ML20212F660

Sovran Financial Corp 1985 Annual Rept

ML20212F660
Person / Time
Site:	Perry
Issue date:	12/31/1985
From:	Cutchins C, Mcgehee C SOVRAN FINANCIAL CORP.
To:
Shared Package
ML20212F471	List: ML20212F465 ML20212F541 ML20212F569 ML20212F602 ML20212F637 ML20212F660 ML20212F681 ML20212F707 ML20212F741
References
NUDOCS 8703050131
Download: ML20212F660 (168)

Text

...

( 1:

l :.' *h k '.,? ?. (. h+. {...N...

...h.. N,.

!Y

'4 ^ f.v W:f I'h.. y

.Y ' -( 1.$.Y $.. b~j. i; '

. 3.,. I.5

?l.h.$s

t.... l. $J ;..,... ;..q,;.

-.... ' ? c,

.. ;.W < t...~.

- ;q :

.,.n....r....,., c

,,~..,,. =..a.

y:

. o ; ::.

... -.Y 6

. ::w.:.y..,

...e

~...

:...s

. ~ +

v..,.

.3,, c

v. r.,....w..,

. a;w.p.,

... r. g. -

f., ; 'h,l.lg...h.h.Ni;?

.. v.7..

..c.-..,.,s.,-

_ 7>

. - n....

n- _.

s.

..A'. '.?.; g.,; 'Q.'... U. '. '..,f.

N..N.h..

.? y - $.. ' f., y,.. ' A

. ?. '~. ' '. n:. 9..-flp'.g:'..j:::;.

..."s..!Y

.?.

lN-

. l ;.:

i 7

-.... p.,

3...

. s..

fr,, r g,.

77

~ -.

7,

n... ;. y y -.....%. : - m g j t,.,. 7, :,.

.y. c. n.a. -..

a.

....s : n

. j..'.....g r u:,...

+.:

e v.

.y

h...

....;... p y.... -

3:. v.u ;.. n. r '.;

J.. A

.'.h..:. -;.., -

,..-..-:...A...

y v

.s-

' r.n; M '. ' : +...:.....:... :... ::

c.,

...-...v

'.. t". :..l..; x.:.....

e e~

, 5..

.- c.... ?....

L. :.., :. ',;:

...,. M..i ua ;..t.

u

......}..:?%,s.- +

..~ 3 h.l, g. ' - c '%.

.. -.....;. :..+:"

s

s.. : :, \\m,', q' J-"1..

n '. :g,.c..

.>..'.,::*',,,'...-'5.O;., ;. f ~ ;, ;... $ s. f W... * *2. ' ;,~ Y

~

...y Q

• • v 4,, - - <

• j. _ 4..

t-.

e.-

• /

.M. ^.'

- p 2

N,.. @

t...

's

~.. *i w p.. '.. ' ~ *.,-b sy y'

.f.t <b

.,..;-;...,..*,..,..-t..., '..,., --F

.n.'s.

. :. ~. 4~ m........a,,.... t-.',,.,.:,,:,_p...-,.e l.y. ', -r. r.

• et,,

'.;r-..*- "....

.c n

.s.

",,,6 g *.. %,.:..

a.

. e.7.. - m e...e

., p,j.

'g......,y.,.*.,*.

.,..g 4.....,,.,,,p,_.

3.,. y

...,g

%:... v.- p. ;...: c. ~.m s.

. :.:....-<-.: :. ~ -. -i,

.e a ;. ;;J. :.=;, \\.%.:\\. :: 9,,.

....y m n,; :. ;;

.y

-:1 u:..

. A 9; g:;....x

?.c e-

. :x :

.?.

4 = ;..: ?..:..n :.4 ; <ri

.m.. ;.;. y :- s.y x, n. c.:.

?.~

,:.. v

. -x.".

y.. 9 -.

c.7. q

y'. ^

.. f. A.?y..,...; y.: p", ;..l':-l T. L {:l ' ; ; -

h F._.. f ' y *;;.3-... : : l ';4.. '..v

;. f. '. '..

.. ' *.. '. - Q r v

x.

_: -r s -

n..+-

. - l 4,..

,3.

...?. :y: -

- i y.; :...

.,.vs u

,.9 c

- :.2 fj

'.}!: ::. l.. f.;(, Ac..:.:

.h,,...,.,

_+_.,...,.,

.,.,J.;.j;' %. - s..w n.w: -. u. r

.,.u, '... n n... 4..m

. '.;O.

~

c. ; -.i :._ r? =

n v.. _. +g. :,. L.A., p*,g. gy..gc.... p # #F**'S.,-,

-y

....f.

.e

_. g -..

-as_.

q_:

yg -

..,;m

- 3 3Wjm. i_Q,.{y;.j;.E { y.t_g..;

_.,.e

.n g ;;

. =.. ;.. ; 4.. ;. c

, g,...

.9

..,..,5

.: : Q.%?%.... t e.-:;;V:S. M Rq.n G :[7 :.':h'i.;f Y...t.:"-:s: n Q ? f. Q Q:

- -e g

y-;.;Kl..?a

.f * '.*,,'3

.I.Q. 'f.f~ f..l.

l : $,.

l Y,

-? ?... d*b _

T*b

.-(l.i h.

,i A '

~( ~ ~

'. V' map.a

. 'v.

.. ;...g

. ;. e,;,.

s w:

y,. y y y

m

.,p

'r.c

~. -

s.4 f

y n.=..,. 9

.,,.J....g.

4 <~ p 7.,.:

, t,i...

y..

p_. :.....

. - 2.s _ : y.zj..

g yHy,

.a c.

~..-c-2

.t.

-$ @$p;.'..

c w : f 3 ".l.; il.\\.t.y',.if p:.M.. q: 4. r. :: :fy 3 ', -

e;

'J.g, s,,

s

.t

. r,.

.v..:>

p.3;...

3 7..4 x.u.

x -

M W' %qv.v ~n;.f ;,.. ?....: '. (...; %--. ' a.,. h

-y t,',,. ~-.. p-.." ; ; _._ & y.3 ',.y..q.

1 m

(-t 4 l yyp.W. ;;. ; g.p.1y,3 f 4.fg3 G. t ;Oe: 7 3.,4.Q'y <,:,

o.

.r 5:.

- p.g %.3 -

.. '..sy. yg y J. J w.

M-

, - ^ -

' -.5

p..,M-s,,,:j g>,:yg.. y:.,.

s

. L y,c

~..

..!.. g>...,s.

+d.r ,s m.

.. c ?

s g

..g m.

. +.3 1

^

l

'i

, ;, '.q

, *.h r

e s

.b..k

- 4 h '4 s. i, a. *

• y..y*y xlfo.; b. =,, b.. N' '

g., / p, ~., n.. - O ;.n8.'4p,,:fv_a Vs-w' '

n2k..m%

.N*

br p-

.c

.r

,b, g

.=...i=a....c %.. -w.-

4

'.i @p

?;:

h

' *. *

• g t: Q v.

(,.

- ~.

'A 3. ?. s

• 'm 4

,F. h. :

^*g ;..._,, h. 0). \\ '.R " ',f:, ;-: - f '. $. l, l a-d

.,4

• g;g g%,',\\.'p^~*g*..%

Q. n- : -y'..,h,,. '..

~

. * ?

. n'?

w.s...g) :

-g.;.,R; r e

e 3.y 3

$.. c.ey ; ;u.n$".l.;.? h.?G y,.

W. ;4.c..2

.

.

; f.y

..m u

..,. 4 m;;f9.

../.

.U &en. : A...

,2 -...

+s s

s^

s~,

- Uf 7?.b., j C:' W. &n. @k i.@

p n%Q p;

.3.:. y$.in &,.,_[t.p:e:,A 4;.h.; g. w ~ a...x.m

.,:. s. m.c p:. 4 p;;";-.

M.,,3-

. g$ g ?e

=

.y. ;:. :...

c x

g g-

. p 4.y Le, m,..;,. l, q> :..,.

n~

.s u.... n. a. : ~.

a.

. n S

-.. ~ :.

s I,

f.

,,. A -

.Q lJ.,.C.g,, *;!n tQ S', -.

rv

'~h;

'o, )*

,l..

-, k.*g "q

' g

[*

e ;.. j >? f M

Wlf '. ;- [.

. ~. '= Ri g

,w'...,,.

A_'T i ; ". A,.,l i ? ; A -Q;.!,",\\;~, s V$ '. =.3 a ! %. O.9 -., J.,7.*'lh;.?,h[l &.L W N. f

• RSl L J e f M

h.-

J ",.j v. N..? -

f..

W c.'.f *., m.*

'.,, y':s ? ;.f

.s _.

+ $1 f..

Gps, e Y }* $ ~ - ja 5

r kl;f.{hoff?,l';b [-.

. -

• A.g?

es p

n(

'}3

'.?l, 7L%Q.7.4,y;; -t., f' y, V

.P. . c

1.. p ^.[:. cA

r r

...p' :-.

?

?

~

s

.;: {.;T;l-k., 'h.i:.$

' '_ 4 fi' \\ *

-flf.

' [h

' g,,

E

' S sfj:f. 4,1; p ~)&

.w'

. % '2. n.

9' pe, N l ll's

• O-

.m -

... g. a.y -.

p<,\\,/,.

@~

%,. a > e,,c;g.. : ;. :,-.e

2

.. +

a s.

.--w

q* ;

.. ;

-4.

v<,..

r}~.+r..-,g.

c.

o

+,

t.- (o..., ;' y r...<

b.

.qc

.s Y..ER... ?.T.! $.,,',h'y..".y'.+.'?'

'.E

., - gh.. '.

l.

l f,,l?. Y l x L,:c..., ?...? '..~.

e s L..l._.??! k. f. w.

..,h'**.,.-

=;* py*.,

., 'u[,'

.'4;,(

s y^K 4

d.

y t,

/. '.,,.j',.

• lif j'._V*g.,*%

(. - :.,. 6 ;;p,,b;. " [..,s.,..

?. <fg,,R,'

,< t.g i f.

, h

-r y :

Q..-. $y4 h,, : 5,, I ?. y.ke,'. n:

.s a,A.L.'; _ v. '. ',..,

4. r

,.b l*_..

t s

-%'j-t' 41_.

,, h...

n-

% ~ Nti.*f' k,A-e - ',*

', 0 's^

~

• ~. 1..* 4' <,.

...r

~. - -

9,,.

h9 Mjk}Y} f..[;.,.~3 5 ');.'bN..'N.,l.bylM.N.,,.h ^.S. < yr

_U'

', h. '

f:

'jf. '-Wy YMk,g....,[4[:N,.

'#.Y '. 0;,

l

.W' R.,

h.

MJ '.

f

,T..

o

. c,

[. f; [ '.

'I,

'4*-

."I.-

,..' T " h " N :., f

-[' [\\

'

• h,, /'

[.b k., ' I. f * ^'

)',"4

~.,,*!..

f..hf:

l4

^

k,M g.. 9,

/.

.b..

.S.-

h '. ?

e.... --

. 'l

• cG.**

.' '.. +

..'W 6f

..w

~

4 f,g..- M).Q'f,.'g.e y(.c.m&e% n*

• v::,.n. sy., y2 ~.' '

3+=

.&,?.,h. :m.k-m.rn.. e.:

.s [V - : - ~

(m$ ',, _

J l'&fQ*{ '-f.-l ((

..fi,

~

D

? 'hf.f;.

.f ? [.

,y

&: _- ?. e-

+$

z

, - G

' k N.*.,.,., ;.h.z.' l k'.E. 'y L.

• .,)-

• 7t.

y

$,p?g,N e

? ' ?f

.l

• \\ *; *.

=5

,b $ ~ Y

'!{... ;,k,;.

..Y :v ',Q '.;i....

). '

'l i.

Y w

• .... p ;h..&.'.;.n g, n...'r %:.a..f.M

.j

,{l.:<?

t.

.j u l.;

. p.

a,.

9,,t

.a ' ~,. l:.

% :..,&M; ; 'l..;...,. g f. _ ' Vn pf ?

.j

• 9 v

u

d. h,.; ".. s u.. :-

+~

8

.'

• c :. :u : a. '.. k'.u.:(.

..g.

& g fl '..s-',.

}.9. 1

• 9s

>$;44w.,.m. ':l.:,...,.

• '. ' p. ' '

l:. l 4 m y'r. J ';.*:m :.mz ;,,:,;.

&n:,_k

. w;*

• ... :;q: e..;,,p.gg'

'?~.

. m k.-

-y :?;-

r:.

... ; v -

.n

.c

.p.

• b..

Y..N !k-

• Y

^

• k.$ i.". * :.[..'.;h!*') ' s' '..:.

..?*. W '.'%' O' {.

'Y '-(

.l -

?'.'.

{

.h f.

'I.

'. ' " * ~. '

I

• vl~

^9 e

d '* z "YJ.-,'...,<.t.'

.qt' 5.

1.'

N.. - i y p..w..,c.~.).

',o l '.~. +

-)

c.... :.. --... :

g,p[ 4. g!M< ;;q *, y -

s:

a. u

' i.

y e

.:s..

w.,

l%7 7 <

. Ab,.8.? q,; m...:y:n 9 -

'I s

..N 4

' ~.

e

. '" Q; I!j.f., ' f b '. -

a;, '

(m%.'h3.M... M.r...T 7t.

JA- + D

,I.,

J

',.8 W_w I. f, @. f. T.D' g

=

IM y....

/,.i n.

C ( T.M.,.:g _ ; as. :: y$.

.:.g. y U.S

~_?-

7-

%.1 ;..h.g..r.n :.::v &

n

? Q[Pm[4.

g i;xp.

S$

.. g w,+ ; ;.m ? m t e.n.; jW Q) %p f '

.h J.C c.gbT5

.? V. R.. - }:^ E.:

C

' ' J

,, J.NJ+'.m.e

b,.9.&. v?$w(. 3, -g;.mg.,, yny,. y 4 '

h.,.y.

.. : 4. ~e.W:.

g

~Ss

y...c.. :4.f.,iz:. :yn. y 'twp..: L. ::

4

y.

...i y

W

p.

.~.

.,.3.-x.. >;y.-;g.. u'.;.....; e v. n ;.; :

gs-

+

y'q pH J.g. _ M...w+:.;m.'.n.; l.?;d. -lFAM,&?

u s

~.Y'.~'.-..

> - *, yy s:.

%,. : N :.c.&..n,W,.e. h%: ?.'

- ? t.p.

._ <.,.,W gll:. '

.. y i 2 4

?

c ~:i ?G:; s

)

+ w r ;./... : :z

.u ;

. a..v n..

s.

=

h %..p

,... / 4... :. a. :... : ;...

2.

m.

.Y +..,..

4 e. -., x..

4. y;,.,a : a.

-.. y.t m,,

y. b., n a

...m..

v9.,

W,(:ps...p. :: y. c.: := ww eg.a.g. R.

.g

.4

w. p -

1 R.n:.y&.

., y.;...::.;, yp:y&s.3

. J; Y.,

+ +:m %. #. 9 j,., ', yW~. -

.'9.'..; C;:&n. :^:.' :..

a g f.+ ;i y-m..Me. :Q. v..:..u

.M. g. < a. >.-; +g~.s.; e%,..m.,. ;..W:. %....m.-w F. d d,s %,::,:.

r.. ;

^

e

., c ~

g

. r..

n.:

n

e.

c..

, s.c,..:

~

u y?., +...

f..a. > 5%.c.h.W X v,,.

?m

??

u

. N.

h R,:..

~

+

. M, a % f.i W.-.?.9yu & Q.s.[p#...'f.,e,.?.4.;sg:, N%n.g, u 7.;w y ? MW.

&Q 2

.s.

.?

. w 3. m5.y W<,e:.3,f.&N :

$.e.. r : : e c

.R..., 9, A.e=.; %.~.

, %.-. A..:llg~.i :

9'.Q..

r.y.W~. F:'

h>r. ?,A V

ew. @t.;=. '

u on ;,, -

.....n.

..:..v<.

,m w.

v". m.

.;n...:s.. < rc+.,~,v -

n..

q. w. v.

w u,..~.,. -:s.a.yn u w.i.m; f s i. a.,i :

Mb ;,!.'f

.ll ^.:jW Wy?..c.,'.,t.--.; e~p h,7..s,Ql:;+.-.

~.... --

... a.q.

./ v.m

,-r

n. :..,.. ~. ;m.

...h

a.. v..

e....

a -.;

w

....a..+

,l,.

.'y, v' y %mT.,%.,..%)

;: :&fVN '.

Q.~...y.. '. _: ::y n,

~,

.u '

4 a

Q.% $. p *?,W G.:?.y<9 >4,y-:y.L.

.y en c@g,}s m.

,n s n.. r.!%..\\y....*l.;, g

.b

. YR.

?Q

.\\

e.L :.1

-. Nv>

,,.k., l 4 7 +...'

• 4--u.,...,N....

'r 3 f.

.f

?,

3 p-

..n 3u.'a'.... * ! ?,h $.&.: ~*k. ;9_

.s. p./

e q.?

.n w,

.,.y-i.Rr 'a

• h.,$ h. -r$ *$'s

,s.

s%

+ _

ff.

A Y. ?5 M&.%m.sla:.%w. m,n;$,g e..A., : %.*: f, :i

• 7, f( Q$

6: &M.. W}bW %. f.:,4

.,yu '.. yl-.. tD{ l4 %-E fy'Ak.?.4:

..' ',..p:;.k. c..?.M; T:' ;~ Y-W,,.,..:..; v U

.'.} 4 Y

[

Q

~%. bi. QW.? M&. ',c

. +-

-H

%.-.'.._. -i' !.: 0,..'

s

-...... e g..w. g.. %,,:.,.

~

y+

,n-

-. ~

s c....., e.:.:.. y... s, :.

v ;

.x,.

7 ;. ug

. j

? l. ' '. &:y.xv f..

g

.ss

'.4f% (g

' h $:OY

.fgr?

O V:

.M M. iT U M.M$W: % :

.v,, % e. v.. W. +. %

9 W

a-

, wa n.; w, v.~

~ x...

~

y;:.p1;d* W R G,y @. h.6 M M.C.4 WsR4.$,.g.$ ~og.M N M~.

1. 1. 1. .d M E

AW$

[ g,, '

g

.. - -L.... :;.

.y

['

l

.g s

b -. <,

......: eq. _,.:

^. ~:,

-,.. :'. ~

n;;

...+

. 4:

} _..

,,&. :.. ; [:. _ j...; 5 ; ; ;, _..

s..L.-_.L

~

w,-

e p_.y.;....

- > ~ 3 : ;-g.w\\.

s___

,...y.

... - ;. - c.. ~... -

... 1:: :'. v. ;.

., 9...

. n... ; >

~

g.. -

-.-4 +.

.s

. -.g

- q :..._.y.

.r. y -.,.

_q

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

.... +... -

.... y

p...

.y..

., w.<.

c..

s.. _. -......

.,...e

_ _ :. _. 7. c....

3

~.

s M.

?' -.'

,r.: /-. -+

v.

-T

.....L 'a :...

b d

.V

' '. : - c: - '{'s.

V;

~

g.

. '. #.:,...... s ;.

...r.. t - :

s.

_'. c.,.

....c..,..

.- +..

r..-

s;.

. ;.., z,.-

a

.~....,.....

.t,..-. _

. s-.

.e

....i

-L. N

...u r.

r'

..._....,.s

..m.

y

. - 3.._. s

.:s.

- ~.

.. '; g ; O..

.~."...

Y,,.. ~..-.,-.

3

..r...

s.......

., z...

.a

s. -..

,...,_.3 U '.

. < 6[f, ed [

4.J-

[ '*

.-..*...p *, f -. - [ ;... ;.

m

-.... '; - L.. ' h -.'.. -,.s, i

m.,

.cs

- :l Y

f 7

.l -.. _.

3

-': i._.,

4. - _...

. c.;."

'I

,a

^

,.: tL;,,-..9;y -

. --. 7:-.,... -

g

?.-

. 4....:. -,

., - [ * ;.....-..- ~ ;..,*.*.s - '. i *.

t gm.

h.

8.,,;.

j,

an

,(

j..

(,

4.",'.3,.........,.'.';'% -:

.'..:, _ f,.. ;

m*.'.

.%g x.,.,.,,~.'_...

.n r

,.,w

'e --.

.l v~.

g..e z. 3 '_

-- l-

.ry,n.r

,f....-. <

.. gl.

~.., -.

.e

.a.

, y -,- ;,,

~

..., s,' ;...; u.

. ;_q'._y, v

c...

~.r

.,j.

s

f.,. K. :*.. n\\ -

.:?

n

.g*.,.'.

~

p.

a.-'

.g*. ;-_>._y.-

v.

-... ?. _ - ;..~.

s..

..O:..,.

..e..

~

.3

.. i:. '..'.. :.

.:.a y s

.a

..... '........., '.- l

'e i ?.. -

3

. '.. - l. M:..

.g.-

-r -s.@& %..,..y.,...

^

2 7,?.,-.. -

-. w. :. <...,. '. --

-. '... ~... **

.7,

.'t..

... '. -,J ;; w......' -,,. '

mm... '..,-

i

+ r.s '

~,.

.. '..s

_m. _ m.

~

c_..

...b a-

. b

~.

.].'i,

,y,,

y.41

.y 3

,.{, jy, ',,, y, j ;.

f,, { ;

e

.a

~>s S (*

=

s p _....

t.

..,..f..

... 4;.

,..,y y..e..-

.. q.s a

. 8 :;}_

.,.y

_..;,.... s,r l

._ '! \\ - -

. l'

^

..l:.

..' ' _ Y-.

~. l.'

0

~ ^

?

, an.

. m, ~ ~... y _ _.s. _ ~

i s m

=.

~.

.k. w .- -

?

~..

,. L.A

.3...g). fi '

d.

,i.c

. :. i g :..~ ; ;;..

..~..

.,f n+.ev W.

...........u.'...-

.^

+

'i- *.

t 5-

[:*

~,.. g {.:..

.. - * 'q Q w~ geg ;o.- i. ( 3 [ f, ; ;.f.. 3.. y a... }

f...[(. j.;.;: < T: V

~

m..

. r,.

s.......

. m m

. ).. [ [

' f..- ;.

f.. ~....,......

f

{[]4 k :... {. } ?,

]-

z...

Q."']/

7

• e y

3,

,g s.;.y. f_} i.3f.j sedW-,.J 7<

..J %g.. W m. W... y ' 'a M,,..

e

.u-6 g

7

;- - [ ; f.,[_y. L

: ;;:q.aw,Am.aL,.7[r : N.-;;

3 y g g. ] - [.y n

. :. " p;.J m.. w

.v..... - p -- : - -..- ~ - -

-a 4.

'l A Y'

' ^

.: y %.e.z

+,.. [.

~...,

-..... v....

q.

7. _VJ.

L f - l.

.,j l.i'.... -

* ~..

.:.. v :,

..._.;s-

.r

,ll :.;:.j }.

r.

A l'

)* '

..,. b ?

,j,^;.

Yf**

.l

.... f.,..

p 'e.. y :[*,.. -

. 3 ;..

.: e...,

y

- W s

...,.v.;

.. -v. ~.. u v. -

. : ~ :....

s...w..

~ :... :

.g

.. x.

> g.a,....

4

..,.,b-

'.}..-6,[

s) '

• -/ +

c)

,h,,.. ' ++.

,;.A

.. +

.y l3

-....., q %,,,. ';.'f ' ;..: '

3 a

- ; ^ l '.- ::.'. : *.. w 3..... : q :. :;........c,;@?

y..c:::,7 j ;, -

. :y ' ' ; J a "y'% -..i ; L

_ L, l.{ ;,.

L......

., ;.i. "'..'.' : ' $ Q _,.

. g :,.

, a p g. ;.

..av

.. L,:- :

, _,. ' f ; <.. - ;

.:, e:

.. n.... q..

c x-

, :. : ' :3

. v.. n....., : p,;:n,....:e.

,1,..:.

.v u 'g.w

.+ - - -

3, m

.?

3.. :..m :.

3.

..., 4 s,....

~. 1 ?

s.

. l?

.?. ?

,f.

^

^

?

l

, j } '.; a m. k.,.

c.; ;.:.,.. pq..a.

. -. n c..,

.p, e.

~6..,

a

• 1.

c.

. x:,....V...A....; '. '_ :$.. 'l 2.,. ;.,j,.p. u

,N. T. l l

n..... m.

L

.o c

--r-u

} J..<.:s.,.; h., O. f....,. 5.%.

f.';, '. 5***R.. ; ?.: M. l * 'y?.... $ p,_

,f 7, j. Q. c..g; f.?.,.E. T... f.. f ' :lm -:d '.jl. l4 h

1

~.:.

• 1..-

...g.

4* 4

>-,,. e.p 3

..-.,..,.g.

=

,,,, g;..

., p i,4,

.y.

t;. ' ( / y Q, g...:.

,...g,..* ;

^ i$....:

...y 5 :. A., T. ' h;y ;, %j -c.r::;;- ?.g * ?J.f.

.--,.,.(,

~. q./.. } > ::f 7., 4.t. y,.,.*..,,V ; %.. ': -4l 9 3

i.R jf . ;. '..

j g

g..;.. -

,.b

'EL T v.

s

-mu

~

..f ; pc.. -. '.

.-'5 5. ' h P.

., 'h

,)

A'

~ ^ " ' ' ,

.' l%

.r're.-

\\.-

,~.. '..

~ '

'._..g-..'.'.'y ak [-

7..

R.g

..L 3

3*.+ f, i *

..w.e

._z.

.s. _3 1

e$1. 4W ~ ~

W,+%

.Q T e..:

j '. [ ~ ',-N.., k..,..,u q.

+

.,w nn -

c..,.

,7

'a 6

_ {l

...........y,..\\ f.,.......-

- rs

....r

.v.

.... 3,1, :

...~s....

a

m u

gg'raa ya*g' Suppl: ment:1 Fin:nci:1 Highlight 31985 cnd 1984 Subsidiaries The supplemental financial results include the accrunts of Suburban Banc:rp, which was mirged on March 31,1986 in a pooling of interests transaction.The DC National merger on March 10,1986 was accounted for as a purchase; therefore, these accounts are not included.

increase Year Ended December 31, 1985 1984 (Decrease)

For the Year (Dollars in thousands)

Net income.

$ 124,176

$ 107,503 15.5 %

- Cash dividends declared on common stock 41,423 35,685 16.1 Weighted average shares outstanding (in thousands):

Primary 41,984 40,031 4.9 Fully diluted 42,574 40,721 4.6 Por Share Net income:

Primary 2.94 2.67 10.1 %

Fully diluted 2.92 2.64 10.6

Cash dividends declared on common stock 1.20 1.06 13.2 Book value per common share 18.31 16.59 10.4 Financial Ratios Retum on assets 1.07 %

1.11 %

(3.7)%

Retum on equity 16.94 17.10

(.9)

Net interest margin 5.25 5.51 (4.7)

Daily Averages (Dollars in millions)

- Assets-

$11,606.8

$ 9,678.9 19.9 %

Eaming assets 10,432.8 8,586.0 21.5 Loans net of uneamed Income 7,823.2 6,210.6 26.0 investment securities 1,757.1 1,654.0 6.2 Deposits -

8,808.4 7,575.3 16.3 Total shareholders' equity 732.9 628.7 16.6 Common shareholders' equity 728.1 623.5

'16.8 At Year End (Dollars In millions)'

Assets

' $13,041.4

$11,237.3 16.1 %

Eaming assets 11,650.5 9,929.2 17.3 Loans net of uneamed income 8,570.3 7,100.3 20.7 investment securities 2,053.8 1,697.4 21.0 Deposits 9,716.3 8,390.6 15.8 Total shareholders' equity 763.1 695.0 9.8 Common shareholders' equity 759.4 689.9 10.1

. Throughout this report, all weighted average shares and common stock per share data for all periods presented have been restated to give effect for the three-for-two stock split, in the form of a 50% stock dividend, effective August 23,1985.

