ML20239A002

Requests That License Amend Authorization Sale & Leaseback Transactions Be Issued.Financial Statement for Each Listed Investor Encl.Svc List Also Encl

ML20239A002
Person / Time
Site:	Beaver Valley
Issue date:	09/14/1987
From:	Doris Lewis DUQUESNE LIGHT CO., SHAW, PITTMAN, POTTS & TROWBRIDGE
To:	NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM)
Shared Package
ML20239A003	List: ML20239A002 ML20239A004 ML20239A006 ML20239A009 ML20239A011 ML20239A018 ML20239A025 ML20239A121 ML20239A129 ML20239A135
References
NUDOCS 8709170001
Download: ML20239A002 (77)

Text

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, SHAW, PITTMAN, PoTTs & TROWBRIDGE A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATION 2300 N STREET, N. W.

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cavio n. tcwis September 14, 1987 U.S. Nuclear Regulatory Commission ATTENTION: Document Control Desk 7920 Norfolk Avenue Bethesda, Maryland 20814 In the Matter of Duquesne Light Company, et al.

(Beaver Valley Power Station, Unit 2)

Docket No. 50-412 Ref: Application for License Amendment and Approval In Connection with Sale and Leaseback Transactions by Duquesne Light Company (July 16, 1987).

Dear Sir:

On July 16, 1987, Duquesne Light Company (DL) filed, on its own behalf, an Application for License Amendment and Approval in Connection with Sale and Leaseback Transactions by DL.

The Ap-plication indicated that the equity investors who would be in-volved in the. transactions would be subsequently identified and financial statements provided.

To date, the following companies have been identified as potential equity investors, who may par-ticipate either directly or through a non-utility subsidiary:

Investor Potential Investment Commerce Union Corporation up to $ 50 Million First Chicago Corporation up to $200 Million Mellon Bank Corporation up to $150 Million PNC Financial Corporation up to $150 Million Public Service Enterprise Group, Inc, up to $125 Million (a non-utility affiliate of Public Service Electric and Gas Co.)

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870917o001 870914

{DR ADOCK 05000412 b

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i SHAw, PlTTMAN, PoTTs & TROWBRIDGE A PANTNE.RSHIP INCLUDING PROFESSIONAL CORPORATIONS Letter to U.S. Nuclear Regulatory Commission September 14, 1987 PLge 2 Sovran Financial Corporation up to $100 Million Southern California Edison Company up to $250 Million (acting through Mission Financial Management Company or another non-utility subsidiary)

Financial statements for each participant or its corporate parent are attached collectively as Exhibit A.

None of the potential equity investors is a foreign corporation.

Among the potential equity investors above are two non-utility affiliates of electric utilities.

The Application noted the possibility of participation by affiliates of utilities and stated that in such event DL would submit a memorandum ad-dressing antitrust matters.

This memorandum is attached and dem-onstrates that there will be no significant antitrust change war-ranting further review.

Finally, attached for your information as Exhibit C is a draft revision of the.BVPS Operating Agreement, which is being amended as described in the Application and will be signed by the CAPCO companies in the near future.

Copies of draft transaction documents will be provided to you for your information under sep-arate cover.

As noted in the Application, the sale and leaseback transac-tions must for tax purposes be completed in September.

The NRC published a Federal Register Notice relating to transactions on August 12, 1987 (52 Fed. Reg. 29,915), permitting approval of the Application on or after September 11, 1987.

Because of the im-portance of these transactions and the benefit to ratepayers, DL respectfully requests that the license amendment authorizing ;he transactions be issued this week.

Sincerely, 1

l David R.

Lewis Counsel for Applicants

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SHAw, PITTM AN, PoTTs &.TROWBRIDGE

• e mm:nm,~ctuo=,norcaso=*c co-onaro.

i Letter.to U.S. Nuclear Regulatory Commission l

SeptemberLl4,-1987 Page.3 Service List

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i Regional 1 Administrator U.S. NRC' Region I' Att'n: Mr. Lowell Tripp 6311 Park Avenue King'of Prussia, PA 19406 i

Mr. Jim Beall i

-NRC Senior Resident. Inspector I

Beaver Valley Power Station, Unit 2 PO Box 181 Shippingtport PA 15077 i

Mr. Peter S.ITam Project Manager,l Project Directorate I-4 Division of' Reactor. Projects I/II.

j U.S. Nuclear Regulatory Commission 7920 Norfolk Avenue

.j Bethesda, Maryland 20814

-i Oreste K. Pirfo,.Esq.

Office'of the General Counsel-U.S. Nuclear Regulatory Commission Maryland National Bank Building 7735 Old Georgetown Road-Bethesda,. Maryland 20814:

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/' 9 finsncidHig5ighE ~ Dollars in 000 s. except per share 1988 1985 % Change Earnings Net income. 40,063 $ 27.348 + 46% Per Common Share Net income Pomary.. 2.42 $ 2.12 + 14 Fully diluted.... 2.30 1 91 + 20 Book value at December 31. Pnmary 16.19 1398 + 16 Fully diluted. 15.89 13 24 + 19 Cash dividends declared. .58 505 + 15 Ratios Based on net income Return on average total assets.. 1.11 % 86 % Return on average stockholders' equity 16.35 1551 1 On December 31 Assets. 83,874,731 $3.579.837 + 8 Eaming assets. 3,357,972 3.124.869 + 7 Deposits 3,282,788 3.072.871 t 7 Loans, net of unearned interest. 2,517,447 2.178.980 + 16 Investment secunties. 547,018 594.740 - 8 Common stockholders' equity...... 269,578 205.230 + 31 Total Year Averages Assets 83,806,015 $3,176.520 + 13 Earning assets 3,206,479 2 809.328 t 14 Deposits..... 3,017,608 2.625.194 15 + Loans net of unearned interest. 2,340,000 1.976.004 19 + investment secunties. 582,538 543.309 + 7 Common stockholders' equity 244,975 176.354 + 39 I Earnings Per Shar* s2 ao '2 " s2nssm s2c oo Assuming full ddution l",,, Based on net income 7,, sisio es 2 00 24 m te co ~ s,su l l st si Common Stock Price ~~ l l ',',", sio4ef l l l l " si ao At December 31 gu, Last trace pnce ,o oo 3,, staas E soo im 12 m em I I I I '" I I I I I I '" ._ ss. ~~~~~ Cook Value Per Share g g l l l l '" l l l l l l '" At December 31 E l l l l l l *" l l l l l l Based on common shares outstanding e a sa u as a m si a2 sa u as as ao o s2 sa u es u 00

{ f ]\\ w Leiter to on reno.aere l i q i l ineteen hundred eighty-six was a record 3 year for Commerce Union Corporation (CUC), a 9 year in which our results exceeded those of our ?1 ) major Tennessee competitors and ranked us among g . i.; d, the best-performing major financial institutions in vf the Southeast. ~ We gained recognition for our performance at a time {- O" when the financial services industry is in the midst (y of a cultural transition. At Commerce Union Corpo-ration, we believe the successful companies of the future will be those which are customer dnven. The ,gg A challenge is to make this transition in cultures while . j producing superior financial results. .s ."' - a We believe that the best way to meet this challenge is through a sincere commitment to planning Since l 1981 we have dedicated ourselves to just such l j - a process. j . i.5 In 1986, we refined our planning process by p ve instituting a new policy of annually updating our n w zo tc.,.i c,+:

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comprehensive three year plan. This means that n 1 -,i: o,. p: - t ,.1 ,cie our 1987-1989 plan has the benefit of greater fiexi-u ... c. i,. p s ;. c. 3-n." a " bility in responding to a continually changing envir-onment and newly emerging opportunities. By "7 -,:: c. /. 1 ,.,...c .c.,, s. e .i o ,: - - A i - ae. planning to meet the challenges and opportunities a.,e<, C.- m

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1 -. e t in our market, CUC is developing a superior posi-i.. tion from which to compete. n.- g - i n., Based on current forecasts of industry profitabihty - + nc-and our objective to perform in the upper quartile of the major Southeastern competitors, our goa!s 1 i r for the 1987-1989 plan are to have a 1.25% return on assets and an 18% return on equity by the end of 1989. Additional objectives are to compound the t growth rate of annual operating income faster than ,... c the industry and to effect annual improvements in return on assets and return on equity. This plan 1 c : contains six core strategies, two of which are e reviewed in greater detail later in this report For several years we have pursued the strategy of capitalizing on the dynamic growth of the Miadle s.. c ?. n - c Tennessee trade area, our pnmary market. In 1986. i. marked progress was made in expanding our penetration in this market as we announced or consummated acquisitions in four counties of

LJ l l Middle Tennessee and Southern Kentucky. These performance f&ctors were up significantly from acquisitions place us in more counties in this area 1985's 86% and 15.51%. than any other competitor and give us the franchise best positioned to capitalize on the projected 1986 was also a very successful year in terms of growth of the region.1986 expansion brought us to CUC's capital structure. During the first quarter of 4 total coverage of 25 counties across Tennessee the year,600,000 shares of common Stock (now and Kentucky and 106 offices. 1,200,000 shares after the two-for-one stock split) ) were pnvately placed in Europe for $27.6 million. Net income for 1986 was $40,063,000, up 46% from This additional capital, coupled with strong internally 1985's $27.348,000. Fully diluted earnings per share generated capital, brought CUC's year-end 1986 in 1986 were $2.30, a 20% increase from 1985's $191. primary capital-to-assets ratio to 7.88%, the highest of the major Tennessee bank holding companies The most significant reason for the higher 1986 and among the soundest in the country The corpora-earnings was the $28.4 million, or 20%, increase in tion used $17 million of the equity issue to retire a net interest revenue (taxable equivalent basis). The floating-rate note issue. As of December 31,1986. net interest margin in 1986 was 5.30% versus CUC had a long-term debt-to-equity ratio of only 12.5%. 5 03% for 1985. Revenue and margin increases were achieved despite narrower spreads between In the second quarter of 1986, CUC increased its the prime lending rate and various rates paid for quarterly cash dividend to shareholders of common funds. CUC's 19% increase in average loans con-stock by 15%, from $.13 to $.15 per share. We were etnbuted significantly to the higher 1986 earnings. pleased to increase the dividend level, and con-sistent with past practices, will review the dividend The corporation's provision for loan losses declined level annually. $452,000 in 1986, or by 3% compared to 1985, reflecting improved credit quality CUC's net loan Success is not just a destination. It is a journey. charge-offs declined 16% year-to-year. Non-Although we witnessed several important performing assets declined 21%. The reserve for milestones in 1986, we are committed to the loan losses at December 31,1986, was $31.3 continued improvement of your company as set million, up $5 5 million from year-end 1985, and forth in the goals of our 1987-1989 three-year plan represented 1.25% of loans, up from 1.19% a year With the support of our shareholders, the broaden-earlier. The reserve also represented 133% of non-ing base of our customers, and the dedication of performing assets, up from 87% in 1985. our employees, we believe the foundation has been laid for future success and approach 1987 Non-interest revenue continued to be an with optimism. increasingly important contributor to earnings, nsing by $11.5 million, or 36% over 1985. Absent We appreciate your continued support. the investment secunties losses and a 1985 non-recurring gain, recurring non-interest revenue in Respectfully, 1986 increased 24% from 1985, led by strong increases from deposit service charges, trust fees h and mortgage fees. Non-interest expenses /Obs d increased 14% year-to-year, in line with the 14%

1. growth in average earning assets Dennis C. Bottorff 3

Chairman and Chief Executive Officer For 1986, CUC surpassed its goal for net income retum on assets and generated a 1.11% return. We achieveo a retum on equity of 16.35%. These key

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. gg gli Highlight 8 1 4 hen a new direction was set for your The Wall Street Joumal recently charactenzed corporation, starting in 1981, it was apparent that a Nashville, CUC's primary base of operations, as the strong commitment to planning would be neces-next Southern boom town. It was indicative of the sary to achieve our goal of becoming a distinctly growing attention now being focused on our home 3 profitable, specialized financial institution. Planning base by observers across the country and around I meant the development and implementation of the world. London's Financial Times stated that ) various core strategies and the constant monitoring " Tennessee is setting America's agenda for the late j of tneir results so that we might be able both to 1980s" and noted that " Thousands of tomorrow's mea :ure our progress and maintain the necessary jobs are coming with a tidal wave of investment" in adaptability to seize new opportunities. the state. Insight magazine says Nashville is " undergoing an economic explosion." Set against a backdrop of change in the industry itself, CUC has been a corporation in transition. In Rather than being a sudden phenomenon, however, 1986 it was gratifying to see further evidence that the economic growth of Nashville and the we are managing that transition successfully, as surrounding area has been steady and consistent. evidenced by the highly positive developments Total personal income in the 40 counties of Middle surrounding two of our core strategies: to capitalize Tennessee was $11.5 billion in 1980. Assuming an on the dynamic growth of the Middle Tennessee inflation rate of 4.5% per year, it is expected to market and to shift our business and product mix to increase to $69.9 billion by 2000, outpacing the meet the needs of our target customers. nation by 15%. Over this 20-year span the Nashville MSA population, the heart of the mid-l While CUC's franchise spans the state, we have state, is expected to grow by 46%, approximately accelerated our penetration into the Midd!e double that of the nation. Tennessee trade area. Capital investment in the mid-state in recent years l Each new year brings news that bolsters our offers a dramatic demonstration of the faith that confidence in the decision to concentrate on this corporations and investors large and small, foreign economically vital area and reassures us of the and domestic, have placed in the region. CUC bright future for the Middle Tennessee market area. continues to be a major factor in providing financial Commerce Union Corporation is proud to help fuel resources for this growth. the region's growth and is well-positioned to benefit from it. In 1986, we expanded our operations into Planned capital investment of over $1.2 billion was Williamson County in Tennessee, added Christian announced for Tennessee in 1986, with 23,643 County in Kentucky, and announced acquisitions projected job opportunities created as a result. which, when consummated, will allow us to begin Labor Department figures show that Tennessee service to Cheatham and Marshall Counties in tied fo, second place in the nation in percentage of Tennessee. CUC will extend service to all counties job growth during the 12-month period ending in contiguous to Nashville and 15 counties in the August 1986. Middle Tennessee area. e

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r W- '\\ sizable number of job opportunities created Nashville's music industry has been the impetus for in recent years has been in the mid-state. General related industries: television production, movies, Motors' Saturn auto plant in Spring Hill near tourism and two major convention centers have all Nashville is expected to employ 3,000 workers in grown out of " Music City's" appeal. In 1985, 1990, earning a total of $100 million annually; 7.1 million tourists and 290,283 convention-goers Nissan Motors, in the Middle Tennessee town of visited the Greater Nashville area, spending Smyrna, already provides jobs for 3,300 workers; approximately $776 million during their stay. There American Airlines' new regional hub in Nashville, were 694 conventions in all. The American Society combined with expansion of the Nashville Metropoli of Association Executrves ranks Nashville 12th in tan Airport terminal, means at least 3,100 additional the nation for preferred convention sites. jobs and over $94 million in wages per year. Over $1.2 billion has been directly invested in Tennessee Middle Tennessee is anchored by one dominant city, by the Japanese since 1975. Nashville, from which six spokes of interstate high-way branch out, making the hub highly accessible The Nashville / Middle Tennessee region continues to the trace area and 50% of the U.S. population. to be blessed with a great diversity of industry, one Accessibility to the capital city of Nashviile is of its traditional strengths. Small and independent enhanced by the new airport and its rapidly businesses predominate, and no one industry must expanding air service. The total number of be relied on disproportionately. In the Nashville MSA, passengers boarding and deplaning at Nashville for example, none of the seven major industry Metropolitan Airport increased 57% in 1986 to _ sectors - manufacturing, trade, services, govern-4.5 million. In the final month of the year, there was l ment, construction, transportation / utilities, or an 86% increase over the previous December. finance / insurance /real estate - accounts for more along with an average of 432 scheduled airline than 24% or less than 5% of total employment. in arrivals and departures, up from 232 a year earlier. 1986, average unemployment stood at 7.1% in the nation as a whole, but measured just 4 9% in the Nashville MSA. E 9 E_________

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( t ) s impressive as they are, of course, the The economic climate of Middle Tennessee and its statistics portray only one dimension The more quality of hfe create uniquely favorable conditions intangible factors that help determine the "quahty of for centering and expanding our Corporation. In Me" enjoyed by Tennesseans are just as real and addition to strengthening our geographic franchise just as important as the quantitative measurements in 194 we made progress in implementing of our success. another core strategy: shifting our business and product mix to better meet the needs of our target interest in the arts and access to the arts have customers. reached new heights in recent years. The magnifi-cent Tennessee Performing Arts Center, located in Accomplishments involving this strategy in 1986 downtown Nashville, provides the setting for included: numerous artists, including a new fu!!y professional ballet company and a resident professional theatre

• Making cash management easier and more company. The Nashville Symphony also performs efficient for over 100 corporate customers through at the center as well as at other gathering places interCOMM, our new direct-access computer such as Centennial Park and Cheekwood, home of banking system.

the Tennessee Botanical Gardens and Fine Arts Center. The art collections at Cheekwood and at

• Enhancing commercial and international services Fisk University's Van Vechten Gallery are among to remain the most heavily involved bank in the the most prized in the South.

mid-state area in foreign direct investment by the Japanese; 30% of the 42 Japanese companies in Tennessee gained national recognition for rts tead-Tennessee and 60% of the 25 in the mid-state area ership in education. The recently instituted Better bank with Commerce Union. Schools program provides innovation for the public school system. In 1986, the U.S. Department of . Facilitating the commercial and residential Education named a Nashville school one of the development of Middle Tennessee by increasing best in the country. Of the 1986 Nobel Prize real estate loans in the Nashville office by winners, two were products of Vanderbilt University approximately 50% while maintaining a quakty a'nd Middle Tennessee State University. Nashville, portfolio and conservative approach. alone, is home to 16 colleges and universities. = Gaining 21% in corporate trust volume over 1985 CUC maintains an active role in the arts and and experiencing the largest increase to date in education and is recognized statewide and new national trust business. nationally for its contribution to quality of life. For the eighth consecutse year, Commerce Union won a CUC is proud to reflect on solid achievements in Nashville Area Chamber of Commerce " Business 1986, both in serving our primary geographical in the Arts" award. Our pioneer programs in pre-base and in maximizing opportunities in special school education, added to ongoing support for areas of emphasis. These achievements and our public and private hstitutions, help build quality continued progress are indicative ol our planning education at all levels. and strategy development at work. Z

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Commsrce Union Corporation Socrd of Directors J Board Cemmetteep'. l CU asset Posee y and Reverw C anamettee he CUC directors draw upon a wealth of business expenence to guide the overall direction 1- " '. '/ ' of the Corporation. Working from local, national and n international perspectives, the directors take an active role in helping management shape policy .Audet C.mm.ttee .. ' ' 'L The entire board meets quarterly, but individual members and certain affiliate directors serve on a 1 number of working committees that govern specific policies and operations: l Compensate.n and Muman ' Aes.urces C.mmettee ~ The Asset Policy and Review Committee monitors the quality of loan and investment portfolios at CUC's bank affiliates and reviews director-related loans. E.necutive Commettee y f--- The Audit Committee is responsible for reviewing 2, the scope and adequacy of internal controls and ?. for the approval of significant accounting procedures. ion.m.t e .c, C-nee l 0. g.~ n The Compensation and Human Resources l i Committee institutes and reviews employee benefit C '. ' a (' and remuneration programs. l c,. .e s e. The Decutive Committee acts between board l maetoa, C m.nence meetings on behalf of the board in overseeing the I general operations of CUC. '?'- The international PoJicy Committee assists

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f Fansncisi R3 view Q ents The following discussion is intended to assist As more fully cxplained in Note O. page 40. the ednterest Revenue Volume readers in understanding the significance and December 31.1985 acquisition of Planters Bank and Rate Vanances 14 reievance of major changes in the Corporaton's and Trust was accounted for as a purcnase There-prowsion for Loan Losses 16 results of operations and financial position Thrs fore. Changes in average balances and results of Non. Interest Revenue 16 discussion emphastzes a companson of the years operatior.s between 1986 and 1985 are meaningful Non Interest Expense 17 '986.1985 and 1984 and presents five year infor-if Planters Bank and Trust is excluded from 1986 incorne Taxes 17 mation in instances where longer term trenos are amounts. As noted in the rev:ews of net interest Balance Sheet Liquidity 18 appropnate This review snould be read in conjunc-revenue, non-interest revenue, non-interest Balance Sheet interest tion with the consolidated financial statements and expenses, and loans - average balances compar-Senstvity 19 accompanying footnotes Reference should also be ative information on this basis is incluoed in the investment Secunties 20 made to tne accompanying graphic illustrations and following discussion Loan Categones and the detailed histancal information presented else-Matunties 21 where in this report The after-tex effect of Changes in major indMdual Risk Elements 22 earnings components (taxable equivalent basis) on Loan Losses and Reserve 23 net income per common share, assuming full ()eposits 24 dilution, is summanzed below Short Term Borrowed Funds 24 Capital Resources 24 Effect on Fully Ddutec i Inflation and Changing Pnces 24 Earninos Per Common Share 1986/1985 1985.1984 1964 iM3 Changes in Change Cnange Change Net interest revenue $ 98 $ 81 $ 61 Provision for loan losses 02 l 15) 02 Non interest revenue'. 40 15 06 Non interest overhead expense.. ( 52) ( 42) (% Taxes on income.. (02) ( 02) (00 l increased equivaient shares. (44) (02) OS Decreased interest on convertible notes ( 03) ( 01) Net income. $ 39 5 34 $N

• Non-interest revenue includes the eHects of the following items o

Gain on saie of affmate bank......... si 08; Gain on sale of interest in pnt venture.. (08) 08 Investment secunties losses. 17 ( 11) 01 Other non-interest revenue 31 18 '3 Total. $ 40 $ 15 $ 06 Summary of Results 1994/1985 1985/ t 984 '984 1983 Chance Cnance Crame Decars in 000 s except oer share 1908 1985 1984 Amount" Average Earning Assets. 53,204,479 $2 809 328 $2 478186 S397 151 14% 13% g Earnings Components ( Interest revenue from earning assets. S 323,425 $ 311.246 $ 301.558 8 12,179 4% 3% 17% l Taxabie equivalent adiustment. 31 373 23128 12 606 8 248 34 83 67 3 1 Taxabie equivalent interest revenue' 354.794 334.374 314.164 20,4,14 6 6 18 Less Interest expense. 186137 193 136 196195 7 999 -4 -2 19 t Net interest revenue' 169,061 141.238 117.969 28,423 20 20 17 Less Provision for loan losses.. 16,357 16 809 12 557 482 3 34 -5 Net eaming asset contribution *.. 153,304 124 429 105 412 28,875 23 18 2' Plus Non interest revenue. 43 500 31 993 27 582 11,507 _36 Net operating revenue' 196,804 156.422 132.994 40,382 24_ 16 7 2 18 17 Less Non interest overhead expense. 119,592 104 544 92477 (18,048) 14 13 '2 Pre tax income'.. 77,212 51.878 40.517 25,334 49 28 33 Less Income tax expense. 5,778 1402 6117 (4,374) 312 -77 i9 . Less Taxabie equivalent adjustment. 31 373 23128 12 606 (8.248) 36 83 67 3 Net income.... S 40,063 $ 27; 48 5 21 794 S 12,715 44 % 25 % 22% Net income per common share, assuming fuli ddution. S 2.30 $ 1 91 5 1 57 8 .39 20 % 22 % 21 % Tanaose equwaient base la N ' Amount ' column ( ) denotes negatwo eneet on eamings I

VAlume cnii R5tiVirirncto ~ l 1 $1412 million in 1985 The $28 5 m ht interest Revenue

• Net interest revenue the most significant compo-

% of average eaming assets nent of the Corporation's earnings, is the gross pnmanly resulted from a 14.1 % growth in the profit resulting from banking s role as financiai volume of averge earning assets but was also 60 % intermediary Funds are acquired by purchase aided by a decrease of 98 basis points in the over. sao (payment of interest) or by providing a service all cost of funds The growth in eaming assets was ;

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(demand deposits) These funds are in tum sold led by domestic commercial and real estate loans, 4 7e (loaned) to governments, business. industry and up 219%, and installment and credit card loans up ' 8' consumers The difference between the purchase 141 %. Also, the higher volume of investment secun pnce (interest expense) and the sales pace (interest ties added $4 3 mdhon to interest revenue. The revenue)is net interest revenue reduction in overall cost of funds was reflective of ~ 37ss the general dechne in interest rates during 1986. Analysis of the components of net interest revenue is however, it is important to note that CUC's cost was more meaningful if tne ux exempt interest revenue reduced even more because of the 18 3% growth i f m from state and municipal secunties and loans is in lower costing core deposits. The core deposit adjusted to a " taxable equivalent" basis Because growth funded tne growtn in earning assets. income from these secunties and loans is exempt i from federal income tax, the related governments Exciusive of Planters Bank, net interest revenue on i sos are able to borrow at rates below market These a taxable equNalent basis was up 14 0% in 1986 i rates, while below market, do provide in effect a over 1985. The growth in average earning assets market rate yield when consideration is given to the was 8 6% and core deposits grew 121% benefits from their tax exempt status Interest revenue has been adjusted therefore to recognize Net interest margin of 5 30% in 1986 was :he en i i 1984 1985 isee n these tax benefits. highest in fourteen years and was an increase of 27 basis points over 1985's 5 03% and 54 basis Net interest revenue on a taxable equivalent basis points cuer 1984's 4 76%. The 1986 increase H increased to $1697 million in 1986. up 20% from marked the fifth consecutive year of continuing L improvement. Average Balance interest Rates ~ 1988 1985 1984 1986 1985 1984 Donars in 000 s interest Revenst* ~ Loans (net of uneamed interest)" Commercial and real estate '" $1.822,584 $1494 937 $1,243157 10.49 % 116C% 12 71 % Domestic. 90,073 88.308 107.899 8.88 10 43 12 16 Foreign. 448,003 392.759 309 884 13.78 14 62 1519 Instatement and credit card. Loan fees.. 2,340,440 1 976 004 1.660 940 11.44 12 51 1349 Total loans. 1 29,155 22649 19468 Less Reserve for loan losses. _2 331,505 1 953 355 1 641.472 11.58 1265 1365 Net loans. 3 Investment secunties 198,742 186.899 243 800 7.98 9 52 10 20 U S Treasury.. 78,753 119 413 137.538 9.23 9 72 9 89 Federal agencies. 4,740 5 692 6 900 10.96 6 71 8 07 Other taxabie secunties. 278,235 312 004 388 238 8.38 9 55 10 05 Totayaxable investment secunties.. 304,301 231 305 165.698 7.57 7 42 702 State and municipal.. 5.51 5 34 4 91 Taxable eaurvaient adjustment. 304,301 231 305 165698 13.00 12 76 11 93 Total tax-exempt investment secunbes. 582 534 543 309 553 936 10.83 10 92 10 61 Total inveument secunties. 2 225 326 810 9.25 11 22 8 08 Trading account secunties. 258,919 276.274 229.389 7.45 9 01 11 23 Short-term investments. 33,394 36 064 52,579 7.00 8 15 10 47 Federal funds sold. 332 04:479 $2 809 328 $2 478186 11.07 % 11 90 % t 2 68% Total eaming assets. Interoet Expense Deposits: S 311,912 $ 233,126 $ 200.253 5.00% 5 35% 5 36 % interest on checking deposits. 188,219 139 503 137.310 5.26 5 26 5 27 Savings.. 417,582 338.212 271.767 8.58 6 58 8 71 Money fund accounts... 1,171,595 1 022.383 894.758 7.81 9 22 1019 Small denomination certificates and other time. 349,288 375.546 292.973 7.26 7 62 9 51 targe denomination certificates. 74,32_5 72 987 61 224 S.70 817 1021 Foreign time. 2,510,921 2.181.757 1.858285 S.71 7 83 8 98 Total interest-beanng deposits 506,487 443 437 406,848 Demand 3,017,408 2.625 194 2.265.133 5.58 6 51 737 Total deposits.... 205,000 219 006 235.036 S.29 7 46 9 65 Short term corrowed funos. 40,426 59 568 62 747 9.15 9 85 1054 Long-term debt. 53,263d23 $2 903 768 $2 562918 8.87 % 6 65% 7 66 % Total deposits and borrowed funos .Temme quivaen%s 5.77 % 6 87% 7 92 % Percent of eaming assets "The average loan balances meiude cashtasis loang Not interest Revenue *

• "Inctuand m interest revenue br commerciai and real estaie 5.30 %

5 03% 4 76 % Percent of eaming assets kcns e a taxabie equivalent adiustment of $14 594 m 1986 of $10169 m 1985. and 54 469 m 1964 l l

!G \\. 'p Esming Assets The improved net interest margin in 1986 was More important than any of the indmdual com. I so i ns of dellars achieved in a year charactenzed by dechning ponents that accounted for the margin improve-interest rates as evidenced by the average national ment has been the implementation of effective ver. 7 320e 385 pome rate of 8% in 1986 compared to 10% in asset /habihty management strategies and main-vas 1985 Th.s dechne in tne national pnme rate taining pncing discipkne over loans and deposits ins. 2am am resulted in skgntly narrower spreads between the Management will continue such strategy and

up Corporation's base lending rate and the rate paid disc.phne in the months ahead

fcuri, on vanous depos:t products However, the con-as tenued u:,e of effectrve Asset!Liabikty Management in this table. " change due to volume" is the volume of 2233 strategies, a moderate shift in earning asset mix, change multiphed by the pnor penod rate " Change 1.

