equipment expense 58,248 3.9 50.347 3.7 Other 164,612 11.0 149.467 10.9 Total Noninterest Expense 553,338 37.0 488.380 35.5 Net income Income before income taxes 169,283 11.3 148,814 10.8 Applicable income iaxes (benefits) 21,327 _ 1.4 24.638 1.8 Net income

$ 147,956 9.9%

$ 124.176 9.0%

=========.-:- -

==

Totalincome

$ 1,494,753 1,,00.0%

$ 1.375.926 _100.0 %

1 l

l l

l 52

e I

i Ee-Year Compound 4

Growth Rate j

1984 1983 1982 1981 1986/1981

{

$ 805,183 66.2 %

8 668.346 62.9 %

$635,193 63.8%

$567,832 65.3 %

12.4 %

102,408 8.4 102.625 9.7 80,021 8.0 75.855 8.7 3.8 52,612 4.3 50.028 4.7 43,670 4.4 36,131 4.1 17.6 155,020 12.7 152,653 14.4 123,691 12.4 111,986 12.8 9.1 34,533 2.8 41,626 3.9 57,031 5.7 58,707 6.7 (19.2)

.38,818 3.2 47,878 4.5 60,371 6.1 27,733 3.2 (3.4) 971

.1 544

.1 483 956

.1 (2.6) 3,647

.3 3,444

.3 2,449

.3 998

.2 65.0 77,% 9 6.4 93,492 8.8 120,334 12.1 88,394 10.2 (8.6) 1.038,172 85.3 914,491 86.1 879.218 88.3 768,212 88.3 10.2 i'

l 509,803 41.9 448,843 42.2 438,387 44.0 372,322 42.8 8 17 1

y<

77,979 6.4 '

58,140 5.5 80,030 8.0 76,472 8.8 3.7 a 41,801 3.4 24,779 2.3 24.940 2.5 24,641 2.8 14.1 119,780 9.8 82,919 7.8 104,970 10.5

.101.113 11.6 6.7

.J 6,616

.6 8,236

.8 9.564 1.0 9,862 1.2 -

15.8 g

]

636.199 52.3 539,998 50.8 552,921 55.5-483,297 55.6 8.4 j

401,973 33.0 374,493 35.3 326,397 32.8 284,915 32.7 12.9 -

26,678 2.2 18,087 1.8 16.376 1.7 20,209 2.3 18.7 f.-

1 l

' 375,295 30.8 356,406 33.5 309,921 31,1 264,706 30.4 12.4 26.555 2.2 22,250 2.1 18,770 1.9 15,791 1.8 15.8

,,)

41,003 3.4 36,621 3.4 31,307 3.1 26,639 3.1 16.6 j

107,868 8.9 97,918 9.2 76,820 7.8 63,547 7.3 17,4

-Y ;

I 2,599

.2 3,070

.3 3,181

.3 1,243

,1 40.9 (11,752)

(1.1)

(13,525)

(1.4)

(5,599)

(.6)

I 407 178,432 14.7 148,107 13.9 116.553 11.7 101,621 11.7 19.5

]

231,506 19.0 216,349 20.4 186,098 18.7 159,294 18.3 13.3 l

26.737 2.2 26,711 2.5 25,098 2.5 20,145 2.3 10.4 s

l 12.2 45,313 3.7 42,129 4.0 36,357 3.7 32,770 3.8 t

126,468 10.4 120,191 11.2 100,895 10.1 79,863 9.2 15.6; 430,024 35.3 405,380 38.1 348,448 35.0 292,072 33.6 13.6 123,703 10.2 99,133 9.3 78,026 7.8 74,255 8.5 17.9 I

16,200 1.4 10,741 1.0 2,473

.2 9,467 1.1 17.6 8 107,503 8.8%

88,392 8.3%

$ 75.553 7.6%

$ 64.788 7.4%

18.0%

100.

100.0 %

11.4 %

-- 0%

$ 869,833-m---

$1,216,604 100.0%

$1,062,598 100.0 %

$ 995,771

=

=

l

.s 53 l

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{3 1-p

{

Form 10-K C Sovran Financial Corporation and Subsidiaries l

^

R i

g it s Securi:ies and Exchange Commismon hhington, DC. 20549

'a Pan 111 liem 10 Directors and Executive Officers e Regisnant..

Annual Re rt Pursuant to Section 13 or 15(d) of the o

Securities bxchange Act of 1934 ltem 11 Executive Compensation hem 12 Secunty Ownership of Certain For the fiscal year ended D-cember 31,1986 Beneficial Owners and Management.

Commission file number 0 6500 Item 13 Certain Relationships and Related Transacu,ona, Sovran Financial Corporation One Commercial Place Part IV hem 14 Exhibits, Financial Statement Norfolk, Virginia 23510 l

(804)441 4000 Schedules, and Reports on Form 8.K F

(a)(1)

Financial Statements incorporated in the State of Virgion.

(See item 8 for reference)

IRS Employer identification No. 34-0898250 (2)

FinancialStatement Schedules Securities registered pursusnt to Section 12(g) of the Act:

Common Stock, $5.00 par value Schedules normally required on Senes A $2.37 cumulatin convertible preferred stock, $25.00 par value Form 10.K are omitted since they are not applicable Sovran Financial Corpor, ion (the Registrent) has Ged all reports (3)

Exhibits have been med separately required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such with the Commission and are tiling requirements for the past 90 days.

available upon written request

-f (b)

No reports on Form 8-K were Ged The aggregate market value of votinpwa held by nen. affiliates of the Registrant as of January 31,1987 h $1,470,825,599.

for the three months ended December 31,1986.

Ad.inuary 31,1987, the Registrant had 4L75,47) sLsses of $5.00 t

par value common stock outstanding.

• Information called for by Part Ill(hems 10 through 13) is incorporated Portions of the Registrant's Annual Report to shareholders for tlk (ual by reference to the Compan 's definitive proxy statement for the 1987 year ended December 31,1986 are incorporated by reference im AnnuaWeeting giShareho ders to be Bed with the Secunties and j

Parts 1. II, and IV hereof, to the extent indicated in the Form l&K Exchange Comminion.

y Cross Reference Index.

n 4

Portions of the Proxy Statement for the Annual Meeting of Shareholdemo BUSINESS L'

be held on April 15,1987, are incorporated by reference into Pst (11.

Sovran Financial Corporation was incorporated in 1971 under the laws J

of the Commonweahh of Virginia. The Registrant is a bank holding FORM 104 CROSS REFERENCE INDEX company registestd under the Bank Holding Company Act of 1956, as amended. On December 31,1986, the Registrant had 10.961 full. time equivalent employees.

The 1986 Annual Report and form 10-K incorporates into a single document the Annual Report to Shareholders and the Annual ReportThe R@ ants principal assets are its loans and advances to. and

{

on Form 10.K to the Secunties and Whange Commission.

investments in its subsidiaries. The principal sources of revenue are

(

interest and fee-related income from subsidiaries, and dividends from its banks. There are various legallimitations on the banks' ability to Page supply funds to the Registrant and its bank.related affiliates. During 1986, l

Part !

Item 1 Business

.54 55,64 the Registrant became a direct holder of certain subsidiarin through l

hem 2 Propernes....,,

.55 non cash dividends from its bank subsidiaries. Additionalinformation Item 3 Irgal Proceedings.,

J,

.42 item 4 Submission of Ma ters to a Vote is contained in Note N on page 45, of Security Holders......

.N/A On March 10.1986, in a purchase transaction, the Registrant acquired Executive O'fficers of the Registrant.

.55 D.C. National BanCnip, Inc., e District of Columbia bank holding company. Suburban Bancorp, located in Bethesda. Maryland, was t

Part 11 hem 5 Market for the Registrant,e Common Equity acquired in a pooling.of. interests transaction on March 31,1986.

and Related Stockholder Manen.

. 29-30 Additionalinformation is contained in Note B on page 38.

I Item 6 Selected Financial Data

.13 Sovran Bank, N. A. is a nr.ional banking amociation headquartered in hem 7 Management's Discussion and Richmond, Virginia and provides full-service commercial banking senices Analysis of Financial Condition through 265 offices located throughout Virginia and a branch in Nassau.

l' and Resuha of Operations..

.13 32 Bahamas. Foreign operations are not significant. Sovran Bank / Maryland hem 8 Financial Statements and l

is a Maryland state chartered bank providing full-service commercial Supplementary Data...

.33-46 banking senices through 84 offices located throughout Maryland.

(

Item 9 Disagreements on Accounting Sovran Bank!DC National, a national banking association and full-senice and Financial Disclosure.