Fully Diluted Eamings PerShare Retum on Assets Retum on Equity and Dividends 1.20 %

20 %

$3.50 1.10 %

$3.00 t

18 %

I 16 %

S.

.80%

14 %

[

$1.50 I

[

12 %

J

.60%

10 %

$.50 J50%

l 5

+

5

,e 83 82 as as

' 80 81 82 83 84 as 80 81 82 83 84 es l

To Our Shareholders r.

l l

y;-3 tf3;..x l

L[Kj;;.[g[.h 1.6;f bl{[fyg$fh 'g egg % g

.4 f..

. (; f: J w A 7y...qcg%?

assets, aided by the strong demand for l.;

.;.yyf.. L."..

y 3

4 Q0. N.

.;f f loans, grew to a level of $13.0 billion; hb? <

M [.[ $.?h however, the Company's percentage of

.[.@40 Q...

Q:,. :g!!.

E :'.

-e. i t 6.

fN C

. 2 nonperforming assets to total assets de-

{

Ch

. [v..:.;. p' v.C., 7 / y:

?:

%. m i ?.~ /.:. g.;.4 Mye 4 O'G creased to.17% in 1%5 from.22% in 1984.

l

, w er,.

. :. s

%[;. j;h7 )%.. y

.R

~

...b $ xh C.M.M;E in the robust economy of the primary

n I.ending activities were concentrated

0

-M k )V:E V(3 iN; t.R. i r.; "

p ?..

operating area, the Virginia-Maryland-Vjg(Q.'Oi;?.2.2

w...

. jh

/N. /C.1. ;

2.'.i? i G N [... M.% ?. q.; f.pj F.MWy.%W Ny $f %) 5 j? pc.(W.Q.5:

.v District ofColumbia market. The growth g

and stability of this market helped 9

Ks when combined with a conservative lend-MAO &y9W foster a 20.7% increase in total loans and, FT A p. 4 JM W.M:.3 I.;g;g.g %:g,%c.M. gN m.@ %:$ O My.470 6.l f. 8 g.

iy !Q ing policy, contributed to a net chargeoff p;sN l

f

.$.fi n 9 %y MU level of only.27% of average loans.

$O 8?_yMc[y%.N.? V:fN[@. h@M.c M Wk,?. f"Q %}&E 3..;^

The sale of $75 million of unsecured 4

.J p J.

D.g

$'g:i floating rate subordinated equity com-r

(

p

. k '

.I mitment notes in January of 1985 further

. 2 (q--

q*

ggW]

strengthened the Company's strong w

,. : 3,a Jg capital position. Sovrads primary capital

" b, [l,, 2 - V ratio of 7.12% was well above the 5.5%

._.r--

N)

/f Z-l.

minimum regulatory requirement.

I g ary g" jams 9%7g ;p A r

A g

..' < _.v Jeh 'g 9 _. _ M_ _ "_

[

INTERSTATE BANKING 4

A

_.a

?

l C. A. Cutchins, III C. Coleman McGehce Theleadingissuefor bankingin 1985 was interstate expansion. The June 10, l

In our 1985 annual report, we are for the future. Net income increased 1985 Supreme Court decision allow-pleased to introduce the "new" Sovran to $124.2 million during the year,15.5%

ing bank holding companies to cross Financial Corporation, a company whose above the 1984 level. On a fully diluted state lines has forever changed the face i

size and geographic reach have expanded basis,1985 earnings per share totaled of the banking industry. While the beyond its traditional boundaries but

$2.92, up 10.6% from last year.

Supreme Court ruling upheld the legal-whose emphasis on quality service and Taking advantage of the generally ity of regional reciprocal banking performance remains unchanged. The favorable economic conditions, Sovrads compacts, it remained for each state new Company presented in this report strong financial performance was high-to determine whether interstate banking results from Sovran Financial Corpora-lighted by substantial growth in loan would be allowed within its borders, tiods recently completed interstate volume, which contributed to the 15.6%

and, if so, what other states would mergers-with Suburban Bancorp, of increase in net interest income in 1985.

be included in their individual bank-Bethesda, Maryland, on March 31,1986 Noninterest income increased 19.3%.

ing regions.

and DC National Bancorp,ofWashing-Partly offsetting these increases in in-During 1985, the Virginia General ton, D.C., on March 10,1986-as well come was a 13.6% increase in noninten.st Assembly adopted legislation enabling t

as from Sowan's intrastate merger expenses, principally the result ofin-Virginia banks to merge with banks in with Virginia Southern Bank on creased business activity and certain Alabama, Arkansas, Florida, Georgia, December 27,1985.

expenses associated with merger activity.

Kentucky, Louisiana, Maryland, Missis-To show the effects of these mergers, Sovrads profitability during the year, sippi, North Carolina, South Carolina, the annual report is divided into two although down slightly from 1984, was Tennessee, West Virginia and the District sections: the first, beginning with the among the best in the industry for of Columbia. Along with a number of Supplemental Financial Highlights, pro-banking companies of comparable si:e.

these states, the legislative bodies of vides the year end perfonnance of Sovmn Return on average assets, which reflects Maryland and the District of Columbia i

Financial Corporation, as restated for how effectively a company's assets are passed interstate banking laws that the Suburban merger; the second sec-being utilized to produce net income, include Virginia as a part of their tion, from page 69 to page 96, details totaled 1.07% in 1985 and 1.11% in 1984.

banking regions.

the actual year-end results and, there-The Company's return on average fore, excludes the effects of the mergers equity, which measures income earned MERGER AcnVITIES in Maryland and the District ofColumbia.

in relation to the total equity capital, was a respectably high 16.94% in 1985 In our 1984 annual report, we QUALITY GROWIll and 17.10% in 1984.

commented on our view of" banking at Nowhere was the emphasis on quality a crossroads" and spoke of our commit-The year 1985 can bedescribed both more evident than when viewed from ment to " ensuring that the path we as a time of growth and positioning the perspective of Sovran's assets. Total follow willlead to a promising and 2

NEW SUBSIDIARIES IMPROVED EFFICIENCY "5

to ex a hro h he ac u io high quality banking organizations, In addition to interstate banking While the Company's course was set both withm and outside Virginia.

activity, the Company introduced two on quality growth through expansion TheDecember1985 acquisitionofthe new wholly-owned subsidiaries: Sovran into natural markets, steps were taken

$49.9 million Virginia Southern Bank, Capital Management Corporation

' to improve an already strong financial -

in Clarksville, reflects the Company s and Sovran Investment Corporation.

performance. Among these steps were -

continuing emphasis on serving the SovranCapitalManagementCorpora.

the implementation of a new incentive

' Vtrgmta market.This mtrastate acquisi' tion provides investment management plan designed to reward employees tron enabled the Company to expand and advisory services to large pension :

L whose performance resulted in improved :

its coverage in southern Virginia.

and profit sharing funds, state and Company profitability and the closing In addttton, by taking advantage ofthe local government units, foundations, of two branch banking offices and the new-found opportunity to grow through endowment funds and other institu-Charlottesville Operations Center.

interstate banktr g, Sovran Financtal tional investors. The second new sub-1 Cost control and improved productivity Corporation has jomed the league of sidiary, Sovmn Investment Corporation, will continue to receive special attention, super-regional bank holding com-provides a variety of brokerage services particularly as we work toward the panies. As the fourth and sixth largest and will continue to offer its services to efficient integration of Suburban and n any 20 correspondent institutions through-DC Nationalinto the Sovran system.

ie r et, Sub

"* O' "O'***"

' National have provided the opportunity

- A BRIGHTFUTURE for en exceptionally strong entry into STOCKINFORMATION -

M:ryland and the District ofColumbia I.

km, gforward,'ourprimarygoalis cnd have positioned Sovran Financial At its July meeting, the Board of to remain a strong competitor in the Corporation as the leading banking Directors declared a 3-for 2 common.

ever-changing bankmg mdvstry. That company in one of the nation's fastest stock spht payableinthe form of a 50%

goal translates into a strategy, the cor-k At the sa e time, although our stock dividend to shareholders ofrecord nerstone of which is continued growth n August 1,1985. The stock split has through effective and efficient manage '

r nnual report reflects the excitement of -

been effected and all relevant financial re-ment of our quality resources. As we expansioninto a dynamic new market-sults have been restated to reflect the split.

. see it, Sovran's future will be an even -

"The Chesapeake Crescent"-we remain Shareholders continue to share m brighter reflection ofits past.

aware ofour strongcommitment to and appreciation ofthose areas which Sovran impr ved earnings through increased

. We welcome the shareholders of DC.

dividends. Also at its July meeting, the Nattonal Bancorp and Suburban Ban-

~ has served over the years that are not Board of Directors declared a quarterly corp to the Sovran family. We a.re -

included in the crescent. Regardless dividend of $.32 per shar on the especially grateful for the outstanding ofcurrent or future expansion, we shall Company's common stock after the effort and dedication of the members

"

• go'8** "" **'

split, for an indicated annual dividend of Sovran's staff as we continue to f $1.28 per share, a 14.3% increase.

build upon our solid foundation.

ORGANIZATIONAL Thecompound annualgrowthrateover STRUCIURE the past five years has been 13.0%.

In further stock-related action, on m

- Sovran's change from a single-bank December 11,1985, shareholders approved

]!L-holding company to a multi-bank an increase in the number of authorized -

i holding company resulted in the shares ofcommon stock from 50,000,000 C. A.Cutchins,151 reorganization of the Sovran Fmanc,al to 100,000,000. The increase provides Chairman of the Board and i

. Corporation Board ofDirectors, which additional shares that can be used for Chief Executive Officer

. beerme effecnve with the mergers of general corporate purposes, including 1

Suburban and DC National. The new acquisitions, stock dividends, additional

- Board consists of 26 members, eight of capital, and issuance pursuant to em-

[

. whom come tousfrom our merger part-playee and shareholder stock plans.

ners in Maryland and Washington, D.C.

Investor interest in Sovran Financial C. Coleman McGehee

- We take great pleasure in welcoming Corporation in 1985 continued strong, Pmident and

these new members.

which helped bolster the market price chiefoperating officer -

of the Company's common stock, so u 33, g that by year-end, common stock was trading at $32.25, a 25% increase from year-end 1984.

3

~

Board of Directors--

. SOVRAN FINANCIAL CORPORATION

-John B. Bernhardt '

- G. J. Manderfield John Safer Vice Chairman of the Board

Senior Executive Vice President Chairman of the Board President and Chief Administrative Officer Sovran Bank /DC National

. William W. Berry -.

Sovran Bank / Maryland Chairman of the Board and Chief Toy D. Savage, Jr.

. Executive Officer Harry Martens, Jr.

Attorney-at.I.aw

' Dominion Resources, Inc..

Chief Executive Officer

' Willcox & Savag, PC..

Public Utility Holding Company The Martens Companies Retail Automobile Sales and Wallace Stettinius Edward J. Campbell RealEstate Deselopment ~

Chairman of the Board President and Chief Executive Officer Cadmus Communications Corporation

. Newport News Shipbuilding &

Randolph W. McElroy Printers Dry Dock Co.

Vice Chairman of the Board Shipbuilding andRepair

. hbert E Tardio C Coleman McGehee Chairman of the Executive Committee Robert B. Claytor President and Chief Operating Officer Chairman of the Board and Chairman of the Board and Chief Chief Executive Officer Executive Officer hbert J. Mulligan Sovran Bank / Maryland Norfolk Southern Corporation Vice Chairman and Chief Holding Company with Railroad Administrative Officer -

Thomas R. Towers Subsidiaries Woodward & lothrop, Inc.

1 Vice Chairman -

Department Store Chain Universal Ixaf Tobacco Company, Inc.

C. A. Cutehins, III Tobacco Products Chairman of the Board and Chief

. Peter E O'Malley Executive Officer Attorney-at-Law and Managmg Partner James S. W tkinson O'Malley, Miles, McCarthy & Harrell President

? Joshua P. Darden, Jr.

Realmrs -

Morton G. Thalhimer, Inc.

- Chairman of the Board George C. Palmer,11 Colonial Chevrolet Corporation President Retail Automobile Sales Piedmont Tractor Company, Inc. -

Robu t C. Williams RetailForm Equipment Sales President and Chief Operating Officer Frank Hirsch James River Corporation of Virginia Attorney-at-1.aw Stanley E Pauley Manufacturer ofSpecialty lhpers and Chairman of the Board Chemically Treated Fiber Webs J. Henry Hoskinson E. R. Carpenter Company, Inc.

Private Investor Manufacturer ofComforr Cushioning '

Chairman of the Board and President R. W. Wiltshire Pnxluces H:rbert V. Kelly Home Beneficial Corporation and Attorney-at-l.aw John B. Rogan.

Home Beneficial I.ife Insurance Company Jones, Blechman, Woltz & Kelly, PC President Boar's Head Inn, Inc.

as of March 31,1986 Hotel Officers C. A. Cutchins,III Doyle E. Hull Page D. Cranford Chairman of the Board and Senior Executive Vice President Corporate General Counsel and Chief Executive Officer Deputy Corporate Secretary G. J. Manderfield.

~ C. Coleman McGehee Senior Executive Vice President David L Norton President and Chief Operating Officer Corporate Secretary and Zach Toms, Jr.

Deputy General Counsel John B. Bernhardt Senior Executive Vice President Vice Chairman of the Board Gerald A.Saunders John B. Werner Corporate General Auditor Randolph W. McElroy Senior Executive Vice President Vice Chairman of the Board Donald R. Fisher, Jr.

hbert M. Schonk Assistant Treasurer and Robert E Tardio Chief Financial Officer and Treasurer Chief Accounting Officer Chairman of the Executive Committee Albert B. Gornto, Jr.

Senior Executive Vice President 4

.8 L.- _.. <..; p.,.. _ - _ _..,. ;,,,, 3. ;.,.

- ;r e

g If * =

t..,

~

e..

.f

. '2 6,.

1=

~

n

-y.

ui.

s I.

e

~

/,

~-

'.}..f ty

+

. f, n

t

..W Y-T

' s. !

g s

~ 5 2

s.

F, 9

w A

$_ 2. %..,, s:' a ".,l

,.Q

.e v

,g

'3:-

'9 dt*.,...

-.-~

Q

?

r

.,jY'g;' _f.

'c v

s ll; t

a n :.

q..

v,

[y.

3

'd

.,G y

<:.a s

c..

n i;.

?.

3 THI-(CHESAPEAKE CRF$ CENT

((

a

s n economic powerhouse rivaling the g

yf.

z.fl nation's third largest metropolitan market i'M v...

f in size and buying power. Shipping more M

4 M

exports than the Pbre of.Ne York.

w

{

C.f Outpacing the economic growth of most of the US

[E..

It is described as an emerging "mega-metropolis."

1 it is that area stretching from the Pennsylvania

)

N.

border on the north to the North Carolina border

/r k-1:q on the south: the BaltimoreWashington-Richmond-in w

?#

Newport News-Norfolk crescent.

3 Li; Crescent, from the Latin "to grow, increase."

3 h*

jp.

An appropriate description for this dynamic t;;j market. Sovran's market. '

e 3

. Q A

There is a gentler side to this " loveliest land

.?

of all," as well.

.x

,,s :-

g y*'

e

'b P4

,. /

Ty

.e'.~.

A

['.

3.%i t-,

[,.,,

q!

c

{}

l,

.5

, i.f

['.b I_

?..:{;.T.-li'.:....n,

.Q y '_C.

y ; y.'.)... O ';t' 9:.: _~;;.:<c p,. /.:.

..,., i _. ;. ;r9..,.

AFewNotes on'OurLand' Ichanging of the seasons echoes the tmd n some parts of this republic, spring arrives with Out ponds freeze over, but they tend to freeze overslushily.

all the subtlety of a high school band. Such a Now and then we experience a blizzard:Two inches ofsnow descenduponWashington,D.C." STORM PARALYZES March, in like a lion, out like a lamh Put away the CITY," cries the morning Ibst. Schools close. Offices galoshes, restom the window screens, take offthe snow tires, close. Congress flees. (Any old excuse is good enough for puton thesports shirts.

Congress to flee). The mdio anxiously warns of tmffic Herein whatis known as Delmarva, oursprings am more advisories. Erty-odd years ago, when 1 took leave of in character with our people. It is not that we areindecisive.

my senses, I mised chickens. The experience left me with It is mther that-well, we do tend to take our time about a vivid recollection. Do you know what it is to sneeze in things. When we make haste, which is not so very often, a brooder house? It is feathered hysteria. That is Wash-we make haste tomorrow. In ourland, spring slips in slowly, ington in a two-inch snow. A thousand cars skid into a tentatively, as shyly as a grandchild meeting strangers, thousand other cars. Some ofthese cars collide with emffic now advancing, now clutching firmly to winter's skirt.

lights, and the lights start blinking madly in the gloom.

I know a little girl, name of Maria. When no one is look-It is the only excitement we get in winter in our land.

ing, she dances to music that she alone can hear. She is Winteris mostlyabore.

barefoot, on tiptoes, a three-foot ballerina performing That is why God gave us the crocuses. They appear as arabesques for a gallery of teddy bears. Maria is how jauntily as cheerleaders, all gold and purple, a brave little springcomes to Virginia.

one inch high, and they provide a symbol ofhope. Before Ispeak of"ourland,"and I mean to encompass only that long, we know, the worst will be over. And a few weeks small part of the planet earth that runs in a crescent from later, itis sa.

Mary: and and Delaware,down the Bay and Eastern Shore Come spring, up in Delaware, there's a stirring along to Hampton Roads, and up the nobleJames (it is always the river. Wild birds take wing from Bombay Hook.

called the nobleJames) to Richmond and on to Piedmont Weekenders put out their boats in Delaware Bay.

Virginia. Speaking impartially, with a decent respect for Rehobeth Beach comes back to life. It's an anomaly, objectivity, and not wishing to take anything away from in a way, to speak ofour land, for so much ofour land other pleasant places,I venture this unbiased and non-is water. Even in my beloved mountains, we always are partisan opinion: Our land is the loveliest land of all.

conscious of the rivers that are forming all arou nd us.

Spring comes in watercolors, the pastel tints washing They begin as rushing streams; they pick up other streams; gently together. Up in the Blue Ridge Mountains, whereI they achieve the dignity oflittle rivers; they push on to live and write, usually we see the first portentsin February.

form the Potomac, the Rappahannock, the York, the Under a giant chestnut oak outside my office, one by one nobleJames, and they flow eastward to the Bay and hence the crocuses appear. We ourseh es never planted these tiny to the waiting sea. Once these rivers were great highways Thumbelinas. I think no human hand had anything to to theinterior. They still provide a way oflife to thousands do with it. Long before we had power lines and three-pole ofpeople. In spring, when the rains come and our poor fences, long befom a few local farmers carved out the blizzards melt, our rivers can run ominously wide and Rudasill's Mill Road, long befom Mosby's Raiders ca ntemd deep. Then the flood stages pass and tmnquillity returns.

thmugh the woods,long before the Knights ofthe Golden Outriversarewell-manneredrivers;theyncvern od Horseshoe came this way, a compassionate God dropped forlong.

these crocus bulbs beside the sapling chestnut oak. Indians We awake to spring as Maria awakes, drowsily, still passed by. "Iook!"said one to another. " Spring approaches" hugging the pillow sleep. Along the coast and on the And with moccasined feet the Indians stepped over and Eastern Shore, pastures slowly turn from mouse brown around the flowers, being careful not to mash them to to snowpea green. In Norfolk, where azaleas and the frozenearth.

camellias are a source oflocal pride, the buds show We need those first crocuses. This is because the winters color-crimson, coml, pink and white. There was a in our land, to put the matter bluntly, are not what you time, with the end ofApril, that oystermen put avay would call a tourist attmetion. Unlike the furcapped their dredging tongs. Nowadays they keep going at their l

denizens ofBuffalo and Erie,we have no snow to bmg about.

hard task wellinto the summer.

l l

l l

6 L

Along the James the fishermen go for shad. Let me Maryland crabs as big as pie pans in the ma:kets of say a word about shad. Pound for pound, shad are said Annapolis. The meat is flaky; it is as tender as Maria's to have more bones than any fish that swims. Up at kiss. It farily leaps from the shell into crab cakes, or Richmond, when members of the General Assembly crab imperial, or crab gumbo, or cold crab salad. There strip a prickly bill ofits legislative substance, they are is a restaurant in Baltimore, beloved by H. L Mencken, giving the bill the shad treatment. Venerable Virginians where the best crab cakes in the world are compound-have told me that when a shad is properly baked, the ed. It occurs to me that I have said nothing of the inde-tiny bones dissolve. So they say. Better you should scribable virtues of the softshell crab, but the thought eat the plank on which the shad is served. But shad of a platter of succulent softshells takes me back to April. What a resplendent season is roe, girdled with a strip of Smithfield i

spring in the Sovran Crescent!

bacon, is truly a feast for the gods.

g

. j In Piedmont Virginia,willowslead

'r That was a digression. I digress E*

another moment to comment upon the April procession. Little by little the dogwoods open their petals to the Chincoteague oyster and the Maryland crab. Our land modestly, i

the warmingsun. Elms and gums and

}

maples stretch their winter limbs. The but justly, has many claims to fame.

The firstThanksgivingwasobserved l

II maples, remarkably,do not come out at Berkeley Plantation, along the green; they come out in a kind of noble James. Virginia became the oxblood, tender as glove leather. On mother of Presidents. The bombard-the swelling twigs of a birch the worm-like tassels droop-and slowly curl ment of Fort McHenry inspired the

~

writing of"The Star-Spangled Ban-into leaves. It all takes time. At twenty ner" Delaware was the first state to

' feet a day, working slowly, a green ratify the Constitution. We could, brush paints its way up the hills. In and we constantly do, go on at great Richmond and Fredericksburg and l

length about these events. But no James J. Kilpatrick Baltimore the flowering trees burst l

claim to fame approaches in validity the fame of the into color. Along the tidal basin in Washington, the Chincoteague oyster and the Maryland crab.

cherry trees in white tutus become a corps de ballet.

Comparisons, said Constable Dogberry, are odorous, The voice of the rototiller growls through our land.

but comparisons must be made. Other regions harvest Tree frogs tune up their bass violas in the wetlands.

l oysters, or what they call oysters, but these are poor, Fish rise in the millponds, and three months after those l

pitiful little things. If they have any taste at all, it has crocuses came on stage beneath the chestnut oak, the not come to my attention, and I have tried local oysters curtain fully rises and spring, at last, holds sway I

from Portland, Maine, to Portland, Oregon. But ah, the across our land.

heavenly Chincoteague! The Chincs come in sizes large, Summer calls for a child's box of crayons, We need larger, and largest. A medium Chincoteague has the a good vivid blue for the sky and a darker blue for diameter of a Klondike silver dollar. A full-grown the sea, green for the upland meadows, black for the Chincoteague is as big as a twenty-dollar bill. The taste grazing cattle. We are great gardeners. A whole box of is subtle but delectable; the texture is firm, the color crayons would not suffice for the summer explosions pearly grey. These jewels of the sea lie in their shells as of color-fountains of forsythia, borders of marching gmcefully as a Rubens model upon her silken couch.

marigolds, rosettes of zinnias. It is the rare domicile that They contain every vitamin and mineral in a nutri-does not boast a few roses or dahlias or flowering shrubs.

tionist's catalogue, and ofcalories they have practically As it is in most places, summertime is out-of-doors none. Three dozen will do to start a Sunday dinner.

time in our land. There is a little triangular park in The same unassuming observations may be made of Washington, at Connecticut and Seventeenth Street, the Maryland crab. They are not as large, nor as that offers some of the finest girl-watching in the fearsome, as the king crabs of Alaska, though I have seen nation. Half the capital city, it often seems, turns out 1

7

s.

~

A Few N:tes cn 'Our Land' c:ntinued

^

m v

for lunch in the o pen. On Friday afternoons we witness rapacious rabbits and io groundhogs who were horn th2 officebound lemmings in their weekly rush to the to dig tunnels. August in Washington is not the most '

beaches of Delaware and Virginia. Our summers are felicitous of months. A few squadrons of mosquitoes, hot, but not too hot; it rains, but it rains only on -

big as B-52s, prey upon the limbs oflittle children.

week nights from ten to five. The cooling summer That is all I can think of. These ills are the merect.

breezes caress the worker's brow.

nothing. If you have watched a gra6dchild chasing -

The sounds of summer are not like other sounds.

fireflies on a summer evening, you knx why August Listen, if you will, to the contented creaking of a boat never comes too soon.

, y as it tugs at its mooring lines, to the rhythmical

, Our autumns are spectacular. Paint them with oils whup-pause whup of a tennis court, to the satisfying or acrylics, and use the whole pallette. In the Pidn6nt

~j smack of bat upon ball. Listen to the kettledrum and in the mountains to the west, the hills turn to thump of wave upon prow, the ruffle and snap as Flemish tapestries and Persian rugs. Tiie mcp chre wind fills a sail. On the white stone steps of Baltimore, crimson, the poplars gold, the sumac and gum the a boy revs up a portable radio. Through an open color of old morocco slippers. To walk e country road window, laughter. On a city street, the shrill voices in October is to walk through a cathedral-sunshine of children quarreling. On a sidewalk, the knife-through stained glass. It is a Wmding-down time along

/

sharpening whirr and scratch of rollerskates.

the coastal areas. The beach buffs slip away; the office-We have different noises in the country. We hear the bound lemmings rush back to their desks. Ball and birds. At dawn we get the whole chorus-cardinals, bat yield to the attractions of the gridiron. Hurting orioles, phoebes, wrens, woodpeckers, bluejays, warblers, seasons open, firtc for dove, then for small game; then finches, killdeers, resident doves, I cannot name them for quail, finally for deer and in the mountains, for all. At dusk, from a distance, we hear the whippoor-bear. It is confidently said by wildlife biologisu that will. At night, the cry ofowl and loon. In July the barn-we have more deer in ouc land today thanJoha Smith '

swallows perform their acrobatics-barrel rolls and could have four.d in the early 1600s. In some areas loops and Immelmann turns-and if you get too close deer have become a nuitance-but a beautiful; soul. ;

to the swallows' nest, believe me, they will tell you so.

eyed nuisance.