g 2 i25 and the steady growth in lower costing core deposits due to rate" is the rate change times the volume of l was referred to previously more than offset the down. the prior penod Changes due to both volume and 3 vth ward pressure on margins resulting from narrower rate have been allocated between the two Categories j t spreads. Specifically, not only did total loans as a based upon the absolute dollar amounts of each in j percent of total assets increase at December 31, proportion to the total j 127s 1986 versus December 31.1985. 64% and 60% respectively, but the loan mix shifted moderately ] on 6 aso towards tne higher yielding categories (refer to j 4 ts page 21 for further discussron) This improved ] earning asset mix coupled with core deposits I 42s representing a greater portion of total funding i sources (refer to page 18) were important contnbu- { JI e ius2 1983 ues 1985 1988 o tors to the improved net interest margin l S l or-e -o=== l l e sewees j e w com 1 ~ F Aevenue Expense 1988/1985 Chenee Due to 1985/1984 Chance Due to ~ 1986 1985 1984 Voksmo Rete Total Wiume Rare Total .-( S191,131 $173 346 $157.996 S 35,443 S(17,878) 817,785 $ 30.041 $(14 691) $15 350 a 7,995 9.215 13.116 1to (1,400) (1,220) (2.191) 11.710) (3 901) 61,743 57427 47.062 7,748 (3,432) 4,315 12.174 (1.809) 10.365 9,179 7 204 5880 1,975 1,975 1.324 1 324 270,048 247.192 224 054 45,254 (22,402) 22,856 40268 (17.130) 23138 d 270,048 247192 224 054 45,033 (22,177) 22,864 40.328 (17.190) 23138 15,897 17.800 24.860 899 (3,002) (2,103) (5.502) (1,558) (7.060) 7,006 11 605 13 604 (3,963) (See) (4,519) (1.765) (234) (1.9991 519 382 557 (73) 210 137 188) i87) N 75) 4 23,302 29 787 39 021 (3,038) (3,447) (4,485) (7356) (1.878) (9 2341 1 23,032 17.174 11.625 .i 18,774 12,345 8137 39,806 29 519 19 762 9,831 754 __10,287 8.300 1 457 9757 4 1 83,108 59 306 58 783 4,252 (450) 3,802 (1.141) 1.664 523 .o 21 36 65 (9) (6) (15) (49) 20 (29) .i 19,284 24 899 25.756 (1,500) (4,115) (5,815) 4 735 (5.592) (857) 2,337 2 941 5 506 (207) (397) (804) (1.504) (1.061) f2 5651 4 S354,796 $334 374 $314164 8 45,049 S(24,425) 320,424 5 40 218 $(20.008) $20210 -4 .) S 13,889 3 12.476 $ 10.735 S (3,982) S 871 S(3,111) $ (1.760) ?7 $ (1743) j F,735 7.336 7.231 (1,404) 5 (1,399) (115) 10 (105) .1 23,217 22242 23 676 (4,733) 3,754 (975) (5079) 6 513 1 434 4 8%,194 94 266 91.174 (12,644) 17,737 5,072 (12.262) 9.170 (3 092) -t 25,811 28 635 27848 470 1,354 1,824 (6 936) 6.149 (787) 4,983 5 963 6 249 (107) 1,087 900 (1 083) 1.369 266 184,829 170 920 166 913 (23,892) 26,233 2,391 (26 912) 22 905 14.007) 188,529 170.920 166 913 (23,686) 26,077 2,391 (24.748) 20 741 (4 007) 12,906 16.348 22.672 991 2,449 3,440 1 464 4660 3 324 3,700 5868 6 610 1,776 392 2.188 325 417 742 1188d37 $193136 $ 196.195 S(22,295) S 30,294 5 7.999 $(24 370) $ 27 429 $_ 3059 $149441 $141238 $117 969 S 20,730 8 7.463 328,423 $ 16.367 $ 6682 $23 269 1

l, Provizion for L7an L cosa Non latere:t R;v:nue 1 Prowlsion for Loan Losses Provision for Loan Losses Nvn intemet Revenue and Not Charge off Ratios Lending involves assessing and taking nsk An Ncn+nterest revenue continued to increase 4ts estimate of the cost of nsk taking is made by a significance to the profitabikty of bankr, g dunng 8 "" charge to operations as a provision for loan losses 1936 as deregulation advanced CUC ull continue [512x This provision is managements' estimation of poten-to seek additional non-interest sourds of revenue j e 5 25 tial future losses based on an evaluation of portfoho to help reduce the constnctive presucre on interest 1sk economic factors. histonc net loan losses and margins caused by deregulation. g loan growth (refer to Loan Losses and Reserve on g g Page 23) In 1986, non-interest revenue, was $43 5 mAcn e A compare.1 to $32.0 milhon in 1985 and $276 The provision for loan losses decreased to $16 4 milW n 1984 The major contobutors to the $115 g N 27s milhon in 1986 compared to $16 8 milhon in 1985 molhon. or 36% increase in recurnng fee income in i and $12 6 milkon in 1984 Net loan losses were 1986 were deposit service charges, trust fees other i 3, 2 88= $10 9 milhon in 1986. $13 0 milhon in 1985 and domese banking fees, and mortgage ongination $9 9 milhon in 1984 Two specific loans accounted and ser/ icing fees Deposit service charges / 22s for $3 4 million, or 31% of total net loan losses in increased with the volume of business Most of the 1986 Even with these two large charge-offs. the trust fee advance came from an expansion of busi-g . /~fTu reserve for loan losses as a multiple of net charge-ness in the corporate area, both as trustee and as g offs increased to 2 88 in 1986 vusus 199 in 1985 provider of computer services to other trustees I and charge-off Coverage (pretax income plus provi-Trust fees also increased because of growtn in the e 7, sion divided by net charge offs) increased to 572 in market value of assets under management Otner 1986 from 3 51 in 1985 Absent these two large domestic banking fees increased substantially due i losses. the reserve / charge-off and coverage multi-to equity fees Mortgage ongination and servicing isei 1982 5983 i984 1985 ises a fles would have been 417 afd 3 29, respectively in foes grew due to increased mortgage loan volume i . m>im ecom. mu. orome u a mump. 1986. (See Page 23 Lohn Losses and Reserve for Inwstment secunties losses decreased $4 7 mAon f 8,c*Pj %,, additionalinformation ) as a function of the increase in the market value ot ( . nuev. m o.c.mo. 3i u. momo g the portfoho cwP* The 1986 provision of $16 4 mihm not only e absorbed the burden of two unusuahy large losses Exclusive of Planters Bank, non-interest revenue but was also sufficient to absorb the r%rmal losses. was $413 milkon in 1986 and the increne from provide for loan growth and increase 1x ratio of the 1985 was 29% ( reserve to loans at the same time I i l i i Non interest Revenue I 1988/1985 1985/1984 1984'1983 Chantle Chance Chance Donars in 000 s feet 1985 1984 Amourit Service charges on deposit accounts.. 817,921 $15.213 $13.384 8 2,70s ifA% 14 % 11% Trust and investment management fees 7,726 6.068 4 943 1,468 17 23 19 Tracing account profits posses) and commissions. 396 324 222 72 22 46 587 Other comestic banking fees. _SA61 4 413 3 585 2,04e 4t_ 23 -4 Domestic bankng fees. 32,504 26 018 22.134 s,40s 24 18 11 International banking fees. 4,125 4 095 3 322 34 1 23 23 Total commercial banking fees... 36.C3 30113 25a56 S,520 22 18 12 Mortgage onginabon and servicing fees. 3,914 2.343 2.123 1,571-67 10 8 Credit hte ensurance fees. 33 2 902 2 078 528 18 40 24 l Sub-total..... 43.977 35 358 29.657 S,419 24 19 13 Gain on safe of a'fibate bars. - 00 Gain on safe of oint venture interest. 1.788 (1.7se) 100 l investment secuntes (losses). (477) (51536 (2 075) 4,476 -91 148 ~4 Totar non interest revenue. 543,g $31993 $27 582 S 1 507 30 % 16% 7% l2 Percent of average earning assets. 1.38 % 1 14 % 1 11 %

, /_} Inew Tcx;s 4 / V i / e$t Overhood Expenso I-ine Corporation s effective tax rate (actual Beginning in 1987. the Act requires the sa; non irreiest expenses were $1196 income w expense civided by pre-tax Corporation to deduct bad cebts based on r n 19% a 14% increase cuer %85's income) was 12 6% in 1986. as compared to tne specif C charge-off method rather than 5 rrikon Salaries increased 17% year. 4 9% in 1985 and 219% in 1984 This the reserve method This provision will not M w.% cts management's tax planning strategy affect the amount of expense reported in the %ar Personne! benefits decreased 7% in to be advantage of high yielding tax-exempt income statement Current bes payable will The decrease is a direct result of t P*ns'on expense decifiing $19 milhon due assets beginning in the latter part of 1984 increase by a total of $12 to $15 milhon over the corporation adopting the new FASD and continuing tnrougnout 1986 The 1986 the next five years as the Act also1equires hatement Number 87 Tax Reform Act will make substantial invest-previously estabhshed tax reserves to be ment in tax-exempt assets less profitable than incluaed in taxable income Delusive of Planters Bar;k. non-interest before. The effective tax rate will increase as expenses were $114 0 milhon in 1986. a 9% pre-tax income nses and tax exempt assets Also under the Act, all interest expense attnb-i 3r increase over 1985's $104 5 meon Salanes matue onrepaced At present. the Corpora-utable to funding tax-enmpt obkgations pur. increased 11% and benef;ts 10% tions effectivt tax rate is less than the chased after August 7.1986 will be totally statutory rate d. e pnmanly to the investment taxable Under pnor law, only 20% of the Professional fees and senaces rose 24% in in tax-exempt municipal secunties and loans interest was taxabie As stated above. the 1986 The increase was due to higher com. It shoul:1 be noted, however, tnat the yield on Corporaten anticipates not replacing most puter services, legal and consu! ting feet these sucenties and loans is considerably tacexempt asset maturities Legal fees associated with acquisition and less than other investments with the same registration activity contnbuted to the iorear,e. matuntvmd nsk This reduction in yield could The Act repealed the investment tax credit be corecered a tax wnen evaluating tne retroactively to December 31.1985 The Cor-FDIC depocit. fidekty and other insurance Qrporation and the fairness of its income tax poration reduced federal tax expense by incremed 69% in 1986 Most of this increase responsibikty apprommately 5500000 in both 1986 and resund from the much higher premiums 1984 through the use of investment tax pBalances at Federal Reserve depositones anks are also required to maintain reserve credits, and would have reduced the feceral reouired by the insurance industry to provide coverage to financia. institutions tax expense for 1986 by a simdar amount Tnese baktnces are then invested by Federal had the credit not been repeaied All CNr expnthes combined increased 12% Reserve &nks and the related revenue in 1986 generatea is passed on to the U S Treasury The top marginal federal tax rate will be The income that is foregone by the Corpora-reduced under the Act to 40% in 1987 and income Taxes tion on these balances could also be consi-34% thereafter This provision will have a n element of it'e Corporation s lax p anning dued as part of CUC's overall tax burden positive effect on earnings. and will hetp to the implementanon d vanous investment Additional informahon rsgarding income offset negattue aspects of the Act d loan strategies to maxim ze atter-tax taxes and reserve bu1cen is continued on profits Formuason of the st'ategy is an parps 33 and 36 Provisions of the Act affecting customer case ongoing process watch considem the levels include certain restnctions on indiviaual of taxcept runt es and loans invest-While the Tax Reform Act of 1986 drastically retirement accounts and the pnase out of cneni secuntres gains at c losses. foreign changes the structure of taxation of financial consumer interest expense as an itemized iending captal asset acqu.sitions. lease instLtions rnanay3 ment beheves the effect deduction. However. because the Corpora-financingt and allowable loan fo3s on the Corporsson over tne next frve years tion expects to introduce new products. such I deductions will be neg%cio. as mortgage lines of credit in which interest would still be deductible. management beheves there will be no significant effect Con interest Overhead Erpense I ~ ' - ~~ g 1996'85 1985 64 1984'83 Chance Chance Chanae ] Dows in 000 s ites 1985 9984 Amount Saiares. , S 51,414 5 44.063 $39 530 $ 7,361 17% 11 % '1% Dersonaci benefits. 10,123 10894 9 579 (771) -7 14 '8 Tctawatt expense. 61,537 54 957' 49.109 4,500 12 12 12 Pro'ewor af fees and services., 9,543 8016 6.272 1,927 24 28 9 Occupancy, t,443 8309 / 486 1,154 14 11 5 Fu ngure ant 1 equipment. 8,898 8 050 7.510 848 11 7 7 FDtC %xst ficehty. and other insurance 4,49fa 2 656 1.847 1,842 SS 44 -3 Statonery ano suppkes. 3.837 3 577 3 329 340 10 7 11 Nstage and couners. 3,295 2 902 2 471 3s3 14 17 6 l Teiephone, 2,493 2.256 2.037 227 10 11 23 l Crecofe expense.. 1,910 1.537 1 118 373 24 37 38 Advertising 1,317 14E7 1,307 360 24 12 12 Directors fees. 1,581 , MI 1.371 230 17 -1 29 Traaning ano miscellaneous personnel, t.448

i. C 1.220 338 31

-9 49 4 State and local taxes, 1.290 8M 677 436 51 26 8

1. ravel.

abhc relations. 1,148 978 949 190 19 3 24 1,10S 1083 1 118 22 2 -3 6 Forecosed property expense. 831 1404 1.076 (573) 41 30 '4 ) I bodeli and other amorteation. 734 736 427 (3) 72 242 i Omer.. ,,_3A17 3 294 3153 323 to 4 '9 Total nononterest overhead expense. .Et19 # $104 544 592477 818,0d4 14 % 13% 12% Ncent of average eaming assets. 3.73 % 3 72 % 3 73 % i

CUC's financel condition and enanges in financel Dollars in malions condition are illustrated by the six. year conschdated Decemter 31 Sees 1985 19e Balance Sheet Summary contained on pages 44 UQuio Assets. and 45 whch show the manner in whch the Investment secuntes Corporation has structured its assets and habihtes matunng in 1 year dunng the penods presented or less, S 218.5 $ 242 5 $ im Short-term inestments.. o 324.9 377 1 305 The Corporation's pnmary use of funds is net loans, which were 64% of total assets at December 31, Total, S_ 543.4 5 6196 5 SOS 1986. up from 60% at December 31.1985 Invest-Sources of funds. 83,314.s $30596 $2 69{ ment secuntes and other snort-term investments. Liovidity %. 14% 20 % 1[G the Corporation's secondary use of funds, were 23% and 27% of December 31,1986 and 1985 assets respectively The pomary source of funding internally generated hquidity is provided poncipally earning asset growth has been the Corporation's through loan and investment matuntes At core deposit base, which is considered to be the December 31,1986, $11 bilhon of loans, other tha7 main source of hability hauidity As the figures below mortgage, installment and credit card, were indcate. core deposits represented a substantially scheduled to mature in one year. The matuntes of greater percent of total sources of funds at year-end commercel loans at December 31 for the most 1986 versus 1985 and 1984. reflecting a key Asset / recent three years were as follows: Labihty Management strategy to strengthen the December 31 Sees 1985 1m Corporation's core deposit base The following table ns ma indicates the significance of CUC's core deposits y, Se% 55% 5 69 Dollars in milkons Loans rnatunng December 31 1998 198F 1984 beyond 1 year... 44 % 45% ,,,4,,4j Core ceposits,.... SSASS.9 $2 576 6 $2117 7 Total.......... 100 % 100% g Sources of funds'. 33,3,1,4.2 $3059 6 $2 692 4 in addition to the matunty structure of the Commer-Core deposits %... 90 % B4% 79% Cal loan portfoho, it IS important to note its repncing charactenstics. ' Sources of funds represents the total of aeposas, net of ficat. and short-term borrowed funds December 31 1998 1985 191 Loans sublect to reprcing-While traditional sources of hauidity continue to be Less than l asset maturites and sales and core ceposit growth, 1 year.. 83% B2% 8 31 the Corporation additionally has access to regional Greater than and national money markets through various pur-1 year... 0% 18% y o chased funds sources including negotable certifg Total. 100% 100 % g .mo cates of deposit foreign branch deposits. secuntes sold under agreement to repurchase, and otner The matunty structure and repncing charactenstica short term borrowed funds The amount of net pur-the commercel loan portfoho have not changed I chased funds relative to caming assets indicates the matenally over the past three years. The portfoho a dependency on the money markets for hauidit/ Con-skghtly shorter and more rate sensitive on Decem@ sistent with the Corporation's increasing core deposit 31,1986 relative to December 31,1985 as a largez base noted above, the rehance on purchased funds portion of commercel loan customers elected to s? to support eaming assets has dechned significantly short or in varable rate loans in 1986 due to the from 1984 The Corporation's net purchased funds dechning interest rate trend The Corporation will position is closely monitored and it remains at a level benefit from the current loan portfoko matunty and consistent with sound banking practce At December repncing structure If interest rates nse later in 1987 31,1986.1985, and 1984, the percentage of eaming assets supported by net short term purchased funds in summary, the Corporation has suffcient hauidity t was as follows meet antcipated loan growth as well as fund any reasonable unexpected cash outflows. Core depos December 31 1986 1985 1964 growth sufhcent to fund loan growth s a high png Not purchased funds Matuntes of snvestment secunty purchases are prr6 arily within one year to ensure liquidity s maintarG t 17% 17% b3% Finally. nt Terous contingency hauidity sources are

=

Management's internal guidehne for the ratio of houd available to assure that adequate funding will be assets to sources of funds s 14 20% in penods of available to satisfy potential contingency funding low interest rates it s management's desire to main-tain acequate but not excessive hauidity This can be Funds flow to CUC { Parent Company) from its corn acheved by operating toward the lower end of the mercel banking subsideres s subject to certain intemal policy range to more eftcent4 util2e the regulatory hmitations Refer to page 40. Dividends earning assets of the Corporation Furthermore, the from Subsidenes The impact of inflation on the stronger core deposit base and reduced rehance on Corporation; is addressed on page 24 Inflation and purchased funds lowers the volume of hauid assets Changing Prces requireo to be maintained to support unexpected loan and deposit activity The following table indicates CUC had commitments for approximately $2.5 milb the volume of hauid assets relatve to sources of of major caprtal expenditures as of December 31, funds at December 31,1986.1985. and 1984 1986

' Balancs Sheet Int:rert Sen:ltivity I i j f ..y

I

~ _a_ l j

• y related to hauldity managerr. ant is the lhe interest sensitMty summary below Mangement'sanatyvsof Yionth summanes

/ (q ement of interest rate sensitte astets indicates CUC's December 31.1986 assets, such as this one are ne!pfu en assessing t'e r/> habdites interest senstMty meas 4res the liabditen md ceptal by the tims periods potential impact of changen interest rates 4 / O ent.al Exposure to changir.g intdest rates dunng wrsch tney mature or their respectNe on net interest revenw. Management has .0 " frd is affected not only by matunny assets rates are sublect to adjustment The interest estr5lished spacific interest sensitMty pokey e aid sources of funds within a specife# ne "I sensitMty position or gaps are shw.udjusted guicehres to ensure that excessNe interest h<rd but also by assets and habiktes thaf,t for hedging actMty and for distor ;ons caused rate nsk is not taken. Or an adjusted basis as ,, f 6N ntef est rates suble-t to ena,cs ryor to by month-end balances in ovnaad doos ts. of December 31.1986 the Corporation was enty The ob;ectre o: inte. rest rate serqr Gaps are expressed au r;oscont of tral asset sensitNe w thin one year pnmanly

• d' ay management is to produce crosistent rr t assals o irdcate the imatns degr? no which bec6use of strong growth in long-term stable 3

interest rnargins throughout different. interesJ the Coq oration's asset Dace is evnd to rate core deposits in the second half of 1966. .1 rate cycles interest rate fluctuations. In effor'r to ensure White :( is management's obrsctrue to reduce [ that the balance sheet strtr$r s remains, try asset sensitMtv positte vf the Corporation The amount by which interest sensitNe assets, within estabhshed pokcy rary';o1 and that through ican and investnunt actMtes a / exceed interest sensitNe habilities foi* any excessive interest rate nSk is not taken, man-cautiouupproach will be taken as any major n i defined penod of time is called a " gap". Gaas ' sgement does on w.asion exectite hedging shrlt in racent drosit flow patterns wvuld are ust.Jy measured cumutaiNely for specific .sctnites sucti r.toterest rate swaps to beWe mpact the belance sheet structure of the l time penods, for exampe 1-30 days 190 ba'ance the asset /liabilfty mix. Also, because ' Corporation SensitMty balance assures no L i days. etc The shorte* time penods assist in the interest sensitMty position is as of a gnen matenal eamings vulnerabihty to a substantial y the managerrms of ret interest revenue epFj l Os undertaken to project the Corporation's i ! point in time consir;erab6e financial modehng change in interest rates in either direction. ing short-terrn fluctuations in interest rates / - - Sensitmty analysts along with other consider. V d ~ The lonp, term time penod pro udes a f WJre L bs'ance sheet structure Mode!ing allows for ations suc h as liqudty and capital require. of the rygree to which changes in the average [ 08 development and ir plementation of ' ments anr, manag3 ment's evaluation of eco iegel et riterest rates might affect i d interest ' rsppropnate Asset /Liabikty Management nemic cc trions nelps form the basis for revenue owr a bu'#ess cycle atrategies to achieve interest sensitMty invedmrt it decis ans designed to optimize l objectNes. net intere,t iv,ome over the long run. 3-

s t

g . KMance Shoeyct,tast Sensitivity g 3 Mars in 000's 0 30 71-90 91d90 181 365 Decernber 31 1986 Dovs IMys Oap Days Lono. Term Total garvsg As;eets: 1 ce ynet d uneamed interest. w \\ (covferc.al and real estate.... } $1.243 696 $156.572 $ 121D5 $121.221 $ 409658 $2.052.822 a ! Installment ard credit card. ..i... 89.735 21.4'*O 30.406 55 095 267.919 464 645 ';ess Reserve for loan losses. 1.333.431 31 343 31.343 3l Totai net toans... ~ '78,062 152.081 176.316 ~ 234 2.486.124 l 1 646 inestrnent and trading account secuntes j. 12.879 34,504 28.1M 145.129 32C336 E47.018 =l Interest beanng banl< oeposits. 1 24,935 76.000 85.100 4' 000 17.G66 250.661 r Otrer mo+ term nwestments. J 953 1.Or 3.000 1.103 25 W

• DI '

-) FederaPunds lad. 12 200 10 000 1.68% 5.300 49 08i Total earna v assets. -Q 7 45,8 If D h270234 $380 548 990.138 3.357.9?2 vas , Tatu non-eaming assets.. --~ 516 759 516.759 ~ i ef Totai tonga.m assets. $1506 897 i Total Assets... $3 874 Q1 av runen, s. ore : S - $ 654.846 5 654.846 l Demand deposits.. Intere:1 on checking deposits. 155,038 240.355 395.393 Songs...... 298.698 208,698 Money fund accounts.... 435.338 435.338 Small denomination cert:9 cates and other tirre... 177.080 261.689 329,957 184.0.10 211.920 1.164.676 1 Large denomination certificates........... '73.S23 93.642 59.771 24.0/S 12245 363.560 to p,eign time. 49.862 1240 9.175 60.277 l Shor'-term borrowed funds.. 181.151 560 175 187.876 l sit l.or Matcht.... 39 193 100 33766 33.618 'it/ Tow tunding tos ces.. 'II 178 331 T3TfTEI $ 399 271 $2082f5 V6I?50 3.504.282 r m-j f Total other habliter, and equty........ ~ 3 W 49 370 449 td )r Total long-term habilitr.s and eauity.. @jD j Total Labktes and Equity. y 874 7{ 2 i Sensitivity Analysis: Earning assets less fundmg sor.E ~ $ (57 523) $(129.041) $172.319 $ E24.882) Interest sensitely gap. 1 239.127 3 interest sensituty gap cumiitatue. 239.127 181,604 52.563 224.882 9 Cumul;r.Ne intereet sensite gap net uf Porcent of total asserv. 6.2% 47% 14% 5H% i t he:19irg actq.. 183527 131.604 32.563 204.882 Percent of Irtal assets... 4 7*. 34% 6% 53% CumulatNe interest sensitety cap net of hedges hor, and adlusted for December da4 averags demand deposit balance wms Decca ber 31.. 195.534 144.011 44,970 2 9.289 Percent of tatal ee t 50% 37% 12% E6% .i 1 I. =f m1

Investment Securities At December 31.1986 the total book value of the Dunng 1986. CUC continued its investment investment secunties portfoho was $547 milhon, secuntes program aimed at shortening the average N. l - : c a representing an 8% decrease from the pnor year. rnatunty of the portfoho. At December 31,1986 the end The secuntes porttoho was reduced in order average portfoho matunty had decreased to 38 ^ to invest in loans The market value of 'he portfoho years, compared to 4 3 years and 6 0 years at the was 104 4% of book value at December 31,1986, two preceding year-ends. Average taxable equivaL up from 99 5% at December 31.1985. ent yelds realced were 10 83% in 1986.1092% in w.,, oo,,,,,,,,,, 1985 and 10 61% in 1984. Taxable equivalent yielda Dunng 1986, the Corporation completed its progr6m. to matunty were 10.56%.1169%, and 1102% at

• • ons or aciwse

~ begun in 1982 of selhng its long-term, low-yelding year end 1986.1985 and 1984. respectively 5s4 en sas m cio taxable secu tes and reinvesting the proceeds in higher yeiding tax-exempt secunties, thereby Tax-exempt secuntes, on an average basis, exccianging present secuntes losses for consider. increased $73 0 milhon or 32% dunng 1986 ably higher income to be realced in future years. Compared to 1985 on the same basis Taxable 78 This portfoho restructunng allows CUC to hold the secunties decreased $33 8 milhon or 11% in 1986 fong portion of its portfoho in tax-exempt bonds compared to 1985. no grandfathered by the 1986 federal tax act. The short, taxable portion is employed as an integral part of the Corporation's asseUhabihty program to assure adequate hquidity and to help meet asset sensitivity targets designed to maintain a steady mm maa maa m4 mes mee o flow of net interest revenue 'TsuaDie equsvalent tears investment Securities Dollars in 000's 1986 1985 1984 Average Average Average Seek Mertset Maturity Book Ma"ket Matunty Book Market Matunty December 31 Bolences Vetue Value (Years) value Value (Years) Vaiue Value (Years) U S Treasury. .S204,711 S206,048 1.1 $180.773 $179.536 15 $209.530 $209 455 15 Federal agences 48,82$ S0,443 2.1 101.168 101.242 35 130.799 119 404 13 3 Other taxable secuntes. 5,132 S.132 9.1 4 640 4.542 98 5.359 5.218 63 State and municipal 288,649 _30s,206 S.0 308.159 306 463 61 207 599 191 705 59 Totalinvestment secuntes. . 8647,018 SS7042S_ y $594 740 $591.783 g $553 287 $525 782 _6j Average Interest laterest Average interect Interest Average interest interest Aversee Bolences and Yields Belenee Rete Revenue Balance Aate Revenue Balance Aate Aevenue U S ireasury. .8196,742 7.te% S15,807 $186.899 9 52 % $17.800 $243.800 10 20% $24.860 Fec'3ral agences 76,783 9.13 7,008 119.413 9 72 11.605 137.538 989 13604 Other tt.xable secunties. 4.740 10.98 Sit 5 692 6 '1 382 6 900 8 07 557 Total taxable investment secuntes 278.235 _ S.38 23,303 312.004 9 55 29 787 388 238 30_,,,_ 39 021 5 State and municipal 304,301 7J7 23,032 231.305 742 17.174 165.698 702 11.625 Taxabie eautvaient adjustment. 5.51 18,774 5 34 12345 4 91 8 137 Total tax. exempt investment secuntes*. 304,301 13.00 30,808 231 305 1276 29 519 165 698 11 93 19 762 Totat investment secunties* .3882,836 10.83 % SS3,108 $543 309 10 92% $59 306 $553 936 10 61 % $58783 Maturity and Yield to Maturity W' thin 1 Year 1-5 Years 510 Years After 10 Years Tota: Portfoto et December 31.1948 Amount Yeld Amount Yeld Amount Yeid Anount Yeid Amount Yeld U S Treasury. . $ 166.533 6 79 % $ 34 893 7 54 % $ 1.209 7.22 % $ 2.076 7 79 % $204.711 6 93% Federal agencies 19.858 9 31 27.503 9 39 510 7.75 655 9 46 48.526 9 33 Other taxabie secuntes. 308 8 42 695 5 99 4 129 6 39 5.132 643 Stae and municipal". 32 087 1375 100 30,3 12 71 104 54A 14 00 51 711 1336 288 649 1341 Total * . 5 k18 478 8N% $163 007 1103% $106 962 13 84% $58 571 126 _2% $547 018 10 56% ( l

d F 6m Average Balances For the year 1986 loans, net of unearned interest. The growth in the real estate categones is indica. agt ' pions of doHars averaged $2 361 bilkon, a $385 rwlhon or 19% tive of CUC's involvement in the dynamic Middle increase from 1985 Loan growth demonstrated a Tennessee economy The increasing demand for 1e 22, 7 2** consistent auarter by quarter gain dunng 1986 housing and commercial space in 1936 enabled ie Exclusive of Planters Bank.1986 average loan CUC to reahze significant real estate loan growth ral. tvs 2100 growth was 15% while selecting only those loans which had strong 6 in current economic justification CUC's loans, net of unearned interest. as of elds isw i ce, December 31.1986 were $2.517 bdhon. which Installment loans net of unearned interest at represented a 16% increase in loans from December 31,1986 were $3773 milkon. up $5 5 'TW iwo December 31,1985 Mortgage. real estate and milhon, or 15%. from 1985's $3718 mdhon Credit , ' 32' other loans per tne SEC categones increased $192 card loans. which include other consurfer revolvng mdkon or 47% and represented the largest dollar credit loans, were $89 3 mdkon at December 31 growth area On a percentage basis, construction 1986 reflecting a 24% increase over 1985's real estate loans increased 103% year-to-year balance of $721 milkon The increase was 36 approximately even between credit card and otner consumer revolving credit arrangements such as ~ ma loans secured by home equi:y am e 1962 1983 1984 1985 1986 o e Forep loans W owiore e misifne* end credi card loans a Commerce and reas esiale spans funood eus osances ner or neamed <wes u I Loarts 93rs in 000 s 1986 1985 1984 1983 1982 e ns, by SEC Category, at December 31 y Domestic domoted customers L Commerca financiat and agneuttural. . 51.168 449 51 142.962 51.000 641 5 794 046 5 679 365 Real estate construction. 188 991 92 871 56.764 35 536 46 494 Real estate mortgage and other. 600.728 416.683 320.809 327.497 312.277 installment and credit card. 503 271 491 387 401.186 312 148 286 g i Tota! domestic. 2461 439 2143903 1 779 400 1 470 027 1 324 974 Coregn comoied customers Comrrercal and industrei. 26.174 20 658 28.736 28 404 22 923 Banks and other financial institutions 62.529 57.605 63.154 83 980 51 464 .t Govemments and othcal ostitutions, 5 892 4 480 6 639 9 353 14 BS f-Totai foregn. 94 595 82 743 98 529 121.737 89242 0 i Total gross loans. 2.556.034 2.226 646 1 877,929 1.591.764 1 414.216 4 Less Unearned interest. 38 567 47 666 46 605 42854 49392 7-Loans net of unearned interest. . 52.517 467 52 178 980 $1831324 51 548 910 $1364 824 1 { Loans, by Balance Sheet Category at December 31 Commercial and reat estate. . 51.958.170 51 652.940 $ 1.381.210 51.160.120 51.037.660 t Mstallment and credit card. 503.271 491.387 396.716 313.411 286 284 3 Foreign bans funded of' shore. 94 593 _82 319 100 003 118.233 90 272 Tota! gross loans. 2.556.034 2.226 646 1.877 929 1.591.764 1 414.216 Less Uneamed interest.. 38 567 47 666 46 605 42 854 49 392 Loans net of unearned interest. . 52 517 467 52178 980 $1831324 51 548 910 51 364 824 _.~ t 6 i F:xed Rate Matunno Varable Rate Matunna Maturity Distribution of Loans Within 15 After Total Wrthin 1-5 After Totat Tota! Doriars in 000 s t year Years 5 Years Fored 1 Year Years 5 Years Vanable Loans December 31,1968 3 Commercial financ@ and agtcultura!. 5279 614 5132 913 559 280 5471.807 5358 884 5200 083 5137.675 5 696 042 51'68 449 peat estate-construction. 35 587 22 939 10.232 68.758 61 940 34 532 23.761 120 233 188 99i VReai estate-other. 85.180 54 907 24490 164 577 148.257 82.655 56874 287 786 452 363 E '89n (foreign comoed customers). 17812 11 482 5121 34 415 31 003 17284 11 893 60 180 94595 0 l Total. 5418 193 5222 241 $99123 5739 557 5600 084 5334 554 5230 203 51 164 841 1 904 398 Nai estate-mortgage. ~ 148 365 Ntailment and creait card. 503 271 Totat gross loans. 52 556 034 . l