. N/A Iueur

)

54' y

(

[

. lE.,

I j

j I

commercial bank, operates 7 ohes thoughout the District of Columbia. office building, and prage. The Regidrant occupies approximately j

Somn Bank! Delaware, a Delawere state chartered bank. is a credit card 52% of the office space in the complex, with the remaining space leased I

to others. Both buildings are owned subject to mortgages. For additional subsidiary of the Registrant.

information regarding mortgage indebtedness, refer to Note I on page 41 The Registrant prmides various orvices related to banking through it' of the Registrant's 1986 Annual Report to shareholders incorporated 1

whoDy owned nonbank affiliates. Sovran Mortgage Corporauon a herein by reference.

i mongage bankmg subsidiary of the Registrant,is primarily engared

)

in the origination, purchase, sale, and servicing of mortgage loan.

The executive o&es of Sovran Bank. N.A. are located at 1111 East Main l

l for investors. At December 31,1986, Sovran Mortgage Co ration Street. Richmond, Virginia 23219. This headquarters building consists had 47 offien servicing approximately 164,300 loans totalin $7.3 billion. of a 26. story 'ower, a four-story pavilion buddms, and an 81/2 leve Sovran leasing Corporation operates 8 o&n and is engaged leasing and garage. Sovran Bank. N.A. owns free of any encumbrances its he financing of equipment for business, hospitals, and governmental entities, building and 154 of its branches. The executive osces of Sovran q

as well as for other leasing companies. Sovran Equity Mortgage Corpora. Bank / Maryland are located at 6610 Rockledge Drive, Bethesda, Mary j

tion is engaged in the production and servicing of second mortgage loans. 20817. Sovran Bank / Maryland and Sovran Bank /DC National j

At December 31.1986. Sovran Equity Mortgage Corporation operated any encun. ors,ces,42 ofEces and one o&e, respectively.

l 37 obes. Cash Flow,Inc. operates a shared automated teller machine SubstantiaDy all of the Regierant's remaining premises m leased from and debit card point of sale network. Sovran Credit Corporation is primarily third parties under agreements with expiratnn dates ranging from engaged in consumer and floor plan lending. At December 31,1986, 1987 to 2031 For additionalinformation regarding such commitments Sovran Credit Corporation operated 28 officer m hr a and North under current leasing agreements, refer to Note F on page 40.

Carolina. The Registrar.lis also engaged in certr.in cre it-related insurance activities through two of its subsidiaries. Sovran Insurance Agency, Inc.

EXECUTfVE OFFICERS acts as asent for life, property, and casushy insurance sold in connection with credit-related tranuctions or financialnervices performed by va-ious The folloi ing table sets forth information with mpect to the executive subsidiaries of the Registrant. Sovran Life Insurance Company is a officers o* the llegistrant, all of whom held their positions indicated

'j remsurer of credit life and credit disability insurance written by various or another senior executive position with the sarae entity or a predecessor I

subsidiarin of the Registrant. Sovran Capital Management Corporation corporation for the past 6ve years-J provides investment management and advisory services to large pension and profit sharing funds, mate and local government units, foundation Name Age Pbsition

)

endowment funds, and other institutional investors. Sovran Investment Corporation provides a variety of brokerege services to its customers.

C. A.Cutchins,111 63 Chairnan of the Board and Chief Executive O&er of the Registrant COMPETITION C. Coleman McGehee 62 President and Chief Operating O&er of the Registrant and The Registrant and its subsidiaries are subject to intense competition in their Chairman of the Board of j

various market areas. They compete for financial products and services, Swan Bank N.A.

not only with other commercial banks, but also with savings and lean associations, credit unions, money market and mutual funds, consumer John R Bernhardt 57 Vice Chairman of the Board of I

finance companies, leasing compania, mortgage companies, insurance the Registrant and Sovran Bank. N.A.

l companics, and various other fmancial services firms.

and President and Chief Executive OfBeer. Sovran Services REGULATION ANDSUPERVISION Randolph W. McElroy 52 Vice Chairman of the Board of the The Registrant, as a bank holdmg company. is subject to supervision, Registrant and President and Chief l

Executive O&er of Sovran Bank,N.A.

1 examination, and regulation by the Board of Governors of the Federal Roerve System. Sovran Bank, N.A. and Sovran Bank /DC National and Albert R Gorna Jr.

57 Senior Executive Vice Prnident of the their respective subsidiarin m subject to supervision and exammanon Registrant and Sovran Bank, N.A.

by the Comptmiler of the Currency, the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). Sovran Bank / Maryland L. Ralph Hicks, Jr.

49 Senior Executive Vice Praident and Sovran BankiDelaware m subject to supervision and examination of the Registrant and President and Chief Executive O&er of Sovran by the FDIC and their respective state banking commissions. All bank.

related subsidianes of the Registrant are subject to supervision, exam-Bank / Maryland instion, and regalation by the Federal Reserve System.

Doyle E. Hull 53 Senior Executive Vice President and Chief Financia10&er of the Registrant PROPERTIES and Sovran Bank. N.A.

The executive o&es of Sovran FinancialCorporation are located at John a Werner 55 Senior Executive Vice President of One Commercial Place, Norfolk, Virginia 23510. This headquarters is the Registrant and Swan Bank, N.A.

part of a building complex consisting of a 24-story o&e tower, an 55

~

i 4

<f i

s i

Board of Directors Sovran Financial Corporation Jolm B. Bernhardt Frank llirsch Peter E 0'Malley Robert E Tardio Vice Chairman of the Board Attornev at.12w President and Chief Executive Anorney at.bw and Managing Real Estate Development j,

Officer. Sovran Services J. Henry Hoekinson Partner.0'Malley Miles.

Consultant Private Imestor McCarthy & Harrell Thomas R. Towers William W. Berry George C. Palmer. H Yice Chairman Chairman of the Board and Herbert V. KellI

^

Chairman of the Board Universalleaf Tobacco Chief Executive Officer y,",7y,$hrnan. Wolu &

Piedmont Tractor Company, Inc. Company. Inc.

Domimon Resources. Inc.

N*il f*'m E ui ment Sales Tobacco Products Nell ' P.C' 9P Public Utility Holding Company Y

Edward J. Canspbell Harry Manens Jr.

Stanlev E Pauley James S. Watkineon President and Chie3 Executive Chief Executive Officer Chairrnan of the Board President E. R. Carpenter Company. Inc.

Morton G. Thalhimer. Inc.

O N'"'N'*P* d '*'

tual Ytor b I? Sal s and ManufaauerofComfort fealtors Shipbuilding & Drv Dock Co.

3P uMng@ps -

Real Estate Dnelopment Cudiomndmduct' b

Robert C. Williams Roben B. Claytor Randolph W. McElroy John B. Rogan President and Chief Operating Chairman of the Board and Vice Ct.airn>.n of the Board President Officer. James Rper,,

P B ar s Head, a Inc.

Corporation of Virgmta 9f' f'*" Chi'fg,ny'y"'g' c

C'tief Executive Officer Hotel Manufacturer ofSpecialty Papers horfolk Southc.n Corporation an&mimHy Teated John Safe',y, go,,3 Holding Company with Rabad C. Coleman McGehee gy,;,,,,,7 Fiber Webs aubsidianes President and Chief Operau_ng Sovran Bank /DC National R. W. Wiltshire C. A. Cutchins. HI Chairman of the Board and Chairman of the Board.

Toy D. Savage, Jr.

Chairman of the Board and I

Chief Executive Officer Saran Bank. N.A.

Attceney.at. law President. Home Beneficial Robert J. Mulligan Wille x & Savage. P.C.

Corporation ar.d Home l

$f d

Vice Chairman and Chief Wallace Stettinius Company

{i Beneficial Life Insurance C

a The Colonial Auto Group Administrate Officer Chairman of the Board Retail Automobile Sales W dward & lothrop. Inc.

Cadmus Communications Department Store Cham Corporation Joseph B. Gildenhorn Prinzen President 1

JBG Real Estate Associates. Inc.

Real Estate Development l

~

Management C0mmittee Bryant W. Baird. Jr.

C. A.Catcht

• J Ray H. Hinton Robert P. Pinens President. Sovran Mortgage Chairman of the Board and Corporate Executive 05cer Pmident and Chief Executive Corporcion Chief Executive Omcer Human Rescurces Officer. Sovran Bank /DC Nanonal John B. Bernhardt Donald R. Fisher, Jr.

Doyle E. Hall W. Kelly Scott President and Chief Executive Chief Accounting 05cer and Senior Executive Vice President Corporate Executve OGeer 05<er. 5ovran arvices Treat rer and Chief financial 0$cer Marketing John C. Brewington Albert B. Cornia Jr.

Jame6 E. Jarvis John J. 5ponski Corporate Execuuve Omcer Senior Executive Vice President Corporne Genera: Auditor Corporate Exercive OGrer Inf rmati n Management Dennis R. Hanson Randolph W. McElroy Op d ons Tilliam C. Colby, Jr.

Corporate Execuuve OMeer President and Chief Executive John L'. Terner Corporate Executive OGeer fi.,ance Affiliates Omcet Sovran Bank. N.A.

Senior Execuove Vice President financial Products and Investments L. Ralph Hicks Jr.