I mentioned our flower gardens. In our land, vegetable Winters, as I remarked some time ago, are nothing gardens are almost as numerous. City dwellers, it is much. Etch them in drypoint, black on white. The true, miss all the fun of plant:ng and growing, but in beaches are cold and lonely, with nothing but echoes a good season our city cousins play an indispensable left of the ounds of summer. Gardens freeze. Is there role: They kindly come to the country and take hcme any homegrown scenery more forlorn thar a vegetable the surplus. Without their compassionate free-loading, garden after the first hard frost? The tomatoes are by August we would be up to our armpits in squash.

in rags. But there are compensations. Williamsburg The pleasure begins in January, when the seed cata-dresses for Thanksgiving and Ch-istmas. In Washington logues come in. I have been reading them for years, the secial season peaks. Up in the mountains, we smell and often I wonder if Keats eve:t composed poetry again the tantalizing scent of open fires. Along the one-half so lyrical as the tributas one finds to the water there are nets to be mended and boats to be carly tomato. In our own garden my wife grews cucum-repaired. There is homework co be supervised, a bers, tomatoes, cantaloupe, string beans, lima beans, basketball team o follow.

lettuce, zucchini, aspamgus, and-naturally-black-eyed We lead busy Nes in the Delmarva crescent, but not 3eas. My neighbors grow watermebns as big as barrage frenzied lives, not hectic lives. Ifwe wen horses we would l

3alloons and pumpkins the size of beach balls. When rarely go at full gallop. Our gait is a stately trot, with now I suggest that of course she puts in a patch of black-and then a time to canter. This is a nice way to get about, eyed peas, it is because no proper vegetable garden and our land is a very nice place in which to live.

would be without them. The cowpea, as it sometimes N

is pejoratively called, is the king of the vegetable kingdom, the noblest of all the legumes.

Jamed Kilpatrick is an author, essayist, television i

In a spirit of candor, wishm, g to tell the whole truth c,,,nenemor and election anaNst, as weu as the natiods l

about our land, I confess that summer has one or two moet widely d5 mdicated political columnix. He wri cheweake rescent from first. hand knovedge. As a reporter drawbacks. In some of the coastal waters we find the und editor ofthe Richmond News Leader forc quarte rcentury glutinous stinging nettles, floating in ambush beneath and from his home in th< mountains of Virgima, h e has obscued their grey umbrellas. Unfriendly pests have a way of that particular polity o/!!fe which makes se people and att:cking one's eggplant. Our own experience goes to the crescent uni.pe.

8

p,

. 2 es,w

';,.ww s

s

_ m 4%m a.. gw a 1

e n.m;g

. ),

~,

Q z*

~

+

NH

,' fg, M

,sM w.s j

6

...j

. ;.n

m. :

m r

.?,.. a %,

.D 3

jQ,;%(%, %

r. +; % u ~:. m;.. n 3 w s:s,u% ; & m,y 6,,

' W @> m.. : M u nd%w ;}

6>'%

C X%wQ'tQ,L c -

g 1

m< m n n.. wm e cy. w:w s.s m u,. y A.m.

1-~MC Q Oq cr. u. n W.W 4?Akyg.tp q M,m,-4 %c:&y m.n; p.y-

a..

,a

/

w.

g,y~.n.

+; *,Q

. n.

-Q.

.gav so c

n a

.,. t s:

q

.r n u

.,q

.g y; p%. m}g@,%wp@W4 e 4

GWwUppw:mvm m.i. d:s. :g.hgtAG% >;w.v

.Q.f,y7

.Q ft 3mi c,.

.y c A

w.> n ;; n< ~ m-L wr m

?m

.w u.

c

>v

-~

a

~.. ~ < man u

m..

.4 Q M : W f ":g y, $j $, y ] Q [. y f i g T T y. M. q g nx; } ll & W ' % -:~ x.b, Y Y a

p NMnW

' f 1.r.*r fi 7 a

+:;2l f

4 Yr

'f-%!

.~

.6 4

y ;c.?

.e ** t D

)

h..

.l g

e a \\

4 p

.< t.

()

gr ;

..k

=

'. n ; my g

R

\\

.,l.

h

[ h:

Ej g

.p.

.c w:

j. A M

3

" ' tg : -

a,

a. n-3 y g_.K

. ;= e.p;Q:e_ t

.y hhh j

~

3 N k.

k db-i) g:.'."r'W.:.v;;r.'2.-lp n T % %,ty:.. f W jg W

e.;&5.j:% ;w %...

~'

.lyy.

[

}

'Om[Qly OnI F@ 'l Q ;f:\\,j j R/:l$ 4Q E. W %p y i4t$,l$$melinto

' hQ ;.Q -l.jftt11 N

j.

n:. p netla $ ir

.. T e d l;' 4(i d h

$ill $yd.tJ)

-yc.x.. e ;l; i.m 4 _ :y :

s, r q

.g e

x$

,s... ;

z.,.,,

p f.;&$. q[ R:[..';[.QWl;l< W,;:._... '

a f:.'Q:$.,..,.. & R&thdi_ Tt$_ns[I

...l :;{&5.yld l:

l si PTCSCeni. 7-I N.C.

. N.;.$I # N, Nh... )J;N.C / N &-

/k.l.*;E LS:(.Y' m'dD...,

',.J d. T.' h b '*fmm $ r....

d ( 1Nl.heldtO(lYCM. 1 hjfNhl.[;..f_hh'-[h?lki-;f.f..

. -b ^ bf": f lfI iff f'

))gh y[?g& Q hhc n Q

.'- *'>+41-

< g wl

?.

a f. ~ f. +

? ;c '~..

s.W f

'[

h.l.;

'l j ?.fy.,.

t M At ::..;,:

a ~4:

• /.; ;

e

~-

N:

IL I.ff f

' f f 'k l.

.f f':

0 inghlc yyny,jggRgchmondWnd $ '1 M $ D N M.Z 3 [.[f5 3. D t M.f Y.?,,

f h;:Q. ri? . : hn* YtYd11i,OYl{.YIT$,tn 4.f s _g-

f..=.....;

r..

e Y

k

y$v.n.;f..g.

i mu 3..

.. 4 x,.. y w

~s n.

.

.., y;47...

h ?: M-f, k'Y,- ;'f. f(.h n.v.c "..

....w,.

m *:t... a,,,.,.

,n'. v.

v

.v n.s.

... gA..-, -

.!...n.

~

n...

v. sg n.s ;

4.

,. 4. - ~.

..r.

- w :.

7. :: ~a.

. w. u..,.

wy;....

gu..

. -..~.:.

,g y + ~y. 6,.

.v.

.n s, :-

...,.: gm +,a.. a..s, n,~. y.

?y' h

n

.a. s

c...

s.. ;....;..

a..e

- u.,. m y.

c

' &,i Qy} }; 'll$hf.h,ki?;f ?${.;$...... ..hifl.Of:f.k.:. ll., .e s ,QQ:w.,Q n..}j'f:g f [f- } \\ al[y,- l -.:.., ;. .p .....,( a o ;... :.. ; . +.. :...'. '.' I.] [ 3,] ') _ ] h.) l f-l.* * .J w'llf:Yl.;f?.I.h,3;i;.l>}. ? '._ f. }.; ;i.. }} q. (; 4 .b. g.....: a-. p..,..... _ m.,.._. -, ~,. _... ~..._y.... +...... z .,c. A-

m. s, 3..x y

7 _o , - c ys .,..,3,:, ,.... :....j -g J., ; ..-e .m 3 q-c. 3,.... ,.3 -. g ,.,.; q.g_. 7...:q yp:y g...,cy q.99 ~ a;; :. p.a. ; A a.,9...s:,. [..;;;.9. p. ;.m.. . -... g. y. y,,._ (.Tm, 3 ,... ;n c ,e,. p. .7;.. <. v.. r ...,c

, 3 v.,....

..g .n ,t. .s ~.... ..,.... m.,.,..,.. c .n. '. 4, ~ 1... r. ~. 3, ..,>...(.<.,.. , :..,n, %.._ n ~ f ; ';;'? : J \\ c '. 4 ..;..V,..... '..'.--[..Q ;q y. .+..;.. #,... d; : 't.,. ~. .,_,c s 4

• ll ~3

,9.Q :.y A

[.,

_]_;3,3& '[ y m -;< ;*.. ~ ..'.. p... ..y, c....:.. 1 ~ s. , :.. 3-_ :) ; :{.:.'. > - L. e _..' r. . _ "a _ % ~'. J;...,$. ...\\.L,} [

,3 ;-

\\. _

j tj ff L. ' } f; ' yi .r w., = ' k Q '- ~.~.*v ' g.:j,j, gJ.- 1 - *.g 3 $,;n gr ;;

'

', &V h'

',.d 5d

s. a

?, r[ ~ j..[., +g;. ~.j jsp 1 ' a3 L-9 g .;f; y -f Y . f-O l 3-e _g_ y 9. -g g. . %g g<<y;g,.. g2p - y. a. e h-- 4, p, = g w, Js .-34*,j ' ^ Q s .w.cq y1 j} = y:n < ....x-f.,5 .q llY b

' <~

.jc l k t e.' 'd:. i A f..

• \\

~ - f. pt". 0,f Q Q %. g.} _ &g i > * ' f

I

. ~,[5 .M C.p'.y V't . :, i p' / i o'~ in; \\ \\'..

1 5

l

======-. Virginia Beach summertime is o itOfkors time m our IanJ." l A warm sure.ner la<ts for seven months at Virginia Pcach, where 28 mih of sanJ, surf and crystal waters make the resort aren one of the nation's largest visitor attractions. Nearby is Cape Henry where a small band of settlers,.vho would found America's first permanent English settiement, landed in 1607. 10

l a as!! n!n ni! Inn! !!n

• • • n l

l Norfolk "In Norfolk, where a:aleas and camellias are a source oflocalpride. " Pride runs strong in this old harbor town which has seen a rebirth in recent years that is the envy of the nation's older cities. Fittingly, that revitalization is centered at the waterfront where both the financial district and Waterside, a festival marketplace, glitter alongside the Elizabeth River. 11

.. N e 9-' .,;: p;b ? ;.. h.1-: ;-[;. ph. . *, pm.. & j_,., A ;_ _ bu.. r .p. j,. ;.,,.. ..e A. y. ,. 4. c..,. T;pQ:. .E y;.;> %}g;;;g- _y. ..:;gg gyg.,4.; .4 4 . A ;- gg. -,..w. J

m)&.

e ~.:

u;

?.. 4 ~ Y gy gg m. '5 a, : * ~ ...-w. .W R'^Apj.., -e.' . ',. -k u,,,' g -.~ t r s.- ,,')*'. ,eel *'g_- p.- = _ I., ~ Newport News ".and hence to the waiting sea." Manufacturing is Virginia's largest basic emplover and the quality of workmanship in the Common-wealth has earned international stature for the state. Newport News is home to the largest privatelv-owned shirvard in the world, the only shipyard in the U.S. capable of building nuclear aircraft carriers. 1:

1 l I ~ 4 .. ~ 14 m i @h% g gg.t a&yi v, ih+ ~ sin ,..g=c f k ['). h( ' Jgw'- 4 y_ g. n .y r <po 't " ~ v4 iW,.. fy] . i- @7 3 ~ l. e

e

- lat gn y i;.

3'c 9>Y A '.4;; _

g -:u,t 3-w;

..n

,,- r . c. ~

2G)EM k

%p-g ;g & ~ ~ ~~ m: ~? ; ,yh:gT W + 3 _,_, fpf.* '*

• y 3

f :5--#t5 y, l _ '3gyd-; W.;.: : Q n -? ? pcp&~,5 h.. * -:& ? -?,Nh;,h^ yin e

a

? r h' SE$ p s. ? "' C A_Q{ -a + ag?p$1.l = s.M y' ;; p;L.:p;,= 2;;, w, - e :; m _u. e '~ ySif.,;.- p. y \\\\ilham+ure "u :!!:.av'imre in -c' , - il mGe:t ::ic an<l('hr'rm s ' n! i he t:rme of t he <. inn, n'. the s the<s i,nt.d h ' ne'.e t c.ist m%4 't's r ~ to ( A o:.d \\\\ilh i '.+are. r he !.n ee' re'torcJ bth nturs tou t Amer < i Ir.n eler ewenJu are'

n \\ ire:n: i ire c'ta utca a ir' 4H n m na.dl, 1

A I:4:nc \\ : bet -d ihc* oc. t en u <.c cu aus -r fb(' '!f( t i .t' , L..1 .b .ON f \\ f } \\ j

• h{',

1:cht * ' d.c.,! A d- + t i per 1 < :tc nn 'I.e thc 1.f t't '

I.c', 't \\ :re.:

!" 4 '.ac t he i n t h 4 ! 1 ..,.i..,,...;_.w, ...._,g,_,, 3. .. g,.. y _ :,.;, 3.,. _.,. ; y.. :a.; 9.. __.. _, m c_, _ ,,._.,.3._..

sammunume Richmond "Up at Richmond, when members of the General Assembly senp a pnckly bdl ofits hyislatwe sub. stance.. The capital since 17N, Richmond displays the same spirit today as the Commonwealth's lamest t manufacturing, trade and headquarters area as when Patrick Henry spoke that immortal cry for "hberty S or death." Thirteen major Fortune W corporations have h>cated their principal offices in the city. ?. "

• .-x

. j. .r aMgW :, n v &jifeuQ3 : a %Y YpW... '.. - p: cM W ^ w#% = J v p e g ;g-- 3g%e. %. ,m mpg %g &rg L ~gWm L x:., t MWCW p+g.3 n=

~,,

+ gp~f.. n. t, ya g.- w w w.w p %.&,la h-s.,,,.. J_'. QNQR y ff 'ytyjw*L - } ek+q:- _._ fu?.: l * ~r W, p; ::,'G f %@-.WQ+*r:f.jq..fg])s ;viff i: U.. ~** T m - - - - w-a

.a m.

el. a. 3 :.. : M*f-% My~g~ 2 am~ m w W :~ j u %m shWM9"7 nv - m y " f o g :;. - r ~ A.c.. a % g y 3 F D.g w@g;WP,.!.: ',g. c m'# ...p ggge w 3 7 e q my %3 x . y.. . m@:p $g@NM

1. m.@. wh.,W, e+ ! M M j D,+ <yWM. -

hMNt Mm M W N e o - wnm w - L % m. w ~ n _..~~ m w% w m 1 -- t v.v um.y b[ p.. 4y-6 g . l.h-cn w py ug.. e s c s. w s-n my:q' g.M9 ~t b)/.y C,. 1" - d f f 5 i MhM g hkhhNhhbh.-.c. hhsdMMI h 4Qy4 .4., v. c-Wmw.r.h &s - g y

i

.y. n <. - -w fi g, fi. '.m . t., , ; - i

m. y... -

p.- " - 4 .~ .e. : ;. t. 7 ~. N: y r - 9 y,y ',-l. ~... . g a, .1 M.- w. 1.J h.y [f h.- p-.. ~. , t T_$ -. m..... ) i!

.. J -

~ ~ h.. 6, 4

t. n

!u, n 4 ..,9.

m..,.x

~. .. w.,~ = h.. a b .'... 4-

===* ec.c... ~ r<. > ' c -.'....m.. a - Y- $s.. '- '. ' m z. C.+ %w... 'iVE,') w:goa. :. . -s e...t,3.4 s; g .1.7t ! :~ eu nam.mmmmamsa.m.an t. m ,e i.h - d ,1.. ' - -..- .h J ~; i .;'..Q ;. ). p.c - .~.>,,,:-. - ' "..o. o.. Q'.. ' ~ '.. ~.4".. WH.u; g'l.r.w S. mmmmuse q* e.- R R........, ~ :.: m..h W n i.. ', s t v.g N. . j.f[$.. ~w] ~ r

l. t

..'if l,- . \\ j.p.Majes 'e. ' M'i. t., .;.r... c~. 4 .u

a -

w +. ... %e., s 2.- ~...._..., '. _..'.ep;c. A, . x .,.? .s . =qd...-. K. :, mL.. ^w s. :

y.. - l...7,

. ;. y,.:.y g. m.. 6 i.; ;..J'.2p:; %.2%5 71y;. j..' L.l..... J-?. '.;,y..w ;_f s. - . ' ' - " 'A:

• q Q.y 2.

... ~ - c 5.. J.,... . : :- -. g.:

a., g : y.. g..' b.t e :

. :.... ' /. ~ e-7._ ?.. ~. e.: x..

. -z.

. ;. y._. . r. ):9. ; ; g.. w....'..,e.< ..,..y .. 7 9 _,. ;' .;y.. : -:,.u wa .I !. 3 y -[ .' } _, /. :, _. ' ' ' y : {...,. _ 3..-j_ : g.y., M .. 4, .; c _ g.f. '.,Qe. .n

3.4

_ g ;... y-m f..,

.2'..'

- 3. u >....y ; ' -S

• 4.,, :._.., :

(*'... '"s'.,. - :. f[-- ',.f.'8'g,..g'.'*- ,e 4. + ..') 'b J. ], _ l.\\. ;;l ~!._[ _ f:. W ^ U,l ^. _ l.l.' L., ' [ [ f ?.. s ' '.. f,j h-ll...,W f.)q. :f Y h,

} }., ' _',. 7 f _~' '

: :q x }

~ -r {..., _ ~ 4.. 'l p, N., ~ .._? ' :. t. - f. '.; h.,. .s . '..l l.~.

• -{,

-f. '

%.N

...,,..,.'...,.'....,..'.~.. -.

%V '. _. * * ~ ~ s-N

?

^ f -a* }*f, ; p..., ' h' -.i.. . ;.. ', :); .., s. f.. ^..w . 'g .v. .5'. _._. z. 't_... $ ,, g. -}-.. a f' '. '.,, y..., :,.f',.,%,..., .... %.... s: ., y ~. :.. ;.z: n y'., - g 4

'- ; ;.... !.,.,. c Jt g

.. *:,}. n ~: A ---.3 n .c

T

. % ;..'. :..,....'A....n.c. ,, '. ; 4.. l. .r

.: ^ ' -

y.: 'lp 3 - n',. -( ;21- -s o,. w p...

c.. :. j

, 4 _ j; J (;. '.,,,.". c- ,i g, '. ; f.E ' q.;,, l _ j p t, . q C + g. .... yN '.. 'ey ,...,-Q g.... lJ j., ' W N'

. f T.: N *

.. y/Tc'.: g. gy;p W M..: .n.2;a n .,.v.. v. j, ' + : y p _..,;p J

., ), 2

.<u. '., '. * *.ll... _ ^* ' ' ' ?R Q f:.y.L.. ;.5 ;g < y* ' { 4h -Q;, [ _}

p...

*; ' d.;

i y.- Q;;& ~ j,a.W'%gp Q,.Q. p. %)&Qf...: ...,'g*. ;e- ,. ;w .,....s.,,... g.a

c,7. y... Q. 2.e *u,.l.,a lV.m:Q.)g, )

.. 7.!Q fgk.g ;(R. 3;; y .. 'tg.v.....%.., n.. ~%.yG,,Cy.'t. -. r s. c L... / w._ .s c. 4.u., .y 2 :.,s c: u.

.v 4

f s, s., r.R. Jt g%Q g,. ng ) y, n-

s.

m: .3 Gy. n l %....,,. 7 ~.. .,. ^ '.,. c;g., ;I . u ,.., rf, f e ". (? :: ^..... ., x... c... g ~4 e.S ".y/ g f.'xj.;. .8 j7..; Q, 4.,3 3,T;: h :. - f c f, M ;t r:g ' J., a. ',f. q* .g ym, - llq,,;g., 6 O.. y.. s ..a '4,t w;. y p'.,... ! ,n s ~ ;s ..[ ;.. 9,q.- M.. p. z'.gi,p.f, ~.

m. o,y ^4...y%.. '.%.

.0. :. ~ v y;g a;- r f.,. ...n 5 .: p - &. a.. ...... i g. u,. g's. y1;w' : b..:r,. ?p,, ...,. l. '... .... '. +.. ,s.' '. yC ".....i. ,J. s...

, 7, - %. ;... W:

2 7.w

p.e

....,w r.a....w.. _ ;,;j,, ~..,k,.,....'q..}x'.,.&l.W.y., g .s.. . I.' -. ;. 3. ', l'. ' ' '.,; { 'f f.(' &l. l...., ... es ( oz.:

l;

,;llf'l Q'&,." f N. w.&.y.- ll,l}p,. n; ;..)$ ?g.} Q -l fj 3,, . y... ?:y ' o;:. .x-

• • s.w w.; r

.. ;y }. f ) -.. ' ' ^ ....!?'_ .l

• li lr g.5.nlm.. }:n[.g..'r gm. gm. a 3:= 9l,

. ;[ l b..g:,%.l..;m. m:<,.;;.n y 3 g.mw pggf.wg u._g.g[. gp ~ry e.. ,,....? ' 'f V p. ; y ,;QGygf.J g;y}; %rg,::.ypMQ :.y.; E '. +.. Y '.,' . W.[5yd %,;y;;.p y:g.p' ;'.W

f. ^ q'

.,. f .l,. 'k l y ], (... '... ';.. p. ^ , ~, f. n..> .Y '. a... . Y y. '.,,' ,.....!.("..,'.%.g....~

.

.;i. g,. c

.p. f.

rf,.(

....'..;,;.(; a.- yp;*.

*. t

.,.N_

~..:g . y f.,...jy [ c. v.. q w s.., ;. .;;n .. %. :. :., ; ; y...,.. _,u..i.,,....,=..~)., q..__!.:.-..-. z.:... n. ~ p.,. e.. - -. qn- .. r:

s. g. v v.c.,

4. ,1 c ....<,..:...>u.,.. r. ,. w. . ;. ~. O r ; % c,.. .-v .t a... .;.m. _'A.,,

s r;.,.,:..

a, %g _..:. 8. 7 % :,. U _ v. 9.. ; : q.. _. : s. F ' * ;.j " ;;;. f t v... - ^, ;y , :.V.. r.:. .y ::..;lW. : '. ;. ;.. '.. ~.;~. s. g z. ~,,,r ,.:. y...,e. ;4% . y:m_ s. t.

',q ' - Q. _ :_ *. v.

.. [:r, p _. :.-.: " i n '.. ;.y;. ". _ '._, ',', k :, n- .a _by;t 2.w h. 4.. s' ; / *. *- s. -;.m, y,'$. : o, y. Q _.~.. f 7 z., q q.. ,.7 . _. g f... s 't .e ....:. x, x,=.- M-v,, ..+.-% ?.;; qy-. ...3-*~:n...w :p y.y. g. rc p.g:.

• ;,:a, q g :..r,

.. p:. - .. /mt. f _ r r.h. y'_ ' g' L......, '. ' j,f, s p. ';.. f

r..,,,. j.

-. ?

- s s

-. js

f.....,;. ;,,'i;-

_.,.9:.. l.., f. 9 ;.. , '.,..'..,.l:. l.. .., :, : -:b ;~.l._.,. :,*. 3' _.- -L. *.. :n V... f3.y. ' % s ... ; *;.,. 4 ; ];'y.. :, ^ ':, '. l.' .. ::_.?' :

• 4 y : &. w.., '
• e L ^;'1;.

- K.7 . + p. sy..;,..; g. ,.. y ;... s y ;_. ;,g ;..;..:: c,;.; ^:-... . v -;~ ;, ';. : _.;. ;,. - *...,_ ;.,e

4 ;,3

.y s. 7 g { W. .- ;.. s. ...'JJ a ?.. j.. \\,. '.%. a.[ $~(,$. y. ;._ J.Us

^

(' .z-2.^. + :.. *.' .,3.',.. ' ',,..e. .y. u p,3 _,... - Q. ?,'. ' ) ; :.T -..., '_ ,~:. ". ;,,v:'; < w.:.... y.. .I[&..*.. :...o;. L

..,. Q. M. A $ f.. 2. M...[.y--) ^ R. ',

~y,.. r ; ; ' -. ~c, y.;- p:' - w. c .., q..% M.[.Q'.I j if: ... J. 'I: ,] y.' 2,jk, 5 k,[.y... }; U'

i. 1. (

'. 3..,. -.,f.(,. ' 2.\\,.g $ l, ) ,.: y, . n :.;, ~_.. .,. j '..,.i.._p .c. n . ;..;, o ,_.....,..;.~,.. .. %., y;,.__ ; .,.y,

s........,e.,;.., ; ;.. :..

,.,.'.9.,;,.7.., .,p.,- ...a ..f s., ;,

• yj

,t. - ~....,x.,..; '..., ':', ;.;.w ' %.. '. -: ;t

y..':.. i... *. [ ; ',,

. ji. .~ ..;;h = -W.*~' ',,; o.; *_h, .. Y.' . _.'*.,.... ' ;' l 7 l

r, :

i

• ~-.:.'.:->.:

,,.$.;...*-~~..' ..:' \\. . ~ [. l !'. ... S..;. '. [ . ',..\\.., $ f.-l '.., - % V'.:. l

• !.' ::.;.'.'..l

? '", T ~ ) l . d. 4 - j ' ' ) l, - 1 '. ^. :.* cr \\ l ~

• l'. e. '.I. "'i?.,..'

^

.,7. +v. .. ;l,1 "... u, y. ,g _. :

r. :;f c:

~&_' [.'.....'. :; ;.b Y. [.s:.,;j g..,;r. 9 '.I'O,. l.:. l1? f - Q i ' :); ' f.}.^ l ';: . ' ( x, w_. '..? . l.ll ;i. a. _... l^ ^? 'c &:'y. ?.; ;. 7._ x s, j;, .w u._. . 9 ...; y ;.; .. v. u/. -~ .a +. n v g !.;a. c ; g ; u.. w ;. y%..... a. ~. m;... ; c. .n m.,a _b.;- .,c v. c. .,.; y 9;. g.:. : q. .. u ; w-:.f i; ~..c.c. n. . n ; w,.. .s - 3 c w. .;.+. ;. 4,........;;.,...;...,' .~.y . v - ..a,......... s - 's 1 ..i..- '- '- 7; - . u ; ......,.,.. w**- .;.<.3 4.. ., 4:.. .r L' y. . l l. ?P ' '.' ~ ' ' ': * * ~

l. ~

.$ & ?? ?O

. ' ;-'. ' N~ m+' ~ -.N ..,7- ? t. . ?,4,: =; f ' <LA ' . ty.? .' s ~ ~ ' .~G V ':.

m m. Yi {. ,y g,,; ,-e ' :E t l? 4J s v g +-- s f!){ t ij[y-) l1 Charlottesville "In some parts of this repubhc, spring arrn es such all the subtlety of a high uhool band." 1 Supenor educanon is an integral part of the quality of life in the crescent. Charlottesville is j home to the University of \\'irgmta where Thomas Jefferson conceived the institution that today is J remgni:ed both as an outstanding architectural at hievement and as one of the nation's outstandmg sources of hieher education. F b

'd, 'h_' I.,[ ..s.- y-m e,,4,- +

e. e

+1.