Ri:k Elem:nts \\ Non-Performing Loans anel The combined total of non accrual and renegotiated Loans 90 days or more past due, exclusive of cash,- Other Real Estate status loans, and foreclosed property was $23 5 oasis and renegotiated loans. totaled $9.2 milhon ah milhon at December 31.1986. a 21% decrease the end of 1986 compared with $7.5 milhon at year. At December 31 s e um ana from December 31,1985 Thetotalrepresented 9% end 1985 Loans 90 days or more past due O'****'E" of all loans and other real estate. down from 14% a included amounts to foreign Customers totahng year ago and representing the sixth consecutive $628.000. $2.224.000. $2.986.000. $1.845.000, year (nat this year-end ratio has dechned and $3.261.000 for tne years ended December 31, 1982 through December 31,1986 respectively At h: At December 31.1986. CUC was not accruing December 31,1986 the Corporation had approxi-3- interest on $16 7 milhon of cash basis loans or on mately $4 milkon in domestic commercial loans for ouw.neno $5 5 milkon of foreclosed real estate and reposses. which payments were substantially current. but the

• 'oas * *"**

sions The effect of holding and not accruing interest borrowers were presently expenencing some 50 on these assets depressed net income by $ 08 per financial difficulties The Corporation's loan portfoho 42 share. assuming full dilution, in 1986 ($ 07 for cash-did not contain a concentration of loans exceeding Ia .o basis loans ano 5 01 for foreclosures) and $ 13 per 10% of totalloans as of December 31.1986 share in 1985 ($ 11 for cash-basis loans and 5 02 However, CUC does have loans and acceptances for foreclosures) Cash-basis loans included outstanding to borrowers in countnes where ~120 24 amounts to foreign customers totaling $2.185.000, political or economic conditions have led to haudfy $4.297.000, $5.720.000. $1.472.000, and problems See page 34 for a discussion of interna. $1.226.000 for the years ended December 31,1982 tional financings and per country concentrations through December 31,1986 The per share net ,o income effect of not accruing interest on foreign Under CUC's corporate-wide pokcy. a loan is loans was $ 01 in 1986 and $ 02 in 1985 placed on a cash basis when the collectabihty of the loan pnncipal amount becomes doubtful. but not

• 2 "3
  • '* 28 0

Renegotiated loans totaled $14 milhon at later than 90 days after interest is past due At that . cuc December 31,1986 compared to $3 0 milhon a time. accrued interest receivable is reversed against

• gq*ag*w em e%

year earker This category consists of loans whose revenue or charged-off, and accrual of furtner inter-onginal interest rates were modified to improve. in est rewnue is suspended Any exceptions to thrs management's ludgement, the probabihty of collec. pokcy require the approval of executive manage-tion of the poncipal amount. The difference between ment and are reviewed with the Asset Pohcy and the onginal rates and the renegot.ated rates on Review Committee of the Board of Directors these loans reduced after-tax eamings by less than $ 01 per snare in 1986 and 1985 Foreclosure of property is made when it is juoged I that direct tunk control of the collateral will improve the hkehhood of collection. When a property is fore-closed, the asset is wntten down to its estimated fair value, as determined by appraisal, if such value is less than the loan balance at date of foreclosure Cisk Elements Dollars in 000 s Baence at Decemter 31 1996 1985 1984 1983 1982 Non-accruing toans and other real estate Cash tusis loans. 818,720 $19 969 $26.492 $22.676 $20.253 Forecrosed real estate and repossessions. 8,463 6.821 8.121 9.533 10.935 Renegotiated loans. 1,387 2 991 3 729 3 372 7 336 Total 823,830 $29 781 $38 342 $35 581 $38 524 Total. as a percent of foans. net of unearned interest, plus other real estate .9% 14% 21% 23% 2.8% Resere for loan Icaes as a percent of total. 133.2% 86 8 % 54 8 % 513% 425% Loans 90 days or more past due. S 9,214 $ 7.513 $ 8 539 $13 493 $12.136 ( l

q p, b Loan 6xses cn1 mzrva .) r j L-I rve for loan losses at Decemoer 31 Ecluding tne two large losses in 1986 and against the totalloan portfoho Also, the allo- $86 was $3t3 mdhon compared to $25.9 tha related loss of $31 mdkon in 1985 net cations for a ;; articular category may not be t Milkon at year-end 1985 At year-end 1986. charge-offs decreased approximately $2 4 indicatNe of future charge-offs reserve for loan losses represented mdhon in 1986 from 1985. On the same 5% of loans compare to 119% at year. basis, net commercial loan charge-offs The adequacy of the loan loss reserve and the end 1985 decreased approximately $ 1 mdkon. The allocation by category is based on a continu-1986 pro-forma charge-off ratio on this basis, ous review by management in accorcance Net charge. offs decreased in 1986 to $109 was.32% and 1985 was.50%. with corporate-wide pohcies, of all loans that g,on from $13 mdhon in 1985. Two specific are past due 30 days or more, classified as loans accounted for $34 mdhon of the total The allocation for installment and credit card non accruing or renegotiated, er classified by 1986 charge offs. Of this $3 4 milhon. $ 9 loans has been increased to recognize the internal and external examiner ; deserving g,y,on was on a loan to a domestic diver-growing consumer loan portfoho and its trend special attention This review cr ! ninates in the sified company and its subsidiary This loan of increasing net losses The increased allo-Quarterly compilation of a formal loan watch was on non-accrual at December 31.1986 cation for foreign loans from $2.0 mdhon in kst From an analysis of the watch hst. man-and had a balance of $ 9 mdkon, cown from 1985 to $5.3 mdkon in 1986 is not reflective agement, through its Reserve for Loan Loss the $3 6 mdhon at December 31,1985. In of a deterioration in credit quakty in the for. Committee, assesses the adequacy of the addition to the $ 9 mdkon charge-off in 1986, eign portfoko. This increase is to reserve for reserve for loan losses and determines the $31 mdhon had been charged off in 1935 potential transfer risk problems ansing from allocations At the time that a loan or a portion i and $16 mdhon in 1984. The other significant balance-of-payment difficulties in countnes of a loan is determined to be uncohectible. it is charge off of $2.5 milhon in 1986 was also on where government pohcies may restnct for-charged-off against the reserve. a loan to a pnvate domestic company At eign exchange. December 31,1986, this loan had a balance Management's assessment of the adecuacy of of $2 4 mdhon, of which $1.2 mdhon was on The allocations of the reserve will. of course, the reserve for loan losses is reviewed at least non-accrual Management estimates there be changed in response to future events. The Quarterly with the Asset Pokcy and Review may be some potential exposure and has allocations do not represent the only amount Committee and Audit Committee of the Board .t anocated 5 3 milhon of the year end 1986 available for future charge-offs of any particu-of Directors. Ioan loss reserve for this credit. lar category as the reserve is a general reserve Loan Loss Experience Donars in 000's 1984 1985 1984 1983 1982 Provision for loan losses. charged to expense.. S 14.387 5 16809 5 12 557 5 13.217 5 12225 Less Net loan charge-offs-h Loan charge offs-Commercial 7,904 8.225 5.937 9 397 8.124 Real estate................... 1,044 1.768 1.831 992 960 Installment and credit card... 4,049 3.130 2.216 1.892 2.570 Foregn (foreign domiciled customers). 372 2 726 1 692 524 24 13.369 15849 11 676 12 805 11 678 Recovers Commercial... 1,389 1.896 1,139 1.066 580 Real estate............. 235 112 61 47 349 Installment and credit card.... 754 678 530 706 660 Foreign (foregn domicned customers) 119 186 2 44 2 497 2,872 1.732 1 863 1 589 Net loan charge-offs ,,,,,,,,_10.8 7 2 12 977 9 944 10 942 10 089 increase in valuation reserve.............. 5,488 3.832 2.613 2.275 2.136 Pius Valuation reserve of acquired bank.... 1.013 161. Less valuation reserve of affiliate bank sold.... 396 Plus Valuation reserve at beginning of year. 2 MSS 21 013 18.239 16 360 14 224 Ending valuation reserve. 8 31,34_3 5 25 858 S 21 013 S 18 239 5 16 360 Loans. net of uneamed interest at year end... 82,81 TW7 $2.178.980 31.831,324 S1,548.910 $1.364 824 Aerage loans. net of uneamed interest.. 2,300,440 1.976.004 1.660.940 1.393.986 1.323 662 Enaing resere. as a percent of loans at year end.. 1.25 % 1.19% 1.15% 118% 120% Net charge-offs. as a percent of awrage loans .48% 66 % 60 % .78% 76 % Prowsion for loan losses to not charge offs.... 1.50 x 1.30 x 126 x 121 x 121 x Resere for loan losses to net charge-offs.... 2.88 1.99 2.11 1.67 1 62 Charge off coerage (Pre-tax income plus prowsion for loan losses duced by net loan charge-offs).... S.72 3 51 4 07 3 31 2 71 Mocation of the Reserve for Loan Losses at December 31. Commercel. S 4,082 5 8.082 7.604 5 7.353 7.239 Real estate construction 353 766 211 299 Aeat estate mortgage...... 442 843 1.733 570 815 Installment and credit card........., 4,977 3.687 2.701 2.411 2.188 Foregn (tore gn domiciled customers) 8,335 1 988 3 254 2 263 Total allocated. 18,818 14 953 16.058 12.808 10.541 Unallocated.. 14,527 10 905 4 955 5431 5819 l Total reserve. S 31,343 5 25 858 5 21 013 5 18239 5 16 360 l j ploans as percent of gross loans at Dec reentage d:stnbution of Reserve and cat ies of r 31 Res. Loans Aes Loans Aes Loans Aes Loans Aes Loans l Commercial.......... 19.3 4LS 31 3 51 9 36 2 53 3 40 3 499 44 3 48 0 Real estate construction 7.4 14 42 36 30 12 2.2 18 33 l Real estate mortgage...... 1.4 23.5 32 184 82 171 31 20 6 50 22 1 I installment and credit card.... 15.9 22.5 14 2 21 8 129 21 4 132 196 13 4 20 3 i Foregn (foregn comicded customers). 17.0 3.7 77 37 155 5.2 12 4 7.7 63 Generai nsk 44.4 422 23 6 29 8 35 5 Total. 100.0 100.0 100 0 100 0 100 0 100 0 100 0 100 0 100 0 100 0 l

Depoat3 Short T;rm BurJwed Funds Ocpitil R:sourcCo inflation cnd Chinging Priro 1 Average Deposits Deposits i.arge denomination certificates and foreign time Milhons of dollars Total deposits averaged $3 018 bdkon in 1986, and deposits averaged $444 milhon in 1986 compared ( increased $392 mdkon or 15% over 1985 Deposits to $449 mdhon in 1985 representing a $5 milhon d at December 31.1986 were $3 283 bilhon up $210 1% decrease At December 31.1986,large denorn, 3*m

soy, mdhon or 7% over 1985 ination certificates and other time deposits of ws

$100.000 or more issued by domestic offices Core deposits averaged $2 574 bdhon dunng 1986 totaled $385 mdhon. The matunty distobution of representing 85% of total deposits and a $397 md-these deposits was $288 mdhon, three months or am 1;on or 18% increase from 1985's core deposits of less: $60 mdhon, over three through six months; $2.177 bdhon or 83% of total deposits. Core deposit $24 mdhon, over six through twelve months, and = i,3, a irs growth was due pnncipally to the $79 mdkon or $13 rtalhon, over twelve months Substantially all nas 34% growth in interest on checking deposits and foreign time deposits reflected on the Corporations the $79 mdkon or 23% growth in the money fund consohdated balance sheet at December 31,1986 accounts. Small denomination certificates of deposit were in amounts of $100.000 or more and other time increased $149 milhon or 15% 1 273 Short Term Sorrowed Funds Dollars in 000's toes 198i .3o The table at nght summanzes information with weighted average interest rate respect to the Corporation's short-term borrowings at December 31. for 1986 and 1985. Secunties sold under "25 agreements to Secunties sold under agreements to repurchase repurchase 5.80 % 6 85% .. ~ are secured by U S Government and Agency Federal funds purchased and IWn W82 1983 1964 1983 1986 0 secunties in the Corporation s investment secunties fundd' "" 14.s3 t o 00 portfoho Matunties for this category of short-term borrowings normally range from one day to one 1E21% _7_86

• o* *a'*ao ***'

month. Federal funds purchased are unsecured Maximum amount outstanding liabihtees generally having one to three day at any month-end dunng matunties Interest rates for secunties sold under the year agreements to repurchase and federal funds are Secunties sold under subject to dady fluctuations as directed by their cha . $113,701 $166 3 M respective markets Federal fund purchased and other short-term borrowed { funds Aggregate average of all...... . 8133,903 $120102 short-term borrowings dunng the year: Dah average outstanding. , $205,089 $219000 Vbghted avstage interest rates. 4.29 % 746% Capital Resources stock Exclusive of the stock placement and what consitutes such a base for a bank hold-Common stockholders' equity increased the note conversions dunng 1986 and 1985, ing company, one widely used measure is $64 4 mdhon or 314%, to $269 6 mdhon as common eauity increased 18 6% in 1986 the primary capital ratio (common stock-of December 31.1986, compared to $205 2 from 1985 CUC's 1986 intemal capital holders' equity plus equity commitment notes mdhon at December 31.1985 In March generation rate (return on equity times eam-plus reserve for loan losses divided by total 1986. the Corporation sold 600.000 of autho-ings retention rate) was 12 8% compared assets plus reserve for loan losses) This ratio nzed but unissued common stock in a pnvate with 12 2% in 1985. at December 31,1986 was 788% compared placement in the European market for an to 672% at December 31,1985 Manage-aggregate pnce of $28,725.000 Also dunng Future earnings expansion and asset growth ment bekeves that the current equity base is 1986. the nolders of faed rate convertible are dependent upon an adequate equity sufficient to support the current level of subordinated notes totakng $4.350.000 base Although there is no consensus as to assets elected to convert their notes into Common Rate of internal Capital Generation ites 1985 1984 1983 1982 1981 Retum on assets 1.11 % 86 % 77% 69% 51 % 42% Common eaurty to assets. S.80 5 55 527 4 94 4 68 4 75 Retum on common stockholders' equity. 18.38 1551 14 59 13 94 10 89 8 75 Eamings retention rate 78.25 78 74 77 92 74 21 64 43 5343 Internai capital generation rate. 12.80 12.21 11 37 10 35 7 02 4 68 inft: tion and Changing Prices does impact the growtn of total assets in the factor aNecting financial results is changes in The assets and habikties of Commerce Union banking industry as well as the need to management is attempting to maintain interest rates As discussed previously are mostly monetary in nature as there is a increase equity capital in order to maintain an relatively small investment in fixed assets appropnate equity to asse',s ratio inflation anced position between interest sensitive compared to most nonfinancial commercial also can result in increased expenses assets and habdities in order to protect and industnal companies However, inflation Management bekeves the most significant against wide interest rate fluctuations

yy-Comunerce Union Corporation .,h : 44 ~ M - s- -C ' fees hencial Statessents t p,p$. y. WY ' $f&m;;l.~ & [i* ' 2 s

.v.-s,p+ ::y, wQy 4, a,<

m. e red BAenagesnent's Heport The ja Managemert of Corrrnerce Union Corporacon is fne n or Finanolet regu m.Li, for the irtegnty d the consolidated the iorn. financel statements and related financel informa-terly wth,._ ~Corsolideled Balance Sheet 26 t on in this report. The financel statements and and the '.;..,7-- 51DMhe s idered Statement of related notes were prepared by the Corporation in adequacyofirgerug 2_ A 27 accordenm with generah armreati accounbng g approveaqy getgggCNCesand Of p . j, deled Statement of pnnciples consdered appropriate in the circurre pnnciplessAscengtwCorporegon't;;m-A. yin Common stances, and ner-arh include some amounts sistements.Sceneses of ammors home t 1 p 'Equay 28 that are based on management's best eshmates to me Audt Commene and meet at endi moseg, 4 i p Statement of and judgments with appropriate consideration to wihout the presence of mortagemert to dmoussMtJ >n.s in Financel matenality. Financel information elsewhere in this appropnete mettem - -r ',: ' '86 29 Annual Report is consetent with that in the financel pombon p Policies and statements. The Cogoadon mertums polices and procedures Nases to Consolidated re0sNNeg,smong criar tungs, ao':ounting pnnci. ' FinancialStatemeras 30 The Corporation's financel statements hee been pies,sipenshaus, teminess conduct, and intemel L9M eamined,in accordance wah accepted soonwiengcoeots. Ongcuno audit programs are 'W pgnensdel Date audtingstandards,byEmot& , independent.aimadan,t,topguitorcompEence with these pob-A Financel auditora Their report, which empresses an unques- , cisio r(^ __1-i.}It bedeue het this prcMdes fledopinion ontheimmensof mefinenaalstate 7 % _ ^ "k%f buoness conduct. Summary 41 ments, appears on this pagy. In connec20n weh MCT Q' f_;,"_. fld our operseons are con-en gs-vser Compensons meir seminalen, he ausars has reported to 21 @ jay ~ ~,,

CanarManad Rebos 42 e,

jConsolidseed Emmrigs-management and me Carpestman's Auss Com,3 ~ e 00 f Summary 43 misse;hetheir studyandmatehdortof the -dqq Corporation's system of interned moodunbng conrti 83 % Cormalidated Belence did not rearinaa any metenal weeknamaaa a is. ~J.g Fj2 -

== c Sheet Summary 44

j..

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• i M Commercial and real estate....................

41,985,173 ' "'. 4 'a19:d.$,. . p JW 300,371- %yl7W InstaHment and credit card..................... r,Y 94.M0': f. Foreign Iraeno................................ 3,300,8347 ' / 2,2ER$0t$,>.. ?. 38,50F e.r,; 4 47.SS'- , ~ ' 99.348..>..~ #2$,868-Q, '* y Less: Uneamed Herest..................... '. c, Resene for toen banaa..................

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Toeni net loans................'........,g,3*. N.. " : 2.153.1221T f. g tr f imeetment secunhos - Note ft,. y 14.,

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N# Other.................. d..........,yr W p Tassi knertet weiues $57eises and $59f 1 *K.F .inter Tinding account somrmes.. d;. c... :. f.... 6 ::.,,. . n H Iresness. taming bank depostens.tf.wnn 1- .e - Othershorttern nastymnts M..;; c y. Fesseralisneltseisi......t.ATa.:. f.... 0... ?, Net ' E*- i Obtelem. ino. ' seep. ..J Tr'g 2 cy.,m7 % ! . m a N r ; e 4 ' s W ese t a n @ J.; .a .. a ' f .. /. Pre C- .*v N.M. ~ M; h ans - '. 7.,.$, v- =tna Nor ~ y pp-y ~ wa$ .= M- "Q Nor Olhar assets '... ....' U8 m.gj% n=r-a=of'g;. ;.Q ew'"L C i\\eest' '.. - ~.: 7 4.g ~ap - W~ ? m Dementis.tD x-E *** amealegg;S ._.y s.4nes c.c w..a ct ee / Money D ' M$ /' Smet y[#A6. ' usgr AE, w Net 5 ' h6, N,[' s ,.-,d.' h Pe N.M. 3 n' s q .?. ?. .A i ~4 ,/ t 1 Y .' O.e ^ , g. - r, N' " t'%.. g,.

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i' ' -.q i.- genosseroe Union WGon ,.,4. c.'- Conselldeted Stateneont of income w e N p#d'. 4r.~.a, " 's y .s ,.. +W_ s - v;

• u

,m 3, m. iNW..,.,...v.M.W. d h i M M* F'; Ei"L- "Y 4 Dollars in 000's Year ended December 31 .a t, $NSAG(Q.,g,e ' C.d 'N Reenue Interest and fees on loans....................... 44' "' 7.iMg, e, M76r;ih;pjW,,r:3 Interest and dudends on irwetment securihes: /..,; 4 ,;.j;f d U.S. Treasury................................ 18,ASF. ;.,, Federal agencies............................ . VM 11.60tkp AeJ.18me.,. State and rnunopel.......................... 23,83R 17.174 - ~% S 11,8& Other...................................... 5ft '- 389'.' ~ ' " 5670 . 48.334 < >..s 46,961 50.646 E a.esi on eno accouni escur.es.............. . 1.g 22 65 - Interest on bank deposits........................ "fF,300 23.591 24,044 Interest on other short4stm inwuelmente............ .121 j 1.306 1.712 lneerest on federal funds sold........... p...... S.WF 2.941 5.506 Tolel interest renenue..... 1... ;.... ;...... s. 301.558 intereston dgoiles..'...'......i:2C'.7.C [.,. M.. g 311.246 ......~

dE17t1920 166.913 Expense Ireerest on shcrf4erm borrowed lunds;.' 4.^..L:@2..'NM

.. 5,56 6.610 .4 ' '16,348 22.672 treerest on subordinated and omer long4espr Totalinterestespinser.N.E;... 7.6.Q. ". .fF -J'10E136 196.195 ~. r,.g.c .,, n ~ p c. ,.w. + Interest Flesenue Netinterest revenue;"...'...N.i.'(C.f 'iT1$,110 105.363 1+ a for 1.can t.oeses Provision foriaen inamma (Page '16h.n %,'*v4. E14B09 12.557 .p. Not eeming esset oordnbullon.~..s......M*.k CJ68.301 92,806 estIbenue M (Pideieh.I.h ' ,73Y.983' 27.582 Selenes'.'.'idf.. b, gd' N 1)r e 4 2 ! N e operenna;. en t.; c. c. : *'s'Qy c. 120.388 p,. .,.o. ncf5.fyd 39.530 l ' heerest Expense Personnelbenshs.- Nohje G.Klif Notrmfancyagense. NtimC1.f.b[;fp ~ 9.579 i '- ,. J a,309 7.486 Fumtwoangl ^^ ' " ' ~AkasCid" 7.510 g 28,372 l Total V 92.477 1 p a. H / Inocme 750 + 27.911 income 9' 6.117 .g, ' :yl'? Netincome 3. 5__21.794 r. 5 Per Common Shere -,..- -,M M'. 'n. ); p " " ', 11.921 y .ah. -5 1.81 k, 'y ,. N f 5 ~14,621 a t g S' 1.57 M .445 g'.. - / /

e. ;.

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' 4,,q$af@m,9c g'eommeseees Meien CorporClien w-7 7m - Statement of Changes in 4'4 4 ~ Com.a stockholders' Equity -pg.. .n LY }~ e',h. .c4 G,,, ~. q,.; ^ h 000's Comrron Capdal Rotened - Totu6 M' l ' i ~' k Wars 1986,1985 and 1964. Stock b prJ.g% Belence et January 1,1984,'es ~' ',.f*' d provleuely reported........................... $ 29,208 $ 14,132 $ 76,309 $ 119,649.MY,. j Acqueshon in 1986 accounted for as a W l poohng of interests-Note O...................... 6,590 3.411 3.950 13.961 Belence et January 1,1944, as restats.d...... 35,798 17.543 80,259 133,600 5' Not income for 1984.............................. 21,794 21.794 Stock options exercised (8,345 shares)............... 55 41 96 lasuance of shares for preferred stock corweroon...... 4.075 6,925 11,000 Cash dividends declared on common stock: Commerce Unen Ccirs =&,i.................... (4.226) (4,226) Subsdiary prict to aoguisition..................... (288) (288) Cash dudende declared on preferred stock.......... (298) (298) Purchase of treasury stock by subediary, prior to acquaton.............................. (3) (3) - Selence et h 31,1994............... ; 39.928 - 24,506 97,241 161,675 Not income for 1985............................ 27,348 M~ 27.348i Slot

• oppons exerceed (155,421 shares)... c.........

1,036 896 ,' e./...- 1,734 ... y*5,789 - kna mnce of shares lor oebt conersson............... 2.573 3,21 6 9- + + Corwersson costs.................................., (21) +:1. c. (21)' ,, 9,130 MJ ~ *k.@# 14,521 lueuence of shares for (cQuisition in 1986.- Note 0;...J 5,391 Purchase of frachonal shares........................ N'%. (1) C (t)?N.f Cash divdends declared on common stade ' ~ ~ N Commerce Union Corporebon................ 31.: ~ Subsdiary prior to acquissbon.................... ~ (5.387)E/ (5,387) r (420L (428) . v -- Boience et Dooember31,1995.'............'..... 46S26 ' -'; W 37.529 " ',.118.773 4 _,.. ':".205.230 Notincome for 1986..................,............

4. 4 4 g.m,,.,

.48,833. lesuance of shares for debt corwerman,'...........~'..; f 3,798g dj.. See ~g de,ses Stock opbons exerceed (115,435 shareeli..........'.. y 739%, y t 1,000 GOS, 4,113 0 Cor-' mon shares sold...............'...............C 4,ASWD d M,33,841 gE ' ', ' 37,441 lesuance of shi.res for 2-for.1 stock spit.............A 41,443,"L.d rp.i.p11,999$ ;b(11,391)q' 7j + (41,843),; a & y/* Eflect of stock split on 1986 min =8r=1 - Note O.@2 ; k 'y Cash dudends declared on common stock: i !, T - M. U Subsdary pror to =W j............ M.d'. i.A.a - ( @

• *~

Commerce Union Cu r,.&,i,(...........$ M pA/E w d ~- "'W(3,333) b.. P gfM Oku ' WEN;: I ramyr f4 M % y neienee et Doomener s1 fees...Y,i ] M_.,; w) @ @~fk,, _k. .j l , [p;,> m& see nome e canaamus snamaannusa. ,f ,.n hy ' ' Wt-s U *h; ~,' w ~* d ., M -% @ *:9. j a,?3 .) m...g u L,.' iy h (' l D 7 ggr.%.M.4:. .M',1,, ,;l -, W~ -[pA. er .:.+ yl2-- agQ. In "UY y *a. qq ) %~ 1 w - t.,4 - [,,

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5***73-Comnierce Unlon Corporation 7 Conee#deted Statement of ~ f,7 2 s-Chenges in Finencial Position y + w. e ,w g .~ Dollars in 000's ,c. Yeer Ended Decernber 31 1988 .T -1985 4' ~ 198 d Funds From operatons: l Net income.................................... S 40,083 $ 27,348 $ 21,1 1 Increase (decrease) from items not currently requiring cash: Prcmson for depreciation and mieiwaim...... 7,738 6,734 Sj Prcmsion for deferred taxes................... (1,848) (1,041) Pronson for loan losses..................... 18.257 16.809 12J } Total from operatons................. 08,808 49,850 40.( Increase irt Deposts...................................... 200,917 516,470 373; 3 Securrties sold under agreements to repurchase..... 44, Federal funds purchased and other 4, short-term borrowed funde..................... 47,894 Other lecilibes................................. ~ 10,837 i Bank armpennoes outstanding.................... 13A35 Olher lonNorm debt............................ -H 1. Decrease in-e. Irweetment secunbes............................ 47Mk

f internet-beenng bank rW=en..................... +.J 1,690

.A Trading arm rt secunbee........................ f .6* Federal funds sold..............................