C. Coleman McGehee Page D. Cranfoed President and Chief Executise Pmident and Chief Operating Corporate Cencral Counsel 05cer. Soirar BankStaryland Offeer 56 I

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1 Board of Directors Sovran Bank. N.A.

Hunter B. Andrews John D. Haire. Jr.

John D. Munford William B. Thalhimer, HI Attorney at-Law Chairman of the Board Executive Vice President Executive Vice President and Delta 00 Company Non Camp Corporation Director of Stores and Visual John B. Bernhardt Retail Fuel Od Sa'les and Service Forest Pmducts SianufacturersPresentation Vice Chairman of the Board 0

O Ramsy,Jn f,p

,',, 3 Anson Jain n e

James A. Brown,Jr.

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9, President Southern Sone Industries. Inc.

Taylor Ramsey Corporation Bernard C. Wampler

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Decorative Building Pmducts lwnber Products President f

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Company W. MacKenzie Jenkins, Jr.

Robin D. Ray I"'"I'""#"""/#'"*"E

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Chairman of the Board and President Rupph H. Bunzl President Old Dominion Tobacco Robert G. Weeks Chairman of the Board Dixie Manufacturing Company Company Vice President, Chemical.

f$nuf b,Et Manufaaunt ofCus%ning Tobacco and Candy IVholesale Packaging and Minerals r

tion Materials Distributor MobilCorporation y py;, p Andrew M. Lewis Elliot S. Schewel Energy Kirby L Cramet-Chairman of the Board Vice President H. Waller Whittemore Chairman of the Board Best Products Company. Inc.

SchewelFurniture Company, lac. President U **I"*" E**"'*

Catalogue Shou: room RetailFurniture and Appliance Crenshaw & Whittemore bd.

Biohc fandChemica:

Mechamiiser Sales Peanut Bmkers Research Joseph J. Mahoney, Jr.

John W. Snow Harrison B. Wilson, Jr.

President President and Chief Executive President h,;

,"n Mahoney Mortgage Company Officer Norfolk State University eB and fea cate CSUransposon Chief Executive Officer

Barge, urbn Serses and Sovran Financial Corporation Randolph W. McElroy

• Ident and Chief Executive O"N "'

Robert J. Grey c,,

Mana6er of Commum,ty Relations C. Coleman McGehee A. H. Robins Company Chairman of the Board Pharmaceuticals Management Committee John B. Bernhardt Jerome O. Guyant Randolph W. McElroy John B. Werner President and Chief Executive Corporate Executive Of5eer President and Chief Executive Senior Executive Vice President Officer. Sovran Services Real Estate Finance Officer gg g

John W. Boyle, Jr.

Doyle E. Hall C. Coleman McGebec Corporate Executive Officer Corporate Executive Officer Senior Execunve Vice President Chairman of the Board Retail Banking Virginia & U.S. Banking and Chief Financial Officer Nm Albert B. Gornia, Jr.

Hash K.11ary Deputy General Counsel.

Senior Executive Vice President Corporate Executive Offwer Secretary and Cashier Tna amms 57 s

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l Board of Directors l

Swran Bank /DC National James R. Beers Kent T. Cushenberry Jack I. Luria Andrew M. Ockershausen Managing Panner Director of Community Executive Vice President Private investments Beers and Cutler Relations. IBM Corporation The Anery Organization,Inc.

Certified Public Accountants 5,g,,,,y,,,y;,,y,,

Residentialand Commercial Robert P. Pincus Henry E. Catto, Jr.

Chairman of the Board RealEstate Dmlopment President and Chief Executive Officer Vice Chairman Greenhoot. inc.

Arthur K. Mason H&C Communications CommercialPropertyleasing Attorney at Law U man Redman ha Chennault.

and Management leva. Hawes, Mason & Martin At orney at law Melrod, Redman & Gartlan, P.C.

President Joseph B. Gildenborn C. Coleman McGehee TAC International Vice Chairman of the Board:

President and Chief Operating Jeffrey R. Reider Public Relations Consulting President Officer. Sovran Financial President fr Piveky, Jr.

JBGRealEstate Associates.Inc.

Corporation Princeton Capital Corporation e

Real Estate Det'elopment H. Peter Meisinser John Safer Chopivsky Corporation C. Robert Kemp Private Investments Chairman of the Board Business Development and President financing Opponunity funding 3,9 yy gg Jooeph R. Sekuble Executive Vice President Robert L. Cohen OrPoration ill & long Co., Inc.

W "** 0

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Concrete Construction WYW"N Barnes. Morris & Pardoe Victor Krakower R&rs CommercialRealEstate Vice President and Treasurer

["*; Es Stanley R. Zupnik Management McGregor Pnntmg Corporation Im a

President Majestic Builden Corporation Construction Managing Committee Mar 3 eth F. Bernhardt Albert A.D'Alewandro Robert P. Pincus Sheldon C. Stewart b

Senior Vice President and Manager Executive Vice President and President and Chief Executive Vice President and General Auditor financial Smices Manager. Commercial Banking Officer Yie H3'est Jame C. Brandon Joseph B. Head Dorothy R. Smedley Senior Vice President Executive Vice President and Chief Senior Vice President and Manager Vice President Retail Banking Financial Officer Commercialloan Department Human l'.esources 58

7 l

Board of Directors A

Sovran Bank / Maryland Evelyn J. Bata Francis 0. Day. Jr.

Harry Martens. Jr.

Foster Shannon Management Consultant President Chief Executive 05cer President and Chief Executive Bata Associates E 0. Day Co.. Inc.

The Martens Companies Oscer. Shannon & Luchs Asphalt Pering Rr' Automobile Saler and Company

,g g g,,,,,,

Chairman Blaine H. Eig. M.D.

Real Estate Det.elopment Real Estate i

Maryland Drywall Physician Walter M. Meinhardt, Sr.

Alfred P. Shockley Construction President President Brandywine Auto Parts,Inc.

S eyVo ag. nc.

Richard V. Caruso d ice Presi ent Chairms i of the Board and C & P Telephone Company Edward E Mitchell Chief E ecutive OfBeer President and Chief Operating John Brooks Sinughter Robert Gladstone l

Omni Construction. Inc.

OfBeer. Potomac Electric Chancellor oWatyd.

Power %

me Genemi Building Contractor

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(

Vincent N. Cook RealEstate Dewtopment Robert J. Mn11 iran Vice Chairman and Chief John M. Waltersdorf Assiet Group Executive.

L. Ralph Hicks Jr.

Administrative OfBc.~

President Operations Staff President and Chief Executive IBM World Trade Woodward & lothrop. Inc.

Tristate Electrical 05cer Asia / Pacific Group Department Store Chain Supply Co., Inc.

Frank Hirsch

1. 8I' C. A.Cutebins,III Peter E 0*Malley Anorney-athw Attorney-at-Law and Managing Chairman of the Board and Chief Executive Officer J. Henry Hoskinson Partner. O'Malley, Miles.

Sovran Financial Corporation Private Investor McCarthy & Harrell ammmmmmmmmmmumm-m Managing Committee Maristeve Bradley William M. Lynr. Jr.

Frank A.Rauscher Janet L Schmidt Marketing Executive 05cer Operations Se< vices Executive Executive Vice President Human Resources Executive Officer Retail Banking 05cer gg Data Proceuing Executive Of5cer Allen T. Nelson, Jr.

Andrew L Robinson Nancy C. Willis Seni r Vice President and Financial Services Executive 05cer Senior Vice President L

b HiNr.

Tnasunt I""M'"*8'"'"'

President and Chief Executive Warren P. Rothe Officer Executive Vice President Commercial Banking 59

d I

Sovran Financial Corporation Banking Locations One Commercial Place, Norfolk. Virpnia 23510 (804)4414000 SOVRAN BANK N.A.