+ 9 m: . - cew.grap a v .m#, x.. m c: m.py; .~ m, - 5, 2 j al / % ?- -tyy?w3; ; i e c. ., n,: .v

m. ~.

w q_-..xg% wt.4' n x~;g* = n .p, =- : %y%g, A@,?)c f.b, ;. ., > f s. .4 .ej e ..ww 4;9 > ; -w, ' l [, *

+

'_;.I5# ~ - f " /9$1p< ' y;f" I ' ' d_2: };;g, :g y 7 Qr j y s. ~ a: n,. p &v.

r. u

,~- ~,. ~~,. cp u m,a-a a;, mm _e, 6gry.dp;, f'" s~; w' e r a; 4 ~o c. ~ W ,v /L m-pg& ~s

.. y;..,

. -s- ,. o 4 - c.4@(- Ih ~., _e 'b + ' ?

R +

Q- ,'i s.*% m,-o,.- e r.,x , w n.t u - 'tJ ,,, s e .? The Heartland .morbne loulv, a creen I, rush punt ~ ir~ war up the infl~. The foothdis, the forest and the farmlands are the landmarks of Central Vtrenu w here a sense of erenitt marks the heartlanJ of the (:ommonwealth. to

,*-4 p+,m.q .,h-'r m .N k

1. ',,"._h 8

b.N N Okk j k Ob N EY. ' .~ 5/ - S. 9 ? - ^' f $q s.; g ~ u _,,. k Iu- . ny:. Nc

7. [.

.l.l' j - jf d !- ?\\ } J;; gf _e y e LN. -- ... 19. - (p /j r.: Q v-4 i y a l l l The Iwo Jima Memorial, Quantico 3" y.,- m "\\t'e could, and we constantly do, go 'g'~,Q on at great length about these events." P' The U.S. Marine Corps' primary officer training centers are located at Quantico, where theIwo Jima Memorial commemorates one of the many events of valor in the history of the nation's military services. Hunt Country "Ifwe were horses we would rarely go T l at full gallop. Our gait is a stately twt, with now and then a time to cancer." 9' The quiet greenlands of Northern Virginia ~ offer a beautiful counterpoint to metro-polita n DC. This is horse country where the baying of the hounds signals "the hunt," a tradition dating to the George Washington years that unfolds within the shadows of the skyscrapers of the cities to the north. 17

.s ~ E mar .A" P I

• -e e

h - 9 '8 T e e. e ee e e -. e e. e o e e e e e g ..~ l be..~ ty e e (- e e,f 4'.L $ e e U ,ee s e ' see 'O' .s . j, V g >. ^ ~ ,4.,~ .~e ~ e. s . y/ ( = w. y ry/ g ene,. s 0 ' t.- gig = 'g

• • • aiE w_

? e r Lluneton, RC. "Our I.nl male ~rls, l'ut ju~tle, lu~ m.un c!.nms to thme: The nanoni a;':tal. A utv et ;soner anJ internat:ena! t

endaanse, a uts et l'eauts and cranJeur. \\\\itlun tiu nmth lareest metro;soltan area m the U.S., the larcest em;' loser, not ur;'r:smelc, i the cosernment erva es inJu trs.13ut Linnetoni1,u mess a no loncer almest se!civ the l'u me s of cosernment. \\\\ith the otti Jramat c crouth ha come an c<ononn, Jacr daation tlut aucers ucli tor the future.

b

t

• s

~ ~ ,( ~ a f e g~ v ~ l, fs- /- g s e 2 ae .]. '~ l l l N Tyson's Corner "Do you know what itis to sneezein a brooder house! ~ It is feathered hysteria." 8%l For the more than one million ~ m peoplewholivein theVirginia portion of the D.C. metro-4 politan area, many of whom J sqLE$QF W 7,Y commute daily to jobs in y 7.' [

• ~

hg g;,, V. ! Q v '. Washington, life can some-g. ,Ng t _.f. A.:,:: i times appear hectic. Area resi-dents take it in stride for it is ,. - ec ; all a part oflife in one of the gj- .,ig " g most excitingareasin theworld. -

• ggyr" a.

..,,e_". *i,,'y** . m l Upper Chesapeake Bay p y ** s ...W # ' w " Listen to the kettledrum i thump ofwave upon prow,

• ^

the ruMe andsnap as wind m

• ' * *'4 4-.

(!Ils a sail." = ~ On Maryland's Upper Bay,the ..~.f skipjacks and other sailmg < = " tankers and freighters ofinter-fj vessels intermingle with the e - g ~ g ~ i national trade. Pleasure and e* i commerce together contribute b l to the speciallifestyle of the Chesapeake Crescent. _'s - ~ ,s g [

1. OYL.

MM,* 4 s, I 1 19

f 3 -, a... _.;.3:s. p ;p;.y. y ...,., ;_ g.. y.o ;_ y _ y;;. gg. ;. --_ g 0p e. n ) i en. Es ,o 8' ese ammes 9 ..e e sus - em i = p e .it 6 8 h W ~ -w,%. - 7 g%;. ; +g 7W=D.. .L s , ~~ s + ee I

• ' T'

88 g, 9 si + '* r

• g...

g, t I T $g N*

• \\

.;. m 4

• g 1

4 ) w. lli!timore "On the u hite stonc steps ot lli!timore.. ' ~ lllitimore' gIcatninC. re\\ Italt:ed Inner harl'or tyjyiles its latter day renaissan< c. The National Aquanum, the Inner Harl'or's most stnkine strusture, has l'ecome an attraction of national maenituJe in Lee;ing tuth the imace of th:* utv with a new 1:fe. . A,

__ ~ ~;*~Wc" - = { %

.

-: :.... :,.. e.

V _ }... ' 5 '..- y Annapolis ..(... 3 'A nhole box of tmvons would M not suflice for the summer L i- ' ' _l - explosions of color..: x j,, ; f,...e :; 'l[ 'J , g..,0.. ; o - d{. q. 7 ;..;;l t g.. ,.k.., The state capital of Maryland. Home

r f : -.;. s g. -r.1...;;- 7 a'*

Mecca for saihng enthusiasts. A city of the United States Naval Academy. /

g?..

1 v. . a g [yNh

(kggj. hh '

_+ ...l- '.1 7,. -Q modern-day development. .l , /, ~ I/ f Isch centurv architectural heritage p g%g ti3 ,t and, at the same time, controlled 'y W : y il 9g - , ?. Y N M: "7' ,j $. p'.; ; ,,, y,; s -y y4 X l'.(j, 49 op x . )i.y '..x vl.. ~ Goddard Space Flight Center i >.m.g y&(..:, i f f hN,' %. ' -~: : "% leaJ busy lives.. 'g.. O On 1,200 acres of land in Pnnce 7:: j. :.: 1. Jn. I.. IW. ' ' :. .6 4. a;[.P George's County, Goddard scientists 4 p.{ f.y.' *4.p c} gw-. y;g and engineers have designed more g.p.y.(Q: ',h,;. than 30% of the experiments carried i . ?.;. y , j 9 '..

.> ;,.,. - U ;.!.

,$g; 7 s,. out on Amencan satellites. y '. 7., -.. :55 :. .... g; ..,::.f:;; ' ~L .} ; l.j.. '.,$.!; J ' '.Y

7. ;ff '.

jf_l-}; [];;;,}_l.. ;: _. j, _,l f.,.l j. },.* }%:{. y .[. .j..; ....4 ,:1,t....,...tc.s g. s =. [1 '

a Serving The Ch:sapeake Crescent In the Washington metropohtan radius of the crescent where they are THE ECONOMY area, the hub of the Chesapeake connected to the area via nine major Crescent, the services industry railroads, four major airports and Combining the Virginia, Mary, land and District of Columbia which primarily supports govern-two of the largest port facihnes m markets oroduces one of the fastest ment operanons has grown at a the nation. i growing regions in the United States. phenomynal rate, expanding over Drawmg from a population of 8.1 250% within a five-year period. million, the crescent s highly trained Within this dynamic market exists an area of concentrated economic Government operations have also and skilled labor force supports the significance-the Chesapeake spurred the growth of the high area s diverse activities. Over four technology industry, so much so million people strong, the market's Crescent The hailmark of the crescentisits that the Northern Virginia portion labor force is growing at an estimated f the crescent ranks third behind 3.4% per year.The area's unemploy-diversity. With a fairly even distribu-Silic n Valley and Boston's Route ment rate is consistently below the tion among the government, services 128 in terms of the number of national average, reflecting the and wholesale / retail trade sectors, high tech' companies and plants. stabihty of the market s economy. the area boasts a highly stable, Furthermore, as "the mformation At year-end 1985, the unemploy-recession resistant operating environ, ment. Contributing to the area's c pital f the world,',the Baltimore-ment rate of 4.3% was well below vitality is the presence of the largest y shington portion of the crescent the 6.9% national rate. is home to om E teleconunum-concentration ofgovernment opera-tionsin the nation. Government,as c tions companies; 85% of the Popufstion Growth the crescent's largest employer, has nations top 100 electronics firms en...p.ek. cr.c nt vs. united stei.. also attracted a myriad of services m int inm j r per tionsinthean'a. cnesapeake united and high technology industries. The manufacturing sector of the Years Crescent States crescentis markedby a diverse array 1980 - 1985 5.13 % 4.95 % 985 - 1990 4.71 4.55 ofindustries, producing goods rang-Employment Distribution Chesapeake Crescent Ing from appareI to inter [eron,[ rom furniture to flight simulators. In the The Chesapeake Crescent's labor Percent of tote nonecunwm employment Virginia portion of the market alone, f rce is younger and more highly educated than that of the nation. more than 75 Fortune 500 companies operate production facilities. Among For cample,the area from Baltimore these facilities are the world's largest to Washington boasts the greatest 4 c ncentration of scientists and privately operated shipyard, cigarette manufacturing factory, and radial engineers in the country. The pro-business environment is further truck and aircraft tire plant. The ChesapeakeCrescent'scentral f stered by an extensive educational location on the Atlantic seaboard nd research system,whichincludes combined with well-developedland, universities that have gained world sea and air transportation networks renown for their accomplishmentsin contribute to the area's attractive, such areas as biomedicine, engineer-ness to businesses, both large and ing, physics and economics. \\ small. More than halfof the nation's Partly as a result ofthe high educa-u .,,, na= = in =-== population and manufacturing ac-tion level ofits populace, the crescent "'IE** tivities are located within a 500-mile 22

b one of the nation's most affluent Bancorp, headquartered in Bethesda, Sovran has not sacrificed its areas. Median income in 1985 ex-Maryland.The new Sovranoperates historically strong financial per-ceeded the national rate by more in every part of the crescent and is formance to achieve this increase than 22%. Buying power in the its largest banking institution with in size.1985's excellent financial crescent ranks third among the total assets of over $13 billion and results once again compare quite nation's consolidated metropolitan 357 domestic offices. favorably to the Keefe, Bruyette creas and reflects the market's eco-With expansion into Maryland Index of 24 leading banking insti-nomic strength. Significaatly, over andtheDistrictofColumbia, Sovran tutions. Er example,in comparisons 48% ofthis totalwascirculatedback Financial Corporation has joined of the key measures of profitability, into the area's economy through re-the elite league of" super-regional" return on assets and return on tail sales. And, of particular interest bankingcompanies that have emerged equity, the new Sovran Financial to financial institutions, the crescent throughout the Southeast and are Corporationoutperformed the Keefe supports a commercial banking setting new standards of excellence Index again in 1985, as it has done deposit base of over $41 billion. for thebankingindustry. Ranked 7th each year since 1981. in size of the Southeast super-regionals Similarly, Sovran's credit quality, SERVING THE MARKET at December 31,1985,the new Sovmn as measured by the net charge-off Financial Corporation maintains ratio and thelevelofnonperforming The Chesapake Crescent's varied the largest banking presence between assets as a percent ofloans, was and growing economic base, abun-North Carolina and Pennsylvania. significantly better than the Keefe dant natural and human resources, and affluent population combine to make the market a unique oppor-r " ~ '~ 7 "'"~~ 7 tm~~ m tunitY or financialinstitutions. l * *" M d I h *" M f x i The attractiveness of the market F wy, i hn i has not gone unnoticed by the rest F i L .A of the financial services industry. h j ['""

fy l 1

i As the first round of Southeast 0 ses [im* d ) mergers are digested and as further g 1 t f. j regulations permit, the crescent

• {

^ 21 h I#% -- e i willincreasingly become a prime ] [m% j [ terget of banking companies from outside the area. Sovran Financial ] P 7' Corporation realizes that maintain-( -j [ "" j] ing its leadership position in the L j (m J k E, 1 ChesapeakeCrescent requires a com-i ay,._. I [}.,,.. 3 i 4 mitment to grow with the market and to provide products and services [ I iN I as diverse as the market itself. Sovran lc, o ', ,,,] has made that commitment. p On March 10,1986, Sovran merged L

_meJ, L__.____j with DC National Bancorp, head-quartered in Washington, D.C., and on March 31,1986, with Suburban n

Serving The Chesapeake Cresc:nt continued Indexin 1985, continuing the trend Sovran's Virginia locations make lending source. With expansion begun in 1982. In short, the new services available to 80% of Vin; inia's into theMaryland and D.C. portions Sovran Financial Corporation is a 5.6 million people. Sovran holds 21% of the crescent, the new Sovran 1.ader in both si:e and financial of the state's $29 billion commercial Financial Corporation has added a performance. banking deposits. Traditionally, unique dimension to the area'sloan Thisleadership position enhances Sovran has utili:ed this strong availability-a $100 million legal the ability to meet the growing needs deposit base to meet the credit needs lending limit-a lending capacity of of the expanded market. For example, of Virginia customers. The Com-sufficient size to meet the credit needs tha new Sovran already holds more pany's responsiveness to the com-ofeven the largest companies in the i than 15% ofthecommercialbanking mercial and consumer sectors has area. As a result, companies whose deposits in the Chesapeake Crescent. made it Virginia's largest in-state lending needs had required them to turn to money center banks may now be served within their own market by Sovran Financial Corporation. , _ _ _ m.w r - -3 An enhanced lending capability [j] """"""""""""""" ] represents just one of the many T ^ j ways in which Sovran can serve the ^ 'C -] crescent. Extending the Company's q , an wide array of product and service L =y g:/) offerings to the northern apex of i the crescent permits Sovran's com-p m j] f mercialcustomers to enjoy expanded p= 4 g f cash management services, including e ' '8" [ r j sophisticated automated lockbox (- l services and more investment alter-p F[# -

• ~

1 nattves for short-term needs. Real is-estate services have been expanded L to provide customers with access [* 0, w~ p %j to additional sources of mortgage [ funding. Sovran Financial r s..,... . y. .u.,em p f., moleiset, ,jj {y ]7,g_ N Deposits

. -. _e June 30,1984

($000's) Commercial Sovran Banking Banks' Market Deposits Deposits Share State of Virginia $28,910,715 $5,920,569 20.5% State of Maryland 18,900,445 1,898,663 10.0 District of Columbia 8,091,791 250,815 3.1 Total $55,902,951 $8,070,047 14.4 % Memo: Chesapeake Crescent $41,508,436 $6,354,982 15.3 % 24

{ Corporatiods expertise in serving interstate banking ia 1985 created STRATEGIES FOR companiesengagedininternational a flurry ofinterstate banking activity trade is now available to this THE FUTURE throughout the Southeast region. important market. And, through In order to provide a focused direc-To maintain aleadersh.ip position tion amid the scramble for inter-Sovran's public and private finance activities, the new Company can as a pr vider of quality financial state combinations, Sovran Financial Essist Maryland and D.C. corpora-services,S vr nFmancialCorpora' Corporation developed an interstate tions in the placement of corporate tion has developed a two part approach banking strategy consisting of two t expansion: 1) growth throughtra-bonds, a service commercial cus, distinct parts: 1) to expand initially tomers in Virginia already enjoy. ditional business development into natural geographic extensions of Smallbusinesses can benefit from rue ns;and 2) growth throughinter' the Company's current market areas; theCompany's dedication toserving statebankm, g.Whilerecognizingthat and 2) to search for quality organiza-this important business sector. si:c is an important competitive factor tions within these expanded areas. Sovran Financial Corporation in t day s bankmg mdustry, the During 1986 fulfillment of the operates a licensed small business Company has nointerestinunbridled initial strategy has been realized with investment corporation. This Vir-

• • P "Si "' r growth for growth's the mergers in D.C. and Maryland.

ginia banking subsidiary was oneof sake. Rather, quality remains the Sovran will continue to work to the state's first to be selected as a ultim te yardstick against which extend its presence in desirable preferred lender by the Small Business S vr ds growth is measured. markets. Administration. Activities such as Qt ds business development With all the changes in the new acuvities center around a relation' this enhance Sovran's ability to Sovran, the basic foundation of the serve the financing needs of these ship banking concept: a customer' Company remains firmly in place. select business customers. '.i nted approach designed to maxi-An unyieldingdedication to quality Allof Sovradscustomers can now nuze the profitability of the total and to providing the finest in per-bcnefit from the Company's expand, customer relationship rather than sonalized services still forms the ed retail network of 357 banking the profitabihty ofindividual trans-underpinnings of the organization. offices in Virginia, Maryland and acti ns r services. As part of the Sovran's experienced management the District. Sovran's customers have business development process, c nsiderable time and resources team continues to provide direction access to over 300proprietaryCash-based upon the same conservative are dedicated to research and devel' Flow

• automated teller machines, banking principles that have brought as well as over 1,700 ATM's tbrough pment. Extensive surveys are con' theCompany to aleadership position shared networks. Mortgagelending ducted and analyzed to determine in today's new banking industry.

needs in the Maryland and D.C. gustomer needs,pmducts are ved In addition, the fine market Sovran sectors of the market are served in light of their contributions to the has served throughout the years through Sovran Financial Corpora- ' t 1rel ti nship,and newproducts will continue to be a source of tion's mortgage subsidiary, the 15th remtr ducedandexistingproducts strength in the years ahead. largest mortgage servicer in the refined to fill any gaps in service nation. And, the area's trust and fferings. retirement services have also been The second part of Sovrads expanded,as Sovran,which manages exp nsionapproach,gmwththrough a substantial trust portfolio and has interst te banking, represents the the country's 12th largest IRA newest avenu thrcugh which the depos.t base, brings new expertise Company can extend its banking i to the area. reach. The introduction of regional

Our New Partners: The Shareholders, Directors and Employees of L Suburban Bancorp and DC National Bancorp i e subsidiaryin Delaware. As aleader market where Suburbanis the mar-SUBURBAN BANCORP in the development of electronic ket share leader, with a 33% share banking delivery systems, Subut-in MontgomeryCounty and a34% Selected Statistical ban has established a networkof115 share in Prince George's County. Information proprietary automated teller ma-Financial Performance: Year Ended December 31,1985 chines throughout its market area. Suburban Bancorp's history has At year-end (dollars in milhons) An excellent match forSovranin been marked by quality growth. In - Assets..............$3,370 its approach to the marketplace, the past ten years, Suburban's assets Loans net of unearned Suburban has developed a broad have more than tripled, from less - income.............$1,871 range ofinnovative products and than $900 million to nearly $3.4 Deposits............$2,489 services to meet the needs ofits billion. During 1985, Suburban Total shareholders' equity.$208 customers, including, for example, continued its record of solid, Profitability the introduction in 1985 of self-profitable performance, with a Return on assets..... 1.05% directed Individual Retirement 17.6% increase in earnings, substan-Return on shcreholders' Accounts, a telephone banking tially exceeding its strong 13.6% five-equity............ 16.06% service, investment advisory ser' year compound annualgrowth mte. Non-financial data vices and enhanced cash manage-Both assets and deposits grew Number of shareholders. 6,532 ment services. significantly in 1985, with respective Number of common shares increasesof16.0% and 17.9%.With outstanding...... 5,387,919 an emphasis on quality, the com-l Number of full time pany achieved a 22.5% increase in i equivalent employees. 1,988 its loan portfolio. Nonperforming Number of bank offices.. 82 assets of only.03% of total assets Number of automated placed the company's asset quality teller machines........ 115 among the best in the nation for companies of comparable size. In terms of profitability, Subur-S ovranFinancialCorpora. of1.05% and a return on equity of tien's merger partner in ban turned in another strong per-Maryland, Suburban formance, with a return on assets Bancorp, brings an im. pressive history of profit. 16.06%. These profitability figures able performance as a personal were comparable with those re-bank that has grown as the suburbs ported over the past five years, grew. Upon merger, Suburban has Quality Management:Subur-been renamed Sovran Bank / Robert E Tardio G. J. Manderfield ban has established its record of Maryland. market leadership over the last At year.end 1985, Suburban Ban-Market: Suburban maintains decade under the direction of corpwas the fourthlargestbanking a presence in all major geographic Robert E Tardio, chairman of the companyin Maryland.The parent markets in Maryland. Operations board and chief executive officer, of Suburban Bank and a numberof are centered in Montgomery and and G. J. Manderfield, president bank-related affiliates, Suburban Prince George's Counties, two of the and chief administrative officer. Bancorp has provided full service most affluent and rapidly growing Mr. Tardio, who has over 30 years l retail and commercial banking, areas in the nation.The two coun-of banking experience, joined trust services, insurance, small ties,which arelocated in the heart Suburban as president in 1974 business investment and commer-of the Washington,D.C. metropoli-and was named chairman and cial finance, and leasing services can area, are projected to account chief executive officer in 1978. since its founding in 1915. A wide for more than 25% of the 1980-90 Mr. Manderfield, also with over array of services is made available population growth in Maryland. 30 years in banking, joined Subur-through 82 bankingoffices and eight In addition, nearly 27% of the ban in 1980. offices of financial services affiliates state's commercial banking deposits Effective with the merger, Mr. In Maryland, plus a credit card are located in the two-county Tardio continues as chairman of l 26

l l l l l: l l the board and chief executive At year-end 1985, DC National's 1985, DC National's assets increased officer ofSovran Bank / Maryland. assets of $454 million ranked the animpressive38.4%.The principal Hehas also been elected a member company as the sixth largest in contributor to this asset growth was of the board and chairman of the Washington, D.C. Through its a 33.7% increase in totalloans, net executive committee of Sovran seven offices strategically located t7 9 Financial Corporation. Mr. Mander-in the District, the company's field, now a senior executive vice principal subsidiary, DC National -d president and director of Sovran Bank,has provided fullcommercial 'A Financial Corporation, continues as banking services for more than 20

J president and chief administrative years. An affiliate, DC Bancorp officerofSovran Bank / Maryland.

Venture Capital Company, has provided venture capital services to companies operating in the DC NATIONAL BANCORP District. As evidence ofits stature, DC NationalBancorp has received Selected Statistical acclaim in the city for its many Information civic contributions. / Year Ended December 31,1985 In keeping with the District's 'Y str ng business orientation, the At year-end (dollars in millions) company has concentrated its ssets... ...W activities on meeting the needs of Robert P Pincus John Safer ns net o uneam nco e..............$ commercial customers, particularly small to middle-market companies. of unearned income. While asset TotYa shar51ders'Nui[.'.$26 As part of Sovran Financial Cor-growth continued at record levels, poration, DC National, backed by DC National's nonperforming assets Profitabih,ty Sovran's $100 million legallending represented only.49% of total Return on assets....... 1.03% limit,willbe able toexpand service assets, a strong indicator of the Return on shareholders' to the commercial market. company's excellent asset quality. equity............16.47 % Market: DC National serves a With pmfitability measures among Non-financial data unique banking market character-the best in the industry for companies Number of shareholders.. 390 ized by a high concentration of of comparable size, DC National's Number of common shares banking deposits within a restricted 1985 return on assetswas 1.03% and outstanding....... 950,400 geographic area. Within the 6' its return on equity was 16.47%. Number of full time square miles that comprise the Quality Management: John equivalent employees... 201 District, more than $8 billion in Safer, chairman of the board, and Number of bank offices.... 7 deposits are held by commercial Robert P. Pincus, the company's l Number of automated banks. Over the past five years, president and chief executive teller machines........ .I deposits have increased 11% on officer, have over 20 years of bank-l average. Although banking in the ing experience.Mr. Safer, who con-market is highly competitive, DC tinues in his position as chairman In the District of Columbia, Sovran Financial Corpora. National, with a 3% share of ofSovran Bank /DC National,has tion has joined with DC market, increased its deposit base been elected to the board of direc-NationalBancorp,a company by 45% between 1984 and 1985. tors of Sovran Financial Corpora-whose quality orientation Financial Performance: DC tion. Mr. Pincus continues as presi-provides a strong foundation for National turned in a strong 1985 dent and chief executive officer of bankingin the nation's capitaland performance, with net income in-Sovran Bank /DC National. l whose reputation is that of a busi-creasing 18.6% to $3.8 million.The Sovran Financial Corporation ness bank that shares the entrepre-growth in earnings for the year is particularly pleased to welcome neural spirit of the city. Upon men;er, exceeded the company's 16.2% com-the shareholders, directors and DC National has been renamed pound annualgrowth rate reported employees of our new merger Sovran Bank /DC National. for the past fiveyears.From 1984 to partners. l 27

3 '-i 4.' ,,y e-a. 4, ..'.'.. ~, t, - ( j' '_ - [ >.. -,. ..=. O ^ g s ?N',.-l a ' . '^' g 'r n J,... '. n.. - ' = - -...i. ->..e .5 -, - :),, g,- , 1 g g c ' ' ' ~,- 5;. S .,\\., 6. . / I. h- ^ "+ .,... rs t. o ,,7. s 4 c. [ j wahamed W 4 cagyp W 9 ? R V f T f.L(.'.V. - z. J.'; L s ' ',. ( 4,ggggkp1.:. . y 7 y 7-1. 3 x - - : g.- \\. i- ...->14

+..,. p. i ~ '

.L.- . 4.h' I ' : : :' n *. '" f - A e l .4 g S- $l 1 .f4..,.. -.. .im. ,i-7 .,a, ' ^ ' ' s, 1. s ] ~. ' ..[ l ).N. e. ..... '. ~.. ~ 'l* 64 .,.m ~ [ ."h ~ , ' ' ' kportS OSHNtQk . j. -..[.N,,, ['i *I,;... -. y -'[ f. p. ['. y. a ,}.; t - -. '., *^ - .+ .W v _...,, 9 '., 9...,,,. ' l;,_ z. ,c' 9 ,, e c *-'- ' - ' qp r, c y ..; _ [g,,_,,, l ,Wwamad < y. -'fs..- 4. 3;. ;s ' T.. o-.G..

..., ; T-

...;e +. . 4,.J -,E - lp ~ ... y j3: ' % '.,. i, ,.s

• drw to

.. ', y e .3. *

• 7, t'

r-i _; 3 ' A ',e. 4 _. s., _- ,7

f.. '. g '..

I, ,,t f, ..,.6 7 ",;. - e ... '.,,. ' ; y-1 7, r. ,. [ *. J J,, '- '[* '... k '.. ', - e,, I i. 5 'e-l g _, s . p a .y . [.,. 'f,,, N 'h b ( ' r J % '. vI. n;*." ' Q,4,

• ' p:' -k

.ff":%,. 3..<. .'.7,,,.. V:.,. f s p ,(

.s.i.

- 9 A,

L.

/ m.v.. ; _ '. :. g.. .v., g ..e. s ;,_ g'.. -.- a. +.

.. n

,n..,, 4 z. a.: n e

,..t.