• EE Sh6 <*.r 6,i r

Due from customers on armreances.,............I ',JW4R 1.064 ; 36,l / Other naamm............................... ; '. f

• SWF Issuance d common shares under stock option plan.,.. ; 1@M9Fs 1,734 leeuence d common shares for lanestm-L

. $~Wi *r debt corwermon............................ M._ 5,789 F lenance d common shares....................... l f.RFA4 leeuence d common stock for arvy memn arented for mg E. ' as a purchase.............................. i,..,% W.

• M. v ;r 14,521

/ Wh enon resone increase due to arpsmert......... : *

• InyML 1,013 4

./ lesuance d common shares for prelened - 4?t + %y e stock cxnerson................. g......... ~

g 11J

.Tomi. Changes in Sourcms of Funds.......~. U / c; 3602.968 $519j Conh citadends doctured........... a..........#. rF F- $ 4) Uses d Funds Q Qj'q;g.~.-u.y % '.

• :rmCM..

146suuntng.;NMUN.,.Mh' @N M $ ' 380.633 292; rJir. ? N" ! 41,453 10. passpet'.k. -.Y".gsti..p 3'f'-A .M .' 425

• 9

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. 805 1

w. C f25 S& za,7$'*. Q~ u f.Quh zy?.h74*Jyff T26.388 57 f %.10terassuN ~A.*.%, * 'qQ4[r" '~ ' ,:. 900 17. TQ. 4,1.777 92 1 .Discusse %,f,r-M 44'* g"'. / y g [M = ', __ 4s W &tC ~ M.' ^ "QAg7 u -fa as%c M ' F.T.4.% ...T,064 37) Q B,, hlli %ense c.i m f ' 'rabor 9 4-Es: :s (%.e*.(,' 7 des .s.. w caer .e "",.M' .k. 3.$.~;....w;4g.h ' ~ T ~- 1J e.' -l# ~ tregreatirrpipQNff,ty* " i 91 c h k fe ka ~ %. a5- ..i-P Moshees of fressoneisf$ses%s.p;a.'n.- :~ c . u..a. -

r. 21

Pasehuse of teneury shargs bly outfeldery]k %{$a w d... f~ 1 .7." ~ '~ ' mau gyler toacquisson....'.y.Q ts - G, n b ~-[,py $ 51ened sim

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pe Amesenting Pose 6es , w,,$u 4 Deceedper 31,1986,1986 and 1984 W y y t. -,s - bkN

• ]

-%g a as .4 psicos d Commerce Union prrude adequately for known and inherent: Resplayas EgigeSt Pleps; ' pw. hon) and its *

• art =nes rsks in the loan portfolo. The resene is The

~ esordarm to generalty accepted accounbng based upon a conbnuing review of the loan son peutwhich pnnciples and to accounung pradces of the portfolio, loan loss experence, current age 66 aceptfor financial servces industry The significant economc COWuu s whch may affect the recremert in 1986,ces pohces are summanzed bekw borrower's abhty to pay, and the underlying computed under the untcretR collateral due d the loara Loans whch are FASB Stelement Not 87.Pronsoons fo( Prinolples of Cenestidetion deemed to be uncollecubie are charged-off d other benefit piens for e6gt)le The consolidated financial statements include and deducted from the resene. The resene are accrued and charged to expense accounts of the Corporaton and its subsder-s increened by the provson for loan losses currert beeis. ies, after elimine00n d materal intercompany and recoeres on loans previously accounts and transacDons. Purchased bank charged-off. eneenteTimmes assets and liabktes are adjusted to fair knoures gonaded for income taxes are

)

rnarket value at dele of acquenten. Inwet-Seenarteles bened ortincome reported for financel ments in joint wntures are accounted for by inweimont secunhos are sessed at oost; seusment purposes rather then amounts the equity mN. All prevously neued increened by secretion of <tmen rits and rent / popuble under tax laws, Deterred financel stelmnts how been reelsted to decreened by amortenbon of prarnums on a tous are prended for tmng dMw reDect acquestions accounted for as poohngs seneght-line beeis. Trading account secundos ' % ~ totseen tu periodin which of interest, are corried at osamsted cunent market wue., A locassend opense items are 1.3.-~ mz :, ;4.41seled86attichWayafecttaxable income ..,- tilnergid esporeng purposes and the Leone Presudoes arid Edgutinsent '1 Loens are steled at the pnncipal balents cul-Premese and equipment owned' ape statediit-J tivestigert tet osocas are used tc reduce standing. Uneamed interest and the resena a cost less accumulueed deprocedortandQM( lato penods qual for loan losses are presented me red rearn tac amortundort Deprechdion is computed umrigyes .e loans. Interest on loans is computed on fist..- Y tu stregit-ane malhed ouer tie ashmeted 4,*;D: T discounted installment loans is compuesdf*M ~ useful Beeof fio assets. Inspost met cep principal balance outstanding, irterest on - ; r ' ..Coniseen land during constut20si le'ati$sd to_fe?g. pummonshare is using the sumd-the-months' digits method. apprapnses tenet costelampshold' "TyJ Alesspreferred Thase methods of intenset r6 coy.ui, gener- - _ fj. 1 aerage montsareamt'sitedcheritstermsWthe g ** ylmetcommonshares. alty result in lewt rates of return on prindpeM reapodlwa leeste or te settistad useW inesRR spidCg balances outsendirt 1+ oflhe improvemeras,whchever is Essa, ' ^ ' ,shinesaus as though au . i.:r.C.'e A Q.n irgemie were exercised Fereelesef and Riitpossessed;' %r3

flekihljugceeds

. the exercee price Fees on loans are allocated between ourfert , Foregioegdblid,repassestehFreadwC g +tikWW,,'b,, _ g4 and deferred fee reenue depending off the d, wars used to purchase the anertsgmariet pri substance of the transactors Delerredfeeg' are recogneed as current rewnue the, Wedna .tiredeniyf " price used in esumated lives of the tranancenns. ,orp and sharesis the insurance underwnting reisted to ofto Q,.,S apt

pfiges, s

4*

• e -

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• e

@J[ actMtes is recognized over the pohces in relaban coinsurance greegy asuming ,a Loans are placed on non-oli when doubt as to collecebMy'aident,. asetWM loan is placed on non-accruel studus, accrued but unpaid interest is colisctioliity and if its collechbility the unpaid interest is re6ersed revenue or is enarged-off alexne accrualloans e recconeed dementedas tir tie neeerve for Leen The resene forloan losses e O level deemed approprage by l L. 1, r. ?M-N y. ~te ..., ~ w 2 e . x, y p 4R4

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bletes to 7 o r. C.: Connelldated Financial Statements M gj 4 ~ Oif f.%;.:: g.; %_ m.'s,.,.L y^ h. .,: ~ Note A Lomu M ?m >y. Loans ers s g 'I '~ "b Loans outstanding to directors ard executive offic-acoruel ers of the Corporabon ard its sv J..ars = dwier-($.07 per 1 M' ies, ard assocates of the foregoing persons totaled $1,946,000 m sta approximately $36.750.000 at December 31,1986, 1964 respeemk Imu 58 and $38.493.000 at December 31,1985. During $1,357,000 W Ososeer St. tWSend 1986, $37,718.000 of new loans were made and a December 38.MAnetincess a repayments totaled $39,461,000. $36.000.W$31,000 in~1908, 1984 reeMandperehere'redusars An hans were made on substanteHy the some then Sht per ehem ses year reauted true i terms, including interest rates atd consteral, as ror*=*rs on renegcessed loans There wese those preve, ling at the trne for comparable transec-meterial commenores m oecember 31.19ess cur. tions wth unrelated persons, lend edeonel hnds to borrowers whose toers, 4 wy,, tm.waad as e or renegahmed,, e A summary of loans by Securities and Sehenge . ;a,4;,ir,, c-s.m caegory is presenied on page 21. The a

My

)- resone for loan losses is summertred on page 23. .1,s.c;.4 3

p

.Q ' 's. y 4 e. Note B WT i +' 'l ving i h"***"*"' ~~ , h@{ " @j 'j M December 31,1986 and 1985, certen tweelmont w s, .j secuntos with book values of $291,714,000 and . 7t,gg J.. _ -l $294,370,000 respecovely, were pledged to escure, ( Sp y. - pubic deposts and for other purposes se reqJired - ? ^j j (. g ID kD F ,p .) 3 or permoed by law. Market wdues by irwealment i 4 j .nt security ostegory are presented on page 20, . y Q. { W; 't and ., Note C M b and pipment was S of 4

he

/ Pveantees and Egulpunent mmun _;$$ and $4.371,000 for 1986, 1986, arW1994 sempemeV. Minimum rental com-tsury / The Wcomponents of pr.nisesand mitipants yndes noncanoeieble operating leases j / equipment are summermed asloGoesTin thousands, W plendespagequiprnent at Decem ofdoneret,. ','*f 3

• ""'E 3

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• t.or.c.

m..,.ca..;. s,seest su.tas4 ~ ~ ' " % 5 ' 568 pius g 29,38 % ,-4 { f. f, i4 EPM ~*gh"Y*rh 888.M p,E" ::: $[ 44 " f.?"*"#***""'* d@g :"se*a"serMy 4 9::::: 4o:su .rred ..,, s.d v es. C .%.a.. w i P* T ?? g*~ p i NashvHle, has a 40 per-w' N wnbre which owns the ) e R i '.:L - n#,**'***Q O a ^ x.e Jh.4 y, L : r.e;e,r. m j r. .nskt f ' and equ$merttw thE;10Easef 1984 *E@$ g# ggggni n a 9.S= 9, w., Leese commamenis to 1 / --b J/ $1,500,000 / ' E374J100.E447,000 .. - M " 4 and $1,600,000 anrwaHy ,M M 198P98Sl19 $' ' N. M.'fM (5 I O nock pme.~;.Mm =NN~22L e d.#

• 7O l

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.;, g"A l ~ :, A &,,y "e.,4Ih&Q4'[QR, f .?. ^ r 1u-

to . py. M ' F1nancial Statemento QW f7 .y-w.r a -t $qd., jM%: y., McLWw

. :.?

..a Jp-caprial. The matunties were shortened frorn Onaconsegesadtien " Betit W ~' the year 2001 to 1996 and the CuTuaiui its authagt 40 .in i has agreed to issue $4,000,000 in equity principalpaymons $4 P;' In August 1986, the Corporation repurchased capital ewry four years until matunty. This $451,000in1988;$43K000in 198Pl v $1,000.000 of its 8.50% Debentures due obligaton may be reduced in part or in total $1,396,000 in 1990; and $1,199.000 in 1 1999 The repurchase satisfied the sinking by conerting the equity Q awubiient notes to The Cupw.-ni Parent Company only) le - ? furtd requirement for 1989 and part of 1990. common stock. The terms were also obhgated to make annualprincipal enhanced by accelerating the call opterw. In totehng $5t'3,000 in 1990 and $835,000 In March 1986, the Corporation pad-in-full Nommber 1985, the holder of a roto in the in 1991. l the $17,000,000 floating rate notes. The notes amount of $788.990 elected to corwert he were repaid with a portion of the proceeds of note into common stock. The Corporation The terms of the Corpwoin-ds long-term a ccmmon stock issue. issued 105,198 shares of stock (post-split a0reements prwide, among other things, for { basis) as a result of this conerson. Dunng krrutabane on the incurrence of debt ard for in Juru 1985, holder's of the Corporabon's 1986, the holders of notes tolahng reatnmong on payments of cash dudends. $5,000,000 floating rate corwertt)le subordi. $4,350.000 elected to conert their notes into Under the CGTuenTS most restnctre debt nated notes elected to corwert their notes into common stock. The Corporaton asued oownent. cumuindiw common dividends common stock. The Corporaton rssued 580,000 shares of stock as a result of these deciered ammary marit to January 1,1974 are 666,660 shares of common stock (post-split conersons. knited to not income amiable for common 4 basis) as a resut of these conersons. 19ulelands plus $5,000,000. t in the first half of 1965, the Corporation modi-January 1,1986, the increase in awerage ~~r h.. f if this corwersion had occurred efiedrw AbatDecember 31,1986, approximately g fied the terms of the $12,000.00013.50% common shares outstanding would hehe r 31291 fveen of to Cupuaiufs consoli-conertibee suborchneled notes. These notes decreased reported prrnary eamings por f.c. eorgungs wasavadable for I are r:ow consadored equity commdment share for the year by $.03; fup dilutedesm.q guyf y under this restnction. t ^ uey. 3,,Ni.mi%.7. ',.e.Lg;,: .N

1. n ~

%. * %g,, 61.%. Datersin 000's y t '*4J M % 1%5 1 December 31 Commerce t.blion Corporebon (Perent Companyk d,V g f p b f;', S I E i Debe'1tsee-8.50% due 1999 / --h V fD.? Sanien0 und paymonis of $580,000 Wo 1990 ord 7'".- f / $835,000 due annually 1991 to 1998.................,.'! ' i' Sftsppp@p'a $19.854 admino ran nom.......................................... M ... e - 17,000 Comertt)is subordinmed tw13.50% due 1986. ~^ 7A #"?% Camerable too corrman stock M $7:50 per ehere Q.p.... T. 11,211 mm.ma x ~ ?..,::, m..h d..,'3 NNVI.g m

1. indussief development revenue bonde-7.00% hsere0s ras M

Pemoni or st000o00 dus 1984 and 20ot neousnow www mapasa etnomer...................rg.-a r.... a feA.M %q f M buleistinIss;eoisitantreenuebonds'-7.75Eds&5DWy/ '1,, re... 7 000 - 2 j Capawi1 500 h u 4 seaf 360A00es born seese-tosh / j A lodgsomt r**queme....;.gr.p, 443 m ^ => snos "*% tosias . _ Jnmenvem enough 19ee,.;gd ^ wjy+- e e n.('f.;Q m-- --:end crir4gbsppusutsp.. V 261 r - ,;gg 1/1/2004?.@3P4- ................... oa.. c.T ,Y ', ' 300 Wh @!% / nesse. -10 0 tis 92A06 due shussy 1987 to 1914mm eW i of $482.525irf1990 n../.. 4c 832 s paeF-.8.25% D. 4--M Y' /,' ? _. menus.,, _ s '. s y e$segebigneone........J..r.k.Q 3 1,446 + ..,. 6 ansiementmienuetuness-assm; s l C. t,,, h svamihemaments tem '. lo depost edgemone....'......M ~s. . Jr... . " SmogrusedcapaWdeW.50%.2;T.*O,-a 4,000 2 Ptteeres d 8100A00 We annuesy w Tdei criar king term ent............,.....{.].O,. 9 -37;002 Teol long-term debt.......................p.;,..! g 6;,.r. .s. .,kc G., .e r. D** .q 2.. / ';.g w p.

af+. ;*.. Notee to p~,pggg Consolidated Financial Statements '. Q pt ~ N. -p%aR y, Nq.* A,. EE Y y c,,,- S i y NoteE

. ; gXM

@;.,,c@,Cw, Mp. / y[

incessee Taxes at 3 7,- JMQg 3.] 1 pe cornpanents of the prcmson for income Doners in 000's J.Wy ;gpq p.4 1. sxes are summarized in the table at nght Year Ended Decenter 31 1985 - w 1936. C-M, Currert '. g,'(170) --b ltS Federaf........................................... 3 3,tet ' 8 5.01 State.......................................... 3,381 , 2.215 775 Forsegn............................ 308 74 ' ' ~ Totel current.................................... 2 443 - [ !bt '[- m Federal.......................................... (1,177) (914) (215) State............................................... (127) (30) Total deferred...................................... HQ41) 245 )t U Toled expones.........................................., f.M_2 11 3 A recoriciliation d coneokdeled ricame Oceersin 0004 ~ ' Sees et the Federal statutory rete to the Year Ended December 31 .(~~1988 1985 1984 ernount shown on the income his Computed tut empense et 40% of pMex hooms i..... 6 MS,SSS $13.225 $12.840 pesented in the table at right increase ideoresso) h taas resuurig ttet >;& t..w-g. Teu. exempt seenus.............. 4......' ..d... y[.flGiSSS) ' (13.981) (7.908) 4 tax credsts, reisted to secunhos State income toen not of federalinocne get benet...Q ~ 1.128 1.083 W Ops rete M on este @{.....t.J.f.:;r.d ;.1,MS. income tec osecats............... Qmn (577) (624) gensecbons were $236.000, $2.537.000, NorW*reda interest expense.....;.'....../.;.hi..Q.g'.p m' of.L h (273) 11,006'000,in 1986,1985. and 1964 '",833 v. 1 516 .2 v. Oter unma, nst i...,.................... its S 210 " *"P'"'$ " *bi ** ""~" * "" #*3,Y""'p...q f+ E i 4,;f)..Vr,M;N,g. f.'..

• D.#iiM 8 "" '

no cuWe tax retums for years l ~'~' firough 1982 how been examined by tie l li 4.g/, '.$,w.hd*";.[4 Intemel Rewnue Sennoe and any .gs, J ?. n m. '4 ajustments settled. , 'O,.kly V, +.r.aq=,..:$g*M(.

F 3L.,.

y -p. .. m.4g.% .a an .. e /..,,,; l '. : y. Mr& %, ~,. '.,m3 a.c,.j;p

• -i.s> 7 !WM.. sg*~ "M* -Q' ' :.

e c Areconcihation of the corW Federal. c %eirve4Isthorne ' < *K gl'tBar Emeted Deeendaar SP statutory tax rate to effectre incosne tax 'W h

1. 1985 1984 1 redes is presented in the table at nght -

a.VWulemengdesesse)h tuas resuSng trorer -,"c.2PPMteragissee' 48% , 48.0% 46 0 % d .,. e 7 immremi.Xs.u....../ '. 4,y '~ h. (48.6) (28.3) <,y beenElst ' {iLD)- (2.2) 'as 39 4M i C...bs.l

1. .;C

-;, /. Mi * ~ eget. 4 Q,g-(Si f ' % %y bg,g7 ' 3a fh'n l 21 y l ~ / . :. j ,..? d w a Deterred tax expense result, JN d% 4 recognmng certain r M:b. g.dfM,,, b expenses in dWerent r 7w 1984 s 'r tax and financial W--L __ W ^..d - S 76 pN ocuroes of these drfler , elled of each are pr ./ % " tight. -.... M...*?- 232 %,,1. 3 g% V a. D (31) y-r p. G b 43 ~ b. : 3 4+ i,u., y 7.,3.- 18 - m . p '.. s.. * *g%."; 4 ( a y l ( ~+ i , 3 N. ,u. ~ - - (j ,. - r N. .a. 3 ,, =,. ',. .', [,, u.k.. "..,..n 'A.,. ( i .,. cy c h _.* Q.% ,,, y :. *. - 1r ' IN ' " % s r2m !, ~ % .. > +. u d E* D ' ' l s y 4'May.x*ec'. 2r,. w.v. c. w; m,. ;, .x %.g ...,r

3 ". *

,.l ' '".

l .5O My - -.L.< g. g .c h 9. &*1, n " MineF The Secunties and Exchange Commission 1987-19006SteMaitangmemment_ v ' tenernemonet operetiene.. has requested that bank hoding compones implemerged a laughear FinancingPlatt disclose certasn ii Ju maiui regarding "out-wheestqrneightmemmentsector The Corporabon prendes intemebonal standings" to pruste and goemment sector were reacheduledBesseen 1967 and 1 serwces to rts customers through domeshc borrowers domciled outsde the United at market rates. At December 31.1986, offices of its subsdiary banks and the foreign States. For this purpose " outstanding" is the Commerce Union Bank had $6.111.000 of branch of Commerce Unon Bank, Nashvme. total of net loans, bankers accupiar.cm and outstanding loans in this program. The l Assets and liabilites are considered as inter. interest-bearing bank deposits, all net of Meman loans were poihg as agreed natanal for this footnote dsclosure if they Unned States Go emment guarantees This December 31.1986. The Mexican outetend-aree from transecbons with customers declosure is required for foreign outstand. ings wero $20.745.000 at year end 1986. domciled outsde the United States. ings that exceed etther 1% or.75% d consoli-dated Corporaton assets, irrespectNe of the in 1964, ioens in Brazil totaling $1.300,000 Because many of the resources employed by bommer's creditworthiness. At Dexmber 31, were daderred until 1969 through 1993 at the Cupwaiui are common to inemebone) 1986 the Corporation had no foreign out-market teams. The agreements required that and domeshc actMtpos, a determaneben of standings that required dieciosure under the inheetcontnue to be pad on a current enmings attributable to intemebonel opera- .75% requiremen' basis. Based on an agreement reached at tione must be bened on certen intemelly year-end.1983 between Commerce Union deeloped assumphons. Interest income and in late 1983. the Cupu-uis pmate sector - Bank,ettiir henders and the gmemment d t expenses are direcoy reisted to the assets borrowers in Mecoco began partcipebng in a . Bleet,-SES mNion was debursed to the and liabilibes frorn which they aries. An program establehod bythe Mexican pnt(of Brazil during 1984. The intemelly computed marginal cost of funds goemment to asset in making pnncipal and-2 mEmesure between 1989 and concept is used for pricing troney transfers interest payments. This program is asuniki - 'uAtmarketinterest to be receiwd j in adjusting for funds generated or used by tered by the Trust for the Coverage of 3' .1986.pnncipeJ payments totaling

intemational operational No alW*n d Exchange Risk (FlCORCA), and prcMdes for.I'. r more deterred with repayment l cepeal is made to foreign operamons. The repsyment of substanhally all pmete sedars.111 1995, at market rates. The a pronson for loan losses allocaban is aquel to outstanding during the period 1967 teoudt2f cubitandings were $22,20.000 at net foreign loans charged-off each )eer.

1991, at market rates, with interest peld M.4Wesid 300 Sun s Non-irnerest expenses are bened on an quarterly between 1984 and 1991. As of ; W' ' Ww I allocahon d the intemebonal and imeetment December 31,1986, aN d tie Cupumikais;% had no significant com-Servces Departments' expenses, includng pmete sector Meccan borrowers were < .te additional credit to 1.abn an allocaton d general cupuate overhead. p-Epeiiig in the program. In order to avoitf ' as of December 31, income taxes are calculated at the cuin.od significant grouping of melunhos in tie yeare. " y;'4.,,,= K'N Federal and State statutory rates in eflect for S f'J each year. / k '..gy ,Ameets anal Depeelte ,,.ti %hff ,y , oecaneer 31 - . e.6 4 $. M ae # 198s [. D *""'" - hinandel trui@por1s g4;.j,m,7o o oh..v.../ commereist......C.a ;... /...d n.: r~ ..J. C. 5 20.ssa ygmy. 57.572 ......... a... u u. ~.y a veo / )1 ^MasarunnamedbesseetoP9Fene8354 82.713 Tesel tesetepostsJ.J.;.n.r...%.. 4* /

6..

199.661 .. 7;...... a %.J.i.. . 7 p. 795 ... M."* " **t**W-($ bg/.'. 2 '. g mya i.m -." af 4.,yA f*,, 3.g ~

• **EU* *W$.3 *f h.'" r Y'"

. ?. p. ^ f, o :, s. n o u ... e.f. T L i v,........ o.., f..........J .. a f -- S 3.88o N hAufforoptcespgee n. Q...<e...',.i.. U.'.st .L ' ~m 23,357 .. s(.;,i ' F27.237 J. Phy&@S]. et' n c -sv e s.; l :. O ', &g g

393, Ottistmenttegnasg

' - tus%s.._ JgS ' $1.271 ~~ NarWrements*Stue 2 - i%.. < - .M1 1.349 tJes nearHrdoost eqansur 4.;.'..n'.6'4u .248 1.244 Ingemabeturetuuse.. ;.4 JeIL 1.376 . Lansinsome trues ...%., 5.Ag/ . g.9*%' 674 Nasesorren.A,f74 ut,y - S 702 Outstanding presented in the aussenery of eusseeminnen. 7 -emf

• table at right conest'd pnncipsby.

1%ofAssees_.<' h.}. g a Totalas a % of intnd-bearing bank p e of Asseis Deeeneer 31.1986-n d 12% ... i..' h,' Japan..........'...u...e............u. 52 16% Oscamber 31.1964 ' ~ .W w

g......... ~. e............... v.pt.f

'4. 14% to y <J. ,,,p. y h 'g - TC: g w-

g%'..- Coneellt.ated Financial h U@ 96etes to m mm ? $h

l.?

y.n..

;~ 7.m

~~ g ment in 1986 or to deler paymert by recesv-1985 stock tuhich '~ optieses and ing one-frfth d the amount plus irterest 500,000 sink incentive Man eamed during each d the next five years, anos. Parealpuett M plan 1986-1990. employeeswho hay.; - _ y Corporation had 590.278 shares of func60nsin the or he " E common stock reserved for issuance under The executw incantne plan was amended in Optons may be enesdeed seein ten yess'.M c 1974 stock opcon plan. The 1974 stock 1985 to prcmde cash awards which are from the dans of pent in accordance wenP/ jpbon pian expired on December 31,1984. based directly on achewement d financel terms specded by me Cmw '-iandt-Dunng 1982, at the discrebon of tha opuon goals chhe Gr,.kni for the period 1986 HumanResourcesCommeee Opbone 4/.. . holders, a pornon of the outstanding nork through 1988. Payment of cash awards will granted to date are exerceable in incremerts. ' . cph8ed options were corweriod to incentrve occur at the end d each plan year. During of ten percent beginneng one year from date ' sock options as permeed by the Economic ' 1986. 5516.000 was accrued in personnel of grant and theresher in aquel increments of p,co ery Tax Act of 1981. Ophons were benents expense for this piert ten peroert for te next three years with the grarned to key employees for ten years from remainsig b=W ;is exerceable at the end ,ge done of ophon grant Ten percent of the During 1985, me Cuir,-un adopted the - of fie,Illh) ear. gnions were exercseble one year from date a_. n a,W i ' # grant and theresher in equel increments d r" r, Mined n,7 M-. a lun percent for the next three years wth the Ostiones L w ee Stock Ow. smeining becoming exercisable at the end Grensed dring 19e6c 1-a2/#%; 4 ?.,, Kit g 25.524 . ggis fulh year. Under the 1952 Run . -- i S. : _ 7.206 h t-h 1982, the Gr,.26 adopted an Under the 1986 d i. pa 60 E I ' ?, M g;g peculhe incenthe pien and the 1982 stock Under acquead =*=amyggen 0 ; 1NL 26.358 Under the 19M Run 'E X '.M MM. %g j ,y plan which resoned 500.000 shares Exerceed durtrgigg"erOC..N. a_.. ?..l -,j, 17,573 f 1982 stock option plan are employees ' 5'

• c. ' f. ' ' ';y?, '!10.