12th and Main Streets. Richmond. Virpnia 23219 (804) 788000 Abingdon Chatham Fort 5torv

\\fctran Rural Retreat Alberta Che*apeake Frankhn '

tiernfield Shenandoah Alexandria Qarkaille Fries Midlothian Srnithneld Amphibious Base-Little Creek Coeburn Galax Wmpelier s>uth Boson Annandale Ct,llinsville Gate Citv Naval Base. Norfolk Spring &id Arlington Colonial Heights Gla& Spnng Newport News Stanardm4]c Ashland Crewe Cordonsnlle Nickelsvdle Staunton Bailevs Cronaroads Crozet Grafton Norfolk Suffolk Bedford Dale City Hampton Norge Tmutulle Big Island DaleviDe Harnsonburg Norton Victoria Big Stone Gap DanviDe Herndon Oakton Vienna Boykins Dillwyn Hillwille Oceana Naval Air Station Vinton Bnstol Drakes Branch Hopeweu Orange Virginia Beach l

i Brodnax DufBeld

! independence The Pentagon

%nesboro Buena Vista DullesInternational Airport lawrenceville Petersburg Weber City Burke Dumfries leesburg Pbrtsmouth Williamsburg Burkeville Flkton Louisa Pound he Cape Charles Fairfax Isnchburg Pulaski Woodbridge Caprun Fairlawn Manassas Quantico Woodstock i

I Centerville Falk Church Marine Corps Base-Quantico Reston Wphevdle i

CentreviDe Farmville Marunsvdle Richmond Nassau.The Bahamas Charlottesvdle Fieldale Mathews Roanoke hhington, DE Chase City Fort Eustis i

SOVRAN IRNKlDC NATIONAL l

1801 K Street. N.W., hhington, DE 20006(202) 955 8700 bhington. DE 4

SOVRAN BANK / DELAWARE 800 Silver lake Boulevard. Dover Delaware 19901(302)734 4800 Doier I

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' SOVRAN RANK / MARYLAND 6610 Rockledge Drise. Betheula. Lnland 208171301) 270 5000 Annapob Colewdle Greenbelt Luthenille Silver Spnng Bahimore College Park Hagerwo n Lunt Rainier St. Charles Behmille Columbia Hancock Olney Suidand Bethesda Coral Hills Hdlerew Heights Oxon Hdl Takoma Park ikwie East Riverdale Hyattmille Pikesville Thurmont Camp Spnngs Forestville Landover Potomac Towson Cawade Frederick landover Hills Randalistown l'pper Marlboro Chevy Chase Caithersburg langlev Park Rockville Waldorf Clinton Germantown taurel Seat Pleasant Wheaton s

1 61

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M Sovran Financial Corporation Financial Services Affiliates One Commercial Place, Norfolk, Virpnia 23510 1

(804)441 4000 SOVRAN CREDIT CORPORATION SOVRAN CAPITAL MANAGEMENT CORPORATION 410 East Main Street Elizabeth City, North Carolma 27909 1111 East Main Street, Ehmond, Virgmia 23261 1919)335 0546 t804) 788 3100 North Carolina Mount Obve Virginia Edenton Murfreesboro Charlottesville SOVRAN EQUITY MORIUAGE CORP 0 flat 10N Ehzabeth City New Bern Hampton 3600 West Broad Street. Suite 452. Ehmond, Virpnia 23230 Farmvdle Oxford Harnsonburg (804)353-5544 Goldsboro Roanoke Rapids Portsmouth Greenvtue Rocky Mount h hmond 4 trginia Florida North Carolina Henderson Washington Spnngfield Annandale Clearwater Chailotte Hi h Point Williamston Suffolk CharlottesviDe Jacksonville Greensboro 6

Danville Ta.mpa Raleigh Kill Devil Hius Rilson

\\ uprua Beach Kinston Zebulon pg g

pg Falls Church Ohio Georgia Columbus Atlanta Reynoldsburg SOVRAN FUNDING CORPORATION rt News P.O. Box 600, Norfolk. Virgirus 23501 N Ik Decatur South Carolina (804)441 4041 Richmond Maryland Greenville Roanoke Glen Burnie fnn#

RocknDe SOVRAN FUTURES CORPORATION RO. Box 600 Norfolk, Virginia 23501 8

Nashville Y

Beach (804)446 3711 Wilhamsburg Towson SOVRAN INSURANCE INC 6

A EN ', I C.

255 Nort Rashington Street, Rockville, Maryland 20850 B

N o

r (804)624-6070 A

E C

"P a 235 SOVRAN INVESTMENT CORPORAT10N N rf

' i (804)624-60'70 12th and Main Streets. hhmond, Virginia 232l 9 (804)788 2246 SOVRAN MORTCAGE CORPORATION 1512 Willow lawn Dnve, hhmond, Virgvua 23230 SOVRAN LEASING CORPORATION (804)289 3500 1510 Willow lawn Drive, Richmond, Virginia 23230 (804)282 6522 Virginia South Boston North Carolina Abingdon Vienna Charlotte Virginia Marvland North Carolina Charlo+tenville Virginia Beach Durham Arbngton Baln'more Charlotte Chesapeake usynesboro Greensboro Richm.ond Bethesda Raleigh Colomal Heights Williamsburg Raleigh y#8""aBeach Danvdle Woodbndse Falls Chuith p,M%

Camp Hdl CASH FLOW,INC.

wm Fredencksburg 5th Floor, Royster Building Harnsonburg u"I"@ "

Two Commercial Place, Norfolk. Virpnia 23510 ct Lynchburg Maryland (804) 441 4139 Manassas Bethesda Tennessee Martinsville Columbia Nashville Nc" Port News Dunkuk FINANCIAL INTERSTATE INSURANCE COMPANY Oakton Gaithersburg 800 Silver Lake Bou!cvard, Dover, Delaware 19901 Pulaski Greenbelt (302)7344800 Ehmond Severna Park Roanoke SUBURBAN CAPITAL CORPORATION 6610 Rockledge Dnve, Bethesda, Maryland 20817 (301)493-2803 sumamus 62

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l Highlights of Sovran Bank Affiliates Sovran Bank, N.A.

Sovran Bank / Maryland 1

Sovran Bank, N.A. is the largest bank headquartered in Sovran Bank /Magland maintains a presence in most Virginia, and has operations covering more than 79% of the major markets in Manland. Operations are centered in state's population. The bank holds 21% of the state's com-Montgomery and Prin:.e George's Counties, two of the mercial bankmg deposits and ranks number 1. 2 or 3 in com-most affluent and rapidly growing areas in the nation.

mercial bankmg deposit share in 80% of the markets it senes.

As the market share leader in both counties. Sovran Bank /

Maryland holds 10% of the state's total commercial SOVRAN IMK. N.A.

banking deposits.

December 31.1986 S0VRAN BANKlMARYLAND Amets.

810,418 U"'*b" 31.1986 l

loans net of unearned income..

7.149 At year end (in millions) i Deposits.,

8.353 Amets..

83.255 Shareholders' equity.

592 loans net dunearned income.

1.%5 Profaability Deposits.

2.737 Net income (in thousands).

.. 8112.364 Shareholders' equiry.

190 Return on amets..

1.14%

Pro 6tability Return on equity.

19.82 %

Net income (in thousands).

.833,920 Non-financial data Return en amets.

1.10%

Fulltime equivalent employees 7.392 Return on equity.

. 17.64 %

Bank offices,

265 Non-6nancud data Automated teller machines -

191 FuD time equivalent emplovees 1.931 Bank ofSces 84 Automated teller machines 117 Sovran Bank /DC National Sovran Bank /DC National senes a unique banking market.

Sovran Bank / Delaware characterized by a high concentration of banking deposits within a relatively small geographic area. Although banking Sovran Bank / Delaware, which was formed under the in the Washington, D.C. market is highly competitive, limited senice banking legislation of the state, senes Sovran Bank /DC National, with a 4% share of market, as a credit card subsidiary, conducting bank credit card increased its deposit base by 24% between 1985 and 1986.

operations and extending consumer loans in the form of open-end personallines of credit. The bnnk does not SOVRAN BANK /DC NATIONAL engage in commerciallending activities. At year-end 1986, December 31.1986 it had credit card loans outstanding of $192 million.

.har.cnd (in miDions)

In 1986. Sovran Bank / Delaware reported net income Asacts.

8571 of $5.975 mdhon. It has one office, with a staff of loans net d unearned income.

394 102 employees.

Deposits.

528 Shareholders

• equity..

29 Pro 6tabilny*

Net income (in thousands).

$4.052 Return on asets

.86%

Return on equity.

. 14!I4 %

Non Gnancial data FuD time equivalent employees 241 Bank 00 ices 7

Automated teller machines 3

% wJikear 1986.

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SECURITIES AND EXCHANGE COMMISSION Washington, D.C.

20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30. 1987..

Commission file number 0-6500.

SOVRAN FINANCIAL CORPORATION (Exact name of registrant as specified in its charter)

Virginia.

54-0898250 (State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization) l 1

One Commmercial Place. Norfolk, Virginia 23510 (Address of principal executive offices) (Zip Code)

(804) 441-4000 (Registrant's telephone number, including area code)

None i

Former name, address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X.

No ___.

Indicate the number of shares outstanding of each of the issuer's classes of common stack, as of July 31, 1987.

Common Stock. 45.00 par value 42.474.107 shares

f i

l-l SOVRAN FINANCIAL CORPORATION Table'of Contents EAK2 l

PART I - FINANCIAL INFORMATION Item 1. - Financial Statements........;........................... 3 Item 2.

' Management's Discussion and Analysis of Financial Condition and Results of Operations........... 3

?

PART II - OTHER INFORMATION Item 5. - Other.Information....................................... 4 Item 6. - Exhibits and Reports on Form 8-K...................... 4-5 SIGNATURE........................................................... 6 i

2 4

,)

i SOVRAN FINANCIAL CORPORATION PART I.

FINANCIAL INFORMATION Item 1.