- l , {,,...c~ ,j ..,f Q;N f, e ,,,. - [, .\\.,._ .,o l a- _. l,..,... g ? ) &- G.J *::' ~*: . - { '.. %. '. ;)

s. 1.,. ' ' ? ;\\

.s' f 4 k'l - -. . ; > ?; s 4% .g .,'.c -' -.._ g f., G, s e g /f%.s i 5. ;c. .".rp .-.. A, 2 g.'ja.~..V,y - e c ?; >, 4. .( p c y e...,..;>;f ...'5 (. ,*,+,% V ' n,". ..,i,+r.,',-., *., t ,1 M... i., 's,s., '.f 'f;a.[*.

• ', c o,.

c- + t.- o g,. ' ". - ];e -,.;

• 1.

3: (,.? e s,.,-. -.'. ~x,.. i

f..

,, g}c., , *j _

g. '-

f. 'y J,.

w ,._ ' L;,;. -...a...,'. :q).l} L ...g '. a v.?s. ...m..-rs;; p_s_,, -*v; ..p.- 1, - .. g , b, g$* ~ - g.,:.. .s .,;e.. ..;.n,

y-

,jp. .g n m f a. l

Supplernental M:nagement's Discussi n and Analysis of Financial Candition and Results of Operations - Table 1 Sovran Financial Corporation and Subsidiaries Supplemental Selected Financial Data Year Ended December 31, 1985 1984 1983 1982 1981 Earnings (in thousands, except per share data) Interest income $ 1,163,078 $ 1,038,172 $914,491 $879,218 $768,212 Net interest income 464,532 401,973 374,493 326,297 284,915 Provision for loan losses 40,186 26,678 18,087 16,376 20,209 N:t income 124,176 107,503 88,392 75,553 64,788 Primary per share 2.94 2.67 2.32 2.04 1.77 Fully diluted per share 2.92 2.64 2.26 1.96 1.72 Dividends declared on common stock 41,423 35,685 31,652 25,974 23,172 Per share 1.20 1.06 .98 .87 .75 Average balances (In millions) Assets $ 11,606.8 $ 9,678.9 $ 8,884.5 $ 7,778.4 $ 6,645.8 Earning assets 10,432.8 8,586.0 7,819.0 6,746.8 5,746.4 Deposits 8,808.4 7,575.3 7,135.7 6,079.4 5,325.6 Long-term borrowings 147.7 83.3 103.0 116.9 121.9 Shareholders' equity 732.9 628.7 536.1 473.8 426.4 R _tlIs Retum on average assets 1.07 % 1.11 % .99% .97% .97% Retum on average equity 16.94 17.10 16.49 15.95 15.19 Dividends declared on common stock per share as c percent of primary net income per share 40.82 39.70 42.24 42.65 42.37 Average earning assets to average total assets 89.89 88.71 88.01 86.74 86.47 Average shareholders' equity to average: Loans net of unearned income 9.37 10.12 10.33 10.49 10.84 T;tal assets 6.31 6.50 6.03 6.09 6.42 T;tal deposits 8.32 8.30 7.51 7.79 8.01 Dividends per share represent Sovran Financial Corporation's historical data. All weighted average shares and common stock per share data for all periods presented, have been restated to Qive effect to the three-for-two stock split,in the form of a s0% stock dividend, effective August 23,1985. S ovran Financial Corporation has comp mergers on Sovran Financial Corporation. This discussion two interstate mergers in its continuing efforts should be read in conjunction with other supplemental toward growth and expansion into new mar-financial data in this report. Additionally, readers should kets. On March 10,1986, Sovran merged with also consider the financial information presented on D.C. National BanCorp, Inc. (DCNB), and pages 69 through 96, which does not include the effect on March 31,1986, Sovran merged with Suburban of the mergers. Throughout this report Sovran Financial Bancorp (Suburban). These important events expanded Corporation is referred to as Sovran or the Company Sovran's market presence into the District of Columbia after the merger with Suburban and as SFC or the and Maryland. Additionally, these mergers have dramatic-Company prior to the Suburban merger. ally increased Sovran's capital base and total assets. Marker Position Although Sovran common stock was issued in both At December 31,1985, SFC had assets of $9.7 billion mergers, the Suburban merger was accounted for under and was the largest banking organization in the Common-the pooling-of-interests method, and the DCNB merger wealth of Virginia. Its 3rincipal subsidiary, Sovran Bank, was accounted for as a purchase. Therefore, the supple' N.A. (Sovran Bank),, eld approximately 21% of the mental financial statements, notes and other supplemental data have been prepared as though Sovran and Suburban total bank deposits in Virginia at June 30,1985, and were always one company. Since the DCNB merger was at December 31,1985, operated 269 branch offices. Suburban Bank,the rincipalsubsidiaryofSuburban, accounted for as a purchase, the su plemental financial was the fourth largest bank in the State of Maryland, statements and data do not include CNB s assets,liabih' ties or results ofoperations. However, Note B of the Notes and held approximately 11% of that state's deposits at to Supplemental Financial Statements presents pr June 30,1985. At December 31,1985, Suburban Bank had 82 b h off forma data assuming both the Suburban and DCNB Assumfn heS$n/ Suburban merper had beenco ers had occurred on January 1,1985. me T iis Supplemental Management s Discussion and summated at December 31,1985, Sovran s assets were $13.0 Analysts is presented to assist our shareholders and billion and total deposits were $9.7 billion at that date. in terms of total assets, Sovran was the seventh la est customers m understanding the effects of thesc important banking company in the Southeast at year end 19f5. 29

Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Table 2 Sovran Financial Corporation and Subsidiaries Supplemental Comparative Operating Data Fully Taxable Equivalent Basis (Dollars in thousands) Increase (Decrease) Year Ended December 31, Year 1985 over 1984 Year 1984 over 1983 1985 1984 1983 Amount Percent Amount Percent income from eaming assets: Loans S 964,187 $ 832,203 $689,386 $131,984 15.9 % $142,817 20.7 % investment securities 206,094 198,900 195,499 7,194 3.6 3,401 1.7 Money-market investments 75,994 78,208 93,646 (2,214) (2.8) (15,438) (16.5) Totalincome from earning assets 1,246,275 1,109,311 978,531 136,964 12.3 130,780 13.4 Interest expense on: Deposits 549,448 509,803 448,843 39,645 7.8 60,960 13.6 Short-term borrowings 134,598 119,780 82,919 14,818 12.4 36,861 44.5 Long-term borrowings 14,500 6.616 8,236 7,884 100.0 + (1,620) (19.7) Totalinterest expense 898,546 636,199 539,998 62,347 9.8 96.201 17.8 N:t interest income 547,729 473,112 438,533 74,617 15.8 34,579 7.9 Provision forloan losses 40,186 26,678 18,087 13,508 50.6 8,591 47.5 N :t interest income af ter provision for loan losses 507,543 446,434 420,446 61,109 13.7 25,988 6.2 Otherincome excluding securities gains and (losses) 209,194 178,025 159,859 31,169 17.5 18,166 11.4 Securities gains and (losses) 3,654 407 (11,752) 3,247 100.0 + 12,159 (100.0 +) T;tal otherincome 212,848 178,432 148,107 34,416 19.3 30,325 20.5 Other expenses 488,380 430,024 405,3;0 58,356 13.6 24,644 6.1 income before income taxes 232,011 194,842 163,173 37,169 19.1 31,669 19.4 Applicable income taxes 24,638 16.200 10,741 8,438 52.1 5,459 50.8 Tax equivalent adjustment 83,197 71,139 64,040 12,058 16.9 7,099 11.1 N;t income 5 124,176 5 107,503 $ 88,392 5 16,673 15.5 % $ 19,111 21.6 % PERFORMANCE

SUMMARY

n lysis fROAforeachofthethreeyearsendedDecem-ber 31,1983 through 1985 follows. Each trajor component Sovran's net income was $124.2 million in 1985, up f the income statement is expressed as a percentage of 15.5% over 1984. This increase compares with a 21.6% verage earnmg assets: growth in 1984 over 1983. Income generated from growth in the average volume of earning assets and greater fee ye, sno,o o,c.m3,33, income were largely responsible for the increased 1985 1985 1984 1983 earnings. Reductions in rates paid contributed to a slower interest expense growth, thereby increasing net income. Fully hable net interest The mcrease m net mterest income and other m, come tess: has enabled Sovran to absorb a 13.6% increase in other Tax equivaient adjustment (.80) (.83) (.82) expenses and a 50.6% increase in the provision for loan Provision forloan losses (.38) (.31) (.23) losses and still maintain substantial net income growth. ",,,verhead expense ( ( ( x Table 1, Selected Financial Data, presents summary earn-netum on average eaming i mgs mformation and other financial data for each of the assets 1.19 1.25 1.13 i five years ended December 31,1981 through 1985. Multipiied by average earning Primary earnings per share of $2.94 in 1985 were up assets to average total assets 89.9 88.7 88.0 10.1% over the $2.67 earned in 1984, compared with a Return on average assets 1.07 % 1.11 % .99% 15.1% increase in 1984 over 1983. Fully diluted earnings per share in 1985 were $2.92, up 10.6% above the $2.64 Another frequently used ratio which measures perfor-earned in 1984. The 1985 change in fully diluted per share mance is the return on average equity (ROE). ROE earnings compares with a 16.8% increase in 1984 over 1983. measures the amount ofincome earned in relation to the Return on average assets (ROA) measures how effec-total equity capital invested in the company. The 1985 tively a company utili:es its assets to produce net income. ROE of 16.94% was down slightly from 1984's ROE of in 1985 the ROA declined to 1.07% from the 1.11% level 17.10% but above the 16.49% level in 1983. The following in 1984, but was up from the 1983 ROA of.99%. An table displays the internal capital generation rate l l 30

for each of the three years in the period ended Decem-until mid-1985 when rates stabilized. During 1984, the ber 31,1983 through 1985. volume of assets which reprice immediately upon interest rate changes exceeded the volume ofliabilities which Year Ended December 31, reprice immediately. Therefore, as interest rates began internal Capital Generation 1985 1984 1983 to decline sharply in the latter half of 1984, interest Return on average assets 1.07 % 1.11 % .99% income declined more rapidly than interest expense. This Multiplied by trend continued into 1985 until market rates stabilized Average assets to average equity 15.8 15.4 16.6 at mid-year. Return on average equity 16.9 17.1 16.5 Core deposits primarily consist of demand, savin s, memst ckMng ad money-madet acoq $ s Ea n re a ned 66 66 63 between these categones of core deposits combmed w,th i 11.2 % 11.3 % 10.4 % the generally higher cost of additional funds to support a significant growth in earning assets resulted in a decline in the net interest margin.The net interest margin NETINTERESTINCOME was 5.25% in 1985, down from 5.51% and 5.61% in 1984 and 1983, respectively. Fully taxable equivalent net inte, rest income was up While interest rate movements affect Sovran's net 15.8 n 1985 over 1984, while 1984 s net interest income interest income, the Company manages its interest rate was 7.9% greater than that of 1983. In 1985, increased risk through monitoring its risk and the mix and maturity income from greater volumes of most categories of earnin6 of its assets and liabilities. For further information assets, especially loans, more than offset the additional expense resultmg from increased volumes of interest T7arding interest sensitivity, see the discussion on pa beanng liabihties. As market rates dechned in 1985, the 1e 3, Net Interest Income Analysis on pabe 32, pro information regardinfor the years 1985 compare lower yields earned reduced income more than the benefit net interest income that was denved from lower rates paid on interest bearing 1984 and 1984 compared with 1983. liabihties. Addbnally, a change in the m,x ofloans i Interest Income produced narre spreads between yields earned and rates paid to fund these loans. In both 1985 and 1984, significant earning asset growth Also affecting the change in net interest income in 1985 and movement in market interest rates affected the growth and 1984 was the movement of market interest rates. In ofinterest income. In both years, additional interest income 1984, the prime interest rate rose steadily in the first half was produced by greater earning asset volumes; however, of the year followed by a sharp decline, which continued changes in yields earned resulted in decreased income < Not Interest Margin Ooswterly Key interest Rates 15 % 14.5 % 13.0 % 12 % g y_ L. ? - {; 48% am,

• ss%d 11.5 %

5 6% ' ' res%,

gm 10.0 %

4 6% e.5% 3fe 7.0% i 80 81 82 83 84 85 ""'"'"""**'"8"'**** B Yleid on Eamino Assets 1983 1984 1985 . $ *[n 3 Prime Rate R Federal Funds 1 31

' Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Table 3 . Sovran Financial Corporation and Subsidiaries Supplemental Not Interest income Analysis' Fully Taxable Equivalent Basis (Dollars in thousands) Year Ended 1985 Compared With Year Ended 1984 Compared With Year Ended 1984 Year Ended 1983 increase (Decrease) Increase (Decrease) Due to Changein: Net Due to Change in: Net Average Average increase Average Average increase j Volume Rate (Decrease) Volume Rate (Decrease) Interest income Loans net of uneamed income: Commercial $ 65,209 $(33,222) $ 31,987 $ 49,851 $ 10,586 $ 60,437 Real estate-construction 30,950 (9,632) 21,318 15,698 1,764 17,462 Real estate-mortgage 3,374 458 3,832 3,253 277 3,530 Consumer 47,971 (11,274) 36,697 42,635 (10,709) 31,926 Bank card 12,095 700 12,795 12,183 1,242 13,425 Lease financing 5,829 (671) 5,158 2,725 (566) 2,159 Foreign (1,279) (886) (2,165) (493) 715 222 Tax exempt 27,228 (4,866) 22,362 11,824 1,832 13,656 Totalloans 190,680 (58,696) 131,984 136,530 6.287 142,817 Investment securities: United States Treasury 8,430 (3,392) 5,038 6,833 207 7,040 Federal agencies (2,501) (1,269) (3,770) (7,058) 662 (6,396) States and political subdivisions 3,102 2,127 5,229 (1,113) 3,298 2,185 Other 1,368 (671) 697 481 91 572 Totalinvestment securities 10,824 (3,630) 7,194 (615) 4,016 3,401 Federal funds sold and securities purchased under agreements to resell (4,356) (6,062) (10,418) (11,248) 4,155 (7,093) Due from banks-Interest bearing 8,666 (6,240) 2,426 (13,366) 4,306 (9,060) Trading account securttles 257 (233) 24 421 91 512 Other 6,532 (778) 5,754 (203) 406 203 Totallnterest income 210.127 (73,163) 136, % 4 98,026 32,754 130,780 ' Interest Expense Interest bearing deposits: Interest checking 3,464 47 3,511 848 848 Money-market accounts 28,846 (16,195) 12,651 40,627 5,692 46,319 Regular savings (1,910) 468 (1,442) (4,918) 1,834 (3,084) Consumer certificates 29,851 (18,248) 11,603 (5,529) 1,910 (3,619) Certificates of deposit, $100,000 or more 21,481 (12,281) 9,200 10,247 10,349 20,596 Foreign 3,755 367 4,122 135 (235) (100) TotalInterest bearing deposits 80,996 (41,351) 39,645 37,906 23,054 60,960 Federal funds purchased and securities sold under agreements to repurchase 27,696 (15,729) 11,967 11,004 8,835 19,839 Other short-term borrowings 12,594 (9,743) 2,851 12,249 4,773 17,022 Long-term borrowings 5,993 1,891 7,884 (1,569) (51) (1,620) Totalinterest Expense 126,168 (63,821) 62,347 58,335 37,866 96,201 Change in Net Interest fncome $ 93,385 $(18,768) $ 74,617 3 41,371 $ (6,792) $ 34,579 'The change in interest income due to both rate and volume has been allocated to "due to change in average volume" and "due to change in average rate"in proportion j t2 the relationship of the absolute dollar amounts of the change in each. The changes in interest income and expense are calculated independently for each line in the table. The totals for the volume and rate columns are not the sum of the individuallines. In 1985 when compared with 1984. The reverse was true interest rate resulted in a 41 basis point increase in yields in 1984 when improved yields contributed to greater earned in 1984 when compared with 1983, which in turn interest income when compared with 1983. increased interest income. However, in 1985 the rate Higher volumes ofloans, particularly in the categories movement produced a 97 basis point decline in yields of commercial, real estate-construction, and consumer, earned, which decreased interest income when compared produced the most significant increases in interest income with 1984, m both 1985 and 1984. Additionally,in 1985, income from Sovran has substantialinvestments in state and munici-tax-exempt loans made a significant contribution to the pal securities and tax-exempt loans which are not taxable increased interest income. for federal income tax purposes. To assist in analysis, As previously stated, the prime interest rate in 1984 an adjustment has been made to interest income to con-increased steadily until mid-year when it began to decline. vert tax-exempt income to a comparable basis with the This decline continued until mid 1985 when interest rates income on those assets which are taxable. The following stabilized. The timing of the rise and decline of the prime table shows the tax equivalent adjustment for each 32

earning asset category and will assist in analysis of fully PROVISION FOR LOAN LOSSES textble equivalent interest income (in thousands): The provision for loan losses was up 50.6% in 1985 when compared with 1984 and 47,.5% in 1984 com ared Year Ended December 31, W1b M. MsdraN pM m b b pM M 1985 1984 1983 was the principal reason for both increases. t.oans s37.2s4 s27.020 s21.040 The allowance for loan losses is maintained at a level 43,880 42,84s gesimeni securities 4s,g that management deems appropriate by charges to s earnings through the provision for loan losses. Loan T;.tal $83.197 $71,139 564,040 losses are charged against and recoveries are credited to the allowance for loan losses, which is available to absorb potential losses associated with lending activities. Interest Expense While afextreme care to maintain high asset qua , Interest expense in 1985 was up 9.8% over 1984, follow ing an increase of 17.8% in 1984 compared with 1983.'and has emphasized prudent, sound credit policies. exercise Dunng the 1983 through 1985 period, the movement of For the ear ended December 31,1985, the rovision for loan fosses exceeded net chale-off interest rates was a significant contributor to the lower growth rate m interest expense. Pnncipally due to nsing an increase from the $13.377 m lion and $5.328 million interest rates in early 1984, interest expense increased in 1984 and 1983, respectivel. For additionalinformation in that year over 1983. In 1985, however, the change in regarding the provision for foan losses, refer to the dis-interest rates produced a significant reduction in the cussion in the section, Ioans and the Allowance for change in interest expense paid when compared with 1984. Ioan Losses, beginning on page 37. Growth ofinterest beanng liabihttes was significantly greater between 1984 and 1985 than between 1983 and 1984. Therefore, interest expense resulting from in-OTHERINCOME creased volumes was much greater in 1985 than in 1984. However, in 1985 lower rates paid reduced interest expense As interest margins have narrowed, financial institutions when compared with 1984; whereas, higher rates paid in have looked to fee income to compensate for the reduced 1984 increased interest expense when compared with 1983. income resulting from the narrower margins. Sovran also The combination of the expense resulting from volume explores and evaluates opportunities as they arise to increases and the expense from the increase in rates paid improve profitability through fee income. In addition, during 1984 produced a larger increase in interest expense Sovran also continuously monitors its rate structure in 1984 over 1983 than occurred between the years to ensure these fees are both fair and profitable. 1985 and 1984. q g.... N82 u- ~ 1 ! ' 44"; k '=m,m .eaw.m u-u e as = es L_a _.a d y, * '=,a=,m 33

~ Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Table 4 Sovran Financial Corporation and Subsidiaries Supplemental Other income (Dollars in thousands) increase (Decrease) Year Ended December 31, Year 1985 Over 1984 Year 1984 Over 1983 1985 1984 1983 Amount Percent Amount Percent Trust income S 28,812 5 26,555 3 22,250 3 2,257 8.5% $ 4,305 19.3 % Service charges on deposit accounts 49,540 41,003 36,621 8,537 20.8 4,382 12.0 Service charges and fees: Bank card fees 57,970 50,922 45,298 7,048 13.8 5,624 12.4 Mortgage servicing fees 22,012 19,048 16,817 2,964 15.6 2,231 13.3 Other 33,712 26,431 21,677 7,281 27.5 4,754 21.9 Trading account profits and commissions 5,811 2,599 3,070 3,212 100.0+ (471) (15.3) Other 11,337 11,747 8,087 (410) (3.5) 3.660 45.3 209,194 178,305 153,820 30,889 17.3 24,485 15.9 Gain on branch divestitures, net of merger.related expenses (280) 6.039 280 (100.0) (6,319) (100.0 +) 209,194 178,025 159,859 31,169 17.5 18,166 11.4 Securttles gains and (losses) 3,854 407 (11,752) 3,247 100.0 + 12,159 (100.0 +) 3212,848 5178,432 3148,107 $ 34,416 19.3 % $ 30,325 20.5 % As shown in Table 4, Supplemental Other Income, total growth has resulted in increased business activity, which j other income was up 19.3% in 1985 over 1984, compared in addition to producing additional revenues, also pro-with an increase of 20.5% in 1984 over 1983. Income before duced greater expenses. Sovran recognizes the importance the gain on branch divestitures net of merger related of maintaining a proper balance between growth and expenses of the First & Merchants Corporation / Virginia control of noninterest expense, and will continuously National Bankshares, Inc. (F&M/VNB) merger, and monitor these expenses and take appropriate action to securities transactions increased 17.3% in 1985 over 1984 keep their growth at a minimum level. compared with 15.9% in 1984 over 1983. The 1985 in. Table 5, Supplemental Other Expenses, shows that total creases in total other income were principally a result other expenses, those which are not interest related, of greater income from deposit account service charges, increased 13.6% in 1985 when compared with 1984.This additional bank card fees and other service charge fees. increase was above the 6.1% growth in total other expenses The increase in deposit account service charge fee income between 1983 and 1984 but was comparable to the 13.7% primarily resulted fmm a new fee structure implemented at five-year compound growth rate. The principal con-Sovran Bank in 1985. The greater bank card fee in-tributors to the increased total other expenses in 1985 come was principally due to the implementation of a new were salaries and employee benefits expense; furniture bank card fee at Sovran Bank during the fourth quarter of 1984. Increased noninterest related income from trading account activities, as well as income from securities gains, l~ ~ " pg,"'"' also affected the increase in other income in 1985 when compared with 1984. In 1984, most categories of other income increased over 1983. The major factor affecting the change in total other income in 1984 resulted from the inclusion of f $280,000 in net expenses related to the F&M/VNB N -- 1 merger. In 1983, other income included $6,039 million, "~ which represented the gain on branches divested at year-end 1983, net of expenses related to the F&M/VNB ~ "

• O m:rger. Positively affecting the change in total other Jn1 income in 1984 was the inclusion of$407 000 in securities Lb gains compared with securities losses ol$11.752 million in 1983.

d L:= OTHER EXPENSES ['m* 1 During the 1983 through 1985 period, factors such as J asset growth, mergers, and increases in general price 4-N levels have affected the change in other expenses. Sovran F has experienced significant asset growth during this Lm,,,r,, 2m m a period, a portion of which resulted from mergers. This 34

Table 5 Sovran Financial Corporation and Subsidiaries ' Supplemental Other Expenses (Dollars in thousands) Increase (Decrease) Year Ended December 31, Year 1985 Over 1984 Year 1984 Over 1983 1985 1984 1983 Amount Percent Amount Percent Salaries $216,529 $191,373 $179,470 $25,156 13.1 % $ 11,903 6.6 % Employee benefits 42,585 40,133 36,879 2,452 6.1 3,254 8.8 Total salaries and employee benefits 259,114 231,506 216,349 27,608 11.9 15,157 7.0 Net occupancy expense 29,452 26,737 26,711 2,715 10.2 26 .1 Furniture and equipment expense 50,347 45,313 42,129 5,034 11.1 3,184 7.6 Advertising 9,643 10,787 ?751 (1,144) (10.6) 2,036 23.3 Amortization of intangible assets 7,772 7,736 9,6c? 36 .5 (1,951) (20.1) Bank card expenses 26,917 24,563 20,958 2M4 9.6 3,605 17.2 Communications 14,758 13,175 11,254 1.583 12.0 1,921 17.1 Postage and shipping 11,791 11,064 11,011 127 6.6 53 .5 Professional fees 11,384 8,910 7,659 2,474 27.8 1,251 16.3 Stationery and supplies 11,866 10,037 9,090 1,829 18.2 947 10.4 Other 55,338 40,196 41,781 15,140 37.7 (1,585) (3.8) $488,380 $430,024 $405,380 $58,356 13.6 % $ 24,644 6.1 *4 and equipment expense; and those expenses included in net reduction of 12 branch offices during 1984. The the other category, which contain expenses that are non. divestiture of branches at year-end 1983 and the sale and recurring in nature, as well as other smaller categories consolidation of the operations centers were a result of of expense. In 1985, salaries and employee benefits, the the F&M/VNB merger. The 1984 reduction of branches largest component of total other expenses, were up 11.9% were principally Sovran Bank branches. Those categories over 1984. This increased expense was partially due to of other expenses whose 1984 increase exceeded the higher incentive compensation paid to employees, whose 1985 increase were principally related to activities designed performance resulted in improved company profitability, to promote Sovran as a new organization. and to increased salaries for part-time employees. Also Included in 1985 total other expenses are expenses included in salaries expense was approximately $4.0 mil-related to the Company's merger activities. In 1984 and lion related to the exercise of stock appreciation rights 1983, merger related expenses were reported in other by certain Suburban employees. These stock appreciation income net of merger-related gams. These expenses m-rights became exercisable as a result of the Sovran / cluded in other income were $1.316 million in 1984 and Suburban merger. The 11.1% increase in furniture and $10.712 million in 1983. equipment expense resulted principally from increased operating expenses, as well as depreciation for new data APPL.lCABIEINCOME TAXES processing equipment acquired in the latter part of 1984. The principal reason for the 37.7% increase in the other Applicable income taxes were up 52.1% in 1985 com-category of total other expenses was higher expenses asso-pared with 1984. This growth follows an increase of 50.8% ciated with greater business activity. These expenses in-in 1984 compared with 1983. cluded such items as processing fees, FDIC insurance, Income taxes for financial reporting purposes differ from and other fees that are directly associated with the volume the amounts computed at statutory rates.These differences of ectivity. Also included in this category in 1985 was are primarily due to tax-exempt income from certain loans expense of approximately $2.0 million related to a promo-and investment securities, non-deductible merge.-related tionst campaign designed to enlarge Sovran Bank's cus-expenses, investment tax credits and foreign loan tax tomerbase. Additionally,in 1985,thiscategoryincluded credits. Fur addiuonal information, refer to Note L of a provision of approximately $2.2 million related to the Notes to Supplemental Financial Statements on page 59. termination of a contract for the processing of certain of Reported income taxes do not portmy a financial insti-Sovran Bank's bank card transactions. tution's total tax cost. Banking companies and other The year 1984 was one of consolidation for Sovran financial institutions are required to maintain nonin-following the year-end 1983 F&M/VNB merger. In 1984, terest bearing deposits at the Erderal Reserve Bank, usually total other expenses increased 6.1% over 1983. The prin. have substantial investments in state and municipal securi-cipal reasons for this lower growth rate ofother expenses ties and tax-exempt loans, and often pay franchise taxes were a much slower growth rate in salaries and employee in lieu of state income taxes. Had the effect of these benefits expense and reduced expenses resulting from requirements been considered in determining income l the divestiture of 34 branches at year-end 1983, the sale taxes, Sovran's pro forma tax rate would have been 49.7%. ofone and consolidation of two operations centers and the 35

I Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operatidas (continued) i I mer i f FINANCIAL CONDITION EARNING ASSETS Evaluation of a company's financial condition includes Table 6, Supplemental Rate-Related Asseta and c n :nalysis ofits sources and uses of fun ds. Management Liabilities Statistics, shows average earnin of a company's sources and uses of fund g enmils considera-category for 1983 through 1985. As sho.vn,g assets 1 y 4 average earn' tion of both internal and external factors a id is critical ing assets in 1985 were up 21.5% aver 1984, following an for the maximi:ation of profit and minimization of risk. increase of 9.8% in 1984 over 1983. in 1985, most categories. 1 Table 6 Sovran Financial Corporation and Subsidiaries Supplemental Rate Related Assets and Liabilities Statistics ~ Fully Taxable Equivalent Basis (Average balance dollars in millions, income and expense dollars in thousands) ~ Average Balance income / Expense Average fields / Rates 1985 1984 1983 1985 1984 1983 ~ 1985 1964 1983 Interest Earning Assets Loans net of unearned income: Commercial 8 2,347.6 $ 1,720.3 $ 1,320.0 $ 248,124 $ 2M,137 $155,700 10.57 % 12.56 % 11.80 % Real estate-construction 748.3 4PO.7 380.5 91,389 70,071 52.609 12.21 14.28 13.83 Real estate-mortgage 1,474.3 1,439.1 1,411.8 178,227 174,395 , lM,865 12.09 12.12 12.f ri Consumer 1,978.1 1,599.3 1,289.0 261,771 225,074 193.143 13.23 14.07 14.C5 Bank card $25.1 446.6 369.2 83,267 70,472 57,047 15.86 15.78 15.45 Lease financinD 176.5 123.1 99.6 19,777 14,619 12,460 11.20 11.8 ( WI Foreign 30.0 40.9 45.5 0,183 5,3 t 8 5,126 10.60 13.N 11.27 Tax. exempt 543.3 350.6 27r,.3, 78 449 56,(.37 42,431 14.44 16.00 15.36 Totalloans 7,823.2 6,210 6 5,191.9 9f 4,,17 332,M 3 689.386 12.32 13.40 13.28 investment securities: United States Treasury 834.0 743.3 687.9 89,00, 83,96d 76.923 10.67 11.21 11.M, Federal agencies 106.2 12d.2 188.9 11,454 15,224 21,620 10.78 11.67 11.45 States and political subdivisions 776.3 749.9 700,0 101,537 96,308 94,123 13.08 12.84 12.r8 Other 40 6 27.0 23.2 4,102 3.405 2.833 10.11 12.60 12.21 Totalinvestment securities 1,757.1 1,654.0 1,660.0 206,094 196,900 195,499 Federal funds sold and 11.73 12.03 1112 ' securities purchased under agreements to resell 283.4 327.8 444.3 24,115 34,533 .4',625 8.51 10.54 9.37 Due from banks-Interest bearing 445.1 349.9 480.1 41,2 t 38.818 47,873 9.27 11.09 J.97 Trading account securities 11.8 9.3 0.0 1,234 1,210 698 10.50 13.01 11.83 Other 112.2 34.4 33.7 0,401 3.647 3.44s 8.38 10.61 9.38 ~ ~ ~ TotalInterest Earning Assets $ 10,432.8 $ 8,586.0 $ 7,819.0 1,24d.275 1,109,311 978.531 Int: rest Bearing Liabilities 11.95 12.92 12.51 a===sr.== Interest bearing deposits: Interest checking 8 565.6 $ 497.0 $ 480.7 29,818 26,107 25,259 5.24 5.25 5.25 Money market accounts 1,498.6 1,101.8 637.3 110,151 97,500 51,181 7.35 8.85 8 03 Regular savings 842.8 876.0 973.7 45,779 4 7,2'.' ? 50,305 5.43 5.39 _ 0.17 Consumer certificates 2,726.9 2,302.0 2,448.6 259,384 247,761 251,400 9.51 10 !6 10.27 Certificates of deposits, $100,000 or more 1,095.6 852.8 749.9 90,626 90,426 69.830 949 10.6v 9.31 Foreign 54.1 11.5 96 4,890 g 868 9.00 6.64) 9.04 TotalInterest bearing deposits 6,783.6 5,731.9 5.299 8 549,448 509,803 448,843 8.10 8 89 8.47 Federal funds purchased and securilles sold under agreements to repurchase 1,110.7 169.5 654.7 89,946 77,979 58,140 8.10 1C' 1J 8.88 Other short term borrowings $79.4 418.7 290.8 44,652 41,801 24,779 7.71 918 8.52 Long term borrowings 147.7 83.3 103.0 14,500 6.616 8,3 9.02 7.94 8 Ort, TotalInterest Bearing Liabilities 8 8,621.l $ 7,003.4 $ 6,348.3 698,548 636 '99 639.998 8.10 9 08 J St N;t Interest income / Margin 8 Sa U 29 8 473.112 3438.533 8.25 % 5.51 % 5 61 % r=w3;:: w _. - r 36 m

3 ~ y r e . Jab- [ s / Table 7 Sovran Financ si Corporation and Subsidiaries y Supplemental Summary of Loans Not of Unearned income (in thousands) December 31, 1985 1984 1983 1982 1981 Dcmestirc

ommercial

$ 2,502,677 $ 2,090,655 $ 1,533,201 $ 1,278,158 $ 1,229,387 G' heat estatt-centruct:on 843,289 626,131 396,577 343,358 306,725 Real estate-mor:gvqe 1.566,502 1,396,851 1,420,239 1,372,390 1,250,306 Consum er 2,146,656 1,755,103 1,463,366 1,152,386 993,852 Bank cery 602,558 521,383 439,228 374,700 299,674 Lease finucing 229,352 160,000 107,369 98,240 71,896 1 Tax-exerr pt 649,972 520,751 321,163 280,137 212,176 6! Total domestic.oans 8,541,006 7,070,874 5,681,143 4,899,369 4,364,016 F: reign 29,330 29,393 65,151 44,074 29,738 $ 8,570,336 $ 7,100,267 $ 5,746,294 $ 4,943,443 $ 4,393,754 g-f g :- - -- of caabng assets increased, with the most significant Table 8 incrase occurring in the loan portfolio While 1984 sovran Financias corporation and Subsidiarie. averag.doaps increased significantly when compared with Suppiemental Maturity Schedule of Selected Loans 1984 As a percent c(goties of earning assets declined in 1983, mo-t other este Not of Unearned income s total assets, average earning assets (in inousands) have increased slight!y, but steadily during the past three e ember 1,1985 0 yrrs. In 1985, average earning assets represented 89,9% fof totd om,vompared with 88,7% and 38,0% in 1984 %,gn* a on,y,,, oy,, ' 'Jnd 1963, respectively. orLess Five Years Five Years Total i Loans and The Alloance kr loan Losses commerciar 8 1,551,728 $ 752,101 $198,848 $ 2,502,677 cant loan growth. years, Sovran has experienced signifi-In the last three Real Estate-In 1985, averm;e loans were up 26,0% gj3g gjg j3j gjg cons uction 7,, x, p over 1984,lollowed by a 19,6% metease in 1984 over 1983. $ 2,273,599 $1,026,811 8695,528 $ 3,995,938 ' In 1985, Sovran aggressively pursued expanston of the loan Fix Interest portfolio, AISo cot,tributing to the growth of the loan Variable Interest rate $ 660,309 $383,762 pr,g-It _,, j portfolio was the strong, diversified economy in which f Sovran operates. This market area provides both diversity Q

m]4 and stability, thereby creating an excellent growth en-vironment. The strong economy, combined with declin-f

'q " WWb ing interest rates, strengthened consumer confidence k'* 7 and encouraged increased consumer loan demand, par-ticularly for automobile financing, d a stable, dive P V Although the strong economy an J i 9M ] market area contributed to substantial loan growth in ) 1984, the rise in interest rates during the first half of 1984 W' 87 ~ ) created some uncertainty among consumers, thereby slow-j ing somewhat the 1984 growth rate. However, the loan growth rate in both 1985 and 1984 compared favorably [ m,ari_ 1 with the five-year compound growth rate of 17,7%. pg The analysis of credit risk and asset quality is essential t J for maintaining sound financial condition. Sovran main-l i, h,,,,., t 4 ^ q ' l tains the allowance for loan losses to absorb potential rf 'b"=T.QC jl

===smesea. b future losses associated with lending activities, Sovran a reviews, on a continuing basis, its asset quality and both i 4 37

pplemental Management's Discussion and Analysis of Financial Condition end Results of Operations (continued) t Table 9 Sovran Financial Corposation and Subsidiartei * ' Supplemental Allocation of Aflowance for Loan Losses (Dollars in millions) December 31 1985 1984 1983 1982 1981 Loans net of uneamed income: Commercial, real estate and other $ 5,821.1 67.9 % $4,735.6 66.7 % $ 3,883.5 67.6 % $ 3,471.6 70.2 % $ 3.132.1 71.3 % installment 2,146.7 25.1 1,843.3 26.0 1,423.6 24.8 1,097.1 22.2 962.0 21.9 Bcnk card 602.5 7.0 521.4 7.3 439.2 7.6 374.7 7.6 299.7 6.8 $ 8,570.3 100.0 % $ 7.100.3 100.0 % $ 5.746.3 100.0 % $4,943.4 100.0 % $4.393.8 100.0 % Allocation of allowance for loan losses: Commercial, real estate and other $21.6 $22.6 $16.6 $18.0 $14.6 Installment 11.2 8.0 7.7 8.8 8.1 i Bank card 5.3 6.8 4.6 4.4 4.1 Unailoc.ated 59.7 41.7 36.6 28.7 26.1 $97.8 $79.1 $65.7 $59.9 $52.9 I l internal and extemal changes that might impact the ade-Nonperforming Assets quacy of the allowance for loan losses to provide for future Sovran's excellent asset quality is reflective of the potential losses. Table 9 presents the allocation of the combination oforganizations with extremely high asset allowance for loan losses for the yema 1931 iluuugh 1985. quahty. i rus comomation has resulted in a company Net charge-offs represented.27%,.21%, and.25% of whose asset quality is among the highest of bankit.g i average loans in 1985,1984 and 1983, respectively. organizations of comparable size. Since 1981, total non-Table 10 provides a summar,y of the allowance for loan performing assets have decreased 48.0% to $22.1 million l i losses and selected loan loss statistics for the past five at December 31,1985. This reduction in the total amount years. At December 31,1985, the ratio of the allowance of nonperforming assets has occurred while Sovran has t for loan losses to loans net ofunearned income was 1.14%. aggressively expanded its loan portfolio. This improved This compares with 1.11% and 1.14% in 1984 and 1983, asset quality is indicative of Sovran's policy of maintain-respectively. ing sound credit policies and camfully evaluating its credit - - - - m5 Distribution of Loans m'&- l c-We es j . _,m n_ = [M}W t! 913 1% dt91Nrsw 'I .j-q. g; i (_. , ut% j j r s' .p ' I .g 3 g 3 7

hi h

+

am.

m b 1 [ ( ; fL p s, j 5 4 4 y 3 3 -[ l7 i j. 1 h:,. .[ l025% [ Fmanc n0

h. r.

as ' ""AT' 'S0a.4% t ' so - ei a _a en :< as - l 7 - g igege g ;e si,s m. !g a w,, to,, 9 ng p, g,,,,~.. .....,....gan, , C$1gitmapesesse ; A gj, Lm_wc-se 3S

Tablo10 Sovran Financial Corporation and Subsidiaries ?_w - ::tal Summary of Allowance for Loan Losses and Selected Loan Loss Statistics (Dollars in thousands) Year Ended December 31, 1985 1984 1983 1982 1981 Allowance for loan losses at beginning of year S 79,053 $65,676 $59,948 $52,967 $43,894 400 2,454 1,337 Allowance of purchased banks at dates of acquisition Provision for loan losses 40,186 26,678 18,087 16.376 20,209 119,239 92,354 78,435 71,797 65,440 Loans charged off: i Commercial 13,117 8,673 5,462 5,243 6,662 Real estate-construction 41 2 434 1,192 2,403 I' Real estate-mortgage 241 46 1,059 183 160 Consumer 9,605 6,803 9,570 7,360 8,200 Bank card 8,224 7,784 6,252 5,331 5,508 Lease financing 185 89 592 108 191 T;tal chargeoffs 31,413 23,397 23,369 19,417 23,124 Recovertes of loans previously charged of f* Commercial 5,518 3,469 3,914 2,233 4,562 Real estate-construction 50 1,904 746 92 270 Real estate-mortgage 35 27 109 132 220 Consumer 2,754 2,792 3,970 3,453 4,223 Bank card 1,569 1,873 1,860 1,489 1,324 Lease financing 32 31 11 169 52 Total recoveries 9,958 10,096 10,610 7.568 10,651 N;t loans charged off 21,455 13,301 12,7G9 11,849 12.473 Allowance for loan losses at year.end S 97,784 $79,053 $65,676 $59,948 $52,967 Loans net of unearned income: Outstanding at year end $8,570,336 $7,100,267 $5,746,294 $4,943,443 $4,393,754 Average 7,823,236 6,210,643 5,191,909 4,516,214 3,931,949 Ratios: Allowance to year.end loans 1.14 % 1.11 % 1.14 % 1.21 % 1.21 % Recoverlas to chargettfs 31,70 43.15 45.40 38.98 46.06 N;t charge-of fs to average loans .27 .21 .25 .26 .32 Loan loss coveragei 8.64X 11.28X 10.11X 9.11X 8.02X Allowance to net charge-of fs coverage 4.56 5.94 5.15 5.06 4.25 Provision forloan losses to: Net chargeoffs 1.87X 2.01X 1.42X 1.38X 1.62X Average loans .51% .43% .35% .36% .51 % ' income before income taxes and securities transactions plus the provision for loan losses, divided by net chargeoffs. risk. While contractually past due loans at December 31, 1985 were up slightly from year-end 1984, as a percent of TtNe 11 Wn Financial Corporation and Subsidiaries period-end loans outstanding, contractually past due Supplemental Nonperforming Assets and Loans Contractually Past Due loans represented only.33% compared with.34% at ( "*"*"""*) December 31,1984. Nonperforming assets as a percent Year Ended December 31, of average loans net of unearned income and other real 1985 1984 1983 1982 1981 estate declined significantly in 1985 to.28% from.41% and.69% at year-ends 1984 and 1983, respectively. In 1985, Nonperforming assets: interest recorded on loans that were on nonaccrual or other reat estate $ 7.8 $ 10.0 $ 14.8 $ 15.8 $ 12.1 had been restructured at December 31,1985 was $537,000. Nonperformingloans: Nonaccrual 12.1 12.3 12.9 24.5 18.0 Had these loans been performm.g m accordance with Restructured 2.2 2.9 8.3 8.7 12.4 their original terms, $1.621 million would have been Total nonperforming assets $22.1 $ 25.2 $ 36.0 $ 49.0 $42.5 earned. Table 11 provides information on nonperforming Contractually past due' $ 28.7 $24.2 $ 19.8 $33.3 $ 35.8 assets and contractually past due loans for the years 1981 through 1985. ' oata represents ioans past due as to principai or interest for so days or more. Loans classified as either nonaccrual or restructured are excluded from this category. 39

I Supplemental Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Foreign Outstandings foreign outstandings were Eurodollar placements with As shown in Table 12, Sovran's foreign outstandings financial institutions. have declined 8.9% in 1985 when compared with 1984, Sovran has minimal foreign outstandings in countries which followed a significant 1984 dedine of21.5%. While which are experiencing economic and liquidity problems. total foreign outstandings represented 2.82% of total While the terms of certain of these outstandings have assets at December 31,1985, approximately 86% of been modified or are in the process of renegotiation, Sovran believes these revisions are within normal bank-ing practice and that these outstandings will not materially, j Table 12 aaversely impact results of operations. Sovran Financial Corporation and Subsidiaries Sovran's one twelfth ownership in Allied Bancorp J Supplemental Foreign Outstandingst International (Allied), an Edge Act Corporation, repre-(Dollars in miinons) sents no direct foreign exposure; however, Allied is Year Ended December 31 impacted by international economic conditions. At 1985 1984 1983 December 31,1985, support of Allied approximated $15.5 million. Management believes that its current 8'$vernments and official support of Allied will not have a material impact on institutions 5 1.6 $ 1.o 8 .3 the results of operations. Banks and other financial fnVCSfment securities institutions .6 1.8 Total i.e to 2.1 Investment securities, in addition to providing interest Chil) income, also provide liquidity. In 1985, average investment Governments and officiai securities increased 6.2%, following a slight decline in insututions .4 .4 .4 the average balance in 1984 from 1983. Banks and other financial As marxet interest rates continue to decline, the market insutuuons 2.o 2.o 2.o value ofinvestment securities relative to the book value t mai 2.4 2.4 2.4 continues to improve. High market interest rates in the Ec or , nets anMHelal latter part of the 1970's and early 1980's created large institutions 2.7 2.7 2.8 discounts m the investment portfolio. While the market u:xico value relative to the book value ofinvestment securities Governments and official has improved continuously since 1983, during the 1983 institutions 35.o 37.3 38.6 through 1984 period, the book value exceeded the market 8"akQa[n',her unancial value; however, at December 31,1985, the market value in, 7 '7 35l7 39 7 ofinvestment securities exceeded the book value. Table 13 Total 38.0 3 united Kingdom provides information on the, book and market values of Banks and other financial investment securities. Addittonally, it provides average insutuuons 150.1 200.o 245.o maturity and average yield information.The investment venezueia portfolio continues to be of excellent quality with 71.3% Govemments and official of the municipal portfolio rated AA or better. Table 14 institutions 4.5 4.5 4.5 displays Moody s Ratings of Sovran's states and political indu;trialized Countries 2 Banks and other financial investment securities. institutions 60.7 60.5 123.o Money-MarketInvestmenfS otners Money-market investments provide liquidity, as well In*s$itoEs*"""'*' as income from the investment of excess funds. These .5 .5 20.5 Banks and other financial Investments also allow Sovran to take advantage offavor-insutuuons 109.s 93.8 75.0 able spreads between short-term investments and borrow-commerciai and industrial ings when these opportunities exist. During 1985, average companies .s .e .7 money-market investments increased 18.2% over 1984. Total 110.7 94.9 96.2 This increase followed a decrease of 25.4% in 1984 com-sass.4 5404.s s515.3 pared with 1983. The average volume of federal funds sold T;tal outstandings as a and securities purchased under agreements to resell declined percent of total assets 2.a2% 3.60 % 5.2e% in both 1984 and 1985; however, interest bearing balances ' included in the table are loans, acceptances, and placements of $29.3, with banks increased in 1985, following a decline in 1984. $21.3, and $317.8, respectively, for 1985, $29.4, $22.7, and $352.5, { respectively, for 1984, and $65.2, $22.1, and $428.o, respectively, fir 1983. 8As defined by the IMF and World Bank 40

Table 13 Sovran Flaancial Corporation and Subsidiaries Supplemental Investment Securities Maturity Distribution and Average Yield (Dollars in thousands) December 31,1985 Average Weighted Book Market Maturity Average Value Value in Years Yield' U. S. Treasury securities: Within one year S 450,650 $ 456,998 .5 10.33 % Af ter one but within five years 387,624 396,129 1.9 9.41 Total U.S. Treasury securities 838,274 853,127 1.2 9.90 Federal agencies: Mortgage backed securities After ten years 7,348 6,854 12.6 8.72 Other federal agencies Within one year 12,065 12,426 .7 12.57 Af ter one but within five years 44,869 46,132 1.4 10.18 Total federal agenc!es 64,282 65,412 2.6 10.46 Obligations of states and political subdivisions: Within one year 137,912 138,671 .5 12.26 Aft:r one but within five years 213,122 222,665 3.3 13.69 Aft:r five but within ten years 483,223 489,751 7.2 13.31 Aft:r ten years 263,936 242,287 20.6 12.90 Total states and political subdivisions 1,098,193 1,093,374 8.8 13.15 Other securities: Stock of the Federal Reserve Bank 5,162 5,162 Other stocks and bonds 47,711 49,566 Total other securities 52,873 54,728 T;talinvestment securities S 2,053,622 5 2,066,641 ' Computed on a fully taxable equivalent basis using statutory income tax rate of 46%. INTEREST BEARING LIABlHTIES [;7b5$it es r 1Y8brough U985I Average interest bearing liabilities were up 23.1% in 1985 deposit 8 over 1984, and up 10.3% in 1984 over 1983. As a per-Total average deposits were up 16.3% in 1985 over 1984, centage of total earning assets, interest bearing liabilities, following an increase of 6.2% in 1984 compared with the primary source of funds that support earning assets, 1983. All categories of deposits, with the exception of have remained relatively constant during the last three regular savings increased in 1985 when compared with 1984. The most significant increases occurred in money-market accounts and in consumer certificates of deposit. Tabl314 A similar growth pattern occurred in 1984. However, Sovran Financial Corporation and Subsidiaries Supplemental Ratings of States and Political Subdivisions ] Investment Securities Table 15 (Dollars in millions) Sovran Financial Corporation and Subsidiaries December 31,1985 Supplemental Remaining Maturities of Domestic Time Certificates Percent of of Deposit,3100,000 or More Moody's Rating Book Value Total (in millions) AAA $ 459.2 41.8 % December 31,1985 [ j 3 months or less S 829.3 2 2 Over 3 through 6 months 145.7 A1 134.0 12.2 Over 6 through 12 months 96.3 l A 82.5 7.5 Over 12 months 185.3 ~BAA1 1.6 .2 l BAA 3.5 .3 51,256.6 b N $,',D'c7ber a,1985, an deposns in foreign omces are in arnounts of s100.000 ated o $1,098.2 100.0 % 41

Supplemental Management's Discussion and Analysis of Financial Condition and Resuir of Operations (continued) Table 16 Sovran Financial Corporation and Subsidiaries Supplemental Average Deposits and Borrowings (In millions) 1985 1984 1983 % of % of % of Amount Total Amount Total Amount - Total Deposits: Noninterest bearing S 2,024.8 19.0 % $ 1,843.4 20.8 % 51,835.9 22.4 % interest bearing: Interest checking 565.6 5.3 497.0 5.6 480.7 5.9 Money-market accounts 1,498.6 14.1 1,101.8 12.5 637.3 7.8 Regular savings 842.8 7.9 876.0 9.9 973.7 11.9 Consumer certificates 2,726.9 25.6 2,392.8 27.1 2,448.6 29.9 Certificates of deposit, $100,000 or more 1,095.6 10.3 852.8 9.6 749.9 9.2 Foreign 54.1 .5 11.5 .1 9.6 .1 Totalinterest bearing 6,783.6 63.7 5,731.9 64.8 5,299.8 64.8 Total deposits 8,808.4 82.7 7,575.3 85.6 7,135.7 87.2 Short term borrowings: Federal funds purchased and securities sold under agreements to repurchase 1,110.7 10.4 769.5 8.7 654.7 8.0 Commercial paper 35.6 .4 15.1 .2 10.3 .1 Other short. term borrowings 543.8 5? 403.6 4.6 280.5 3.4 Total short-term borrowings 1,690.1 15.9 1,188.2 13.5 945.5 11.5 Long-term borrowings 147.7 1.4 83.3 .9 103.0 1.3 510,646.2 100.0 % 58,846.8 100.0 % $ 8,184.2 100.0 % consumer certificates of deposit and regular savings between deposit categories have resulted in a higher declined, while money-market accounts experienced a cost of funds. significant increase. In addition, deposit divestiture at Sovran's principal market is the Virginia-Maryland-year-end 1983 resulting from the F&M/VNB merger Washington, D.C. area. During the 1980 to 1984 period, negatively affected the 1984 deposit growth. These shifts deposits in this area have grown 50.3% representing a Table 17 Sovran Financial Corporation and Subsidiaries Supplemental Summary of Short. Term Borrowings (Dollars in thousands) Federal Funds Purchased and Due to Securities Sold Purchasers Aggregate l Under Agreements Master of Divested Short-Term to Repurchase Notes Other Branches Borrowings Year Ended December 31,1985 Outstanding at year-end $ 1,434,514 $251,209 8451,969 $ 2,137,692 Maximum outstanding at any month-end 1,580,529 276,226 474,914 2,230,059 Average amount outstanding 1,110,669 227,823 351,606 1,690,098 Weighted average interest rate' 8.10 % 6.97 % 8.18 % 7.96 % Weighted average interest rate at year end 9.25 % 7.80 % 7.82 % 8.52 % Year Ended December 31,1984 Outstanding at year.end $ 1,386,547 $219,858 3234,314 $ 1,840,719 Maximum outstanding at any month-end 1,386,547 226,823 401,191 1,840,719 Average amount outstanding 769,504 179,645 239,018 1,188,167 Weighted average interest ratet 10.13 % 9.45 % 10.39 % 10.08 % Weighted average interest rate at year-end 9.27 % 8.03 % 8.46 % 9.02 % Year Ended December 31,1983 Outstanding at year.end S 765,789 $186,227 $126,881 $ 214,757 $ 1,293,654 Maximum outstanding at any month-end 775,343 195,052 243,315 214,757 1,293,654 Average amount outstanding 654,723 145,099 145,679 945,501 Weighted average interest rate' 8.88 % 0.04 % 8.01 % 9.61 % 8.77 % Weighted average interest rate at year end 9.10 % 8.39 % 9.60 % 9.61 % 9.04 % ' Actual interest expense divided by the daily average outstandings. 42

1 [ increases reflect Sovran's increased use ofborrowed funds to support the growth m its earning asset base. Favorable spreads between yields earned on money-market invest-