4 2 *'.'y 3.646 M common stock for inn innce Parbespants.in ..r c* l i T )I ore executhe officers d the Corporsson. R.. Tu .798 pguions under the stock option plan may be Under the 19EP"lan IN.3 W.i I ?;* p within ten years from the date of 2.800 inaccordance wim terms specded by Under sie 1985 Mady.s 'j. ". p1T "'t ' 5,818 d Gyp ;0n and Human Resources Outuaandinoandam t12/31/80tg 1 l e y;.,g^g y; 18.928 . The execubve ancenthe pian Under ths q 3 '. - i; y a... I"sN '.E 20046 ty prowded for cash awards bened 19recer on the market price of the Corpore-UnderM.N~OM.? af lon's common stock and the achegement of ,y .g y -r 2 V 4.600 F. l t - p(N@P7sy,7a.'% M 27,597 Anancel goals of the Curn &A for the o ~J.- 3J &M b 12.762 period 1982 through 1985. Payment of cash ,enerds will ocx:ur suhanry ant to Compiedon - Under fur 195 Muk O ":W' d 7* 10.268 s Cf the designated performance cycle. M ~ W 3 g"l. 447 - 1988,1985, and 1964, $126,090,81,1 ?A . N.107,630 and $960,000 roepecthely, was accrued 4thf #' %,357 26 personne' benefits expensefor the ptert h - December 31,1986, accrued but unpatire .E. - . ry 4 cash awerds under the 1982-1985 @'*~ T,800 hoenthe plan were $1,699,000. 9.190

had the option to receNe alumpown

. 12,782_ -7.208 ..t.4.. 4. % ~ */ .82,402 'g;.1;a ;5 - y c N. a0.000 ,, w, W 4,021 / j 7~ 1 / jb w'y, ,, g r, .4y _ p~~ q. / ~ g,,a g B ' ; %,p .Y[ql } ,/ 7 N a,"M 4., p. Q; T 6,, k.u.*. l. N. +j' 'yM' m& de~trI; ~ af ^ f.;c j = .w 3 .e ~ ] m - .s g a

flr, e

hl-T % ; s,d ,9.. att j.,. f.- Q. sy,," f q &, f7 f"' [ ? p: )

h9&%ipeas'se ' !%.?yjg y",q. $ g ?"**7 Consondated Finan'clal Statements ., wper e - i (y.l* Gi,f 4 e5*4 y ..p.. ..w nv J Q :,a. u - ~y 4 '^ 'Hf. 7 ing subediaries coninbute a percenlege d Bleahe3mumpgr T'1984 the Osponset ,.g ProSt Sharing their income, which is detributed in reemon to; ar*yende4 pig $plu1L C' Stock Purchese Plan the cuiWm. bun d participabng employees, prewous planensGIng arigiloyd The Corporation's contnbut on to the Plan angribu6onsof 2pereeni,andl$b10 c The Corporation has an ernployee Profit Shar. was $1,719,000 in 1986, $1,413,000 in 1985, permnt dtheirannualsolenetc ' u ing Stock Purchase Plan. Annually, partcpat-and $936,000 in 1984. Note i toes 1985 1988 1985 & Pension Plan Actuanal present wiue d Senace cost-bensAls il benefit obligneonic samed cksnn0 The Corporation has ru icu ib R;utory defined Weted benefit year............. S 1,575 O benefit pension plans covenng enhatantially obligamon......... $18 000 $16,304 Interest cost on = l 3 all of its employees. The benefits are based Ax:umuissed bensin propocasd benset on ) ears ol service and aerage compensa. obAgston. m m m. m 819,773,g,119J4, obligsson o n... o 2,190 4 tion which is computed using the five con. Propsced beneft Ammhetenon phn j assee . %318) secutre years dunng the kn prneding

• n......... 987,887 $27.0e8 g

Planessem er wius m. } rebrenent that yield the highest awrage. The esteneW6......... 661 ! Corporabon's funding pokey is to contnbuse. wand lst3"' e~ M a risce p 1 L annually, the maamum amount that can be resuhng trom ^ A ' ' sce6..';....... W $2.007 $2,050

• t" f: deducted br lederal income tax purposes, p dRures

N U ~-# 7 % *** ' )L / resd hosseep h future wirpm bc6 lewisl

• 99.48

-;--- discount rate and the 1 fromteassumed and ' ' h 1986,the COTpu.uun adopted FAS8 sesos dchanges a. (a eD1L sv VuosedeceWulnin0 the actuarial present Statement ib. 87. " Employers' Accounting for assergmans......... v Penmons" The ellect of the adophon was to urvecognmed not assetat 2 I' ^

• benefit obhgebon we(e I

]h reduce 1906 penson cost by apprcnometely January 1,1986.,m m..(Sista). 3358 { S. and 7.00 percent lya $1,900,000. Penman expense for 1985 anci Propediscmd) W ' Deensts'38,r1986 and 825 and pension cost....... 7S-413 s 1984 has not been restated. W 3t 1-Net panelon oom included me eso.m6M.91ses.1ermancied long-term d retum The following table sets forth the plans' mutMpercenth 1986,1985 and 1984 funded status and amounts recognized in the.. components % W * di3 : L anphrtasesteWas825 5 percent - .f w.. C.#.ddW .1,.4j T4d

• M@ EMF segist$eyThe w.cuy,iad net asset is Corporation's consolidated balance sheets at -

, VA, being allepftsed Oer,12.4 years. De mber 31 (in thousands)- Q.s yf yqs s. t'( fusJ / h MeufQ986 tia Cu.r ;;wi. acid 800,000:.. b be deelsed on May 1.1986 to share-h Stockholders'Eguity / efuse$ of meansed but unleeued oggenon Mbissaof regard ces April E 1986. All per 1 / . alegk le e gehuts pladement h me Eurqpeen: '** (taret$1nme accompanying j Shareholders d the Ccw cn hgwe aute !,$nsigtleran priosc( ; ; W'G sembnett and balnotes how been r nzed the ssuance of 1,000.000 snores of' -j.esm unna of $17A100AMidWN eted to me stock split. ' agi:;i.k #W~ Jn 9., w ',5 - I no-par wlue preterred stock on nucti terms. 2" 'p u g fs - *lf 4f - ( determine, with full authority li/the Boemd ^^ as the directors of the Corporafbn m0y % a irW A(-*. we.2 D:reacrsio nx sena cone. ion rigm m

• 3 othat provssons Mcable40 such 4,

f.;;.- stock. Wt $I At December 31.1986, the Corpusige1 s'hr7h'. - 1,000.000 eeres of author' g ' ~. :.. no par value presened stock l m.x; g. qd;.3..

terms, a,p m

t ,e 1 ,e E 9 ' Cesnmitneesste and l Contingenotes g, g In ths normat couros of business, cene[ outseending mmmitments and pt c lietnitbes whch are not re$ncted h that wW noF l poems imu.nw6fing financial stenomente;. 5 ! include laters d credt,commamenttip *: ,g emend credit. end leget proceedingih 5.pd

..: M apa5 9

WU1In neued stendty import, and goemed corantperE i

iemers d credt amounbng to.W.

_._W, A V -. 1twamragr 3 1 l $206,319,000 and $196.396,000 at gg Didencesfor me ? December 31,1986 and 19856 Theemam 1906 and-S$7 C emountsincludelesereof creditz T mars domoted outeos the UnGod a c <e.e., f . W. ~-

2. a.e

.w. /

-a Itertoe to e ConeeNdetod Financial Statemente W c.e 4 c Note L This Lfrum.&n i has been a hace=d to a limited e Guerterly Fkienc&mt Dets revew by the Cug.uai,Un's incMpendent audkn 3e (unaudited) aciuG= n.e wm standards established by the-American insutute d Certifed Pubic Accountand A summary of the consolidated quarterly operating Howewr, a lirnited revew does not consttute O results d the Corporation for the years ended audit and, accordingly, the ir4-cerd audnors December 31.1986 and 1985 is presented below not express an opinon on this information. ,84 (dollars in millions except per share data). ~~~' The Corporation's common stock is traded in Gt The first and second quarters of 1986 and all over.the-counter market and is listed on the quar 1ers of 1985 hee been restated to giw effect NASDAO Nabonal Market System. to the poolir@ of irterest acquisition (Note O). C 1966 Ouarters Fret Second Third Fg '54 Amenue from earneng acoms....... $ 61.8 $ 81.3 $ 81.1 5

== Leer Ireerest expense................................. J 472 45 7 Nat irterest rewonue.................................... 32.9 34.1 35 4 e .Laer Prowmon tar loan loneos.......................... 48 3.6 48 HS Net seming asset cortnbubon.......................... ~~~RT 30.5 30 6 ~ Plue: Non. interest remnue............................ a 1 10.5 11 7 re Nst cperebng regnue.................................. 41.0 42.3 at Laer Norsneerest overhand expense................,... A" 29 8 29 6 tT7 = PnHex income......................................... as-11.2 income tax expense..................................,

• • .T".

1.3 22 Net income............................................ Q'$ 99 $ 10 5 { nt Pnmary eamsnge per common ehere....................... Q $ 59 $ 62 g Funy dikted eemengs per common ehere................... Q, S.55 $ 60 g Dudende deciered per common ehere.................... $.13 ' $.15 $ 15 ,/ Booinaluepercommonehere: 15.31 15 69 1 T Outsteru3ng eheres................................... 14.99. 4 Futy, Wad eheres................................... 14.32 14.74 1524 1 Lasttrede prios of common seccic ' ~ Sn High..........................c..'.~.............'... 27% 30% 32% l Low...........................,.................... 21M. - 26 27% ~ y 9 1 ~ s f'*, k.. sv%:iifg _ g .~u a / x,... ..~. s a N eustri0senet.... C NJ,. k di.. k, N,' 2'?? Q Second Thrd R 7 j M.%,f:

f,. Phd '

o w o, s ,g3 %lense.....;2.q:..q..;..,y p.y j = k.f 4 $ 782 $ 772 j ~ 9 47 5 Ieusiuella M.).f..;. : p 4.d.g,..i :. y v 29 7 M10{eMoses;.'+..!MW.4 "g%c;fiep% e ,13, 42 e. c m

1. <: t.

w. s.';, i. s

.n 3m.0 25.5 'Ph a f 1 _ revened'.2.*;4.&.4. W. %.dr'. std C.'.c, %;%.iNotoperette J7 75 ... ; c.. (;... ';..,.. Z.;;.4;.. Q, byP 3.9 -~WO 6 * + gg, 25 9

• 2h I.aee:

espenes;i..*;.4&n!. Q /

• 3 y.fle n jnsesse'.. J.., i i..../.+. W '. Q. C [. ',%

r ? / M,,w,, A3 m 7.1 "'ah ; Neunname...,... J;.1... [.'</h',.;.w.dpi'.,.g . hannes hu sw...h. ',,4~,sg ' ~ ",' * ,.ig"7 / TT1 { / ~ Q-y$*p

• pg.u., a n.; 3 y'. ;.;;

' ~ - >Q.. ~"hy L $ 54 a$_ ,ul. a s ~r .?n, g e w ?,..~ ~..>.. a. w y m$."$ ecidesm&de'perisonendelm , ' [l lat ( e $ 50 g y I.L. A. g ; Ikidanut dealmud per eeneneneldigt.p. .Q' 13; $.13 ion n Q.BeekwtsperoormnonetapeTfMg;Al ,~ Y '. Outshinene shuse.J.s....t..%. M 1887 14 27 1: k. 41 .. P f*; Fidly edad ehmes....>...~. A..r v '- ' 'u.S : i ;(3st tede priosd'cormien stodre WQ. %.1 pJr@.846 - w.. - -. s m. 3-1332 1; Q.+. ' a -r..: '; Hgh... a................~..1 t.iu &2.*,

• C._

Q d 21". 21 % l i e i y. . Law...................... p.~..@'*,~' WOM 19% ,p. ^ ~. D..- Q.. ' .L , : ~w ?;~.. y ' O '- c~;E ...D.,'. '. * '..'to m( ..w i Ol' ' 5 +N '. '. %-m......y,,,g d,;.p* ?4... t, g + ,. s

c.,;%;,,p hy s

f- .4 - .a - 4.9 ,,,g.e...

h..iu, p.; e,

• .,F*,
• y. 3+, p't; aq k..;;s,:,,~p*

xl- ' + .c. - ( w.. m,. p. ...........,...... ~....,,..

, .t.- ' ' k (',3 . I.. [5.h 4 .[O ' M y,4 s

• v g

... pinencial _ _. - v w.g.;..s,ho '. ' 4.62 t.. s.

h..

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y ~ ~ Coneeedsted Financial Statemento l vf d,6 - 4 5 Note M (Conhnued) 1-Cesnneeroe Union CLaf'x Pesent Cesapeny Financial infonnation gemeenient of Chenoes in Odlers in 000's p poeleten Year Ended December 31 1988 1985 1964 . Sources d Functs From operabons: Net income.................................. 848,883 527.348 S21.794 Equay in undelnbuted not neome of subasdiares........ (38,408) (20,426) 0 5.595) increses from noms not currently requarng castt PrcMoon for deprecahon....................... S 7 6 Amortuabon of goodwill.......................... 31 28 36 knortuaban of rimrmnt on debentures. S 4 6 i Total frorn operatons......... 11.414 6.961 6.247 i increase wt Ancrued inearest. laxes. and other lebilibes.... est-2.906 Shor14srm debt................................... 38,188 Decrease irt 4 Cash and shor14erm russenents........................< .-i 505 ,l Loans to unalIleted compones........................ ' W. 400 70 Omer saada.........................................,J m+, Otter aneses...................................' M C', leeuence d common shares unds/ sec,ck opean plan...L(gh..' Goodwt....................................... - 76 leemos of common shares far proloned stadt armeisten'.J.3 F[:. I.i.. 4/*' 1,900 '.7 1,734 96 4 " ' i.t 11.000 leeuence of common shoes for long4erm debt corwermen@. & 5.789 Cancessaan d =eamar loan............r..............p A ' ':4 - "1 g 1,500 ? leguanos d common shares........................d.V <.* EFA$$-'. j* P .m -.J,C".n M. les;ence d common stodc lor arry asenn f accounted for as a purchase..........................'. - -? M 521 TdelChangee in Sources of Fundo.................! ' M .887 517.918 g Uses of Funds Cash dhedende declared on common stodc.............. c a. S S,35 91.- 8 5.228 ~ $ 3.927 Ceeh dNedends dedt ed on pretened stadt..........T... ; ;,. M - V'." T 298 . 4:.c,3 , W.W(.,,. inoroese irt . Cash and stiert-term sweernents....~..................s.h. J taiSNe " % : 860 f Loans to = *=* aries................................. w 1GsWl ~ 500 " 500 M SG$ t.fp. .,19.189 19 i heapnert in outinciones............................, *.T~ i Cher stade....................................... 1 * .X ' '

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b Commer?m Uni:n Corpor tion Eb ) Con:olid; ting Finan31;l Summ ry F / t G.J G _. n Commercial Mortgage Credit Lde Export Trading Parent CUC Jars in 000's Banks' Company Insurance Company Company Ekminations Conschdated p " r 31,1986 Salance Sheet Statistics $ 3.925.t 74 $ 652 $ 3.635 5 1 5 330368 $ (385.099) $ 3.874.731 Assets. . wans, net of unearned interest.... 2.517.017 34.668 (34.218) 2.517.467 peserve for loan losses. 31.343 31.343 investment secunties.. 546.462 110 446 547 018 j Earning assets. 3 394.008 501 2.649 57.236 (96.422) 3.357.972 i Cash accounts. 338.101 137 126 1 100 (14.313) 324,152 Demand deposits. 669.159 (14.313) 654.846 Interest beanng deposrts, 2.627.943 (1) 2.627.942 Total deposits.... 3.297.102 (14.314) 3.282.788 Debentures and other long-term debt. 13.007 25.721 (5.110) 33.618 Common stockholder $' equity. 268.402 655 904 1 269.578 (269.962) 269 578 1996 Selance Shoot. Average Salences Loans, net of unearned interest. $ 2.359.933 $ 260 5- $ 29.149 5 (28.682) 5 2.360.660 Less. reserve for loan losses.....,, 29.155 29155 Totalloans. net. 2.330,778 260 29.149 (28.682) 2.331 505 investment securmes-taxable.... 276.578 1.634 23 278.235 investment secuntes-tax exempt. 304.309 (8) 304 301 Tr:dng account secunties.......... 225 225 Short-term investments and funds sold. 307.242 330 800 17.159 (33.318) 292.213 Total earning assets... 3.219.132 590 2.434 46.331 (62.008) 3.206.479 Cash and other assets.. 408.821 89 913 1 254 842 (256.130) 398 536 Total Assets... 83,437,963 $879 $3,347 8 1 83o1,173 $(338,130) S3,Go6A1_55 Interest beanng deposits. $ 2.510.922 5-5 - 5 (1) 5 2.510 921 Demand deposits,,... 516 921 (10.234) 506 687 Total Deposite... 3.027.843 (10.235) 3.017.608 Short-term borrowed funds, 238.416 18.499 (51.826) 205.089 Debentures and other long-term debt. 18.415 32.186 (10.175) 40 426 l Gher liabiktes......., 93.266 10 2.478 5.513 (4.350) 96 917 %mmon stockholders' equity... 250 013 669 869 1 244.975 (251.552) 244 975 Total LiabHities and Stockholders' { _S3 837,963 $479 53,347 8 1 $3o1,173 $(338,138) 83,6o5,015 1 Equity. 1 1984 Emmings Summary Interest revenue: Loans... $ 255.385 $ 22 5-5- 2.200 $ (2.153) $ 255.454 investment securmes-tax exempt.. 23.051 (19) 23.032 investment secuntes-taxable 23.1 % 106 23.302 Trading account secuntes....... 16 16 Short term investments and funds sold.... 22 568 21 41 1 199 (2 208) 21 621 ( j Totalinterest revenue. 324.216 43 147 3.399 (4.380) 323 425 interest expen.e.. 185,367 4131 (4 361) 185137 q Net interest revenue, 138.849 43 147 (732) (19) 138.288 i j Provision for loan losses..... 16 357 16 357 Net earning asset contnbution. 122.492 43 147 (732) (19) 121.931 1 Non interest revenue.. 42 635 116 2 094 18 343 (19 688) 43 500 i Net operating revenue.. 165.127 159 2241 17.611 (19.707) 165.431 l Non interest expense. 118 909 198 1 938 6 128 (7.581) 119 592 . income before income taxes....... 46.218 (39) 303 11.483 (12.126) 45.839 Income tax expense {cred:t)........... 5.784 (19) 84 (94) 21 5.776 ? _ 28 486) 1 Esty in undistnbuted earnings of subsidiaries... 28 486 ( met income.. S 4o.434 S(So) S 319 8-S eo.os3_ $ f4o.s33) $__io os3 1 2 .1

• Al December 31,1986 mongage loans of $220 milhon i

were being sernced for invesers by Commerce Union l Bart. Nashvse. ] 1 f \\ 1 c 1 i

ConsolidatehUtl55 l' t A 1986 1985 1984 1983 1982 1981 Interest Yields on Eaming Assets (taxabie equwalent basis) Commercia! anc real estate loans-domeste. 10.49 % 11 60 % 12 71% 11 79 % 14 32 % 15 97 % Comrnerc.al loans-foreign. 6.88 10 43 1216 11 96 1566 1784 Instaument and credit card. 13.78 t 4 62 1519 1585 1618 14 58 Total interest and fees on loans. net of unearned interest 11.44 1251 1349 1288 1508 16 25 Total interest and fees on loans. net of unearned interest and reserve. 1 1.158 12 65 1365 1304 15 25 16 46 Investment secuntes-tax exempt. 13.06 12 76 11 93 11 96 9 35 11 38 investment secunties-taxabe 8.38_ 9 55 1005 9 87 10 16 911 Total secunties. 10.63 10 92 10 61 10 33 9 96 9 72 Trading account secunties. 9.25 11 22 8 08 8 40 18 48 Shor1-term investments. 7.45 9 01 11 23 9 81 14 37 1682 Federal funds sold 7.00 815 1047 9 07 1205 1597 Tota! earning assets net of reserve (A). 11.07 % 11 90 % 12 68 % 11 89 % 1374% 14 66 % i Interest Rates Puld for Funde t interest on checking deposits, 5.00 % 5 35 % 5 36 % 5 94 % 5 30 % 5 20% Savings deposits. 5.26 5 26 527 5 31 549 528 Money fund accounts.... 5.56 6 58 8 71 815 8 80 i Small denomination certificates and other time. 7.61 9 22 1019 9 57 12 06 12 22 Large denomination certificates. 7.26 762 9 51 8 59 1214 14 88 Foreign time deposits. 6.70 817 10 21 9 33 12 95 16 75 Total interest-beanog deposits. 6.71 783 6 98 8 43 10 83 11 83 Total deposits. 5.58 6 51 737 6 81 8 66 9 26 Short term borrowed tunds. 6.29 7 46 9 65 8 74 11 65 1586 Debantures 6.62 8 61 8 62 8 62 8 62 8 64 Subordinated and otner long term debt. 9.6 L 1048 11 43 10 90 12 72 16 75 lotal deposits and borrowed funds. 5.67 % __ 6 65% 7 66 % 7 09 % 9 05 % 10 14 % Totalinterest expense as a % of average l' earning assets. 5.77 % 6 87 % 7 92 % 7 38 % 949% 10 71% r Percentage of Average Earning Assets l Net interest revenue (taxable equvaent basts)(B). 5.30 % 5 03 % 4 76 % 4 51 % 4 25 % 3 95 % Provis;on for ican losses. .51 60 51 59 58 51 Net earning asset contr.bution. 4.79 4 43 4 25 3 92 367 3 44 Non interest revenue 1.36 1 14 1 11 116 1 01 1 07 Net operating revenue. 6.15 5 57 5 36 5 08 4 68 4 51 Non interest overhead expense 3.73 3 72 3 73 3 71 3 68 3 62 income before taxes. 2.42 1 85 1 63 1 37 1 00 89 income taxes Caxabie equvaient basts). 1.17 88 75 57 40 40 N:t income. 1.25 % 97% 88 % 80 % 60 % 49% (A) Taxabe eQuiva;ent interest revenue ($000).. $ 354,796 $ 334 374 $ 314.164 $ 265.586 $. 291,676 $ 288.887 (B) Taxabe equivaient net interest resenue ($000) 169,661 141.238 117.969 100.660 90.054 77.924 i Other Stadstics: Commor < rock (restated for poohngi Average shares outstanding. 16,077,350 12 546.394 11,546162 10.727.690 10.720.730 10 720 730 Average common ano eQuivaient shares. 16,521,064

• 2.929, t 76 11 920.698 11.014 788 10.772.074 10.728.568 Anrage shares fully dauted.

17,694,996 14 825,112 14 620.584 14 519.146 13 631 064 12.297.086 Shares outstanding at year end. 16,663,271 14 678.318 11.978 402 10.739.480 10,720.730 10.720 730 Pnce range-low and high prices.. $21% 32% $13W22% $1013% $5412% $4h 7% $4%-5W J Pnce'eamings ratios. 10 14 7 12 6-9 5-10 4-8 67 Stockholders of record, at year end 4,196 3.529 3.256 3.407 3.709 3.815 i Number of employees at year end. 2,813 2 514 2.301 2.159 2.241 2.235 Numbei of banking offices. year end. 99 99 89 82 85 84 f I r' .I s

j l Commerr Union Corpor: tion Consolid_ted E: rning3 Summ::ry -) Growth Percente9e 1 Compound Annuas Chante Growth Rate P ars in 000's except De share 1946 1985 1984 1983 1982 in81 1988/1965 1988/1981 f Interest Revenue Sacunties-tax exempt.... S255,454 $ 236423 $ 219.585 $ 178.295 $ 198.835 5 201.900 80% 48% Leans.... 23,032 17.1/4 11 625 7.507 6.514 8.804 34 1 21 2 Secunties-taxable.... 23,302 29.787 39 021 41.238 39.163 35.169 -21 8 -79 Trading account secunties. 16 22 65 12 3 -27 3 39 8 Short-term investments. 19,284 24 899 25.756 21.943 28 986 24.187 -22 6 -44 Federal funds soid. 2 337 2 941 5 506 4038 11 997 10170 -20 5 -25 5 Totalinterest revenue. __323,425 311 246 301 558 258 033 285 495 280 233 39 29 Less Interest expense Deposits....... 168,529 170.920 166.913 138.184 167.238 165.133 -14 4 Shoitterm debt. 12,908 16.348 22.672 20651 27.934 39.164 -21 0 -19 9 Long-term debt. 3,700 5868 6 610 6 091 6450 6 666 -36 9 111 Total interest expense. J86137 193 136 196 195 164 926 201 622 210 % 3 -41 -26 Not interest Revenue. 138,288 118.110 105.363 93.107 83 873 69270 17.1 14 8 Less Loan loss provision.. 16,367 16 809 12 557 13.217 12 225 9985 -27 10 4 Net Earning Asset Contribution 121,931 101 301 92 806 79890 71 648,. 59 285 20 4 15 5 Plus. Noninterest revenue Service charges on deposits. 17,921 15.213 13.384 12.058 10.224 8.411 178 163 Trust and investment fees. 7,726 6.068 4 943 4,1 71 3.233 2.870 27 3 21 9 Other revenue.... 18,330 15.865 11.330 11.806 11.753 10.751 15 5 11 3 Secunties transactions. (477) (5 153) (2 075) (2169) (3 686) (894) -90 7 -11 8 Total noninterest revenue. 43 SCO 31 993 27582 25 866 21 524 21 138 36 0 155 Net Operating Revenue. 166,431~ 133 294 120.388 105,756 93172 80.423 24 1 15 5 Less Nonenterest expense Salanes and benefits. 61,537 54 957 49.109 43.695 40.208 36,341 12 0 11 1 Occupancy and equipment. 18,391 16,359 14 9 % 14 145 13.902 12.501 12 4 80 Other noninterest expense. 39,664 33 228 28 372 24 965 23 948 22 484 19 4 12 0 Total noninterest expense. J9,592 104 544 92 477 82.805 78 058 71 326 14 4 10 9 Pro. tam income......... 45,839 28.750 27.911 22.951 15.114 9 097 59 4 38 2 Less Taxes on income (Credit). 5,776 1 402 6117 5.151 2 398 (574) 312 0 Not income. $_4 E0 $ 27M $__21,794 $ 17,800 8 12;716 8 9,671 46.5 % 32.9% elated items: 1 Total operating revenue. $366,925 5 343.239 $ 329.140 $ 283899 $ 307.019 5 301.371 69% 40% Common and Preferred dividends. 8,716 5 815 4 812 4.590 4.523 4 504 49 9 141 Common and Preterred dividends decured. as % of net income. 22 % 21 % 22 % 26 % 36 % 47 % Per Common Sharer As restated for pochng of interests and 2. tor.1 stock split Earnegs. pnmary Net income.............. S 2.42 $ 212 $ 1 81 $ 1 53 $ 1 09 $ 81 14 2 % 24 5% Common dividends as % of net income. 24 % 24 % 25% 26 % 37 % 49% Eamings funy douted Net incor" e As previously reported.... 2.30 $ 1 91 $ 1 57 $ 1 30 $ 99 $ 80 20 4 23 5 Pestated for 2-tor.1 stock sout) Eamings pnmary-Net income.... 2.42 213 1 90 1 63 I II 80 136 24 8 Common dividends as % of net income. 24 % 24% 23% 24% 36 % 50 % f Earnings. fulir diluted Net mcorre 2.30 $ 1 89 $ 1 60 $ 1 34 5 98 $ 78 21 7 241 Other Eausty book value at year end. assuming fuH delution.......... 15.69 1324 12 21 11 07 10 24 9 95 18 5 95 l Common cash dividends declared. .58 505 445 40 40 40 14 9 77 l Eamin9s Ratlos l Net income, as % of Average common stockholders' equity. 16.35 % 15 51 % 14 59% 1394% 10 89 % 8 75 % Aerage preferred ano common j stockholders eculty. 16.35 15 51 14 22 12 84 9 95 7% Amrage eaming assets 1.25 97 88 80 60 49 Average lotal assets 1.11 86 77 69 51 42 N above amounts have been restated for the September 22.1986 acquisition of Central South l Barcorp. Inc. ("CSB") which was accounted Ior as a pooting ohnterests The information for penods pnar p 1906 does not grve effect to the Jarmary 2,1986 Seeger of CSB and Planters Financial Corporation which CSB accounted br as a purchase effecsve December 31.1985.

GOZIfidheil53ahcI5E>et Summary )[ l l DoHars in 000's ites 1985 %f Average Assets Commercial and real estate loans-comeshc. 81,822.SS4 $ 1.494 937 Commercial loans-foreign.... 90,073 88.308 Installment and credit card loans..... 448,003 392.759 Totalloans, net of unearned interest.... 2,300,000 1.97&oQ Less: Reserve for loan losses.. 29,196 22 649 Total loans. net of uneamed interest and reserve. 2.331,806 1 953 351 investment secunties-tax exempt. 304,301 231.305 Investment secunties-taxable.... 278,236 312 004 Total secuntes, S82,536 543 305 Trading account secunties. 228 326 Short-term investments. 288,819 276,274 Federal funds sold. 33,304 36 064 Total eaming assets.... 3,208,479 2.809,3'2B Cash and due from banks. 230,210 196.921 Premises and equipment.... 90,666 52.221 Other assets...... 117,871 118 050 TotalAssets,.. 83,008,018 $3,178,520 Auerage Liabeties and interest on checking deposits......... S 311,912 $ 233.126 Sicckholoers Ecu@ Savings deposits.. 168,219 139.503 Money fund accounts.... 417,882 338.212 Small denomination certificates and other time... 1,171,806 1.022.383 Large denomination certificates. 300,288 375.546 Foreign time deposits.,.. 74,329 72 987 Total interest beanng deposits.. 2,510,921 2.181.757 Demand deposits.. SOSg7,, 443 437 Total deposits........ 3,017,008 2.625.194 Short-term borrowed funds 206,000 219 006 Debentures and other long-term debt.. 40,436 59 561 ? Other liabil$es. 96,917 9h3M Minonty interest.... Preferred stockholders' equity.. Common stockholders' equity...., 244,975 176 354 Total Liabilities and Stockheiders' Sguity. 83,006,015 $3,178 920 2-Average Balance Sheet Re'ated item Core depoFits... 82,673,996 $ 2.176.661 Ratios Percent of total assets: Eaming assets... 09 % 88% { Loans, net of uneamed interest and reserve SS 61 i Common eouity. S.00 5 55 j Preferred and common equity... S.80 5 55 Percent of total deposits: Interest-beanng deposits..... 83 % 83% Loans. net of uneamed enterest..... 78 75 Year End Balance Sheet St. stics Loans, net of uneamed interest and reserve......... $1,40s,124 S 2.153.122 Irhestment secuntes-tax exempt 208,449 308.159 investment securmes-taxable.. 288,300 286.581 l Other eaming assets....... 394,830 377.007 Cash and other assets 918,700 454 % 8 ~ , Pads. 83,874,731 $3,575.837 Interest posits. 82,487,94P $ 2.44 2h4 Demand, w 084,846 6 d 927 j Total deposits....... 3,282,784 3 07a871 j Short-term borrowed funds.... 1M',876 1dt.685 l Debentures and other long-term debt.. 33,618 84946 I Other liabilites.. 100, aft 103.105 Minonty interest.. ~ Preferred stockholders' equity. Common stockholders' eouity. 200,678 205 230 Total Liabilities and Stockholders' Squity. 83,874,731 hj79,837 i Year End Balance Sheet Ratios Reserve as % of loans, net of uneamed interest.. 1.25 % Pnmary capital to assets plus loan reserves. 7.88 67. m

f_,. c.~,J j r ,v/ [.- i i ~ Orowth Percentate ? t _z n Annual / Chante Growth Rate 'f ' %!4 M83 1982 1981 1996/1985 1996/1991 /! $,.1343.t57 5 1.048.085 5 1.010.007 $ 937.227 21 9 % 14 2 % 7 ' 107.099 103.322 78.549 63.440 20 73 3 ? 309 884, 242 579 235106 249 506 14 1 124 f ~~,660.940' 1.303.986 1.323.662 1250.173 19 5 13 6 1 , 19466 16 990 15 054 15 745 28 7 131 S ~~~Ui) R f/' ~~~~7dF4 - 1 g"15 274 6 996 1 308 608 t234428 10 4 136 h 1 128.032 ~~TIF5[4 31 6 16.5 3 T40238 '117 600 385 602 l 386 068 10 8 -63 553F3T T@~6Ti 5 t 3 62J ~ f8157 72 20 S h 816 s 7f 16 I 18 -31 0 65 7 l 229.389 223.763 201.703 143.766 -63 12 5 52.579 99615 99 525 '63670 -74 -121 gi-2.478.186 _, 2.233.395 2.123 486 1.970.039 141 10.2 f 171.621 167.887 172.817 109 671 11 8 54 49 743 47.013 45.421 46.146 16 2 56 'p 132 216 13'3673 154115 141 636 -3 -36 ,}$2 861,968, bf96329,,, y,327,492 13.8% 9.1 % 82,83,,1Jte 1 I $ 200.253 3 5 182.688 8 125.758 90.813 33 8 % i' 137,310 142.829 176 104 177.774 19.2 -13 .j 271.767 234,763 1.853 23 5 'q, 894.758 760.302 788.591 367.109 14 6 11 9 2 292.973 263.170 402 935 401.133 -17 -16 f 61 224 55 950 54 656 58 680 _ 18 48 7 1.858.285 1.639.702 1 543.897 1.395.509 151 12 5 406 848 390 298 , 387.192 387 690 14 3 55 7g, 2.265.'.33 2.030.000 1.931.089 1.783,199 14 9 11.1 235.038 236 422 239.842 246.964 -64 -36 62.747 60.126 57.268 50.679 -32 1 -44 l 115.543 116.693 139.809 125.054 5 -50 F 91 70 90 104 3.848 11.000 ' '.000 11.000 149.366 127 657 1*6 741 110 492 38 9 173 h ,,82A31.798 $2,841968 ~#2,49655 11.;327,4_92 13J% 9.1 % ~ 7 w a"' 5 1.910.936 5 1.710.880 $ 1473.498 $ 1.323.386 183% 14 2 % 1 88 % 86 % B5% 85 % 8% 58 53 53 -t 527 4 94 4 68 ' 4 75

5 5 41 5 37 5 ti.