Financial Statements The following. financial statements required hereunder are incorporated by reference from the Registrant's Quarterly Report to Shareholders for the period ended June 30, 1987 (attached hereto as Exhibit 20), from the respective pages indicated:

Page Reference in Item Quarterly Report Consolidated Balgnce Sheet (Unaudited) 11 Consolidated Statement of Income (Unaudited) 12 Consolidated Statement of Changes in Financial Position (Unaudited) 13 Consolidated Statement of Changes in Shareholders' Equity (Unaudited)-

14 Notes to Financial Statements 15-17 The accounting policies followed are set forth in Note A to the Registrant's financial statements in the 1986 Annual Report to Shareholders which is incorporated by reference into the Registrant's Annual Report on Form 10-K for the year ended December 31, 1986.

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations The information required hereunder is set forth on pages 4 - 10, inclusive, of the Registrant's Quarterly Report to Shareholders for the period ended June 30, 1987 and is incorporated herein by reference, i

3

Part II. OTHER INFORMATION Item 5.

Other Information (a)

On April 27, 1987, Sovran Financial Corporation (the " Registrant" or SFC) entered into an Agreement of Reorganization (the

" Reorganization Agreement") and a Stock Option Agreement (the

" Stock Option Agreement") with Commerce Union Corporation

(" Commerce Union"), a registered bank holding company based in l

Nashville, Tennessee. Pursuant to the Reorganization Agreement, a wholly owned subsidiary of the Registrant will merge with and into Commerce Union, and Commerce Union thereby will become a wholly owned subsidiary of the Registrant (the " Merger"). The merger is subject to approval by regulators and Commerce Union's shareholders at a special meeting to be held on August 25, 1987.

Pro formh financial information giving effect to the proposed Merger including the Pro Forma Combined Condensed Balance Sheet as of June 30, 1987 and the related Pro Forma Combined Condensed Statements of Income for the three months and six months ended June 30, 1987 and 1986 and related notes thereto, is set forth in Exhibit 28.1, which Exhibit is incorporated herein by referrnce.

Pro Forma financial data as March 31, 1987 and for the five years ended December 31, 1986, 1985, 1984, 1983, and 1982 was previously reported in the Registrant's March 31, 1987 report on Form 10-Q.

(b)

During 1987, the Financial Accounting Standards Board issued a final statement entitled " Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases" (FAS 91). The statement is effective for fiscal years beginning after December 15, 1987. The Registrant will adopt the statement for the year beginning January 1, 1988.

Preliminary estimates indicate the adoption of the statement will not have a material impact upon future results of operations.

Item 6.

Exhibits and Reports of Form 8-K (a)

Exhibit 11 - Statement Re Computation of Per Share Earnings, filed herewith.

20 - Report Furnished to Security Holders for the period ended June 30, 1987, filed herewith.

4

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28.1 - Pro Forma Financial Statements of Sovran Financial Corporation giving_effect to the merger with Commerce Union Corporation.

Pro Forma Combined Condensed Balance Sheet as of June 30, 1987, Pro Forma Combined Condensed Statement of Income for the three month and six 1

month periods ending June 30, 1987 and 1986 and

(

related notes, filed herewith.

1 28.2 Unaudited Commerce Union Corporation and i

subsidiaries consolidated balance sheets as of J

June 30, 1987 and 1986, and consolidated statements of income, changes in common stockholders' equity, and changes in financial position for the three months and six months ended June 30, 1987 and 1986 and related notes thereto, filed herewith.

(b)

No reports on Fors 8-K were flied during the three months end6d June 30, 1987.

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e e

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5

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behair by.the undersigned thereunto duly authorized.

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SOVRAN FINANCIAL CORPORATION (Registrant) 1!

Date:

August 7. 1987 Donald R. Fisher, Jr., Chief ~ Accounting Officer and Treasurer l

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4 Exhibit (11)

Sovran Financial Corporation Earnings Per Share (Dollars in thousands)

Three, Months Ended Six Months Ended June 30, June 30 1987 1986 1987 1986 Average shares outstanding 42,330 42,828 42,278 42,209 Effect of stock options 155 327 167 312 Primary average shares outstanding

_ 42,4M 43,155

_42,445

_42,521 Net income 4 40,128

$ 36,855

$78,613

$71,181 Dividends on ;, referred stock (72)

(109)

(148)

(234)

Net income Lpplicable to

(

primary earnings per share

$ 40,056

$ 36,746

$78,465

$70,947 Primary earnings per share Q

M M

Average shares outstanding 42,330 42,828 42,278 42,2'09 Effect of:

Stock options 155 342 167 363 Conversion of preferred stock 245 335 248 365 42,730

1. 3,505 42,693 42.937 Net income, assuming full dilution

$ 40,128

$ 36,855

$ 78,613

$71,181 Fully diluted earnings per share

$.94

$.85

$1.84

$1.66 O

e

1 Exhibit (20)

I 1

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Quarterly Report to Shareholders

4 Exhibit. (2 8.1).

Pro Forms Financial Statements of Sovran Financial Corporation and Commerce Union Corporation

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Pro Forma Combined Condensed Financial Statements (Unaudited)

The following unaudited pro forma combined condensed balance sheet as'of June 30i 1987 gives effect to the Merger using the

. pooling-of-interests method of accounting as if it had occurred on June 30, 1987..The pro forma combined' condensed statements of

' income.for the.three months and six months ended June 30, 1987 and 1986'give effect to the Merger as if it had been in effect

-throughout the periods presented.

The information shown is based upon historical data and is not necessarily indicative of the results of future operations of the combined entity or the actual results'that would have occurred had the Merger been. consummated during the periods indicated.

These statements and related notes should be read in conjunction with the related consolidated financial statements of I

SFC and Commerce Union and the notes thereto.

Per share data have been adjusted to reflect the Commerce Union two-for-one stock split in the form of a 100% stock dividend effective May 1, 1986.

1 l

j L________________

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SOVRAN FDWCIAL CGGGATION AND StBSIDLUES PRO FGHA COfBDED CON 2N5ED 541AM2 5E22 June 30, 1987 (thauittad) sWRAN CHERE PRD RENA FINMCIAL GG31 03PGULTION CORPGATION A11K15" DEN!s GMBDED l

(IntM M )

Assus Cash and due frf:3 banks

$998,177 4289,2 %

$1,287,471 2rtgage loms laid for resala 204,696 0

204,696 Trading ema securities 1,063 421 1,484 2ney mariat imestamnts 1,862,447 321.701 2,184,148

'aivastaant securities 2,595,346 766,076 3.361,422 i

lams, not of maarned income 10,204,147 2,624,631.

12,828,778 A11mmn= for loss 1ceses (118,%2)

(32,813)

(151,755) i 12,677,023 Net loans 10,085,205 2,591,818 Prestees and equipment 309,622 67,29 376,831 Other assets 386,4 %

123,894 510,390

$20,603,465 Total Assets

$16,443,052

$4,160,413 I

M Deposits:

2ninterest bearing

$2,650,567

$567,801

$3,218,368 3

I Interest bearing 10,337,882 3,27,983 13,365,865 16,584,233 t eal deposits 12,988,449 3,595,784 Sert-term borrowin8s 1,903,669 155,191 2,058,860 Loog-term borrcadm8s 353,059 26,443 379,502

)

other liabilities 278,359 84,845 363,204 Total Liabilities 15,523,536 3,E2,263 19,385,799 SHARDURRS' EQLII1T Preferred stock 2,154 0

2,154 Comum ad 211,852 118,218 80,683 (A)

(118,218)(A) 292,535 8trplus 29,543 50,231 37,535 (A) 117,309 metained earnin8s 675,967 129,701 25,668 Tecal Burehnders' Equity 919,516 298,150 1,217,666 heal Liabilities and

$20,603,465 Shareholders' Equity

$16,443,052

$4,160,413 4

i See notes to pro forma combined condensed balance ahmet.

e 4

.- 4 '

NOTES TO PROFORMA COMBINED CONDENSED BALANCE SHEET (Unaudited)

Note A To record, in conjunction with,the Commerce Union Nerger, the exchange of 17,732,637 shares of Commerce Union Common Stock oustanding on June 30, 1987 for 16,136,699 shares of-SFC Common Stock.'.The Pro forma financial information assumes that all of the outstanding shares of Commerce Union common stock are converted into shares of SFC common stock and that there are no dissenting shareholders.

Note B There were no significant intercompany balances as of June 30, 1987.

Note C Data presented in the Proforma Combined Condensed Balance Sheet has not been adjusted for the pending acquisition of The Security Bank & Trust Company by Commerce Union because it would not be a "significant subsidiary" of SFC as defined in the Commission's accounting rules.

l

[

4.

j SOYRAN FDWCIAL CGPORATION AIO C39M2 DCON PRO PORR COSDED CON 22EED DCOE STAIDDtr (thadited) l Three haths Adad Six m aths h dad l

.kne 30 Joe 30, i

1987 1986' 1987 1986 l

(In thr=M, escape per share dets) i Interest Income 1m um, including fees

$315,050

$314,692

$617,876

$624,944 In nsta nt securities 57,931 57,091 111.433 113,432 l

Nrtgage loans ha2d for resala 7,558

'7,537 14,507 14,401 hading accame securities 195 208 368 497 kney-usrket investusmes 28,261 18,898 46,855 39,243 Total Interest Income 408,995 398,426 791,039 792,517 L

Interest Emprese j

Deposits 187,637 187,751 359,289.