== = - w - ments and rates paid on short-term borrowings made C o this shift to short-term borrowings advantageous. For additional information regarding short-term borrowings, y w ] see Table 17. 1 Average long-term borrowings in 1985 increased 77.3% l over 1984. This increase followed a 19.1% decline in i 1 average long-term borrowings in 1984 when compared i y with 1983. On January 31,1985, Sovran issued $75 million ia of unsecured floating rate subordinated notes due in 1997. l This issuance of these notes was the primary reason for -d the 1985 increase in average long-term borrowings. The decline oflong-term borrowings in 1984 when compared ) with 1983 was principally a result of the call for redemp-t tion at year-end 1983 of Sovran's 6% convertible subor-( dinated debentures which were due in 1994, as well as ,m ei= < ss es m i [ M"a.'.*" "'?o*5llll7.",lllllll of the retirement of the variable rate mortgage indebted-1. ness due August 1,1986. For additionalinformation [ :4.7.__.",l".lllllll4' ",""" ]-- regarding tong-term borrowings, see Note l of Notes to Supplemental Financial Statements on page 56. compound growth rate of 10.7%. Sovran's expanded SHAREHOLDERS' EQUITY market presence and the efficiency of marketing in the At December 31,1985, shareholders' equity was $763.1 area should increase Sovran s ability to fully serve cus-million, up 9.8% over the same period in 1984. This in-tomers who hve and work in different areas, thereby. crease is less than the 20.0% growth from year-end 1983 enhancing its opportunities to attract and retain deposits. to year-end 1984 and less than the five-year compound OtherInterest Bearing Liabilities growth rate of 13.5%. The 1985 growth in shareholders' Average short-term borrowings were up 42.2% in 1985 equity was principally due to the retention ofincome over 1984 and 25.7% in 1984 compared with 1983.These after payment of dividends, issuance of shares for the Table 18 Sovran Financial Corporation and Subsidiaries Supplemental Selected Shareholders' Equity Data (Doll:Is in thousands, except per share data) Year Ended December 31 1985 1984 1983 1982 1981 Sh nholders' equity at December 31, $763,125 $694,991 $579,069 $506,455 $451,629 l Sh'reholders' equity and long-term borrowings at year.end 919,690 776,630 664,360 621,101 571,468 Book v:Jue per common share 18.31 16.59 14.91 13.56 12.27 Capital growth rate' 9.80 % 20.02 % 14.34 % 12.14 % 11.70 % Dividends declared as a percent of net income 33.89 33.86 36.62 35.33 36.23 Ye rend shareholders' equity as a percent of year end: Lo ns net of unearned income 8.90 9.79 10.08 10.24 10.28 Assets 5.85 6.18 5.91 5.73 6.07 Deposits 7.85 8.28 7.59 7.21 7.75 Shireholders* equity and long-term borrowings 82.98 89.49 87.16 81.54 79.03 Intimil capital generation: R; turn on average assets 1.07 % 1.11 % .99% .97% .97% Multiplied by Average assets to average total equity 15.8 15.4 16.6 16.5 15.6 R1 turn on average total equity 16.9 17.1 16.5 16.0 15.2 Multiplied by l Etrnings retained 2 66 66 63 65 64 l Intim J capital generation rate 11.2 % 11.3 % 10.4 % 10.4 % 9.7% 'incr:ase in shareholders' equity divided by beginning shareholders' equity. 3100% minus dividend payout ratia 43

Supplemental Management's Discussion end Analysis of Financial Condition r.nd Results cf Operations (continued) Table 19 Sovran Financial Corporation and Subsidiaries Suppiomental Stock Prices' and Dividends Declared Price Range Cash Dividends Declared Sovran Financial Suburban Sovran Financial Sovran Financial . Suburban Corporation Bancorp Corporation Corporation Bancorp Common Stock Common Stock Common Stock Preferred Stock Common Stock 1985 High Low High Low First quarter $28.25 $25.38 $47.88 $43.00 $.28 $.5925 $.48 Second quarter 31.38 26.38 62.75 46.75 .28 .5925 .48 Third quar 1er 31.25 23.38 88.75 59.00 .32 .5925 .48 Fourth quarter 32.88 23.88 87.00 64.00 .32 .5925 .48 Total $1.20 $2.37 $1.92 1pB4 First quarter $24.00 $19.88 $36.50 $33.63 $.25 $.5925 $.46 Second quarter 21.88 16.88 35.50 31.63 .25 .5925 .46 Third quarter 23.63 19.88 38.88 33.75 .28 .5925 .46 F;urth quarter 25.75 22.88 43.25 38.50 .28 .5925 .46 Total $1.06 $2.37 $1.84 ' Quotations represent p tees between dealers and do not include retail mark-up, mark <$own. or commissions and do not necessarily represent actual transactions. Dividend Reinvestment and Stock Purchase Plan and of DCNB. Upon consummation of the DCNB merger on for employee stock plans. The Supplemental Consolidated March 10,1986,approximatel common stock were issued. y 1.9 million sharesofSovran Statement of Changes in Shareholders' Equity is found The majority of the shares on page 51 and provides information concerning changes issued represents shares recently acquired in the open in shareholders' equity. market. Upon consummation of the Suburban merger Total shareholders' equity at the end of 1985 increased on March 31,1986, Sovran issued approximately 15.8 less than average shareholders' equity, which increased million shares. 16.6%, principally due to Sovran's acquisition near year-end Reported cash dividends per share represent the ofits common stock which was used in the acquisition historical cash dividends on common stock of Sovran Financial Corporation. Dividends per share on common stock in 1985 were up 13.2% over 1984, following an in-crease of 8.2% in 1984 over 1983. At December 31,1985, "cayng G'~~ ] Sovran's annualized dividend per share rate was $1.28, u 14.3% from the $1.12 in 1984, which was an increase ofl2.0% from $1.00 in 1983. Table 1 on ag 29 pro-stsso.ama.e l vides dividend information for each of t e ve years g.,,]j ended December 31,1981 through 1985. Federal regulatory agencies impose certain restrictions ri, on the payment of dividends, extensions of credit and alls ]I transfer of assets from subsidiaries to bank holding com-panies. Historically, these restrictions have had no impact h ]i] on Sovran's dividend policy and it is anticipated that they will have no impact in the future. For additional information on these restrictions, see Note N of the Notes to Supplemental Financial Statements on [et p 1 age 60. I Table 19 displays the quarterly high and low mar ofcommon stock and quarterly dividends per share for Sovran Financial Corporation and Suburban Bancorp. The common and preferred stocks of Sovran Financial e k-3 Corporation are traded in the over-the-counter market and are quoted on the National Association of Securities

_ _.a.,,,,,,1 Dealers Automated Quotation System (NASDAQ) adf""*1*"U.L""En2l under SOVN for common stock and SOVNP for the Senes A $2.37 cumulative convertible preferred stock.

Suburban was also traded in the over-the-counter market and was quoted on NASDAQunder the symbol SUBC. 44 l

Table 20 Sovran Financial Corporation and Subsidiaries t;;M:.talInterest Sensitivity Analysis December 31,1985 (Dollars in millions) Months Over Over one three Over six Within through through through Total Non-one three six twelve One Year Sensitive Total Earning assets: Loans $ 3,091 3 386 3 287 3 478 $4,242 $4,328 5 8,570 investment securities 82 121 91 319 613 1,440 2,053 Money-market investments 535 203 72 217 1,027 1,027 T;td earning assets 3,708 710 450 1,014 5,882 5,768 11,650. Interest bearing liabilities: - Deposits 2,734 771 762 453 4,720 2,676 7,396 Short t:rm borrowings 1,778 149 6 21 1,954 184 2,138 Long-t:rm borrowings 30 30 126 156 T.talinterest bearing liabilities 4,512 920 768 504 6,704 2,986 9,690 - Net noninterest bearing liabilities: Demand deposit accounts, net of cash 1,394 1,394 -Other 566 566 . Total net noninterest bearing liabilities 1,960 1,960 Int: rest sensitivity gap 5 (804) 5 (2i]) $ (318) t 510 $ (822) S 822 5 Cumulative gap $ (804) $(1,010 $ {1,332) 5 (822) $ (822) Rati) of interest sensitive assets to interest sensitive liabilities .82X .77X .59X 2.01X .88X Capital Adequacy INTERESTSENSFflVITY Capital adequacy is a measure of the amount ofcapital needed to sustain asset growth. During the past five Interest sensitivity management allows for the max-years, Sovran has experienced substantial growth, while imization of net interest income and manageraent of maintaining a strong, sound capital position.This capital interest rate risk through the planning and controlling strength is evidenced by Sovran's excellent primary and of the mix and maturities of assets and liabilities. The total capital ratios. At December 31,1985, the primary Company monitors its interest sensitivity position over - capital ratio was 7.12% and the total capital ratio was varying time intervals while assessing changes in external 7.55%. Both of these ratios are well above the the Federal factors which might affect the targeted mix and maturities Reserve's required minimum ratios of 5.5% for primary of assets and liabilities. The Company may use a variety capital and 6.0% for total capital, and compare very of techniques to achieve its desired interest sensitivity favorably with the capital ratios of peer banking position. Among these are the sale and purchase of securi-organizations. ties and the establishment of rates on consumer deposits The Company's management is dedicated to the main-which will encourage the desired results. Within prescribed tenance and improvement ofits capital position. As limits, the Company also may use such financial instru-l growth occurs, the Company will continue to evaluate ments as interest rate swaps and financial futures to its capital and take appropriate action to maintain a control its interest sensitivity position. strong, sound capital position. Table 20 shows an interest sensitivity analysis as of December 31,1985 for Sovran. The interest sensitivity 1lQlJ1DITY analysis displays a static view of the interest sensitivity position. This analysis does not take into consideration Liquidity is the ability to satisfy demands for deposit external factors which might affect the sensitivity of withdrawals,lendin obligations,orothercorporateneeds, assets and liabilities, nor does it consider the use of such and is monitored b the asset / liability committee under financial instruments as interest rate swaps or financial i guidelines establis ed by management. futures. Therefore, this analysis should be used in con-In addition to liquidity provided from investments, junction with the other financial data found in this report. loan repayments and deposits, Sovran is in an excellent position to obtain borrowed funds at a reasonable price. A relatively low level of debt and access to national markets create a favorable environment for obtaining additional funds to meet liquidity needs. 45

Supplemental Management's Discussion and Analysis of Financial Condition and Results cf Operations (continued) SUPPLEMENTARYINFORMATION substantially different from that of an industrial company, EFFECIS OF CHANGING PRICES in that virtually all assets and liabilmes of a bank are monetary in nature, changes in interest rates may have a The disclosure of the effects of changing prices is significant impact on a bank's performance. Interest rates intended to address the effect of the rise in the general do not necessarily move in the same direction or in the price level on the exchange value or purchasing power of same magnitude as the prices ofother goods and services. the dollar. Since a bank's asset and liability structure is Therefore, reference to other financial schedules shown within this section should also assist in the understanding of how well Sovran is positioned to react to changing interest rates and inflationary trends. Table 21 The supplemental information on changing prices does Sovran Financial Corporation and Subsidiaries not reflect a comprehensive application of changes in the Supplemental Consolidated Statement of income Adjusted for general rice level. The information presents: (1) the f Generallnflation (Doliars in thousands) effect or general inflatton on properties and the related depreciation expense; and (2) the effect of general infla-g(**'3 tion on monetary assets and liabilities. En Calculation of the purchasing power loss on net bfu's"tmenNo'r'th7ef ect of generalinflation on onetary items is based upon a theoretical concept. depreciation and amortization' 7,574 Under this concept, all monetary assets increase or N ;t income as adjusted for general inflation $116,602 decrease in value at the rate of the consumer price index Purchasing powerloss on net monetary assets S 13.593 its monetary liabilities, an increase in the CPI results in ' oepreciation aejustments are not tax effected. a decline in the purchasing power of net assets. However, Table 22 Sovran Financial Corporation and Subsidlaries Supplemental Effect of Changing Prices on Selected Financial Data (Dollars in millions, except per share data) December 31, 1985 1984 1983 1982 1981 Historical Cost Dollars: Net interest income 3 464.5 5 402.0 $ 374.5 5 326.3 $ 284.9 Net income 124.2 107.5 88.4 75.6 64.8 Average assets 11,606.8 9,678.9 8,884.5 7,778.4 6,645.8 r Net assets at yearend 763.1 695.0 579.1 506.5 451.6 Per share data: Net income 2.94 2.67 2.32 2.04 1.77 Dividends declared on common stock 1.20 1.06 .98 .87 .75 Market price at year end 32.25 25.75 21.38 13.13 11.13 Average 1985 Constant Dollars: Net interest income S 464.5 5 417.2 3 407.9 $ 366.8 $ 331.6 Net income 116.6 103.7 86.0 71.9 67.5 Average assets 11,606.8 11,008.0 9,545.6 8,631.0 7,827.8 l Net assets at year-end' 860.9 799.3 756.7 736.3 688.7 ~ Purchasing power loss on net monetary assets 13.6 12.6 8.8 7.6 17.0 Per share data: Net income 2.76 2.57 2.25 1.94 1.86 . Dividends declared on common stock 1.20 1.10 1.06 .97 .89 Market price at year-end 31.88 26.25 22.75 14.63 12.75 Average Consumer Price Index 321.9 311.1 298.4 289.1 272.4 ' Represents historical shareholders' equity decreased by the loss in general purchasing power of net monetary assets held and increased by the inflation adjustment citributed to premises and equipment and other assets. 46

since there is no clear evidence that there is a relationship Five-Year Comparison O/SelectedFinancialData between the purchasing power of a bank's net assets and Table 22 presents selected financial data on both a future earning streams, the purchasing power loss on net historical and general price level adjusted basis. All . monetary items may not be reflective of the effect of amounts in the five-ymt comparison of selected supple-inflationary trends on a bank's operations. The following mental financial data are stated in average 1985 dollars. assets have been classified as non-monetary for purposes As described previously, the determination of net assets ofcomputing the purchasing power loss on net monetary reflects a partial application ofinflation accounting assets (in thousands): methods. Other assets of $89.5 million in 1985, $100.2 million in 1984, and $65,2 million in 1983, including real estate held for resale, intangibles and deferred December 31, charges, have not been adjusted for general inflation. 1985 1984 1983 Bank premises and equipment S270,753 $249,038 $229,726 QUARTERLY DATA Other 89,468 100,200 65,228 T1tal nonmonetary assets $ 360,221 5349,238 $294,954 Table 23 presents Sovran's quarterly results ofoperations for the years ended December 31,1985 and 1984. All liabilities were considered to be monetary in the calculation of the purchasing powe loss on net mone-c tary items. Tabl323 Sovran Financlai Corporation and Subsidiaries Supplemental Quarterly Data (in thousands, except per share data) 1985 1984 Three Months Ended Three Months Ended March June Sept. Dec. March June Sept. Dec. 31 30 30 31 31 30 30 31 Int: rest income $276,529 $288,848 $294,856 $302,845 5237,814 $252,001 $269,004 $279,353 Interest expense 169,991 173,250 175,664 179,641 145,541 151,022 165,218 174,418 Nit interest income 106,538 115,598 119,192 123,204 92,273 100,979 103,786 104,935 Provisi:n forloan losses 8,474 9,653. 8,363 13,696 4,894 6,470 7,108 8,206 nit interest income after provision farloan losses 98,064 105,945 110,829 109,508 87,379 94,509 96,678 96,729 Othirincome excluding securities gdns and (losses) 48,199 51,143 50,526 59,326 41,062 42,908 44,946 49,109 Securities gains and (losses) 1,042 2,373 246 (7) 429 (427) 146 259 OtherExpenses 112,876 118,651 119,517 137,336 102.464 106.995 108,299 112.266 income before income taxes 34,429 40,810 42,084 31,491 26,406 29,995 33,471 33,831 Applicable income taxes 5,049 8,292 8,659 2,638 2,206 3,943 5,283 4,768 Nit income $ 29,380 $ 32,518 5 33,425 $ 28,853 $ 24,200 $ 26.052 5 28,188 5 29,063 N:t income per share: Primary S.70 S.76 3.80 S.68 5.62 S.66 $.70 S.69 Fully diluted .69 .76 .79 .68 .61 .66 .69 .68 i 47

e. na" -,.,,,.,.,n,,,g* 1 Supplemental Consolidated B;lanc3 Sheet c 8"888dd** ] Dollars In thousands,cxc pt per share data) L* Decerr,ber 31, ; '1965: 1984 - 19834 Assets. . Cash and due from banks-Note J : '8 926,986 - ~ $ : ' 810,267 : - $ 781,268 ;

Money-market investments

- Federal funds sold and securities purchased

under agreements to resell '

422,548-x 485,523 - 1435,365 > Due from banks-interest bearing '473,064 -575,110 - 616,800 : 1 Trading account securities ' 23,153:- 20,716 .- 3,296 - ~ Other 107,754' 50,206' - 64,464

Total money-market investments 1 1,026,519 1,131,555 1,119,925

> Investment securities (market value: 1985 - 82,066,641;1964 - 81,652,232;- L1963-81,633,952)-Note C 2,053,622 1,697,425 1,690,833 = Loans-Note D 8,882,244, 7,385,020 ' 6,008,588 ; l ~ Uneamed income (311,906) (284,753)- (262,294) Loans net of unearned income 8,570,336, 7,100,267.. 5,746,294 L Allowance forloan losses-Note E -(97,784) (79,053). -(65,676) Net loans-8,472,562 7,021,214 = 5,680,618 Premises and equipment-Note F 270,753 - 249,038 229,726 Due from customers on acceptances 29,581

25,959 L 28,360 Other assets 261,350

' 301,890 271,992 C Total Assets $13,041,363 $11,237,348. 39,802,722 [ Liabilities < Deposits: ^ Noninterest bearing '8 2,320,805- $ 2,111,057.$1,943,287 - Interest bearing .7,395,526 - 6,279,500' -5,690,188 Total deposits-Note G 9,716,331 8,390,557 7,633,475 Short term borrowings: + Federal funds purchased and securities .765,789 sold under agreements to repurchase 1,434,514 1,386,547-Other short term borrowings 703,178 454,172 .527,865 -Total short-term borrowings-Note H 2,137,692 1,840,719 1,293,654 Long-term borrowings-Note i 156,565 81,639 85,291 Acceptances outstanding 29,581 25,959 28,360 Otherliabilities 238,069 203,483 182,873-Total Liabilities 12,278,238 10,542,357 9,223,653 Shareholders' Equity Commitments and contingencies-Notes I and J Shareholders' Equity-Notes I, K, M and N Preferred stock-par value $25.00 per share: Authorized-5,000,000 shares; lasuable in i-series: Series A $2.37 cumulative convertible; g. L issued-1985-212,493 shares; 1984-L 293,402 shares; 1983-304,002 shares; (Net of discount of $1,594, $2,201 and F $2,280, respectively)-Note M 3,718 5,134 5,320 I Common stock-par value $5.00 per share: . Authorized-100,000,000 shares; l; lssued-1985-42,096,824 shares; L 1984-27,731,350 shares; l 1983-25,855,027 shares 210,484 138,656 129,275 Surplus ~ 4,876 71,582 42,156 Retained eamings-Note N 561,711 479,619 408,515 Treasury stock, at cost-1985-614,596 shares; 1984-shares; 1983-192,507 shares (17,664) (6,197) Total Shareholders' Equity 763,125 694,991 579,069 Total Uabilities and Shareholders' Equity $13,041,363 $11,237,348 $9,802,722 See accompanying notes to supplemental financial statements. 48

Mra%*,"a*j-Supplement:1 Consolid ted Stat:m:nt cf Incom::) Subsidiaries -

(Dollars in thbusands, cxc: pt per share data)

Year Ended December 31, 1985 1984-1983 Interest income' . Loans, including fees 5 926,903 $ 805,183 $6E8,346 l-Investment securities: Taxable 104,198 102,408 102,625 Taxexempt 56,393 52,612 50,028 Total investment securities 160,591 155,020 152,653 Money-market investments: p Federal funds sold and securities purchased under agreements to resell 24,115 - 34,533 41,626 Due from banks-interest bearing 41,244 38,818 47,878 Trading account securities 998 971 544 Other 9,227 3,647 3,444 Total money-market investments - 75,584 77,969 93,492 Total Interest income 1,163,078 1,038,172 ' 914,491

Interest Expense Deposits-Note G 549,448 509,803 448,843 Short-term borrowings:

Federal funds purchased and securities y . sold under agreements to repurchase 89,946 77,979 58,140 Other short-term borrowings 44,652 41,801 24,779 Total short term borrowings 134,598 119,780 82,919 Long-term borrowings - 14,500 6,616-8,236 Total interest Expense 698,546 636,199 539,998

N:t Interest income Net Interest income 464,532 401,973 374,493

- Provision for loan losses-Note E 40,186. 26,678 18,087 Net Interest income After Provision for Loan Losses 424,346 375,295 356,406 Other income Trust income 28,812 26,555 22,250 Service charges on deposit accounts 49,540 41,003 36,621 Other service charges and fees 113,694 96,401 83,792 Trading account profits and commissions 5,811 2,599 3,070 Securities gains and (losses) 3,654 407 (11,752) Gain on branch divestitures, net of merger-related expenses (280) 6,039 Other 11,337 11,747 8,087 ~ Total Other income 212,848 178,432 148,107 i Other Expenses Salaries and employee benefits-Note K 259,114 231,506 216,349 Net occupancy expense 29,452 26,737 26,711 1 Furniture and equipment expense 50,347 45,313 42,129 Other 149,467 126,468 120,191 Total Other Expenses 488,380 430,024 405,380 Net income income Before income Taxes 148,814 123,703 99,133 Applicable income taxes-Note L 24,638 16,200 10,741 Net income $ 124,176 $ 107,503 $ 88,392 Net income Per Share-Note M Primary $2.94 $2.67 $2.32 i Fully diluted $2.92 $2.64 $2.26 See accompanying notes to supplemental financial statements. 49

MSM Supplemental Consolidated Stat:m:nt - Subsidiaries Cf Cn:nge3in FinanCl:1 POSillZn (Dollars in thousands) Year Ended December 31, 1985 1984 1983 Sources of Funds Net income $ 124,176 ~ $ 107,503 88,392 Items not requiring (providing) funds: Depreciation and amortization of premises and equipment. 33,233 26,747 24,089 Other amortization and accretion 8,369 5,958 11,389 Provision forloan losses 40,186-26,678 18,087 Deferred income taxes 4,490 7,198 7,041 Funds provided by operations 210,454 174,084 148,998 lssuance of: Common stock 9,031 39,721 10,625 l Treasury stock 11,076. 16,899 23,866 increase in: Deposits 1,325,774 757,082 789,375 Short-term borrowings - 296,973 547,065 90,294 Long term borrowings 74,926 Decrease in money-market investments 105,028 Other(net) 62,625 TotalSourcesof Funds $2,095,887 $1,534,851 $1,063,158, Uses of Funds Cash dividends declared: Common stock 41,423 35,685 31,652 Preferred stock 661 714 721 Sale of divested branches: Deposits 282,098 Short term borrowings (214,757). Other(net) (57,701) Sale of divested branches (net) 9,640 Cash in lieu of fractional shares issued in merger 175 Cash in lieu of fractional shares to effect the 3-for-2 stock split. 112 Purchased and acquired treasury stock 23,953 11,802 17,721 Loans charged off(net of recoveries) 21,455 13,301 12,759 increases in: Cash and due from banks 116,719 28,999 32,380 Money-market investments 11,583 25,476 I investment securities 357,482 5,739 61,555 Loans net of unearned income 1,469,134 1,352,925 788,134 Premises and equipment 54,948 46,059 37,011 Acquisition of banks: investment securities 46,560 i Loans net of uneamed income 39,010 Deposits (98,716) Other(net) 22,937 l Acquisition of banks (tiet) 9,791 Decrease in long term borrowings: l-Conversion and redemption of 6% convertible subordinated debentures 18,556 Other 3,652 10,799 l Other(net) 24,392 6,788 l Total Uses of Funds $2,095,887 $1,534,851 $1,063,158 See accompanying notes to supplemental financial statements. 1 50

- sgray3"g*! Supplement:1 Consolidated Stat: ment ) cf Changes in Shrreholders Equity Subsidiaries

(Dollars in thousands, cxc;pt per share dita)

Preferred Stock Common Stock Treasury Stock ' Retained Shares Amount Shares Amount Surplus Eamings Shares Cost Total FOR THE YEAR ENDED DECEMBER 31,1983: Balance at beginning of year 304,050 $5,321 25,304,080 $126,520 $31,834 $352,496 (662,640) $ (9,716) $506,455 Net income 88,392 88,392 Dividends declared on: Common stock-$.98 per share (31,652) (31,652) Preferred stock-82.37 per share (721) (721) ' ' Treasury clock: Purchased (638,158) (17,721) (17,721) . Issued foracquisitions-2,033 288,801 3,812 5,845 Retired (22,900) (115) (619) 22,900 734 ' Common Ctock issued: Upon conversion of convertible preferred stock (48) (1) 62 1 ' Pursuant to sale of stock by an acquired bank 26,709 134 412 546 Shares issued pursuant to dividend reinve:tment, stock purchase, employee thrift, and stock option plans 206,897 1,035-2,692 345,413 7,954 11,681 Shares issued upon conversion of 6% convertible subordinated debentures 344,959 1,725 5,954 451,177 8,740 16,419. Cash in lieu of fractional shares issued in merger (4,780) - (24) (151) (175) Balancxt end of year 304,002 $5,320 25,855,027 $129,275 $42,156 $408,515 (192,507) $ (6,197) $579,069 F:R THE YEAR ENDED DECEMBER 31,1984: Balance at beginning of year 304,002 $5,320 25,855,027 $129,275 $42,156 $408,515 (192,507) $ (6,197) $579,069 Nitincome. 107,503 107,503 Dividends declared on: Common stock-51.06 per share (35,685) (35,%5) . Preferred stock-52.37 per share (714) (714) . Treasury stock: Purchased (317,000) (10,825) (10,825) Acquired through stock option exercise (29,384) (977) (977) Shares issued pursuant to dividend reinvestment, stock purchase, employee thrift, and stock option plans 741,648 3,708 15,608 537,988 17,965 37,281 Shares issued upon conversion of convertible preferred stock (10,600) (186) 13,042 65 87 903 34 - Shares issued pursuant to sale of stock by an acquired bank 1,121,633 5,608 13,731 19,339 Balancvt end of year 293,402 $5,134 27,731,350 $138,656 $71,582 S479.619 - S - $694,991 FZ3 THE YEAR ENDED DECEMBER 31,1985: Balanc3 at beginning of year 293,402 $5,134 27,731,350 $138,656 $71,582 $479,619 $694,991 . Net income 124,176 124,176 Dividends declared on: Common stock-$1.20 per share (41,423) (41,423) Pref:rred stock-$2.37 per share (661) (661) . Treasury stock: Purchased (961,181) (32,001) (32,001) i Acquired through stock option exercise (48,630) (1,952) (1,952) Shares IKued pursuant to dividend reinvestment, stock purchase, employee thrift, and stock option plans 311,546 1,558 5,141 379,469 13,408 20,107 Shares i: sued upon conversion of c!nvertible preferred stock (80,909) (1,416) 61,983 310 (1,775) 93,940 2,881 Issuanca cf common stock to ef fect 3-for 2 stock split 13,991,945 69,960 (70,072) (78,194) (112) . Balanc](t end of year 212,493 $3,718 42,096,824 $210,484 5 4,876 $561,711 (614,596) $(17,664) $763,125 See accompanying notes to supplemental financial statements. 51