5 22 5

3%

82 % 8W 80% 78 % 5 73 69 FD 70 $ 1.810.311 5 1.530 671 $ 1.348.46d $ 1.289929 155% 14 0 % 2 207.599 116.993 122.946 128.035 -63 15 9 9 345.688 426.100 ,408.608 387.685 -98 -78 3 310 842 241.867 . 307,710 211 479 -t3 8 90 7 6 423 637 382 568 354.025 389 018 136_ 5 8 ___ 1 y _83,098,077, ,_$2,998 M p1,783 $2.414,144 _ S.2% 9.9% = $ 2.055.278 $ 1,735282 5 c 1.604.166 $ 1449222 76% 12 6 % 4 7 501123 447837 414 049 443 640 40 81 7 71EMI6T 2.183.119 ~Ti18215 1.892 BH 68 11 6 ~ 5 222.339 173.757 208.445 212.802 32 6 -25 6 63,197 62248 60.466 50.967 -41 0 -60 3 M 374 134.381 ( 123250 136.321 -22 -58 91 94 89 99 0 11.000 . 20 288

• 12095 31 4 19 2 11.000 11.000 161.675 133 600 f0

$3,098,0f7 $2 698,199 $2,541,755 _St418.140 82% 9#% y 1 r h. 115% 1 18 % 1 20 % 10?% 5 86 5 59 5 34 5 20 t u l b i L__.__:______.

_ _ _ _ ~ i Certain financial terms frecuently used in this Interest expense Non interest revenue report and throughout the banking industry includes the direct interest cost of deposits. Consists of fees earned for services which l are defined below snort-term borrowed funds. and long-term genera!!y do not require a commitment of Capital oebt assets or capital, for example, mortgage ser. Cash basis, or non accrual status, vicing fees This category also includes gains loans ir terest revenue and losses from investment secuntes are loans on which interest revenue is not consists of interest and fees denved from transactions recorded until codected earning assets Non interest overhead expense Coro deposits interest sensitive earning assets is defined as tod operating expense after ceducbng cre pomanly the tota of demand depostts. refers to assets subject to repnCing, upward interest expense and the provision for loan int; rest cn checking deposits, savings or downward, within a specific time penod-losses deposits, money fund accounts small Rate sensitive assets include those uses of denomination certificates and other time funds having short maturites or whose Non performing assets d posrts Money fund accounts and small interest rates fluctuate with changes in short-consist of Cash-basis loans, renegot:ated denomination certificates are considered term money market rates. These include loans, and foreclosed and repossessed core deposits for liquioity purposes since loans with vanable or floating rates. loans and property The term "other real estate" is they are generacy rnaintained by depositors investments matunng within a specific time sometimes used to refer to foreclosed and over long penods of time, even though they penod trading account secuntes interest repossessed real estate may not have stable-rate charactenstics beanng bank deposits and other short-term investments, and federal funds sold Primary capital Cost of funds is defined as common stockholders' eouity is tne average rate of interest paid for total Interest sensitive liabilities plus equity commitment notes and reserve deposits and interest-beanng liabihties which refers to habilities subject to repacing within a for loan losses fund oaming assets and foreclosed proper-specific tim.) penod Rate sensitive habihties tcs This cost is sometimes segregated by include those sources of funds which have Provision for loan losses sources of funds domestic. foreign, interest short maturites or wnose interest rates fluctu-is a charge against current eamings which sensitive. or stable rate a9 with changes in short-term money market adds to the valuation reserve for potentiaDy rates These include certificates of depos!! uncohectible loans or replenishes the reserve Earning assets and foreign time deposits matunng witnin a after loan charge-offs have been made. are assets direuly employed to eam interest specifed time penod, money fund accounts. revenue These include loans. Investment snort-term borrowed funds and floating rate Short term investments secuntes. trading account secunties. federal long-term debt include interest-beanng bank deposits and funds soid (ovemight loans of uncommitted other short-matunty investments The reserves to other bankst* interest beanng Net earning asset contribution components of short-term investments are bank deposits. and other short-term equals net interest revenue less the provision reported separatefy on the consohdated investments for loan losses balance sheet Earnings per common share Net interest revenue Taxable equivalent adjustments, on average outstanding and equrvaient 's the pre-tax d:fference between interest where indicated. are added to interest shares is generally referred to as pnmary revenue and interest expense When revenue on tax-exempt securttes and loans earnings per common share For fu0y diluted expressed as a percentage of eaming assets, and to income tax expense to provice purposes, weighted average sha'es outstand-this differential is often called " net interest comparabihty of pre-tax yelds with taxable ing are increased to include tne maximum margin " secuntes and loans These pro-forma effect of all contingently issuabie shares adsstments are based on federal tax rates of Whenever earnings per sha'e is used in this Not operating revenue 46% in 1981-1986 Pro-forma adjustments report to ana'yze or discuss a year to-year is the total of net earning mset contnbution have no effect on a'ter-tax income change or effect. the calcu:ation is based on plus non-interest revenue Stated differently. it earnings per common share assuming full is total operating revenue less inte'est Trading account securities dilut,on. unless otherwise indicated expense and the provision for loan losses are bank bond-deaier inventores These secuntes are held pnmanly in the expectation of capita! gains i e I 4 .) L__

l Commerco U7.lon / Comm:rco Unica Ecrek Crmm:rce Unlari Bank l CorPortti:n- / Cced of DmCte n 4 Tmst Bsord Executivo Officers I r ? 4 o C. Betterff Namage L SMrse, Jr.

• Menry L Lipooemb, Jr.

man 3 the Board and WJ Ut'arman d tre Board C%rman of the Ekard and Prescent Dennie C. Dettern Chafrsn of the Boat hnd et becuNe Utce, 4 H G Upscome & Company Chef Em. ave Crw j jossee A.Reinoy Comrnrey Union Gemrasti Germie C. Cettesof Chairman d the Board

• L4n W. Meeldwt

' Vcc Chauman d Pe Boa'd and Cha "an and Ctwef becuNe Oi'cer Sem A. Brooks,.tec

• C,ewtfien L. Sewe n Je, Assor ates Corporation of Nrm Amenca,

Resse ant Chie4 Administraa0Wcer

v r O5

'\\ ' Puscent 3 .., t (Retwed) Semse is M6erkas, Jr. < nom & Corpar y *' Beverty investment Propertes inc Vce Chantnan of the Brard (Reyed} j "Charlee.hteerle Moughen M, Carey Brown v t / Consultant hs,tive Vce Pres dent Owen S. She% k. '

Sesn A. Seethr.,Jr.

(Ret,redi . Corraerce Union Corporation Vice Charman of the Board i Prescort / Beve jinvrsiment Propertes rg

• Deuglass S. h Jr.

Devile mein F. Byrd, Jr, M.D.

96. Ceroy Brown 7

Cha mar of the Board Surgi on becuti.e Vice Prescent and 'il CP44er FJeown, Sr. Com Sausage Co. irs. Gereral Manager 1GenrA Agt:nt M. R. Colomen Jr. Duitre e a insurance ?cr.aany Jo h A Ossion Attorney John M.DINon of loc Chi.tman d IM Boar 1.no Prescort M*gn Coleman. F%cher Gatty becutive Vice President Oman Constr ction Camor.ry 6nc K, ices & mods, u /15ede M. Crois, Jr. 1 De6a W. Pelley ? Corocrate Drector James A.Rebeoy Tesi. F.4sne l Dwcutive Vice Preadent and ) NahfDennessee Vce Charman of tne lioetd Prescert Chef FinancalOfi.cer and Chef Administrate've Offcer Cone 4'Cmjony inc ) Seewnese O. Curw, Jr. I LeRey A.Reedsr T Chanart of 'he Soaro and Wellece M. Reessisseren Wade M. Craig, Jr. becutive Ace Presdent j' Chef bnN Cttcer Corporate Drec'or Corpcra; Carector - Nasnwnu Ba ver D t*shng Co i Nashville. Temew Nashv>a.Tennesse u e Devie R. Rippee I becutive Vce Prescent and J. Dewey Darane Duke J. Moes Brownlee O. Ceey, Jr. General Manager Were Blan Potter Professor of Banking Prescent Chairman of ine Board and [ Owen Graduate School d Management Flags ip development Company. Inc Chef becutie Oncer Rsenert M. Sanlui Wnwein pesity Nashvme Banner Pubbshing Co Y becutive Vice Presa erW ard \\ Herbes t H. Sheyne General Auurtor INNilmer, N. pstwu Chawman of te Osd.ind J. Dewey Deane r 4 A:tomg Chet becuNe df4er Vce Charmco T. Mel Siehop Deerborn & Leing Werthanincastres unc Commerce Unen Bann M Board - Senior Vice Prescent Vaere Blar Potter Protesjof cf Buwg F.Berner.Uf.5eers Jr. Ower 4.!Aholl,in Cwen Graduate T@ooi of Managem et Illiam A.Ceedwell Charmen PrescJnt r nd (rw) br,cutive Officer VandertWt unwers:ty a near Vce Prescent Amencan Bread Company i (Retred) Seerge W. Sdhrm foon Eisen Michael T. Chrleven Presoent ( Attomey Senior Vee Prescent Gene G. elellkhurten A+ Cc-nrrecar 'ris inc-Elam.Glas;,ow Tanner & Acree Cnacrian D.Todd Chr6etoffocoon Comeerce Unon Bank Trust Boa-d 0,. Marutiell Tennemeal, A. Ove O Av:11thearten Senior Vice President. Secretary and Prescer1 Cha,rman General Counsel M. Modoe Mart Grnr:es inc Comne,n Unen Banx Trust Board Descent and Chef becuNe Oncer Emery F. W Oannian Indust 7et encorportted tdmann E.M4ehott Wtlliam C. Keyes Senior Vce Pesdeat hec +rt Senior becu%e Vce Prescent

• Jennes M.Jeees Md 4 O' arrrJtWe Company The Murray (pp Man faC!u d 4'.k#1pany u

r Jalan D. Kettmeyer Newspaper Pc sing Corporation d Brenoford Wellees Preandent (Retuod) Senior Vic o Prescent / ) (Retved) Chastnan of Brokerage Services Group feest S. Kinitureisgh Johs LILweger

• Oarrcon & Black Corporation Vce Chasmarmt tre Board Senior Vce hescent WNilassi C. b yee Commerce Unon Corporata, Scesor bec:M Vce Prescent

- Meerd Wertiren (Retredi Cynthia Pyle The Murray Ohc Manufactunno Corroany C*aaman at v c becutive Committee Senior Vice Prescent Pet red) Mrrnn Indust ts. Inc Joe Kraft, CSA Kraft Brothers. ESSiman Fstion & Ha" ell James L. Springer, Jr. Desi 3. Khtihreseh TeFf S.tfWt Server Vce Pref.oent and Controlier t to Chaimp o' the Board P%It Den W. MeaWsu '.xrnmene Unen Corporaton $N investment Co Charman and CNf becutwe O*icer and Commerce Union Bank Assocates Corpsut,on of North Amerca r @dtrad)

• Adwoory Dvector (Re've4 q

9tnetun C. Owen, Jr. -t becutivP Vee Prescent and Traaswt / Jorke. McCarter. Owen & Eamels ec Devee n.me = n becuNevon:Presorni ComrfhsrUe Uncn Corporkton v Orwe M. Shell, Jr. He Chaimwn of ine Ebard Crnmere Union Corroaten Gevate tL 4enwiden Prescent L 4 Sherden Construction Comwy I

M nooga @0mQcvED [h.Ctern ~ l e 1 633 Chestnut Street P O Box $67 795 Main Street West Chattanooga. Tennessee 37450 Clarkwise. Tennessee 37041-0567 Oak Roge. Tennessee 378312525 (615) 756 6639 (615)553-2200 (615)482 0811 C. Heroid Aliner, M.D. Jeek W. Seech INoheel T. C4w4stian Surgeon Prescent Senior Vce Prescent Beach Oil Company. Irc Commerce Unen Corporaton Mary M. BeNoy General Partner WINiem M. Direeeng, Jr. James K. Cole The Navarte' Company PresrJent Vce President and General Manager Brck's Men's Store. Inc Pathway Bellows Inc Sam M. Settle Pescent Mieheel T. Chr'stian William M. Menegar Piping Supply Company. Inc Serwor Vce Prescent Prescent Commerce Haon Corporaton Henegar Auto Sales Inc WIIIIem E. Clark Prescent R. L Durrett, Jr. Kenneth Jermelow C & 1 Specetty Company, h c Farmer Prescent Martin Maretta Energy Systems. Inc Richard A. Clarke wede Namey, Jr., CLU Prescent General Agent Eugene L. Joyee Rossville Development Corporation Tennessee Farmers insurance Senior Chairman of the Board Companes. Inc Commerce Unen Bank Eastern. WWliern R. Deterry Attomey Chairman of the Board. Prescent and Aubrey S. Marvey Joyce. Anderson. Meredith & Fhtcroft Chef Executne Ofhcer Prescent l Byers & Haney. Inc. Wellem R. Kees Weher 7. Perhee, Jr. Land Developer Chef Executne Offcer Ben E. Khubrough Walter T Forbes Ccmpany Vce Chairman of the Board S. Densid Maswen Commerce Unen Corporation Chairman and Chief Executive Offcer Frank L Fewter l Retired) Art Deaer Curtis C. Senten, M.D. Represennng Andrew Wyeth. Frank M. McGreger Physcan Jame Wyeth. Carotyn Wyeth Cumoerland Ehetrc Membership and the E:: tate of N C Wyeth Corporaton R. B. Simpeen (Retired) Pubic Accountant Pad K. Freerson Executive Vce Prescent James L Orgeln C. M. Smith Candlewck DMsen of Dixe Yams. Inc. Prescent Land Developer Orgain Bowing Supply Company. Inc Joseph W. Groves, M.D. Olen L Van Styke, Jr. Surgeon Robert 8, Riggs, eda. Prescent Prescent Van Styke Volkswagon. inc 'Jerre R. Neokow Austin Peay State Unnersity Prescent Aasert M. von der Rech The Haskew Company, Inc Donald S. Riner Prescent and Generai Manager Presceru Baeing Tennessee. Irrorporated Edgar V. Ames Riner Wholesale Supply Company P"escent d!b/a Grandpa a Eddie L. Wette E V J. Inc Prescent Chertes B. Rudolph E & E Coals. Inc, RNeheel F. MeSeuley Prescent Manager Prescent Rudolph Transfer & Storage Shemco, Inc Foehty Trust Company Cortpany. Inc T. K. IIMeht Jamee M. Peak, Jr. R. C. Shooteen, CPA Prescent and Chef Admnstrative Offcer Treasurer and Chet Financial Offcer Austin Poay State University Goloen Ganon. Inc. (Retired) Themse L. Yount j Chairman and Prescent j Deyte R. Rippoo Robert R. Weleh E G & G ORTEC l Executne Vce Prescent Prescent and Chef Executne Offcer (Retired) { Commetrce Unean Corporation i )

o. Reneid sehh Executive Vce Prescent j

Deeid m. S.ien, Jr. l Prescent and Treasurer { Larson and Soloff. Inc. I WIIllem F. Stowert Chairman of the Executive Commmee Commerce Unen Bank Chattanooga. Prescent and Chet Executrwe Oftcer l The Red Food Stores, Inc I i Frank J. 5. Verette j l Prescent 1 Rone Regency Jeweiers Inc j Douglas S.Womer Prescent

1. orter Wamer industres. Inc l

I g a

eS CZGCEfEJ C20CCrenc5 County,~~ if Mimph[3 ~ Lawrenleburg 1 Ottee Box 1390 Post Omce Box 70 Post Offce Box 1503 Huenset K. Turley, M.D. reenevme. Tannessee 377441390 225 North Military A enue Memphis Tennessee 38101 (Retneci 615l 639 2181 Lawrenceourg Tennessee 38464 (901)454-8000 1615)762 5521 Raymond C. Wunderlich Clyde 5. Austin, til James L. Sort edene investor Senior Vce President and Treasurer Jerry N. Abner becutrue Vce Prescent and The Austin Company inc Presioent and Chef becutrve Orfcer Chet Operating Officer Wester G. WundeAich Feoeral Express Corporat on Chaaman of the Boatd Er.entus rTom N. Austin, Sr. William E. Besten Chauman of the Board Attomey M.E. Send The Austin Company,Inc Boston. Bates Holt & Sands ProteSSor Memphis State University Tom N. Austin, Jr. Mieheel T. Chrlotten Prescent Senior Vee Prescent Robert P. Sryant Southem Packaging & Storage Company Conmerce Union Corporanon vce Chanman Carson. Pne Scott & Company. Themes F. Seekner, M.D. Norwel C. Edwards, Jr. Chet Executwe Offcer Physcan Owner Food Service and Looging Group - Greenevine intemal Modere Group P C Edwards Oil Company. Prescent Frenete J. Clanciele, Jr. ' John A. arabeen, M.D. South Tennessee Oil Company inc Executive Vce Prescent Surgeon M. F. Evers WMiesa S. Clark, Jr.

• John D. Cartweteht Owner Partner Ssnior Vce Prescent Evers Tin Shop Cwk & Clark. Inc (Retired)

Normen L. Henderson, M.D. Chartee M. Crump Miehmet T. Chrtetten Physician Attorney Senor Vce Presdent Apperson. Crump Duzane & Mac veil Commerce Union Corporanon L. J. HIII investor James L. Frt, Jr. C. R. Coleman, Jr. P'esioent Chairman of the Board and Secretary CertT.Mudeon River Od Company Commerce Union Bank Greenevdie, Executrue Vce Presdent Attomey Sandy W. Fry Mdligan Co6eman, Fletcher. Gaby. James A.Norton Sears Roebuck & Company Kdday & Woods Norton s Drygoods (Renred) (Retred) W. M. Doughty, Jr. James P. Gates Prescent O. A. Richardson Prescent Doughty Stevens Company Owner The Gates Companes. inc Richardson Home Builoers Lienet N. Humphreys, Jr, J. Neward Lemmene Prescent Onector and Executne Vce Presioent k-Va T Food Stores Inc of Operations Unitedinns Inc

• Joe 5. Johnson Johnson Hardware Company B. Lee Medlery, III (Retired)

Executive Vce Prescent and Treasurer eJohn M. Jones, St. Memphis Compress and Storage Putplisher Company The Greeneven Sun Kenneth C. MeNeil John M. Kildey,III Executw Vce Prescent Prtscent Amercan Calenaar Company James H. Potten,141 P'escent j L. Edeel KDney, D.D.S. National Bedding & Fumiture Consultant and Charman of the Industres, Inc Executrve Committee 1 Jernee M. Powell John W. Messerell1 Presioent Daryman Baptist Memoral Hospital O.Wy#e M0100 gen Deyte R. Rippee Charman at the Board Executrue Vce Prescent McInturft. Mdhgan & Brooks Inc Commerce Unon Corporaton Den D. Russell W.DevedReddoy Prescent Chanman of the Board. Prescent and Planters Warehouse Company. Inc Chef Executive Oftcer Thomme E. W14een Raymond E. Sehutta Prescent and Chet Executwe Othcer P'escent and Chet Execume Offcer Hampton inns Inc J. 5. Wooteey Duityman Anymond M. Sheinberg Attomey ) (Darector Emeritus Harkavy ShainDerg. Kosten & Pinstein l l Chertoe D. Setemensen j Executwe Vce Prescent and Onector i Holtoay Corporation 5 4

M M4flSDV TrdiCirNp~3Ay .e i Post Oftce Box 1818 Post Offce Box 370 712 Soutn Main Street Johnson City Tennessee 37605 iR18 Unon City Tennessee 38261 PO Box 728 l (615)929-3138 190t) 885 2330. Hopkinsville. KY 42240-0728 \\ (502)886-5'51 Frank H. Andereen, D.D.S. William P. Burnett, Jr. President President W1114em G. Andereen At&FEP PC Bumett s Shoes inc Prescent Chesnut & Anderson Grain Co inc Rene G. Burleson Robert E. Clendonin, Jr., M.D. I Prescent and Treasurer Physcian Dr. A. Joseph Seetin l Buneson Construction Co. t,c The Doctors Chnc of Union Oty PC Optomeinst Robert B. Carter Deved G. Crtschlow George E. Bivins, Jr. Attorney Editor and PutWisher Vice Charman of the Board Caqer & Carter Union City Dady Messenaer Commerce Union Corporation Michael T. Chrietten

• Walilem B. Dunlap, Sr.,0.D.

John E. Cetthoff, M.D. Senior Vice Prescent Optometnst Physcian l Commerce Unon Corporation Tom Elem William O. Doetherege, Sr. Ruth W. Ellie Chairman of the Board Charman of the Board Chairman of the Board Commerce Union Bank Unon Oty. Attomey John M. Disen ' John A. Jones Elam Glasgow Tanner & Acree Farmer Editor in-Chef (Reured) Johnson Otv Press 'Merity M. Graham Anomey James W. Drury John G. Love Prescent Vce Chairman of the Board R. Newell Graham Drury Brothers. Inc l l Commerce Union Bank in Cites General Manager Real Estate Broker ano Owner unen Oly Coca-Cola Botthng Company Jack A.Dunley John G Love Real Estate Prescent l ' Jesse W. Harrie Dunlap Saes. Inc Reiph Martin Vice Charman of the Board Dany Farmer Ementus Carmichael Fede Prescent and Chef Executne Othcer Richard W. Pectel G. HerW Jenkins Attorney E>tecutrve Vce Prescent

5. Sory Fletcher, Jr.

Acnard W Pectol & Assocetes PC Vce Prescent Robert E. Kirkland United States Tobacco Co Leonard L. Runyan Managing Partner (Retired) / Prescent CBK Ltd Cotumbus Electnc Manufactunng Company Chertoe Fo4eem Willlem H. Latimer, Ill Prescent W. 5. Sprettin Prescent Bass & Co Prescent ywterfeld Grain Company. Inc (Retired) Jonnson Oty Chemmal Company James E. WeFerlin E4Pwerd L. Meier John P. Seluthb Prescent and Chef Executive Oftcor Prescent Prescent Metcatfe Whoiesale Flonst inc Squibb Land Company Ehryn Oliver, Jr. Owner S. Y. Tremede,IV Ron N. Suedokum Oliver Uvestock Company Attomey Prescent and Chief Executrve Othcer (Retired) James A.Reiney Thomme E. Wileen Vce Chairman of the Board and Toby S. Wilt Prescent and Chet Executne Offcer Chet Admnstratrve Offcer Pnncipal Commerce un on Bank Greenevme Commerce Unen Corporation TSW investment Co

• Chartoe W. Reyneide Reynolds Bros (Retred)

John W. Simreal Partner Jev Steamer Company William W. Tenner Farmer

• Jamet W. White Preccent (Retred)
• Duector Ementus 94 Iik

CIrp:rcti:n inSur:nc3 Company,.___ _ __m ir o Phoenix, AriaDna t i l bic Sauem - Robert M. Stoitjee One Commerce Place 800 Main Street t' 'ankhn Ter essee 37064 Pres oent NasnWie. Tennessee 37219 Nashville. Tennesses 37206 l 15}794 4541 CPS industres inc. 1615) 749 3027 1615) 749 3542 eeergo E. Divine, Jr. Joseph L. Willoughby, M.D. J. Hunter Atkine Mark A. Ahernethy Chairmar' d the Board and Physican becutne Vice President Senior Vice P'esident Chief becutive Offcer Commerce Union Bank Commerce unen Bank micmson County Bann Toby 8. Wilt Vice Chairman of the Board Principal J. Dewey Deane Dennie C. Betterft Commerce Union Corporation TSW investment Co Valere Blair Potter Professor of BankinQ Chairman of the Board Owen Graduate School of Management and Chief becutive Officer Joe seent 'AMsory Duector vanoert>tt Univensty Commerce Unon Corporaion becutive vice Prescent W. William Davie M. Carey Stewn Themes Potte Vce P'escent Associate General Counsel becutNe Vce Prescent Presioent and Ass.stant Secretary Commerce Unon Corporahon Commerce Union Corporation Stewart Campbell, Jr. M6eheel T. Chrlotten Real Estate. Bromer Phielp R. Hendeten Senior Vce Prescent Pathall Associates Inc Pres.oent Commerce Union Corporahon Michael Connetty Cynthia Ppo William R. Deterry Nuclear Consultant Senior Vce Prescent Chairman d the Board Prescent and (Retired) Comme'ce U'uon Corporation Chet becutrve Officer Commerce Union Bank Chattanooga Henry G. Devie James A.Reiney Vice President Chairman of the Board John N. Dillen Crosshn Supply Company inc Commerce Trading Corporation, becutive Vce Prescent Vee Chairman oi the Board and Convnerce Union Corporation 'R. P. Nuff Chief Administrate Offcer Farmer Commerce Union Corporation Petriek W. Harrioen (Retired) Chairman of the Board President Deyte R. Rippee and Chet becutNe Officer Gorglen E. Inman becutNe Vce President Owner Commerce Union Corporation Ben S. Kimbrough inman Realtors Vice Chairman of the Board John Ir. Stein Commerce Unon Corporation John R. Jewe41,Ill becutNe Vce Prescent (Retired) Vce Precedent Commerce Union Bank WAstred S.Lodd Jewell Totscco Warenouse Da6e W. Pelley becutive Vice President and Commerce Un. ion Realty Chief FinancialOffcer Farmer ServlCOS Corporallon Commerce Unon Corporaton Renneth R. Larish One Commerce Place James A.Reiney Gerwal Manager & Partner Nashville Tennessee 37219 Vce Prescent Maryland Farms (615) 749-3111 Tennessee Vaney Ute insurance

Company,

'Dr. John L. Lee, Sr. J. Robert cannen Vee Chairman d the Board and Prescent Senior Vce President Chef Administrate Officer Lees Apothecary inc Commerce Union Bank Commerce Union Corporahon