373,140 Sort-casa borrowings 33,333 38,866 64,865 83,977 l

Imig<ars barrtndsgs 6,799 4,908 13,636 10,135 i

Tbtal Interest Expense 227,769 231,525 437,790 467,252 Not Interest Income 181,226 166,901.

353,249 325,265 Provisico for loan lasses 19,659 14.548 32,216 28,920 he Incarest Income After Provision for loan Insses 161,567 152,353 321,033 296,345 lbninterest Income i

Securities sains and (lasses) 1,111 2,599 2,282 3,220 l

other 79,326 68,461 151,689 133,789 Total Noninterest Income 80,437 71,060 153,971 137,(D9 kninterest hp=a===

Salarias and aglayne benefits 93,373 92,541 12,802 176,150 Net acapancy awp====

11,813 10,411 23,195 20,846 Furniture and equipment expense 18,000 16,306 35,434-32,000 other 54,923 51,717 104,445 102,077 lbtal kninterest Espanse 178,189 170,975 351,876 331,073 Ircame enfore Income Tumas 63,815 52,438 123,128 102,281 Applicable Income Tamme 12,145 5,509 21,606 12,016 he Income

$51,670

$46,929

$101,522

$90,265 Net Income hr Common Stere:

Based on primary tei$tadaverageshares outstandits 3 88

$.80

$1.73

$1.57 head on fully diluted weightad everage shares outstanding

.37

.78 1.71 1.53 l

See htes to Pro Forum Ccubined Condensed Income Statement.

Notes to Combined Condensed Income Statement (Una udited)

Note A Earnings per share have been computed based on the combined historical income of SFC and Commerce Union, and on the historical combined weighted average common shares outstanding, adjusted for the Commerce Union two-for-one stock split in the form of a 100%

stock dividend effective May 1,1986, and the issuance of shares expected to be issued to effect the Commerce Union Herger as of the beginning of the earliest period presented.

The following table sets'forth amounts. adjusted for the effect of common stock equivalents, used to compute primary and fully diluted per share data in the proforma combined condensed income statement (dollars in thousands):

Three Months Ended Six Months Ended June 30, June 30, 1987 1986 1987 1986 Primary earnings per share Weighted average shares outstanding 58,834,574 58,771,222 58,606,672 57,490,539 Net income

$51,598

$46,820

$101,374

$ 90,031 Fully diluted earnings per shares nkighted average shares outstanding 59.538,537 60,307,195 59,500,740 59,179,568 Net income

$51,618

$47,039

$101,616

$ 90,572 Note B Th'ere were no significant intercompany transactions between SFC and Commerce Union during the periods presented.

I Exhibit (28.2) l l

Commerce Union Corporation Unaudited Interim Financial Statements l

i 0

4 1

I 1

n Commerce Union Corporation connoildeted salenc6 sheet (Dosars in 000's)

June 30 December 31 June 30 i

Assets:

to87 1986*

1966-

.c Laans:

C - -d and real estate...........................................82.039,034 81.975.511 81.838. 2 Instatement and credit card........................................... M9,341 u ' 526.779 510.720,

l Fore >gn........'...................................................

71,048 to 593 75.544 ' t s

O i

2.850,423

. 2.596.883 2.424,485 Less: Uneamed interest................................. *,.............

34,792 39,183 43.641 Reserve for loan losses (note 3)..................................

32.813 31.008 30 238 Total not loens.............................................. 2,891,818 2.525.894 2.350 406 "

Investment escurttaes:

U. S. Treasury...............................'....................... m64,831 217.336 196.212 1

i Federal a0encies................................................... 198,650 67.731 87.831 n State and munecipal....'............................................. 276.097 208.956 322.353 Other............................................................

24,498 5.268 4.99 Total (market values 8775.068, 3604.099 and 8621.977)........,..... 784,076 579.311 811.315 23 Trading ecount secur1 tees..............................................

420 Interest beanng bank depoone.......................................... 178.763 251.230 260.266 Other short term investments..........................................

23.039 25.087 23.005 Federal funds so4d...................................................

119.900 48 081 21.925 Tot al earning seeste........................................ 3,840.018 3.429.803 3.267,130 Cash and due from banks............................................. 380,294 327.252 269.487 Pr omises and equipment.............................................

87.209 88.6u 62.566 interest recorvable....................................................

44.784 41.961 46.302 s

Due from customers on acceptances......................................

44,157 Is3,350 47,843 Foreciosed and repossessed property..................................

8,648 5.470 8.265 Othe r asse ts.......................................................

27.305 29.707 27.754 Total Asse ts................................ '...........64.160.413 83R53 s87 83 727.367 Uabilities and Stockholder 8' Equity:

Liabilities:

Dr!d........................................................ s ss7.s01

e85.4a5 s 596 958 Intere st on checking.............................................. 400.245 403.834 319.463 Savings.........................................................

230.977 215.021 166.278 lutoney fund accounts.................................

378.480 441,491 432.712 Smati denomination certificates and other ame........................... 1.230.734 1.164,498 1.211,597 Large donornenation certificates........................................ 898,648 371,348 378.529 Foreign...........................................................,

181,007 60,2n 87.596 Tot al de peelte............................................. 3,595.784 3,351.994 3.171.133 Securities sold under agreements to repurchase........................... 104.992 M.000 89.657 Federal funds purchased and other short. term borrowed funds...............

50,199 90.574 75.528 Cebentures 4 W %. due 1999 (note 8)....................................

18.284 18.880 19,769 Otner long-term doet (noes 8)..............................

10,157 15.245 17.132

{

Total deposits and borrowed funds............................. 3.77i 4

• 8 3.575.753 3.374.219 i

Accrued interest. tases and other expensee...............................

27.851 38.540 37.364 l

Dividends payable....................................................

3.192 2.498 1,026 Sank acceptances outetending..........................................

44.187 53,350 47.843 Other hs0ilities.......................................... q............

9.645 7.474 8.113 Total Nebilities............................................. 3,es 2,243 3 6n.635 3 469 485

{

j Common stockholders'

$130/06*l Common stock 9er value

. por share:

i 8130/87 12f31/96*

g Shares authertred..... 30.000.000 30.000.000 30.000.000 Shares issued........ 17,732,437 17.104.611 18.848,837............. 110.218 114.030 112.591 Cepnal surplus.......................................................

80.231 46.701 40.537 Reta ined carrungs..........,.........................................

129,7fl1 112.521 95 754 Total common stockholders' equity............................ 208,160 276.252 257.882 j

Total uebmties end Stockholders' agulty..................... 64.160.413 s3 953 as7 s3 727.367

)

====.m

$d8 fMfes D Mn00duspied he6r M

• See Note 9 to consolidated snancial statements I

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Commerce Union Corporation Consolidated Statement of income (Doilers in 000's escept per share) 4 Three Months Sis Months

.T-Ended June 30 Enced June 30 i

e M *.7 190$*

1987 1906' interest revenue from seming anasta:

Interest and fees on loans...........................................868.965 864.721 8131.193 8120.303 Interest arid dmdends en investment escurtties:

U S. 7tessuey.................................................... 4.221 4.272 S.250 8.501 Federal agency.................................................. 2.120 2.113 3.311 4.526 State and murucipal............................................... 8.190 6.088 10.735 12.158 Oiner.........................w..............................

328 100 412 318 11.875 12.544 22.708 25.504 Interest on tredsng account escurtlies...i..............................

12 3

13 7

Interest on bar* Gepoests n.......... n............................. 3.405 4.014 7,011 9.700 interest on other short. term bestments...............................

336 32 470 '

643

' interest on federal funds sold.......................................

821 621 1.114 1.339 Deal interest revenue...............,....................... 83.114 83,095 162.709 166 595 inWert evenes:HWrersett oit deposits.1.U 1

4......................................... 40.325 44,190 78.750 -

83.233 Intelest on short. term th7 fowed funds.......................

3,464 3.141 4.755 6.642 bierest on subordmaled and other legterm debt.............

493 824 1.285 2.140 I

lbtal interest espones...................................... 44.282 4815G 06.790 90,055 1 6det hterost revenue....................................,.......... 38,632 34.640 78.910 48.540 q'-

^ Pruwwan for toen tosses (note 3)...................................... 3.732 3.640 4.614 0443

<0 int coming asset sentethution. e............................... 35.040 31.300 40.?05 80.007

hoMnterest revenue (note 4)..............................

11.727 10.542 23.495 20.724 Wt operating revenue.......................................... 48.787-41.882 92.900 40.821 O Noninterest overhead expense d-

~;[!

Salanos.......... ~........................

14.541 12,919 28.727 25.499

{

i Personnel bene 8ts..........................................