• William H. M166er Robert H. Napier Doyle R. Rippee j

Ptermacist Cnairman of the Board.'Prescent becutNe Vce Prescent ) Gray Drug Co inc and CNel becutive Offcer Commerce Unon Corporation j Jane M. Montoepue Doyle R. Rippee Robert R. Wesch Owner becutNe Vce Prescent Prescent and Chief becutwe Oricer McCan Electre Co. Inc Commerce unen Corporation Commerce Unon Bank Clarkselie (Retired) Gary D. Whitaker General Weillem O. Meere, Jr. Vce Prescent Prescent Metropohtan IWtshville Airport Authonty Joe Pinlierten Senior Chairman of the Board (Retired) ' Albert Regedale Owner S E Farnsworth and Co (Retired) Tandy C. Rice, Jr. Chairman Top Bilhng International m.R y \\ Prescent RAM Consondated indust'es inc M 1

ee c l Securities and Exchange Comnaission Description of Business Vancas financel institutions. including brokerage firms. compete with the Corporation s banking sub-msnington.OC 20549 Commerce Union Corporation (" Corporation"t a sidianes for deposit accounts by offenng several Tennessee corporation is a multi-bank holding forms of money rnarket fund investment opportuni-Annual Report Pursuant to Section 13 or 15(d) company regrstered under the Bank Hold.ng Com-ties There is a!so competiton for vanous classes of of tha Secunties behange Act of 1934 pany Act of 1956 as amenced it was organced fducary and investment advisory business from under the laws of Tennessee in December 1971 to other banks and trust companies investment For the fiscal year ended Decemoer 31.1986 acquire the capital stock of Commerce Union counseling firms. mutual and stock funds. insurance Bank, Nashville (" Commerce Union"). whch companes and others The Corporation s pnncipal Commission fne number 0 6368 represents the Corporation s largest subsdiary at basis for competition is serwce and pnce December 31,1986 The Corporation owns all of Commerce Union Corporation the stock of 11 commercial banks (" Affiliated Banks") The Corporations management continually revtews located in Tennessee and Kentucky, including opportunities to acquire interest in additional com-Incorporated in the State of Tennessee Commerce Union which at December 31.1986 had mercel banking and bank related organizations. total deposits of $19 billion. The Corporation also subject to approprete regulatory approval Dunng IRS dentifcaton number 62 0859926 owns a mortgage banking subsidiary based in 1986, the Corporation acquired Centrat South Nashville. Tennessee and a credit life insurance Bancorp. Inc. a holding company based in Franklin. Corporate adaress subsdery chartered in Anzona The Corporation Tennessee, which owned Willemson County Bank l One Commerce Place together with its consolidated subsdenes had and Planters Bank and Trust Also, the Corporation Nashville. Tennessee 37219 deposits totaling $3 3 billion at December 31,1986, has entered into agreements to acquire First Telephone 615/749-3333 and on that basis is the fourth largest bank holding National Bancorp of Lewisburg. Inc. a holding company in Tennessee company based in Lewisburg. Tennessee and Securites regstered pursuant to Section 12(b) United Citeens Bancshares. Inc. a hoding of the Act None Commerce Union Bank csimanced operations in company based in Ashland City. Tennessee ,( Nashville in 1916 and. at present. operates 39 full Secuntcs reg:slered pursuant to Section 12(g) of servce banking offices located in ten counties in The Corporation and its subscenes had 2.613 full-the Act 8W% Sinking Fund Debentures due 1999 Middle Tennessee. and an offee in the Cayman time equivalent employees at December 31.1986 Common Stock. Par Value $6 662h per share Islands The Corporation acquired the controlling Full-time equivalency was computed by cour;iing interest in the other Affdsted Banks and their two part-time employees as one full time employee Commerce Union Corporaton has fded all reports predecessors between 1973 and 1986 The Affil-required to be filed by Section 13 or 15(d) of the sted Banxs. including Commerce Union, operate Signatures Secuntes bchange Act of 1934 dunng the 99 banking offces in Tennessee and Kentucky All Pursuant to the requirements oi Section 13 or 15tdl preceding 12 months (or for such shorter penod of such banks are engaged in a general commercel of the SeCuntes behange Act of 1934 the that the registrant was recuired to fue such reports), and retail banking business including accoting registrant has duly caused this report to be signed and has been sub ect to such fding requirements deposits, rnaking loans, serving in feucary capaci-on its behalf by the undersigned. thereunto duty { 3 for tha past 90 can ties. transmitting funds, renting safe deposit facili-authorized on March 11.1967 ties. and pe forming other financel serwces which The aggregate market value of voting stock held by are custorrenly provded by banks Most of the h cee Union Corporation non-affdiates as of February 9 1987 was banking actMtes conducted through affilates are Registrant $426.747.894 Delusion of shares from the calcu-supported by dMsions based in Commerce Union lation of this amount does not necessanty mean Dennis C. Sottorff that a person who hods such shares is an affiliate The Corporation and eight of its Affileted Banks. Chairman and Chief becutive Offcer of Commerce Union Corporation, or has the power. including Commerce Unon, are members of the directly or indirectiy. to direct or cause the direction Federal Reserve System and are subtect to regula-Pursuant to the requirements of the Secunties of management policy of Commerce Union tion and superusion by that agency All of the Affil. bchange Act of 1934 this report has been signed Corporation eted Banks are insured by the Federal Deposit on March 11.1987 by the following persons in the Insurance Corporation and are state-chartered, and capacites indcated As of February 9.1987. Commerce Union Corpora-therefore subject to examination by the FDIC and tion had 16 653.271 shares of Common Stock, par the Tennessee or Kentucky Commissio er of Bank. D. Todd Chelstofferson value $6 6624 outstanding to approximately 4,200 ing The operations of all Affdsted Banks are Senor Vce Prescent shareholders affected by the monetary pohCy of the Board of General Counsel and Secretary Governors of the Federal Reserve System, whose The Proxy Statement for the annual meeting of poicy affects the supply of money available to As attorney-in-fact for the 18 directors of the shareholders to be held Apnl 21.1987 is incorpo-commercel banks Registrant whose names appear on pages 10 and rated by reference in Part lli of Form 10-K 11 Competiton from other banks and financel serwces companies. local, regional and national. is Dale illf. Polley i intense The Corporations banking subsderes becut've Vce Prescent l compete for loans and deposits with state and Chief FinancelOffcer nationai banks. savings and loan associations. consumer finance companies, credit unions, and As principal financel officer insurance companies Jaenes L Springer, Jr. Senior Vice Prescent and Controller As pnncipal accounting officer ed i l m 1 l l a %_d

~ FCRM 10>K "X

• • • (

) Cr;ca R1renco inJ3x C/ be Annual Report Annual Repon Page Reference Page Reference Part i 1 Business 8 Financial Statements and Guide 3 Disclosures Supplementary Data Conschdated Batance Sheet. .26 D'stnbution of Assets Labihties and Consohdated Statement of Income .27 Stocr.hoiders' Eau ty Interest Rates and Interest Consondated Statement of Changes in De rential e Common Stockholders Ecuty. .28 Average Assets. babikties Consohcated Statement of Changes in and Stockhoicers Eauity. 44 45 Finance Position...... .29 Net interest Revenue. .14 15 Accounting Pohcies and Notes to Voiume and Rate Wnances 15 Consohaated Financial Statements .30 40 Report of Independent Audriors, .25 Investment Porttoko Quarter!y Financial Data. .37 December 31 Balances Book Values. .20 investment Secunties Matunty and Y eid 9 There has been no disagreement with to Matunty at December 31.1986 .20 accountants on accounting and financial disclosures. Loan Portfoho Loans by SEC Category at December 31 .21 Matunty Distnbution of Loans. .21 Part Ill Risk Eiements.. .22 The information required by items 10 through 13 Summary of Loan Loss Openence in this part is omitted pursuant to instruct on G Loan Losses and Reserve. .23 of Form 10.K since the Company intenas to fde with the Securities and Exchange Commiss>on a Deposits defintve Proxy Statement. pursuant to Average babsties......, .44 45 Regulation 14A. not iater than 120 days Matunty Distnbution of Large 6'ter December 31.1986 Denomination Time Deposits. .24 Large Denomination Time Deposits issued by Forergn Branch. .24 Part IV Return on Equity and Assets 14 Exhibits, Financial Statement Net income. as % of Schedules, and Reports on Form 8.K Average common stockholders equity. .43 (a) (1) Financial Statements-See Item 8 Average preferred and common (2) Financial Statement Schedules reauireo by stockhoiaers eauity., 43 Form 10-K are om<tted since they are either Average total assets..... .43 not apphcabie or the required information is Common dividends as % of net shown en the financial statements or the notes income per common share. .43 thereto Percent of total assets (3) Exhibits A listing of exh@ts is set forth on the Common equity. 44 45 Exhot Index which immed,ateey preceeds Preferred and common eavity. .44 45 sucn exhibits (b) As of October 30.1986 the Corporation fded a Short-Term Borrowings report with the Secunties and Exchange Com-Short-Term Borrowed Funds. .24 mission on Form B.K to indicate plans to acouae { the First National Bancorp of Lewmburg inc 2 Properties. .31 and United C&zens Bancshares Inc and to report the employment contracts of certa.n J 3 Legal Proceedings. .36 executive officers 4 There has been no submission of The foregoing is a Copy except for exhibits of the matters to a vote of security holders Company s Form 10.K Annual Report for the year during the quarter ended December 31, ended December 31.1986 which the Company is 1986. required to fde with the Secunties and Exchange Commission Portions of the 1986 Annual Report to shareholders are not required by Form 10.K and Part il are not "fded"as part of the Company s Form 10.K Annual Report Only those sections of the 1986 5 Market for Registrant's Common Stock Annual Report to shareholders referenced in the and Related Security Holder Metters above endex are incorporated in Form 10-K NASDAQ Symbol COMU, Jnside cover Shareholders may obtain copies of any exhibits or Dividenas Dectared Per Share and Bid Pnce add *onal Form 10-K Annuat Reports by wnting of Stock. .37 Dale W Polley Executive Vice President anc Chief Other Stanstics. .42 Financial Officer Commerce Union Corporat'on Long Term Debt.. .32 One Commerce Place. Nashvme TN 37219 Dividends from Subscanes. 40 Stocknoloers Equity. .36 6 Selected Financial Data 43 44 45 7 Managemer.t's Discussion and Analysis of Financial Condition and { Results of Operations. . t 3-24

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1 j gha, b,h'D ll, [ c% :J %du, P o rrm 4t, fc.7T $* a 77?cW Mipq c:. Sr 2 300 N 48V J7&?ptnf7 FORM 10 - Q g,j g, g, SECURITIES AND EXCHANGE COMMISSION 200 N Washington, D.C. 20549 203- - (, c f - y y 7q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1987 Commission file number 0-6368. Commerce Union Corporation (Exact name of registrant as specified in its charter) Tennessee 62-0859926 (State or other jurisdiction of (I.R.S. Employer incorporation cr organization) Identification No.) l One Commerce Place, Nashville, Tennessee 37219 l (Address of principal executive offices) Registrant's telephone number, including area code: (615) 749-3333 Indicate by check mark whether the registrant (1) has filed all annual, quarterly and other reports required to be filed by Section 13 or 15(d) of.the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for at.least the past 90 days. Yes X No Indicate the number of shares outstanding of the issuer's class of comon stock, as of the close of the period covered by this report. Common Stock, $6.66 2/3 Par Value -- 17,732,637 shares This filing contains 29 pages. The exhibit index is located on sequential pace number 5.

j g. COMMERCE UNION'CORPORATIr. AND SUBSIDIARIES Part I. FINANCIAL INFORMATION L ltem 1. - Financial Statements l' l; The unaudited consolidated. financial statements of Commerce Union' Corporation and subsidiaries, included on pages 4-7, 10-13-' and'18-19 in the quarterly report to shareholders for the quarter ended June 30, 1987, are incorporated herein by reference.- The quarterly report to shareholders is attached ~ hereto as Exhibit 20. Item _2. Management's Discussion and Analysis of. Financial Condition and Results of Operations l Management's Discussion and Analysis of Operations, on pagesl8 and 9 of the quarterly report to shareholders for the quarter ended June 30, 1987, is incorporated herein by reference. Tax' ble equiva' lent adjustments, where indicated, are added to a interest revenue on tax-exempt securities =and loans and to income tax expense to provide comparability of pre-tax yields with taxable securities and loans. These pro-forma adjustments'are based on a marginal combined federal and state tax rate of 43.6% adjusted for preference tax under the TEFRA Act.

Part II. OTf!ER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 11 -- Computation of earnings per share ~ Exhibit 20 -- Quarterly report to shareholders for the quarter ended June 30, 1987. (b) On April' 20, 1987, the Corporation filed a report with the Securities and Exchange Commission on Form 8-K. The following were reported: (1) The proposed merger of registrant and Sovran Financial Corporation, a bank holding company headquartered in Norfolk, Virginia. (2) The April 20, 1987 merger of registrant and First National Bancorp of Lewisburg, Inc. I (3)

g SIGNATURE 4 Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized. COMMERCE UNION CORPORATION (Registrant) Date 7/31/87 By Dale W. Polley Dale W. Polley Executive Vice President and Chief Financial Officer I (4)

I i l COMMERCE UNION CORPORATION AND SUBSIDIARIES EXHIBIT INDEX Exhibit . Sequential No. Pace No. 11 Computation of earnings per share 6 20 Quarterly report to shareholders for the quarter ended June 30, 1987 7 i j l (5) l i w _ ---- ------ -- - -

e s .1. ; COMMERCE UNION CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SilARE . (knounts in 000's except per share) Three Months Six Months Ended June 30 Ended June 30 1987 1986 1987 1986 EARNINGS PER COMMON SilARE ON AVERAGE OUTSTANDING AND EQUIVALENT SHARES ' Average connon shares ou t s t and i ng*,...................................... ' 17,524 16,703 17,317 16,011 .- Assumed exercise of options on comnon shares - based on the treasury stock method................................................. 443 458 443 439 Aver age out s t and ing and equ iv al ent connon sh ares...................... ITT67 IM IT7W IT'4W Nst income...............................................................$11.542 $10.074 $22.909 $19.084 . Primary earnings per connon share........................................ $.64 $.59 $1.29 $1.16 EARNINGS PER SHARE ASSUMING FULL DILUTION ON AVEl(AGE OUTSTANDING AND EQUIVALENT SilARES Average connon share s out s t and i ng*...................................... 17,524 16,703 17,317 16,011 ' Assumed exercise of options on comnon shares - based on the treasury stock method.'.......................................................... 446 474 447 453 ... Assumed conversion of convertible subordinated notes..................... 501. 1 287 706 1 384

Fully dit,uted average outstanding and equivalent common shares........... IB T7T IET7U Hat income........

......................................................$11,542 $10,074 $22,909 $19,084-Add interest expense, net of tax, on convertible subordinated notes...... Net income appl i c abl e to connon s t 6ck................................ $, M) $RT~llPT 52 110 94 307- $7TUO7 $1M Ful ly d ilut ed earSings per comnon share.................................. $.63 $.56 $1.25 $1.09 l

• Snares outstanding have been restated to reflect the acquisitions of Central South Bancorp, Inc., First

. National Bancorp of Lewisburg, Inc., and United Citizens Bancshares, Inc., which were accounted for as pooling-of-interests. i 1' (6) b i _ _ _ _ _ _ _ _ _ _ _ _.

e Exhibit 20 COMMERCE UNION CORPORATION AND SUBSIDIARIES QUARTERLY REPORT TO SHAREHOLDERS FOR Commerce Union THE QUARTER ENDED JUNE 30, 1987 Q rMim Second Quarter Financial Staten1ents 1 i June 30,1987 ) l n 4 / g l (7) R 4

Commerca Union Corporation One Commerce Pe Consolidated Fin ncial Highlights Nashville, Tennessee 37219 (Dollars in 000's except per share) (615) 749 3333 Telex i S.? ter: 6823004 Caber Address: COMMUNION NASDAQ Symbot COMU 1987 1986* Change Affiliatee Commerce Union Bank Second Quarter. Na:hvde (22 o#ces) Net income. . $11,542 $10,074 + 15% $and y Primary .64 .59 +9 Camden Fully diluted. .63 .56 +13 Ca Islands umbia (2 offees) Income as a % of: ki k/erage total assets 1.16 % 1.10 % , n (2 ohn) Hendersonville Average common equity. 15.86 16.11 Lawrenceburg (2 offices) Lebanon Six Months geto Net income $22,909 $19,084 + 20 Murfreesboro (3 offices) Primary 1.29 1.16 +11 Smyme Fully diluted. 1.25 1.09 +15 Spana Sonngfield Income as a % of: erage Mal assets 1.W 1m Union Bank Ct im,ser,& Chattanooga (6 o#ces) Average common equity. 16.01 16.28 Commerce Union Bank Clarksville Clarksville (6 offices) Per Common Share Commerce Union Bank Eastem Book value at June 30: Anderson County (7 offces) Primary . $ 16.81 $ 15.27 + 10 Monme County (3 offices) Fully diluted. 16.64 14.66 +14 Ro ( I Sc Cou 1o Cash dividends declared .33 .28 +18 Commerce Union Bank Greeneville Greeneville (6 offees) On June 30 Commerce Union Bank Memphis Assets . $4,160,413 $3,727,367 + 12 Memphis (5 offees) Earning assets. 3,680,016 3,267,130 + 13 Commerce Union Baner 1, ^,tt6es Deposits. 3,595,784 3,171,133 + 13 Johnson City (3 offiero) Loans, net of unearned Sullivan County (2 offees) interest 2,624,631 2,380,844 +10 son ( #ces investment securities. 766,076 611.315 + 25 Commerce Un6on Reatty Services Common stockholders' Nashvme equity 298,150 257,882 +16 First National Bank of Lewisburg Lewisburg (3 offees) Six Months Averages Planters Bank and Trust Co. Assets .$3,912,332 $3,597,915 +9 Ft. Campbell, Kentucky (1 office Hopkinsvme, Kentucky (5 offices)) Earning assets. 3,496,291 3,198,030 +9 Depos,ts. 3,271,490 3.024,252 +8 Tennessee Valley Life insurance Company Loans, net of " '"'*'^"* "* uneamed interest. 2,633,416 2.307,554 + 14 re twood 2 o7ces investment securities. 618,947 622,145 -1 Franklin (4 o#ces) Common stockholders' Fairview (1 offee) equity 286,540 234,495 + 22 %x.nwy %Ch(.* m.gy . s.,. s,__,.om. .,,1. .+%.% W.e ' e Nastwee Metroposten Statmical Area . Loragons of Cayasrce un,an aanli aMileles.-104 t)tal ofkse ilk F'enen0 acupuhon 3

July 31,1987 l De2r Shareholder: Commerce Union Corporation's second quarter, one of With more banks in the Middle Tennessee trade market th3 most successful and eventful in its history, was high-area than any other holding company in Tennessee and a lighted by record eamings for both the quarter and the first r,eputation as a high-performing, customer oriented institu-six months of 1987 and the announced merger with Sovran tion, Commerce Union is ideally positioned to take a leader-Financial Corporation of Norfolk, Va. ship role in Sovran's expansion in Tennessee and its con-Nst income for the first six months of 1987 was tiguws stams. $22,909,000, or $1.25 fully diluted eamings per share, a 15% Further strengthening our expected role as the western per share increase from 1986's $19,084.000, or $1.09 per hub for a seven-state region Commerce Union completed share. For the second quarter of 1987, net income was its mergers with United Citizens Bancshares, Inc., located $11,542.000, or $.63 per share, a 13% per share increase in Ashland City, Tn., and First National Bancorp of Lewis-over 1986's second quarter of $10,074.000, or $.56 per burg, Inc., in the second quarter. With these mergers, Com-share. Based on recumng operating eamings, the second merce Union gains even greater dominance in the Midstate quarter of 1987 represented the twenty fourth consecutive area. Commerce Union's pending merger with Secunty quarter of earnings improvement versus the prior year's Bank & Trust Company of Centerville, Tn., is expected to comparable quarter and the fifteenth consecutive quarter be finalized in late 1987, of mcod eamings. In the second quarter, Commerce Union Corporation Commerce Union's retum on assets and equity, based nominated seven Commerce Union board members for elec-i' on recurring operating earnings, were 1.17% and 16.01%, tion to the board of directors of Sovran Financial Corpora-l respectively, for the first six months of 1987. Comparable tion, which affirms a solid partnership and assures Com-i 1986 results were 1.08% and 16.58%, respectively. While merce Union strong representation on the Sovran board. The providing a strong capital base, Commerce Union's $28 mil-nominations will be voted on pending your approval August lion pnvate placement of equity capital in 1986 also causes 25 and the expected closing in November. a lower 1987 return on equity. Factors contribution To better implement Commerce Union's hub expansion months were: a 14% g to the record earnings for the first six after the proposed merger, Owen G. (Bob) Shell was named increase in average outstanding loans; president and chief operating officer of Commerce Union a 13%,ncrease in non-interest revenue; a 23% decrease Corporation and James A. Rainey was named chairman of i in the loan loss provision; and a moderate non-interest the board of Commerce Union Bank at the boards of direc-expense growth of 7%. tors meetings July 21 and 22. Messers. Shell, Rainey, While eaming assets increased 9% in the first six months George E. Bivins, Jr. and I will continue to operate the Cor-of 1987 over the comparable period in 1986, the favorable porate Office. The Commerce Union Corporation board of effect on net interest revenue was largely reduced by declin. directors also elected prominent Nashville community and ing interest rates between the two years. On a comparable business leader Martha R. Ingram as a board member. basis, margin for the first six months of 1987 was 5 21% versus 5.32% in 1986. The board of directors of Commerce Union Corporation and its affiliate banks have endorsed adopting the Sovran Non-performing assets were $32 million at June 30,1987. name pending completion of the proposed merger. Com-The non-performing total represented 1.2% of outstanding merce Union Corporation will be known as Sovran Finan-loans and other real estate. On an annualized basis, charge. cial Corporation / Central South and the affiliates' names will offs as a percentage of average net loans were.42% for reflect their new partnership with Sovran while maintaining the first six months of 1987 compared to.39% in 1986. The an identity with their communities. Having a unified name reserve for loan losses represented 1.25% of June 30,1987, allows Commerce Union and Sovran to establish a dynamic loans and 103% of non-performing assets. synergy of products, services and organizations. Commerce Union's capital structure remains in excellent Your continuing interest and support is appreciated. We condition. The primary capital to assets ratio at June 30, look forward to a successful and eventful second half of the 1987,.was 7.9% and total capital to assets was 8.5%. year. The proposed merger, which is subject to your approval and the approval of federal and state regulatory authorities, Respectfully' will create many new opportunities for Commerce Union shareholders, customers and employees. We've gotten to know Sovran management very well in the past few months. Their goals and philosophies are very similar to ours, and { / everything we've seen reinforces our belief that the two co* f Dennis C. Bottorft panies are an excellent fit and a very sound financial com-bination. We'll be asking for your vote of confidence at a Chairman and Chief Executwe Officer special meeting August 25. 2 s

Comm:rcs Union Corporation Consolidated BIIIncs Sheet (Dollars in 000's) June 30 December 31 June 30 Assets: 1987 1986* 1986* Loans: Commercial and real estate. .52,039,034 $1.975.511 $1.838.221 Installment and credit card 549,341 526.779 510,720 Foreign. 71,048 94.593 75.544 2,659,423 2,596,883 2.424.485 Less: Unearned interest. 34,792 39.183 43.641 Reserve for loan losses (note 3) 32,813 31.806 30.238 Total net loans. 2,591,818 2,525.894 2.350.606 investment securities: U S. Treasury. 264,831 217.336 196.212 Federal agencies.. 198,650 57,731 87.831 State and municipal. 276,097 298.956 322.353 Other 26,498 5.288 4.919 Total (market values $775,868, $604.099 and $621.977). 766 M 579.311 611.315 Trading account securities.. 420 23 Interest-beanng bank deposits 178,763 251.230 260.256 Other shor1-term investments 23,039 25.087 23.005 Federal funds sold. 119,900 48,081 21.925 Total earning assets. 3,680,016 3,429.603 3.267,130 Cash and due from banks 289,294 327,852 269.487 Premises and equipment, 67,209 65,944 62,586 Interest receivable. 46,786 41.961 46,302 Due from customers on acceptances, 44,157 53,350 47,843 Foreclosed and repossessed property. 5,646 5.470 6.265 Other assets 27,305 29.707 27,754 Total Asseta .S4,160,413 $3.953.887 $3.727.367 Liabilities and Stockholders' Equity: LlabHities: Deposits: Demand........ 8 567,801 $ 665,485 $ 596.958 Interest on checking 400,245 403.834 319.463 Sawngs.... 239,977 215.021 166.278 Money fund accounts... 370,480 441.491 432,712 Small denomination certificates and other time. 1,230,736 1,194.498 1.211,597 Large denomination certificates. 598,648 371,388 376.529 Foreign. 181,897 60.277 67.596 Total deposits. 3,595,784 3,351.994 3.171,133 Secunties sold under agreements to repurchase............ 104,992 99.080 89.657 Federal funds purchased and other short term borrowed funds. 50,199 90.574 76,528 Debentures-8W%, due 1999 (note 8). 16,286 18.860 19,769 Other long-term debt (noid 8). 10,157 15.245 17.132 Total deposits and borrowed funds. 3,777,418 3.575.753 3.374.219 Accrued interest, taxes and other expenses 27,651 38,560 37,384 Dividends payable......... 3,192 2,498 1,926 Bank acceptances outstanding. 44,157 53.350 47,843 Other liabilities, 9,645 7.474 8.113 Total liabillt'es...... 3,862,263 3.677,635 3.469.485 Common stockholder *' equity: Common stock par valus 56 66% per share: 6/30/87 12/31/86* 6/30/86* Shares authonzed 30.000.000 30.000.000 30.000.000 Shales issued .17,732.637 17,104.511 16.888.637 118,218 114.030 112,591 Capital surplus. 50,231 49.701 49.537 Retained earnings. 129,701 112.521 95.754 Total common stockholders

• equity.

298,150 276.252 257.882 Total Liabilities and Stockholders' Equity. .34,160,413 $3 953.887 $3,727.367 See notes to connalcated financant statements

• See Note 9 to consolidated financial statements 5

Commercs Union Corporation Consolid;ted St:tsm:nt of incoma (Deflars en 000's except per share) Three Months Six Months Ended June 30 Ended June 30 1987 1986* 1987 1986* Interest revenue from earning assets: Interest and fees on loans. . $66,965 $64.721 $131,193 $129.393 Interest and dividends on investment secuntles: U.S. Treasury 4,221 4.272 8,250 8.501 Fedef al agency.. 2,128 2.113 3.311 4.526 State and munopal 5,198 6,059 10,735 12,159 Other. 328 100 412 318 11,875 12.544 22,708 _ 25.504 Interest on trading account secunties 12 3 13 7 Interest on bank deposits. 3,405 4.814 7,011 9,709 interest on other short-term investments. 336 392 670 643 interest on federal funds sold. 521 621 1,114 1.339 Total interest revenue. 83,114 83.095 162,709 166.595 Interest expense: Interest on deposKs.... 40,325 44,190 78,750 89.233 Interest on short term borrowed funds. 3,464 3.141 6,755 6.682 Interest on subordinated and other long-term debt. 493 824 1,285 2.140 Total interest expense 44,282 48,155 86,790 98.055 Net interest revenue. 38,832 34,940 75,919 68.540 Provision for loan losses (note 3). 3,792 3,640 6,514 8 443 Not earning asset contribution. 35,040 31,300 69,405 60.097 Non. interest revenue (note 4). 11,727 10.562 23,495 20.724 Net operating revenue. ., 46,767 41.862 92,900 80.821 Non-interest overhead expense. Salanes...,,... 14,541 12.919 28,727 25,499 Personnel benefits. 2.931 2.530 5,768 5,359 Net occupancy expense.. 2.522 2.455 4,958 4,868 Furniture and equipment expense. 2,244 2.225 4,610 4.484 Other operating expense. 10,399 10.314 20,338 20.085 Total non-interest overhead expense. 32,647 30.443 64,399 60.295 income before income taxes.. 14,120 11.419 28.501 20.526 Income tax expense (note 6) 2,578 1.345 5,592 1.442 j Net income. . $11,542 $10.074 $ 22,909 $ 19.084 l Per Common Share: Average outstanding and equivalent shares (in thousands). . 17,967 17,161 17,760 16.450 1 Net income. .64 .59 1.29 1.16 Average outstanding and equivalent shares, assuming full dilution (in thousands). 18,471 18.464 18,470 17.848 Net income. .63 .56 1.25 1.09 Dividends Declared Per Cornmon Share .18 .15 .33 .28 See reres to consondated hnancal srarements

• See Note 9 to consohdated financial statements i

6 7

Commsrco Union Corporation M: $m:nt's Discussion end Anal s of Finznctil Condition and esults of Operations (Dollars in 000's, except per share) 1987 1986 " 1st ~ 2nd Six 1st 2nd Six Quarter Quarter Months Quarter Quaner Months Carnings Components Revenue from earning assets. $79,595 $83,114 $162,709 $83.500 $83.095 $166.595 Taxable equivalent adjustment

• 5,888 5,782 11,670 8.175 8.091 16.266 Taxable equivalent interest revenue.

85,483 88,896 174,379 91.675 91,186 182.861 Less: interest expense. 42,508 44,282 86,790 49.900 48.155 98.055 Net Interest revenue..... 42,975 44,614 87,589 41,775 43.031 84.806 Less: provision for loan losses 2,722 3,792 6,514 4,803 3.640 8,443 Net eaming asset contnbution 40,253 40.822 81,075 36.972 39.391 76.363 Plus: non-interest revenue. 11,768 11,727 23,495 10.162 10.562 20.724 Net operating revenue........ 52,021 52,549 104,570 47.134 49.953 97.087 Less: non interest overhead expense. 31,752 32,647 _64,399 29.852 30.443 60.295 Pre tax income. 20,269 19,902 40,171 17,282 19,510 36,792 Less: income tax expense (credit). 3,014 2,578 5,592 97 1,345 1.442 equivalent taxes. 5,888 5,782 . 11,670 8.175 8.091 16.266 Not income. $11,367 $11,542 $ 22,909 $ 9.010 $10.074 $ 19.084 Not income per common share-primary. .65 .64 1.29 57 59 1.16 Net income per common share-fully diluted S .63 .63 1.25 53 .56 1 09 'The factor used m 1987 to compute taxable eouNalent mcome was 1.5873 Fman-t ciel statements for 1986 used a 17544 factor. TNs adjustment reflects the eMect of Results m 1967 reflect the not effect of the followng changes m eamings components. non.deductee mterest expense with fully dduted per share effects mdcated on an after4ax basis

• Net interest ecome (taxable equwalent basis) increased $2 783 mdhon or 3% ($ 09 per share) CUC's not mterest margm was 5 02% (5.21% at '86 T/E basial m 1987 Balance Sheet c*npared to 5 32%. i986 average eamma assets meteused $298 mdbon (9%),

with loans. not of unaamed interest. up 5326 mdlon (14%) and mvestment secun. CUC's assets totaled 54160 bdhon on June 30,1967, an 118% increase from June tes and other sfonderm mvestments cown $23 mdion (3% The sammg asset 30.1986. and 5 2So higher than assets at December 31.1986 For the hrst six months increases were pnmardy funded by Coro deposits of 1987, assets averaged $3 912 bdhon, an 8.7% increase from the comparabis 1986 penod Comparmg the same time perods. average sammo assets meressed $298

• The provison for loan losses oecreased $1929 mdion or 23% ($ 06 per share). Not chargeoffs mcreased 51.019 mdlon. CUC's ratio of reserve for loan losses to loans.

mdien (9 3%). with loans, not of uneamed interest up $326 mdhon (141%) not of uneamed mterest. was 1254s at June 30. 1987. The Corporaten has adequate houcty to support contmuod strong loan growth m the second half of the year The fonowmg displays CUC's ratio of hauid assets to sources

• Non mterest revenue mcreased $2 771 mdhon or 13% (5 09 per share) Excluswo of funds. with :igued assets bemg defmed as the total of mvestment secunties metur.

of mvestment secuntes transactions, non mterest revenue mereased 52 084 muhon mg witnm one year or less and snort-term mvestments. and with sources of funds bemg or 10%. pnmanly reflectmg increased deposit servce charges. trust. and other comes. te banking tees. dehned as the total of asposas net of float and short-term borrowed funds-

• Non mterest overhead expense increased 54104 n.dlen or 7% (513 per sharel June 30 December 31 June 30 Personnelrelated expenses mereased $3 637 malen or 12s0. and all other non.