2.931 2.530 5.788 5.359

.r

. Not occupancy esponse........................................ 2.532 2.455 4.968 4.868 i

Furnsture and equiptern expense............................. 2.244 2.225 4.810 4.464 Otner operahng espones.......................

.....J0,399 10.314 20,336 20 085 TStal nor>4nterest overhead sapense...................... 32,447 30.443 64,399 to 295 income before income lanes...................................... 14.120 11.419 28.601 20,126 income las esponse (note 8)..................... 4.....

2.578 1,345 S. Set 1,442

• 11 542 Net inseme..................................................... Emmans 810.074 22.909 8 19 064 ammmme asumas.s Per Common Shore:

Average outstaruling and 5C4 shares (in thousands).................

17.907 17.181 17.700 18.450 i

No t enesme..................................................... 8 -

.44 8

.50 8

1.29 8

1.16 Average outstanding and Tre shares, assumeng fun sidutaan (in thousands).10.471 18,464 18.470 17.648 No t ineame..................................................... $

.43 8

.86 8

1.2$

$ t.00 Olvidende Declared Per common Share...............................

.13

.15

• 33

.28 fee amme o emessense ciansW siennemer

• See Nees 9 to conestidated Anancial statements a

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' ommerCe Union Corporation C

Consolidated Statement of Changes in Common Stockholders' Equity j

' For the $iz Monms Ended June 30,1988 and 1987

'1 Conwnon Stock Cephel Retamed Seears b 000's)

Shores Amount Surplus Earrunes '

Total l

Balance et January 1,1986, as previously foperted.....

7.330.18e 8.48.928

'8 27.629 8118.773 8205.230 l

Acquelens wi 1987 encounted for as a poohnpef<nterests (note 9)....... :..................................

325.821

< 1.804 1.127 3.329

. 5.000 1

Setance et January 1.1908 as restated.................

7.tH,700 S0.432 30.6M 122.102 211.190 Nel moome for ses months.............................

18.084 19.084 '

Stock opeens eserceed...............................

100.M1 724 246 973 issuance of shares tot detW oorwersion...................

346.000 2.307 478 2.763 Cash omdends declared on common stocic Commerce Unen Corporaten........................

(3.393)

(3.303)

Sutodery prior to acquehen.................,......

(375)

(378) l Common eheres sold......r...........................

800.000 4,000 23.N1 27.H1 Purchase.ef treasury shares try esenhery prior i

to acqueton.....................................

(18)

(18) i he.forene stock spilt eNected in the form of a dudend....

8.248.657 41.N3 (41.643)

' Eflect of etoch epist en acquetene (note 9)..............

2.022.730 13.485 (13 485)

Salones et June 30, 1988.............................

16.888 837 M ' g g E882 Salence at Janvery 1,1987, as previously reported......

14.863.271 18111.022 8 80.079 8100.477 8280.578 Acquelens e 1987 accounted for as a pochngef. interests -

(note 9) 451.240 3.006

' 079) 4044 6 674 Salance at January 1.1987, as restated..................

17.104.511 114.030 49.701 112.521 276.252 Not income ter ein monme............................

22.000 22.900 Stock optons esercised..................

7.325 49 13 42 laswance of shares for detit oorworoson...................

620.001 4.138 817 4.466 Cash omdends declared on common stock:

Commerce Unen Corporaten.......................

f5.890)

(5.800)

Sutodery pror to esqueden.......................

(39)

(30)

Solanes at June 30.1M7.................?...........

17,732.637

---

.8 8 50.231 8129 701 E'8.150" 8118.21

.- -ee Quarterly Comparisons (Soo Note 9)

Average Dmdends Last 'Rede Sock Value Per Share Not income Shares Declared Price of Stock Shares Funy 1988 (000's)

Por Share' (000's)* Per Share"

,M,g, Low Outstandeno Deiuted First Outr1er.................... 8 0.010 8.53 17.226 8.13 827% 821 %

Sid to 814.29 Second Quarter.................. 10.074

.58 '

18.464

.15 30%

26 15.27 14 as Third Overter.................... 10.787

.Se 18.433

.15 32%

27%

'15 N 15 le Fourth Quener................... 11.078 41 18.445 25 29 25 %

16 15 15 67

. Veer....................... g g

18.146 g

832 % 821 %. 814.15 815 67 I

1987 First Querior.....................811.387 8.82 10.480 8.15

$30% 826 818 87 816 20 Second Quener.................. 11.H2

.33 18.471

.18 30%

36 %

18 81 16 M Aserege P8' cont of Aworace Eamme Assets Eameng Not t.oen Non.

Non.

Assas inweest Loss inerset interest income Not 1908 (5000s)

Revenue * "

Provisen Aewenus Esponse Tames'"

income Fwet Quener......................83.155.834 6.32 %

.81%

1.29 %

3.70 %

1.00 %

1.14 %

Second Quener................... 3.230.000 S.32

.45 1.30 3.76 1.17 1.24 Third Quener..................... 3.321.248 8.30

.50 1.44 3.N 1.21 1.30 Fourth Quener.................... 3.383.749 SJ5

.38 1.5 3.74 1.17 1.31 1

Veer........................ 83.275,001 8.39 %

.80%

1,35 %

3.73 %

1.16 %

1.25 %

1907 Fret Quener..................... 83.440.648 5 02%f t

.32%

1.37%

S SB%

1.06 %

1.32 %

Second Quener.................. 3.651.324 5.03

.43 1.32 3.88

.M 1 30 ase asses e assashesset fhemmer assemens

" 7he teeter wenn se someute tenet is eowevolent mesmo see 1.8473. Pm eier emismenue ear sees weed a 17 bed sector e inn teos teeter ned toen uses. not interest revenwo es e percomage er eversos eamwie enesee mowna nave seen a 21% ter ee ens months one sm% ser wie emner ensee June M. INF.

• 4eewmwie tus esguen

" Seses en esmmen shorea sweteneng g '" teases semescal ages I

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0 Commerce Union Corporation ConsoHdeind Statement of Changas in Mnancist Position l

{Donars in 00C's)

Three Months Su Months Ended June 30 Enned June 30

' 1987 1986*

1987 1986*

Seuroes of Funos: '

From operations:

Not encome......'.......................................

8 11.M2 8 10.074 8 22.909 8 19.0M increase (decrease) from hems not currently requinng cash:

Provision tot depreciation and ernertaatton................

2.045 2.017 4.017 3.065 Provis.on for esforted lanes.............................

899 (403)

(1.031)

(563)

Provtsson for loan toem................................

3,782 JS40 6.514 8 443

. Total frorn operahans................................

18.078 15.328 32,400 30.929 increase in.

Deposis.........................

302.000 106.087 243.790 46.216 i

5.066 8.912 Securities acid rtier agreersenta 10 repurchase...............l 33.472 Federal funds p - ased and other short-lorm borrowed lunes...

7.827 Sank acceptances outstanding.....................,......'

=

e Decrease in:

in.esimoni noeunwee.................................I s.27 e.0e0 Interest beenng ba nk espoons....

S2,843 72.487 i

493 i

Trading account secunties...............

Other snort term investments........................

3.000 157 3.M9 43.550 38.483 Federaf funds seed....................................

30.868 11.842 Cash and due from banks..............................

Due from cusorn on acceptances.

4.707 9.117 9.193 346 Other assets..

lesuance of commr, e shares under stock optson plan...........

10 250 62 973 2.783 lasuance of commo.t shares tot long term eeot conversson.......;

4.464 2.408 4,654

.27.841 lasuance of common shares.............................;

i 951 Not assets acovired m acquisition.........................

111 Volustion reserve ancrease sue to acquisition...................l 4

Total Changes in Seursos of Funds..................

33s5.418 s t 80.113 8409.096 5256 164 l

Uses of Funds:

l Cash smoonos sociated...

8 3 230 8 2.140 5 S.729 8 3.771 increase en:

I

. Leens. not............

29.785 33.321 72.438 100.841 1M,745 Investment securflies..................................

182.997 Trading account secunties................................

$22 23 420 31.547 5.095 Interest beenng bar# asposns............................

5.150 Other short-term art.sstments.............................

~

~

71.818 Feoeral funns so6d.....

89.910 7.127 Due from customers on acceptances Cash and due from banks...............................I 20,064 12.106 i

320 2.512 3.182 Other assets............................................ ]

Promises and equipn.snt.................................

2,230 3,730 4.701 8.426 l

t Doctosas in:

10.000 g

Securities acid under eGreements to repurchase..............

9.814 i

Feders' funds purchased and other short-term corrowed funde...

33.232 21.408 40.178 Sank acceptances outstanding.............................

4.707 9.117 9.193 Long term sect...........................................

2.M7 791 3.006 17.815 i

Other habi4itses..........................................

1.365 971 8.014 M.929 Purchase of treasury sharea by subedary pnor to acquisition......l 18 Lan0 term sect converted to common stock....................