?987 1986 1986 mterest expenses increased $467 thousand or 2% Liquety % g 17 % 17 % , income tax expense (taxable eQuwalent basis) decreased $446 thousand interes sensdwo uming nuts and haedii,n are inou usa and souren Jiu~ ride ^"*'9"u'."*"9 *"d 'au~'*"' com"*" *"*" *"um*9 'u" 8dute" *** 3% wNcn are subiect to reoncmg. upward or downward. withm a specified time permd "G"" 'n $87 The sensdwity of CUC's ummo essets and habihees for a nmety day time non: " is mocated beeow as of the end of each reported penod. Gap posamns are not of hedg. Second Quarter 1987 Compared to Second Quarter 1986 i mg actety and are adjusted for monthly everage demand deposit balances versus Not mcome for the 1987 quarter mcreased $1468 mdlen or 15% (5 07 per sharat p,co,o Excluswe of investment secontes transactens.1987 not mcome mcreased $1.389 June 30 December 31 June 30 miHon from the 1986 quarter. Average sammg assets mereased 10% ($ m mdiens) 1987 1986 1986

• Not interest mcome (taxabio eQuwalent basis) increased $1583 mdlon or 4% ($ 05 l

Interest sensitwo sammg asse's $1.8017 81 696 2 $1,626 7 per share) The not mterest margm m the 1987 auarter was 5 03% (5 22% at 86 interest sensawe habihtes 1.704 9 1 5650 14105 T/E bases) compared to 5 32% m the 1986 quarter. $ 96 8 8 1303 5 2162

• The provison for loan losses mcreased $152 thousand or 4% ($ 01 per sharet Not loan chargeoffs mereased $1025 mdion Dunng the hrst six monms of 1987. CUC's average common stockholders' ocuity
• Non mterest revenue mcreased $1165 mdhon or 11% ($ 04 per share) Excluswe mcreased 22% from the comperaDie 1986 pered. Al June 30,1987,the Corporaton a gnmary capital to assets rate was 7 95%. compared to 7 90% and 7 97% at December of mvestment secuntes transactions. non mterest revenue mereased 51012 mdhon or 9%. primenty due to togher deposit servce charges. trust. and other doments

31. 1906 and June 30. 1986. respectively bankmg fees.

• Norwnterest expense meressed $2 204 mdkon or 7% ($ 07 per shore), pnmanty due Results of O erations

"'"""'""**'*"'"""'**'"*""8'""**""""c'"***u""'"*" E First Six Months 1987 Compared to First Six Months 1986

• Income tax expense (taxable equwalent basis) rJecreased $1076 maion Not mcome for 1987 was $22 909 mdton or St 25 per common share. assummo full

@luton TNs represents a 20% eamings iricrease from 1986 s $19 084 mdlon or 5109 " See Note 9 to consolidated financial statements per share income before securites transactions for 1987 was $22 917 mdlen ($125 pe sharon up 18% from $19 439 malen ($111 per share) m 1986 8 9

Commsrcs Union Corporation Consolidated St tzmsnt of Changas in Common Stockholders' Equity For the Six Months Ended June 30,1986 and 1987 (Dollars nn 000's) Common Stock Capi'ai Retained Shares Amount _ Surplus Eamings . Total Balance at January 1,1986, as previously reported 7.339.159 $ 48.928 $ 37.529 $118.773 $205.230 Acquistboas in 1987 accounted for as a poohng-of-interests (note 9) 225.621 1.504 1.127 3.329 5.960 Balance at January 1.1986, as restated. 7.564.780 50.432 38.656 122.102 211.190 Net income for six months. 19.084 19.084 + Stock options ernrcised.... 108.561 724 249 973 issuance of shares for debt conversion.... 346.000 2.307 476 2.783 Cash cividends declared on common stek: Commerce Union Corporation (3.393) (3.393) Subsidiary pnor to acquisition (378) (378) Common shares sold............ 600.000 4.000 23.641 27.641 Purchase of treasury shares by subsidiary pnor { to acquisition.................. (18) (18) Two for one stock split effected in the form of a dividend........,... 6.248,557 41.643 (41.643) Effect of stock spht on acquisitions (note 9) 2.022.739 13 485 (13.485) Balance at June 30,1986 16.888.637 $112.591 $ 49.537 $ 95.754 $257.882 Balance at January 1,1987, as previously reported. 16,653.271 $111.022 5 50.079 $108.477 $269.578 Acquisitions in 1987 accounted for as a poohng-of-interests (note 9) 451.240 3.008 (378) 4,044 6.674 Balance at January 1,1987, as restated. 17,104.511 114.030 49.701 112.521 276.252 Net income for six months. 22.909 22,909 Stock options exercised.... 7.325 49 13 62 lasuance of shares for debt conversion.... 620.801 4,139 517 4,656 Cash dividends declared on common stock: Commerce Union Corporation (5.690) (5.690) Subsidiary pnor to acquisition (39) (39) Balance at June 30,1987. M32.637 $118.218 $ 50.231 $129.701 $298.150 Quarterly Comparisons (See Note 9) Average Dividends Last Trade Book Value Per Ghare Net income Shares Declared Price of Stock Shares Fully 1986 (000's) Per Share * (000's)* Per Share" High Low Outstanding Diluted First Quarter.. $ 9.010 $.53 17.226 S.13 $27% $21% $14.96 $14.29 Second Quarter. 10.074 .56 18.464 .15 30% 26 15.27 14.66 Third Ouarter. 10.787 .59 18.433 .15 32% 27% 15.66 15.19 Fourth Quarter. _11.078 61 18,445 _1,5 29 25 % 16.15 15 67 Year. . $40.949 $2.29 18.146 $ 58 $32% $21% $16.15 $15.67 1987 First Quarter.. 511.367 $.62 18.469 $.15 $30% $28 $16.67 $16.20 Second Quarter 11.542 .63 18.471 .18 30 % 26 % 16.81 16.64 Average Percent of Average Eaming Assets Earning Net Loan Non. Non-Assets interest Loss interest Interest income Net 1988 ($000s) Revenue"

• Provision Revenue Expense Taxes * "

Income First Quarter. 53,155.934 5.32 % .61 % 1.29 % 3.78 % 1.08 % 1.14 % Second Quarter 3.239.660 5.32 .45 1.30 3 76 1.17 1.24 Third Quarter. 3.321,248 5.30 .59 1.44 3 64 1.21 1.30 Fourth Quarter. 3.383.749 5.25 .38 1.35 3.74 1.17 1.31 Year. . $3,275.901 5.29 % .50% 1.35 % 3.73 % 1.16 % 1.25 % 1987 First Quarter . $3.440.646 5 02% tt .32% 1.37 % 3.69 % 1.06 % 1.32 % Second Quarter. 3.551.324 5.03 .43 1.32 3.68 94 1.30 Sen notes to consondated imancrat statements l " The factor used to compute taxatWe equivalent mcome was 1.5873. Finan-cial statements for 1986 used a 17544 factor. If the 1986 factor had been used not interest revenue as a percentage of everage sammg assets would have t>een 5 21% for the six months and 5.22% for the Quaner ended June 30.1987.

• Assuming full dilution

" Based on common shares outstanding '" Taxable equivalent basis 33

Commercs Union Corporation Consolidated St:t:m:nt cf Changes in Fin ncial Pcsition (Dollars in 000's) Three Months Six Months Ended June 30 Ended June 30 1987 1986* 1987 1986* Sources of Funds: From operations: Net income. $ 11,542 $ 10.074 $ 22,909 $ 19.084 increase (decrease) from items not currently requinng cash: Provision for depreciation and amortization 2,045 2.017 4,017 3.965 Provision for deferred taxes. 699 (403) (1,031) (563) Provision for loan losses 3,792 3.640 6,514 8.443 l Totsl from operations 18,078 15.328 32,409 30,929 Increase in: Deposits....... 302,096 105.087 243,790 46.216 Secunties sold under agreements to repurchase........... 5.056 5,912 Federal funds purchased and other short term borrowed funds. 33.472 Bank acceptances outstanding. 7.927 Decrease in: Investment securities..... 6.217 9.090 interest-beanng bank deposits. 52,863 72,467 Trading account secunties.. 493 Other short-term investments 3,008 157 2,049 Federal funds sold..... Cash and due from banks.... 36.493 83.550 Due from customers on acceptances. 38,558 11,682 4,707 9,117 9,193 Other assets. 366 lssuance of common shares under stock option plan, 10 250 62 973 lesuance of common shares for long-term debt conversion 4,656 2,400 4,656 2,783 Issuance of common shares..... 27,641 Net assets acquired in acquisition Valuation reserve increase due to acessition 951 111 Total Changes in Sources of Funds. $385,418 $180.113 $409,096 $256.184 Uses of Funds: Cash dividends declared. $ 3,230 $ 2.140 $ 5,729 $ 3.771 increase in: Loans, net 29,765 93.321 72,436 180.661 Investment securitios... 182,997 186,765 Trading account secunties... 322 23 420 ' interest-beanng bank deposits. 31,587 5.095 Other short. term investments 5,150 Federal funds sold. 89,919 71,819 Due from customers on acceptances. 7.927 Cash and due from banks. 20,064 12,105 Other assets.. 2,230 3,730 4,701 6,426 320 2,512 3,182 Premises and equipment. Decrease in: Secunties sold under agreements to repuref.ase........... 9,614 10.609 Federal funds purchased and other short-term borrowed funds 33,232 21,408 40,375 Bank acceptances outstanding. 4,707 9,117 9,193 Long-term debt. 2,997 791 3,006 17.815 Other liabilities. 1,365 971 6,814 15,929 Purchase of treasury shares by subsidiary prior to acquisition. 18 Long term debt converted to common stock 4,656 2.408 4,656 2.783 Total Changes in Uses of Funds. $305,418 $180.113 $409.096 $256.184 See notes to connoiodored hnancial statements l

• See Note 9 to consolidated financial statements j

12 0 . - - _ _ - _O

Commerca Union Corporation Parent Company $N' 9"a7

• • • J!*' '

19a Cash.. 167 100 178 Short. term investments Loans to unaffiliated companies - 22,273 22.568 22.736 Loans to subsidianes' 450 450 450 Other stocks. 1,812 34,218 25.803 investment in commercial bank subsidianes' 35 investment in banking related subsidianes* 294,502 275.545 259.116 Goodwill. 1,745 1.560 1,551 Other assets - 878 858 874 1,954 1,743 1.811 Total Assets - .3323,781 $337.042 $312.554 Liabilities and Stockholders' Equity: Liabilities: Short-term debt..... Debentures-8%%. due 1999 (note 8). 5 - $ 29.108 $ 19.583 Other long-term debt (note 8). 16,287 18.860 19,856 Dividends payable. 2,205 6.861 8.429 Accrued interest, taxes and other liabilities 3,192 2.498 1.926 3,947 3.463 4.878 Total liabilities 25,631 60.790 54 672 Common stockholders' equity: Common stock par value $6.66% p/ or share: 6/30/8 __ 12/31/88 " 6/30/86 " Shares authorized. 30.000,000 30.000,000 30.000,000 Shares issued .17,732,637 17,104,511 16.888.637. 118,218 114.030 112.591 Capital surplus. Retained eamings 50,231 49,701 49.537 129,701 112.521 95.754 Total common stockholders' equity 298,150 276.252 257.882 Total Llobilities and Stod holders' Equity . $323,781 $337.042 $312.554 Statement of income (Dollars in 000's) Three Months Six Months Ended June 30 Ended June 30 Revenue: 1987 1986 " 1987 1986 ' Dividends from: Commercial bank subsidiar.es * . $ 3,993 $ 2.543 $ 7,588 $ 4.653 Banking-related subsidianes

• Interest on loans to unaffiliated companies.

30 60 11 11 22 25 Interest on loans to subs.dianes* Other interest revenue - (51) 441 282 1.154 Fees from suosidianes* (297) 364 2 543 Other revenue. 1,434 1.475 2,869 2.949 754 754 Total revenue 5,844 4.864 11.517 9.384 Expense: Interest expense.... Fees paid to subsidianes*... 323 920 1,122 2.189 $51 622 1,124 1,210 Other expense . 1,304 1.137 2,496 2.149 Total expense. 2,178 2.679 4,742 5.548 income before income tax (credit) and undistnbuted earnings of sub sidianes. 3,666 2.185 6,775 3.836 income tax expense (credit). (98) (131) (244) (307) Income before undistnbuted eamings of subsidianes. 3,764 2,316 7,019 4.143 Eauity in undistnbuted net income of: Commercial bank subsidianes. 7,660 7.685 15,705 14.871 Banking-related subsidianes. 118 73 165 70 Net income . $ 11.542 $10.074 $22,909 $19.084 Supplementary information: Eausty in undistnbuted income before secunties transactions of: Commercial bank subsidianes. S 7,664 $ 7,768 $15,712 $15.226 Banking-related subsidianes..... 118 73 185 70 Net secunties gains (losses) of subsidianes. (4) (83) (7) (355) ' Ehminated in consolidation " See Note 9 to consohdated financial statements 14 15 i

Commerc3 Uni:n Corporati:n aar2s earned Performance Stati tics and Paid (Doll:rs in 000's) (tax equivaunt Averrge Briances btsis) Six Monthe Ended June 30 1967 _ 1986* Change 1987 1986* Loans, not of unearned interest $2,633,416 $2.307.554 + 14 % 10.45 % 11.93 % Less reserve for loan losses. 32,568 28.428 + 15 Total loans, not. 2,600,848 2.279,126 + 14 10.58 12.08 - investment secunties... 618,947 622,145 - 1 9.34 11.07 Trading account secunties.. 312 197 + 58 9.70 10 86 Interest beanng bank deposits 218,579 244.431 - 11 6.47 8 01 Other short. term investments 22,464 17,428 + 29 6.01 7.44 Federal funds sold - 35,121 34.703 + 1 6.40 7.78 Total earning assets. 3,496.291 3.198,030 + 9 10.03 % 11 50 % Cash and other assets 416,041 399.885 + 4 Total assets $3,912,332 $3.597.915 + 9 Demand deposits.... $ 542,230 $ 498.447 + 9 Interest on checking deposits..... 392,064 299.176 + 31 4.41 % 5.25 % Savings, small denomination certificates and other time. 1,444,142 1.344.016 + 7 6.32 7 65 Money fund accounts........... 414,424 404.981 + 2 4.88 6 07 Large denomination certificates and foreign time deposits. 478,830 477 132 6.28 7.72 _ Total deposits 3,271,490 3.024.252 + 8 4.85 5 95 Secunties sold under agreements to repurchase.... 118,562 100.437 + 18 5.41 6 59 Federal funds purchased and other short. term debt. 115,409 94.859 + 22 6.25 7.22 Long term debt 32,486 47.098 - 31 7.91 9 $6 Total deposits and borrowed funds. 3,537,947 3.266.646 + 8 4.95 % 6 05 % Percent of earning assets 5.01 % 6 18 % Common stockhokiers' equity... 286,340 234.495 + 22 Net interest revenue: percent of everage earning assets 5.02%" 5 32 % Earnings Ratios: Net income as a percent of: Average common equity. 16.01 % 16 28 % Average earning assets 1.31 1.19 Rates Earned Average total assets. 1,17 1.06 and Paid (tax equivalent Average Balances basis) Quarter Ended June 30 1987 1986* Change 1987 1986* Loans, not of unearned interest $2.674,566 $2.344,115 + 14% 10.46 % 11.70 % Less reserve for loan losses. 32,947 29.604 + 11 Total loans, net. 2,641,619 2.314.511 + 14 10.59 11.85 Investment secunties... 646,964 621,789 + 4 9.20 10 91 Trading account se* unties.,. 556 172 +223 9.58 8 10 Interest beanng bad deposits 206,928 248,037 - 17 6.60 7 79 Other short-term investments 22,429 21.779 + 3 6.01 7.21 Federal funds sold. 32,828 33.372 - 2 6.36 7 47 Total caming assets. 3,5S1,324 3.239.660 + 10 ~- 11 28 % 10.03 % Cash and other assets 414,723 407.719 2 + Total assets $3,966,047 $3.647.379 + 9 Demand deposits....... $ 542,082 $ 512,196 + 6 Interest on checking deposits..... 1,457,337 1,368.355 400,458 307,012 + 30 4.36 % 5.17 % Savings, small denomination certificates and other time. + 7 6.21 7 49 Money fund accounts........ 403,583 415,031 - 3 4.86 5.80 Large denomination certificates and foreign time deposits. 528,871 465,149 + 14 6.46 7 48 Total deposits. 3,332,331 3,067,743 + 9 4.85 5.78 Securities sold under agreements to repurchase.... 117,509 100.990 + 16 5.55 6 28 Federal funds purchased and other short-term debt. 111,543 91.532 + 22 6.61 6 84 Long-term debt 30,889 38.756 - 20 6.89 8 41 Total deposits and borrowed funds. 3,592,272 3,299.021 + 9 4.94 % 5 85 % Percent of earning assets 5.00 % 5 96 % Common stockholders' equity... 291,417 250,114 + 17 Net interest revenue: percent of everage earning assets 5.03% " 5 32 % Earnings Ratios: Net income as a percent of: Average common equity. 15.86 % 16 11 % Average earning assets 1.30 1.24 Average total assets. 1.16 1.10

• See Note 9 to coneohdated fmancial statements

" The factor used en 1987 to compute taxabie equivaient income was 1.5873 Fmancial statements for 1986 used a 1.7544 factor. If the 19e6 factor had been used. not mterest revenue as a percentage of everage sammg assets would have been 5 21% br the sa montns, and 5.22% for the quarter ended 16 June 30,1967. 37

C mm:rcs Unl:n Ccrpor; tion s) Commitm.nu and conungencies: N;tes 13 Consolid;ted Fin:nClal StItsmInts thFs'are out:ltandmQ Vanous Commi'ments and contin V8" mal course of business. such as left:rs of crtdtt and commitments to exte

1) Principles of coneotidstion and bas's cf financial statements:

credit, which are not refbect d in the accompCny ng cen?olidatM fartncici state-The consolidated hnancial statements metude the accounts of Commerce Unen ments Management does not anticipate any matenal effect on the nnancial pos>. tion of the Corporaron as a result of tnese transactions. Corporaton (CUC) and its subsidiaries and are preparoo m accordance with generally accepted accountino pnncipses. CUC's accounting policies we

6) Income Taxes:

desenbod more fully in the 1966 Annual Report. income tax expense (credit) was less than the amount computed by applying Quarterly financial statements are based m part on estimates and include all the statutory federalincome tax rate to pre-tax income for the to:iowmg reasons: adjustments which are, in the opensvi of management, necessary for a fair preseritation of results for intenm penods. Operating results for intenm penods (Dollars in 000's) Six Months Ended are not necessan;y mdecative of results for a complete fiscal year. June 30 1987 1986#

2) Non.eccruing assets and renegotiated loane:

Computed tax expense at 40% (46% for 1986) of pre-Non-accrumg assets and renegotiated loans are summareed as follows. tax mcome.. $11.401 $ 9.442 June 30 December 3? June 30 increases (oecreases) due to: Tax 4xempt interest on state and municipal (Dollars m 000's) 1987 1986 1986 Non accruing assets: obhgatons............................ (7.885) (9.862) State income taxes, not of federal income tax beneftt 834 705 Cash basis loans. $.?6.073 $16.877 $22.107 investment tax credit (PAYSOP) (5) (154) Foreclose: and repossessed Non deductible interest expense. 965 1,163 property 5.646 5.470 6.265 Other items. net. 263 148 $31.719 122.347 $28.372 Income tax expense (credit) - $ 5.592 $ 1.442 Renegotiated loans $ 266 $ 1.357 $ 1.012 income tax expense included currently payable amounts of $6.623 thousand and Net income was depressed approximately $ 04 per share in the first half of 1987 $2.005 ftiousand s id deferred amounts of approximat ($1.031 thousandi and and 1986 due to interest not acc'ved on cash basis loans and interest costs of ($563 thousand) lor the six r'ionths ended June M 198 and 1986. respe holdmg foreclosed and repossessed property. A further reducton of less than income tax expense (benefit) related to secunty ins (losses) was ($7 thousand) $ 01 per share m the first half of 1987 and 1986 resulted from interest reduc-and ($346 thousand) for the penod ended June,1987 and 1986. respectively t,ons on renegotiated loans. Acquisluone:

3) Reserve for noen losses:

February 6,1987 the Corporation entered into an agreement to acquire The The reserve for loan lossee is summanzed Six Months Ended Secunty Bank & Trust Company of Centennlie (SBT), a bank based in Centervdle, as follows-June 30 Tennessee. Secunty Bank & Trust's assets etal approximately $31 mdien At clos-ing. CUC will asue approximately 164.000 shares m exchange for SBTs 1.000 (Dollars in 000's) 1987 1986* shares outstanding. The acqueltion e subfect to approval by regulatory authork Provisson toe loan losses. charged to expense $ 6.514 $ 8.443 tes and SBT shareholders Less: Net loan chargeoffs;

8) Lon9 term debt:

Loan chargeoffs Terms and provesons of longterm debt are desenbed in detad in CUC's 1986 Commercial 4.700 3.221 Annual Report. Acal estate 311 389 i Installment aiid' credit card 2.2 2 l bC acousrod Central South Bancorp. Inc, a holdm O9" ber 1 7.390 5.716 company based m Frankhn, Tennessee, which owned Wdhamson County Bann and Planters Bank and Trust. Recovenes-Commercial 1.423 672 The acquisition of Centrol South Bancorp, Inc. by CUC was accounted for as a Real estate 61 46 poohned4ntwess. To consummate the transacton CUC ssued 3.594.245 shares Installment and credit card 394 424 of common stom; Central South shareholders reoered 2.1967 sharea of CUC com Foreign. 5 68 mon stock for eam share of Central South common. Totalintrest resenue of pre ously asued financial statements of CUC has been increased by $28.642.000. 1.883 1.228 $23.461,000, $18.390.000, $17.492.000. and $14.476.000 for the ears ending Net loan chargeofs. 5~507 4 488 December 31.1985,1984,1983,1982. and 1981, reipectivety. to re this busu increase in valuation reserve 1.007 3.955 nens commenort Nm Ireme Or the same e penoas has been increased by $3.999,000. $2.649.000, $2,093,000, $2.054.000, and $1.756.000. Plus Reserve of acouired bonk 111 Valuation reserve at beginnmg of the year 31.806 26 171 On Aprt) 17,1987, CUC acauired First National Bancorp of Lewisburg. Inc. (FNB) The accumstion was acixiunted for as a poolintof. interests. To consummate the $32 813 $30.238 transaction CUC issued 381,735 shares of common stock: FNB shareholders Reserve balance as a percent of loans, not of uneamed mterest. at June 30. t.25% t.27% recerved 3 7407 shares of CUC common stock er each share of FNB common. Net chargeoffs as a percent of loans not of uneamed Totalinterest revenue of previously maued financel statements of CUC has been interest 42% .39% sncreased by $5,459.000, $5.642.000, $5.486.000 $5.273,000. and $5.467.000 for the years ending Dscomber 31,1986.1985,1964.1983, and 1982. respectively.

4) Non interest revenue:

to reflect the businesa combina.nort Net income for the same respectree oenoas Nonanterest revenue is comprsed of Sex Months Ended has been increased by $673.000, $664.000, $485.000, $635.000 and $532.000 the follow ng June 30 On May 15.1987 the Corporanon acquired United Cmzens Bancahares. Inc. (UCBL (Dollars in 000s) 1987 1986 a ho6 ding company based n Ashland City. Tennessee. The acquisitor was accounted for as a anterests United Cmzen Bancanares assets total Service charges on deposit accounts $ 9.508 $ 8.956 xsmatety $17 mdhon. t closing, CUC seued 69.505 shares in exchan for Trust and investment fees. 4 425 3.556 Tradmg account profits (losses) and commissons 339 222 g.s 7.075 shares outstanding. Totalinterest revenue of provously asued nark Otner domestic bankmg toes. 3.435 2,816 cial stataments of CUC has been increased by $1.612.609 for the year ended December 31,1986. Net income for the same penod increased $212.298 All prew Intemational banking fees..... 2.217 2.165 Mortgage ongination and servicing fees 1.639 2.005 ously issued flnancial statements have been restated to reflect the business combmations. Credit life insurance fees 1.946 1.703 21$ h 17tne boards of directors of Commece Unen Corporation and Subtotar 23.509 Investment secunties gaine (lones) (14) Sovran Financial Corporation (Sovran) epproved an agreement to merge oefore Total $23 496 $20 724 year end 1987. Sovran e a bank ho6 ding company headQuanered in Norfolk Vir-gina. whoes assets at Deconbar 31,1906 totahed 14 95 txthon. The merger agree-ment calls Ier shareholders of CUC to receive.91 sharse of Sovran comrron stock for each share of CUC common stock outstanding on the date of the rnerger The proposed merger a to be acx:ounted for as a poolingof mterests. The acquisiton is subect to regulatory and CUC shareholder sporwals. l

• See Note 9

Commerce Uni:n C:rporction .drectCrs Emettlus i George S. Moora Mcnors Chairm:n Boa'd Cf Directors wrman. itworp (Rctared) Dennis C. Bottorff William B. Dede Chairman of the Board and Chief Executive Offeer Advisory Director Fcrmer Deputy Managing Directet Tom N. Austin Intemational Monetary Fund Chairman of the Board, The Austin Company. Inc. Den W. Maddox Greeneville. Tennessee Chairman and Chief Executin Officer Associates Corporation of North Amenca (Retired) James L. Barksdale Wallace N. Rasmuseen Executive Vee President and Chief Operating Officer Chairman and Chief Executive Officer Federal Express Corporation, Memphis. Tennessee Beance Foods Co.(Retired) Robert C. Scrivener George E. BMns, Jr. Chairman and Chief Executin Officer Vice Chairman of the Board Northern Telecom Limited (Retired) Rueeell L. Wagner J. Mne% ell Boyd Chairman. NLT Corporation (Retired) Vice Chairman and Chief Executive Officer Albert Werthen Shoney's Inc. Chairman of the Extscutive Committ.se Werthan Industnes. Inc. Sam A. Brooks. Jr. President. Beverly Investment Properties. Inc. Executive Officers Dennie C. Bottorff Wade M. Craig, Jr. Chairman of the Board and Chist Executive Ofncer Corporate Director, Nashville, Tennessee Jameo A. Rainsy Vke Chairman of the Board and Brownlee O. Currey, Jr. Chief Administrative Otncer Chairman of the Board and Chief Executive Officer George E. BMns, Jr. Nashville Banner Publishing Co.. Nashville, Tennessee Vice Chairman of the Board Owen G. Shell, Jr. J. Dewey Daane Vee Chairman of the Board Valere Blair Potter Professor of Banking Owen Graduate School of Management H. Carey Brown Vanderbilt University Executive Yee Presdent and General Manager John H. Dillon William F. Gorog Executive Vice Presdent Chairman and Chief Executive Officer Dele W Polle Attor International, McLean. Virginia Executne Vice Presdent and Chief Financial Officer Desmond F. Hudson E#'##'## President Doyse R. Rippee Northern Telecom. Inc. Executne Vice Presdent and General Manager Robert H. Smith Ben S. Kimbrough Executive Vee President and General Auditor Vice Chairman of the Board (Retired) T. Hal Biehop Senior Vee Presdent Donald P. O' Hare William A. Caldwell Vee President Sena Vee Presdent Southeaster Division of Amencan Airlines, Inc. Nashville. Tennessee M T. Chrtetten Senor Vee Presdent D. Todd Chrtetofferson James A. Ratney Vice Chairman of the Board and Senior Vice Presdent, General Counsel and Secretary Chief Administrative Othcer carmsenoeg Fege Sena Vee Prescent Duke J. Rose President. Flagship Development Company, Inc. Senior ce re Nashville, Tennessee 3,g, g, go,,,,,, Sena Vu Presc,ent

5rt>ert M. Shayne John E. Krueger Chairman of the Boas and Chief Executive Officer Sena Vee Presdent Werthan Industnes, Inc.. Nashville, Tennessee Cynthie Pyie Sence Vice Proedent Owen G. Shell, Jr.

James L. Springer, Jr. I Vice Chairman of the Board Senor Vee Preedent and Controlber Ron N. Suedekum Toby S. Wilt Senior Vee Freedent Pnncipal. TSW Investment Co. ) Nashville. Tennessee m g}}