4.084 2.400 4,864 2.783 Total Changes in Uses of FM......................,

8385.418 Lt,00 1,1,3,,

6400.004 8256 164

=

j See asses an omsehessed menant sensomsres

• See Note 9 tu connoiidated Anancial statemems 8

a is I:

0

., p.

l i

I e

.i Commerce Union Co oration

$ero"us""tager pace"esings are'p"enome agemet CUC and as aw 8

• • ea"

'8 "'*" * * -

Notes to Corisolidated Fi@ancial Statoments eure we owiseno.no enous commamenis ano moni,ngo n 6anaa.es m me n.e n

mai onweee et ausmess. auch as senes of cree.: and ammmamene is esiere econ m.ucn are not renecies a me acuampanymg ennaendaiec imanew saaee-e

9) principees 'of eenmoneetten ei.tc basie of enansief statemente:

mene sdenegement sees asi aniensis any maim enem en me nnansam em The aimeos.oeied thancer statements meswee re amounts of Commeres Urnen ten of m Corporanen as a seana of pene me.easaare Coperaten (CUC) and as subs.d.enos and are pepared m asserennes een gggn,,,,y,,,,

a ne eley acompted scoowat CUC,s senaunhng psimase are ges'eed more hay in em Lg anncesesAnnual mope'k homme las sapenne (poey wu teu stan We amouru eurowied by appyrig pie aienutory tenores acome ins rose to pre las rumme lor me tomo-me reasons honedy enances statemene are based in part en essensies and heksee as g,, u,,,,,g,,,,

assustments wMM ere m rio epnen of management. necessary ter a hr Seeps b EW8)

Jure 30 posentaion of rosatts for intenm porcos Operaimg reewns ist meenm penses are not najaaaatify riecatawe of sesuka ser e esmpone losed year.

'887

.'ee8'

,,,,,','8'"'***

L88eM,een.eht.easete end renegees.ted tee,e e:-.ses.e:

,,,, eases,ese,m r ns 811.401 8 e 442 ese n eaa is and ren. m..d ans e

.hano 30 Deesmeer 31 Asne 30 Tesesempt maarest en ensee and passapel

- pesars M 800's) 1807 tees tees

• enhpemens.............................. F.ee6) de est)

,,,,g.

siale mesmo tases, not of emeeral sissne ses termes e34 706 Cashennas ensne.....

.... /.. 38.073 Ste.077 St.107 hvestment saa creen MW)..

166 titel om..

Fweetened and sepeasessed hon <leswchbie maerest cepense.

885 1.163 5.848 5.470 SJe6 Omer tone. net.

saa tat peupony

...oo o.

g73 g

g bisome las empense loose).............

Sg

$g Aenspessed harts.............

heems tu s.upo.nes.Inche.letl surreney pe, regio amnwrus of 86 623 msm s2 0m eews n an esi,,a emowne e...mai.,nii n e m an.e het oisome was depressed approarnsto8y $ 04 por share m sie arer half si im7 45663 anowmend) lor we ais manms enend June 30 1987 ene 1986 renosctr.osy and itse due to interesi not accrued en cashesses loans and ineorost easts of vicome las supones theneht) renaied to securey esms (Iciates) ou 157 showeend) heedmg lorec4pted and repossessed propony A hather reeweteri of lem Wien erul183a6 riouseruf) kr see pared resc Jwre M.1887 arts 1986 respecovery 8 01 por share et wie Arst hast et 1987 ans tem reewsted esm siserest seaws.

.e.wr

.anm,um Ce,Capern,een enested rios an e.eroemeru to tN7se an, o C-sen e - -

.t ee,ee, e.ooes.o.

The eenerve ter een taases e sunenansed Se teenmc Enses tenneense Secunry Sana a Trust's asases unal esproarnaiety $3i maan As een se immens:

June 30 me. CUC ene ease appresensiesy 164.000 anares e eacmenos sur 58i e 1000 W m 800's) 1807

tees, eheres cuestanomg Tne sammann a ana oci e appova; by rep.aaiory ananor, s

ses ans $5T enseenmeers Previsen Ier loan amness. Wierged to esperue......$ 4.6 t 4 8 e a43 j

Laos Not taan eftergsene.~

El Lemp4erm dent:

taan energe.ons-Ims erw poveers of tripesem ames are descrees e emed e CUC's tees i

(7e0 3.321 hD i

Commercial........

i Ana4 emete.............

311 See sl eusinone Cemetrisenne.

hatalinent ans ereen sore.............

2.264 2.001 On Sepomest 22.1986. CUC enmared Caeres soum tensorp me a haswig Peregn.

86 t06 anmpany named a Frenahn. Tennenses, arman omree W4hammon Ce6avy tana 7.3eo s.7is e,d Pisteers Bank one Tnse Aseguence The ar4===s of Cereral Sauss Sanaarp. Mc Isr CUC was asemanee ear as a Commertaal 1,433 872 punknechneereas to enrewnwnese vie tranaschon CUC mauso 3 se4 245 wis,es Aselassie..............

et 48 of ammum mock. Central SmAh Fiercrusert teamwoo 2 te67 ahares of CUC men hasa8lmswu and eress serg....

304 484 myi moon sur asen share of Ce tre So.1h armum Tonal cuaram reversa m yo.

Peregre..

s es eusly aswee Anancaal statemer4s of CUC has noen acreasse D, 528 p2 000 g,g3 461.C.'10. Sie 3eo IMD. $17.4e2 (MD. and 514 476 M ter wie es ateng 31.1986. tue.1983. tM2. ene 1801 #eapocovery to re via ama, het bien Wierpress...

4507 4.488 nuns copemanon test rusyre er te name e peren eins been rurenaec Wurease m welwesen reserve.

1.007 3.e&S by $3No 000. 82 He 000, 82.003.000. 42

.000. ana $1.706 000 Plwe menerve of moeured tank................7~

tit On Aars 17. test.Cuc assened Fre heannes anneoro es L.ewethrg Mc (FNS)

The ecowsomen was acaowneeo n r as e econneef caerests To canaammeio me WaNesen reserve el Degenmg of Wie year....

31.008 N 171 o

832 0t3 830.2M Wensachen CUC Gawed 301.736 shares of enmmen massi. FNS anergrunnere Aseerwe talence no e percare of beers, not of essenes sessenes 8eceivec 3 7407 ansres et CUC esmmen euen ter escri anare et FN8 conman I

unserned einerost. at Jure 30............

LIS%

1J7%

lensi riserast revenue or pevanasy enwed Ananaal siaeemonis of CUC has anon het eherseens as a percent et tanna, not af unearned Dureased Dr 56 460 000. && M2.000 66 406 000 65 273 000. anc $6 e67150 as

.48%

Beb sie years enchn0 Decameer 31.1986 tota. tem.1943. and 1942 reapa:treasy seerest..................................

to eenect fus twemens ocmbetsten Not menne tar me tone tempackwe perusas O

• 4Hb8e' has beLA entreened by $$73.M, $$N.M. $446 M $636 M and $632 ED est eowenue e menormed of Sa Manihs Ended ye tuesems June 30 On Mer il.1887 F* C81eroesn eennes unnes Ceare harvenses. he lucs) a te80'ne sempany manac e Asniano Cay Tennenese Tne ammaanem ses

@meare m 800s) 1987 tes4' ees.sniec ter as e esceneefvestesu unsee Casten Sanconares enasta esas appresensiesy $17 meen k ceummg CUC anwed es 506 armee e sa er Serwee sherges en essaae seemsee.........

8 e S0e $ 4.see e

e Trust ans swestmore toes........

4.425 3.688 UCe s 7.075 shares swimarien0 imal rueresa vesenna of povemasy es mc Desmo sonount profaa (eename) and n-338 ser eni eteemenes of CUC has been sciensac ey St.612 000 sor es year miend i

mer

. S 436 2.0.18 O.ncerv.se 31.1986 fees ric.ame ter to same panoc.ricr.en. sac E212 Jet j O.i n.erneste.mannsng esse..................

e.y s enanas.a ameros he e esen,em s im na ne ise..

32i?

.sem# se e mass 1

heenga3e origmaten and sorweer 1.838 3.006 Creon me siewrence teos......g toss.

1.teS 1.74 0

90) Poneng storger-Samamal

..........,...................33.800 31.4n on And 27,1807 em teres of abrecess of Correnwee Lauri Corpruan wup huesemoru assurosos game poemos)..........

(14) 0 01) ge,,en F,iances Corwraieri(towrery appw an egeomens to mores noewe inesi n......

323 486 M

year e.nd tes? Sonen a a bana '** l6.mps y nsaa*.anosa soewsca ve.

ca esses-

,,,s.

Noas nase.i onom w 3i. te is u e6 noen the --o e

.noru esas hir GNBreringeste of CW W faserve et shares of Sevron eswuuri muse ter each ehere er CUC comrnen one maniarunne en en amis et me mwger ine presness merger e e es eseawress ter er e esonneesessens fle smedamon a swegnet # reeweemry ens CUC sharerusser econnem

• Bee pase 9 l

18 L

I e

e I

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