Notes to Supplomantal Financial Statam;nts NOTE A-ACCOUNTING POLICIES Ioans On March 31,1986, Sovran Financial Corporation (SFC) Interest on loans and amortization of unearned income is merged with Suburban Bancorp, a Maryland based bank computed by methods which generally result in level rates holding company. This men;er was accounted for under of return on principal amounts outstanding. Equipment the pooling-of-interests method. These supplemental finan-leased to others is generally accounted for using the direct cial statements and notes thereto give effect to this merger financing method for financial reporting purposes. l as though the companies had always been combined. After Sovran discontinues the accrual ofinterest on loans th: merger certain activities of the combining companies, based on delinquency status, an evaluation of the related including employee benefit plans, may be conformed, as collateral and the financial strength of the borrower. Loans rppropriate. For additional information regarding this other than installment and credit card loans are generally merger, see Note B of these Notes to Supplemental Finan. placed on nonaccrual status when the collectibility ofin-cial Statements. terest is uncertain. Income recogni:ed on installment and The accounting and reporting policies of Smran Financial credit card loans is discontinued and the loans charged off Corporation and subsidiaries (Sovran or the Company) after a delinquency of 90 and 90 to 120 days, respectively. follow generally accepted accounting principles and prac-When interest accruals are discontinued, interest credited tices within the financial services industry. The following is to income in the current year is reversed, and interest a summary of the more significant policies: accrued in prior years is charged to the allowance for Principles of Consolidation loan losses. - The consolidated financial statements include the accounts Allowance for loan losses of SFC and its subsidiaries and when consolidated are The allowance for loan losses is determined using referred to as Sovran or the Company. Principal sub-Sovran's loan loss experience, an evaluation of the loan sidi ries of SFC include Sovran Bank, N.A. and its sub-portfolio and the exercise of judgment and assumptions sidiaries (Sovran Bank), and Suburban Bank and its sub-with respect to economic conditions. sidiaries (Suburban Bank), which upon merger was re-Premises and Equipment named Sovran Bank / Maryland, all of which are wholly Premises and equipment are stated at cost,less accumu-owned. All significant intercompany balances and trans-lated depreciation and amortization. For financial reporting actions have been eliminated in consolidation. purposes, Sovran principally uses the straight-line method M:ney Market Investments of depreciation and amortization for buildings, furniture, Money-market investments, with the exception of trading equipment, and leasehold improvements. account securities, are carried at cost, which approximates Capital leases are recorded at the lower of the present market. Trading account securities are carried at market. value of minimum lease payments at the beginning of the Gains or losses resulting from sales and adjustments to lease term or the fair value of the leased property at that m rket are included in other income. Sovran selectively date. The capital lease asset is amortized on the straight-uses interest rate futures contracts as a part ofits overall line method over the lease term, and the amortization is management of interest rate risk. Gains and losses on included in depreciation expense. futures contracts used in securities trading operations are Other Assets recognized currently by the mark-to-market method of ac-Real estate held for resale, acquired principally through counting and included in trading account income. foreclosure, is reported at the lower of cost or estimated net Securities realizable value and is included in other assets. Any write. Investment securities are stated at cost adjusted for amor-downs at the date of acquisition are charged to the allow-ti ation of premiums and accretion of discounts. The ad-ance for loan losses. Expenses incurred in connection with justed cost of a specific security sold is used to compute ownership of the properties, subsequent write-downs, and I gain or loss on the sale of that security. Futures contracts gains and losses upon sale are included in other expenses. hedging the repricing of certificates of deposit are used in Mortgage servicing acquisition costs, deposit intangibles asset / liability management. Sovran may also hedge other and the excess of cost over equity in net assets of acquired interest bearing assets or liabilities against interest rate fluc-subsidiaries are also included in other assets in the con-tuations. Gains and losses arising from these contracts are solidated financial statements. Mortgage servicing acquisi-deferred and amortized over the lives of the hedged assets tion costs are amorti:ed in proportion to the estimated in-or liabilities as an adjustment to interest income or expense. come net of related expenses derived from servicing the 52

related mortgage loans. Deposit intangibles represent the will be restated thereafter to include the accounts of Subur-net present value of the future income streams related to ban. The supplemental financial statements on pages 48 assets and liabilities acquired through mergers and are through 61 give effect to the merger as though the com-amortized on an accelerated basis over lives ranging panies had been merged for all periods presented. The generally from 3 to 20 years. The excess of cost over equity following is an analysis presenting income information of 'in net assets of acquired subsidiaries is amortized on the the separate companies for the year ended December 31, straight-line method over periods ranging from 10 to 40 1985 (in thousands): yevs. Net intangibles included in other assets were $58.0, $58.3 and $57.0 million at December 31,1985,1984, and pooi e .1933, respectively. SFC Suburtian Sovran Pension Costs Net interest income $345,140 $119,392 $464,532 Net income 92,577 - 31,599 124,176 Pension costs are accrued based on accepted actuarial methods. Depending on the plan, pension plans are nor-In 1985, SFC agreed to merge with D.C. National Ban-mally funded to the maximum amount deductible for Corp, Inc. (DCNB), a bank holding company in the federal income tax purposes or to the extent accrued, District of Columbia. At December 31,1985, DCNB re-whereas supplemental pension plans are not funded. Prior ported total assets of $453.8 million and net income for the service costs are amortized over periods of 10 to 30 years. year ended December 31,1985 of $3.8 million. The merger Income Taxes was consummated March 10,1986. Pursuant to the merger When income and expenses are recognized in different agreement, sufficient shares of SFC's common stock were periods for financial reporting purposes and for income tax issued to provide DCNB shareholders with Sovran com- - purposes, deferred taxes are provided in recognition of mon stock having a total market value of $72.50 for each these timing differences. share of DCNB common stock held. A total of approx-Investment tax credits generated from leasing activities imately 1.9 million shares of SFC's common stock was are recognized on the deferral method. Other investment issued, of which approximately 1.3 million was represented tex credits are recognized in the year the asset is acquired. by shares recently acquired in the open market. Soon after Sovran files a consolidated federal income tax return. the merger SFC will purchase additional shares equivalent Provisions for current income taxes are allocated to the to the excess. The merger was accounted for as a purchase. members of the consolidated group on the basis of the Accordingly, the accounts of DCNB will be included in the effect of their respective operations on consolidated consolidated amounts from the effective date of the transac-income. Provisions for deferred income taxes are allocated tion. The anticipated total cost of the merger of approx-on the basis of the related timing differences. imately $69.8 million will be allocated to DCNB's tangible Reclassifications and intangible assets based on their fair market values. The foHowing unaudited pro forma information sum-Certain reclassifications have been made to the in, m rizes the 1985 consolidated results of operations, assum-dividual statements of the pooled entities to conform presentation. These reclassifications had no effect on total ing both the DCNB and Suburban mergers had been con-summated January 1,1985 and includes the effects of amor-assets or net income. tizing intangible assets. These pro forma results are not necessarily representative of the actual results that would NOTE B-MERGER AND ACQUISITIONS have occurred, or may occur in the future, if the transac-Suburban Bancorp (Suburban), a Maryland bank tions had been in effect on the date indicated (in holding company, was merged with and into SFC on thousands, except per share data): March 31,1986. Under the terms of the merger agreement, based upon an exchange ratio of 2.926 shares of SFC's Ye common stock for each outstanding share of Suburban g,cemt er 3 1985 common stock, SFC issued approximately 15.8 million shares ofits common stock and cash in lieu of fractional N'J'",t in sg220 me shares in exchange for all outstanding stock of Suburban. Earnings per share: The merger was accounted for as a pooling-of-interests in Primary 2.86 Fully Diluted 2.83 1986 and, accordingly, premerger historical financial data } 53

Notes to Supplemental Financi:1 Statements (continued) NOTE C-INVESTMENT SECURITIES Investment securities are summarized as follows (in thousands): December 31, 1985 1984 1983 Book Market Book Market Book Market Value Value Value Value Value Value United States Treasury 8 838,274 5 853,127 $ 822,630 $ 835,541 3 702,076 5 706,787 Federal agencies 64,282 65,412 106,600 105,735 154,001 152,240 States and political subdivisions 1,098,193 1,093,374 740,860 682,992 806,983 745,451 Other 52,873 54,728 27,335 27,964 27,773 29,474 $ 2,053,622 $ 2,066,641 $ 1,697,425 51,652,232 $1,690,833 $ 1,633,952 Investment securities with aggregate book values of approximately $483.8, $449.9 and $444.8 million at December 31,1985,1984 and 1983, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required or permitted by law. The carrying value of securities sold under agreements to repurchase was approximately $434.8, $347.3 and $226.5 million at December 31, - 1985,1984 and 1983, respectively. NOTE D-LOANS balances of $77.6 million, $47.7 million and $40.7 million at Total loans net of unearned income are summarized as December 31,1985,1984 and 1983, respectively. An analysis - ' follows (in thousands): of the 1985 activity of these loans follows (in thousands): December 31 Balance at 12/31/84 $47,713 ~ New loans 48,153 1985 1984 1983 Repayments 18,311 m ercial $ 2,502,677 $ 2,090,655 31,533,201 Real estate-construction 843,289 626,131 396,577 Real estate-mortgage 1,566,502 1,396,851 1,420,239 NOTE E-ALLOWANCE FOR LOAN LOSSES Consumer 2,146,656 1,755,103 1,463,366 Bank card 602,558 521,383 439,228 Transactions in the allowance for loan losses are summar-

i. ease financing 229,352 160,000 107,369 ized as follows (in thousands):

Tax exempt 649,972 520,751 321,163 Total domestic loans 8,541,006 7,070,874 5,681,143 - F: reign 29,330 29,393 65,151 Year Ended December 31, 3 8,570,336 $ 7,100,267 $ 5,746,294 1985 1984 1983 Balance at beginning of year $ 79,053 565,676 $59,948 The effects of nonperforming and restructured loans, as Allowance of purchased bank 400 well as their outstanding balances, were not material. There Provision for loan losses 40,186 26,678 18,087 Loans charged off (31,413) (23,397) (23,369) were no material commitments to provide additional funds Recoveries on loans 9,958 10,096 10,610 on such loans at December 31,1985. Net charge-offs (21,455) (13,301) (12,759) I. Dan transactions with directors and executive ofilcers and excessof provision their associates were made on substantially the same terms as over net charge-offs 18,731 13,377 5,328 . those prevailing at the time for comparable loans to other Balance at end of year $ 97,784 579,053 565,676 persons. These loans did not involve more than normal risk of collectability. Loans in excess of $60,000 had outstanding i 54

NME F-PREMISES AND EQUIPMENT lable operating leases amounted to $13.3 million in 1985, Premises and equipment include the following (in thousands): $16.2 million in 1984 and $19,8 million in 1983. Most of the operating leases provide that the lessee pay taxes, maintenance, insurance, and certain other operating December 31, expenses applicable to the leased assets, 1985 1984 1983 The future minimum lease payments under capital leases Land S 25,872 $ 24,678 $ 25,093 and noncancellable operating leases (not reduced for mint-Buildings and improvements 189,054 181,398 175,146 Furniture and equipment 219,366 180,855 147,047 mum sublease commitments of $10,2 million) with remain-434,092 386,931 347,286 ing terms in excess of one year at December 31,1985, are Less accumulated depreciation as follows (in thousands): and amortization 166,440 141,841 122,174 267,652 245,090 225,112 Property under capitalleases: Capital Operating Total Land 215 219 219 Year Leases Leases-Commitments Buildings and improvements 8,059 8,525 8,684 1986 $1,051 $12,004 $13,055 Equipment to 2,805 6,301 1987 1,061 10,723 11,784 8,284 11,549 15,204 1988 1,029 8,357 9,386 Less accumulated amortization 5,183 7,601 10,590 1%9 884 6,721 7,605 3,101 3,948 4,614 1990 756 5,967 6,723 $270,753 $ 249,038 $229,726 Later years 2,149 19,315 21,464 Total minimum lease payments 6,930 $63,087 $70,017 Sovran occupies certain facilities and uses certain equipment under various cancellable and noncancellable lease arrange, Amount representing interest 2,516 mcnts, Those leases having contractual attributes normally Prese value of net associated with purchased property are capitalized and are included in the table above, Rent expense, net of sublease tease payments $ 4,414 rental income, applicable to both canceliable and noncancel-NME G-DEPOSI'IS Deposits outstanding at December 31,1985,1984 and 1983 and the related interest expense for the years then ended are summarized as follows (in thousands): 1985 1984 1983 Amount Expense Amount Expense Amount Expense Noninterest bearhg $ 2,320,805 $ $2,111,057 $ $ 1,943,287 $ Interest bearing: Interest checking 655,875 29,618 539,163 26,107 499,895 25,259 Money-market accounts 1,737,350 110,151 1,239,733 97.500 969,461 51,181 Regular savings 854,981 45,779 833,523 47,221 897,013 50,305 Consumer certificates 2,876,465 259,384 2,557,968 247,781 2,279,170 251,400 Certificates of deposit, $100,000 or more 1,256,572 99,626 1,050,329 90,426 1,036,619 69,830 Foreign 14,283 4,890 58,784 768 8,030 868 Totalinterest bearing 7,395,526 $ 549,448 6,279,500 $509,803 5,690,188 $448,843 $ 9,716,331 $ 8,390,557 $ 7,633,475 55

Notes to Supplemental Financial Stat;ments (continued) . NOTE H-SHORTTERM BORROWINGS Note K)] in amounts sufficient to make periodic deposits Short-term borrowings are summarized as follows (in into the note fund. The amount of the notes to be treated thousands): as " primary capital" is presently limited to 10% of share-holders' equity plus the allowance for loan losses. Through December 31, the use of an interest rate swap agreement the effective 1965 1984 1983 interest cost on the notes was converted to a fixed rate of Federal funds purchased and approximately 11%% through January 31,1992. securities sold under Mortgage indebtedness consisted of notes secured by agreernents to repurchase $1,434,514 $ 1,386,547 - S 765,789 deeds of trust on premises with carrying values of $21.1 M,*n'o',88P*P 2N 2Qy gy milli n, $20.9 million and $57.7 million in 1985,1984 and Due to purchasers of 1983, respectively. divested branches 214,757 The aggregate matunties and sinking fund requirements Other 412,162 217,157 110,714 oflong-term borrowings at December 31,1985 are sum- $ 2,137,692 $ 1,840,719 $ 1,293.654 marized as follows (in thousands): Sovran maintains lines of credit for commercial paper back-up and general operating purposes, on which rates 1986 1987 1988 1989 1990 af generally approximate prime lending rates at the time of borrowing. Unused lines amounted to approximately $47.8 $8"' $j 8 ,r 3 3 3 7 million at December 31,1985. Sovran's financing arrange' consolidated $38,173 $3,673 $3,862 $3,948 $7,415 $101,494 ments require maintenance of compensating balances which were not material at December 31,1985. Withdrawals of loan Agreements the compensating balances were not legally restricted. In connection with its borrowings, Sovran has agreed to certain restrictions on, among other things, pay nent of NOTE I-LONGTERM BORROWINGS dividends by subsidiaries, the sale or issuance of capital 1.ong-term borrowings are summarized as follows (in stock of certain subsidiaries, the priority ofliens associated thousands): with its indebtedness and lease commitments. It is not anticipated that these restrictions will have any effect on December 31, the Company's current operating policies. 1985 1984 1983 NOTEJ-OTHER COMMITMENTS AND Nit:s payable: 8.875% notes due August 1,1986 $ 30,000 $30,000 $30,000 CONTINGENCIES YtoberY1 Restrictions on Cash and Due From Bank Accounts 20,311 20,311 20,311 unsecured fioating rate Sovran's subsidiary banks maintain reserve balances as January 31,1997 75,000 required by the Federal Reserve Bank. Average required subordinated notes due reserves during 1985 were $284.9 million of which $150.5 yy Q g mE n w s s Md b ca A Mortgage indebtedness Long-term obligations under capital Letters of Credit On December 31,1985, Sovran had outstanding standby Oth r ong term borrowings 1 1 1 s okd ad guaramees m bsue stanh lems d e $158,565 $81,639 $85,291 credit of $632.2 million. l The 8.875% notes of the Parent Company due August 1, Pending Litigation 1986, became redeemable on August 1,1983, at the option Sovran is a defendant in various lawsuits generally inci-of the Parent Company, in whole or in part, at their prin-dental to its business. Management is of the opinion that cipal amount plus accrued interest. The 7.80% unsecured Sovran's financial position will not be materially affected by capital notes due October 1,1996, were issued by a sub-the ultimate resolution of litigation pending or threatened sidiary bank, and are subordinated to deposits and certain at December 31,1985. other liabilities. They are redeemable at the bank's option at prices declining from 103.9% to 100% of principal. NOTE K-EMPLOYEE BENEFIT PLANS - The unsecured floating rate subordinated notes issued in Pension Plan January 1985 by the Parent Company require the creation The Company has two noncontributory pension plans of a note fund to qualify the notes as primary capital for covering substantially all employees who qualify as to age and bank regulatory purposes; however, the note fund will not length of service. Pension plan expense, including unfunded secure the notes and note holders will have no right there-supplemental pension plans, was $3.7 million, $3.9 million, ta Sovran has covenanted that it will sell or issue capital and $5.5 million for 1985,1984 and 1983, respectively. [which may include the sale of securities pursuant to the Aggregated accumulated plan benefit information and plan dividend reinvestment and employee benefit plans (See net assets of the Sovran Pension Plan and the Suburban 56

' Bancorp Pension Trust at the plans' actuarial valuation service. Employee contributions of up to 6% of base com-dates of January 1 and July 1, respectively, were (dollars pensation are matched by the Company. In addition, the in thousands): Company makes an annual profit sharing contribution and an annual tax credit contribution. The Surburban Bancorp Thrift and Savings Plan is a tax-December 31. 1985 1984 1983 deferred plan available to substantially all its employees with a minimum of one year of service. Fifty percent of the Actuarial present value of employee contributions of up to 4% of base compensation accumulated plan benefits: Vested S 82,453 $ 72,810 $54,492 are matched by the Company. In addition, the Company $ 88,29 $8 1 $6, Stock Options Net assets available for The Company has two stock option plans, which also benefits $112,923 $101,914 $84,748 provide for stock appreciation rights (SARs). In addition The assumed rate of return used in determining the to these plans, stock options and SARs, granted separately actuarial present value of accumulated plan benefits for the (non-tandem), under two other plans which were termi-Sovran Pensinn Plan was 9% for all periods presented, and nated on December 30,1983, remain outstanding, the projected unit credit funding method was used. The as. The Sovran Stock Option Plan (the Plan) provides that sumed rates of return used in determining the actuarial incentive or non-qualified options to purchase shares of present value of accumulated plan benefits for the Subur, common stock of the Company and SARs may be granted ban Bancorp Pension Trust were 8% for 1985,7%% for to key officers and employees. All options and SARs are 1984 and 7% for 1983, and the entry age-normal cost fund-granted at market value at date of grant and are exercisable ing method was used. The decrease in pension plan ex. over periods of two to nine years. SARs entitle the holder pense for 1984 was due primarily to 1983 plan amendments. to receive payment, equal to the increase in the market value of the Company's common stock from the date of Thrift Plan grant to the date of the exercise. SARs may be granted only The Company also has two contributory thrift plans m tandem with options, and once options are granted, which are available to substantially all employees who have SARs m tandem may be added at any time through expira-satisfied the service requirements of each plan. The Com-ti n. SARs issued under the Plan may be paid in cash or pany's thrift plan expense for 1985,1984 and 1983 was $11.3 the Company's common stock at the election of the holder. million, $10.6 million, and $7.8 million, respectively, The options remaming outstanding under the terminated The Sovran Thrift Plan and Trust is available to allits pl ns have substantially identical terms to those of the Plan. salaried employees who have completed three years of The following is a summary of the Plan's stock option and tandem SARs transactions, including those of the terminated stock option plans, as adjusted where applicable for the effects of the three-I for-two stock split in the form of a 50% stock dividend, effective August 23,1985. Shares Under Stock Option Plan Range of Exercise Prices Year Ended December 31, High Low 1985 1984 1983 Outstanding at beginning of year 854,503 966,835 540,217 Add (deduct): Granted $30.88 $30.88 108,537 94,613 705,497 Cancelled or expired -21.99 6.96 (18,783) (15,887) (9,600) Exercised 21.99 6.58 (284,065) (190,715) (269,279) Exercised but not issued (343) Outstanding at end of year 30.88 6.58 660,192 854,503 966,835 Average price per share: Exercised during year $14.33 $11.13 $ 8.96 Outstanding at end of year 20.79 17.29 15.96 Options exercisable 479,100 362,031 117,331 Shares available for future grants 524,402 620,655 18,303 At December 31, SARs had been issued in tandem with 500,738 outstanding options in 1985, 538,652 in 1984, and 498,144 in 1983. As of December 31,1985 there were 319,648 SARs exer-cisable under which payment could be in common stock of the Company. The options and SARs outstanding at December 31,1985 expire on various dates through July,1995. l 57 t

[ Notes to Supplemental Financial Statements (c:ntinued). The following is a summary of non-tandem SARs transactions of terminated plans. Non-tandem Stock Appreciation Rights Range of.- Exercise Prices Year Ended December 31 High Low 1985 1984 1983 Outstanding at beginning of year 154,491 283,571 135,294 Add (deduct): Granted S 227,696 Cancelled or expired (9,600) Exercised 17.96 9.67 (67.446) (129,080) (69,819) Outstanding at end of year 17.96 9.67 87,045 154,491 283,571 Average price per share: Exercised during year $14.46 $13.44 3 9.67 ~ Outstanding at end of year 14.59 14.53 14.03 SARs exercisable 87,045-154,491 59,625 The Suburban Bancorp Stock Option Plan provides for Other Postretirement Benefits the granting of non-qualified options to purchase unre-The Company provides certain health care and life in-stricted shares of the Company's common stock (" Ordinary surance benefits to active and retired employees. Substan- , Shares"), at a price not less than the fair market value at tially all of the Company's employees may become eligible date of grant, or restricted shares (" Book Value Shares"), at for the retired employees health care and life insurance a price not less than the book value per share, as defined, benefits if they reach normal retirement age while working on the last day of the fiscal quarter immediately preceding for the Company. Life insurance benefits are provided the date the option is granted. In addition, the plan also through an insurance policy maintained by the Company. permits the granting of qualified Incentive Stock Options The cost of providing this benefit is recognized by expens-in lieu of the non-qualified options. Also, the plan provides ing the insurance premiums which approximated $1.1 mil-for the granting oflimited stock appreciation rights. These lion in 1985 and $857,000 in 1984. The cost of providing limited stock appreciation rights permit the recipient, upon life insurance coverage for 1,112 and 974 participating the occurrence of certain events, to exercise a right, in lieu retirees in 1985 and 1984, respectively, is not separable of the related non-qualified or incentive Stock Option, to from the cost of providing this benefit for 9,930 and 9,662 receive in cash or common stock an amount equal to the participating active employees. The Company is self-excess of the market value of the shares subject to such in.ured for its health care benefits. The cost of providing option over the option price per share. A total of 66,713 this benefit is recognized by expensing claims and adminis-and 212,135 limited stock appreciation rights were issued in trative costs as incurred. Such costs approximated $10.9 1985 and 1983, respectively, in conjunction with the related million in 1985 and $10.0 million in 1984. The cost of pro-options for Ordinary / Book Value Shares and Incentive Stock viding health care benefits for 923 and 825 participating Options. At December 31,1985,218,874 stock appn:ciation retirees in 1985 and 1984, respectively, is not separable rights remained outstanding. 'Ihe following table summarizes from the cost of providing benefits for 9,860 and 7,540 par-plan activity as adjusted for the effects of the three-for-two ticipating active employees. The costs given above for pro-stock split, in the form of a 50% stock dividend, effective viding both life insurance and health care benefits are August 23,1985 and the Swan / Suburban merger. before any allocation of contributions or salary redistribu-tions from active employees. f Range of Number of Exercise Prices Shares High Low tranted during 1983 and unchanged tbrough 12/31/84 311,619 $10.47 $10.47 Cranted 102,703 15.76 15.76 Exercised (38,907) 15.76 10.47 Expired due to exercise of related stock appreciation rights (33,064) 15.76 10.47 [ Expired (11,704) 10.47 10.47 Outstanding at 12/31/85 330.647 Average price per share: Exercised during year $10.55 Outstanding at end of year 12.04 f 58

NOTE L.- INCOMETAXES Deferred taxes (benefits) resulted from recognition of the The components of tax expense (benefit) are summarized following revenue and expense items for income tax pur-as follows (in thousands): poses in periods different than for financial reporting pur-poses (in thousands): i Year Ended December 31, 1985 1984 1983 Year Ended December 31, 1985 1984 1983 Current $ 20,148 $ 9,002 5 3,700 Deferred 4,490 7,198 7.041 Lease financing - $12,944 $6,669 $5,319 $ 24,638 $ 16.200 $ 10,741 Loan loss provision (8,594) (5,464) (3,426) Depreciation 3,213 2,623 1,436 } Taxes resulting from securities transactions included in N'"l,*n*"eanhe peNe7o*gNized current income taxes amounted to tax expense of $1.528 on a cash basis forincome tax million and $188,000 for the years ended December 31, purposes (3,697) (1,008) 5,778 Other(net) W) 1,304 (2,066) 1985 and 1984, respectively, and a tax benefit of $5.4 S 4,490. 57,198 $7,041 million for the year ended December 31,1983. l The ratio of applicable income taxes to income before income taxes differed from the statutory federal income tax rate of 46%. The reasons for the differences and their effects on the Com-pany's effective tax rate are as follows (dollars in thousands): Year Ended December 31, 1985 1984 1983 Amount Amount Amount Tax expense at statutory rate $ 68,454 48.0 % $56,903 46.0 % $45,601 46.0 % increase (decrease) resulting f rom: Tax. exempt interest income (43,153) (29.0) (36,291) (29.3) (32,569) (32.9) Investment tax credits (4,818) (3.2) (4,052) (3.3) (3,231) (3.3) Other(net) 4,155 2.8 (360) (.3) 940 1.0 $ 24,638 16.6 % $16,200 13.1 % $10,741 10.8 % NOTE M -PREFERRED SIOCK, COMMON SIOCK, Common Stock AND NETINCOME PER COMMON SHARE Sovran's Board of Directors declared a three-for-two split Prefirred Stock ofits common stock effected in the form of a 50% stock The nonvoting Series A $2.37 cumulative convertible dividend paid on August 23,1985. Weighted average shares preferred stock is convertible into 1.974 shares of common and per share amounts have been restated to give effect to stock and redeemable at the option of the Company begin-the stock split. Shares outstanding prior to the effective ning July 1,1986 at prices declining from $27.25 on that date of the stock split, which are presented on the Balance date to $25.00 on January 1,2003 and thereafter. Holders of Sheet and in the Statement of Changes in Shareholders' the preferred stock are entitled to a cumulative cash divi-Equity, have not been restated. During 1985, authori:ed dend of $2.37 per share before any dividends may be paid shares of common stock were increased from 50 million to to holders of the Company's common stock. 100 million. 59

Notes to Supplemental Finaneirl Statem;nts (continued) i . Net Income Per Common Share NOTE N-PARENT COMPANY FINANCIAL Primary net income per common share is based upon the - INFORMATION i overage number of shares of common stock outstanding Supplemental pooled condensed financial information 1 and common stock equivalents of dilutive stock options. for Sovran Financial Corporation (Parent Company only) ] Fully diluted net income per common share prior to 1984 is as follows (in thousands): is based upon the assumption that the 6% convertible subordinated debentures due 1994 which were outstanding gPpieme tIalanceSheet ,,,n, December 31, m 1983, were converted to common stock. In addition, the (Parent Company only) 1985 1984 1983 comersion of Series A $2.37 cumulative convertible pre- ^ ferred stock is assumed in the computation of fully diluted Loans to bank subsidiaries S 88,746 5 8,000 $ 8,000 per share amounts for all years shown. Loans to bank-related The following table sets forth the number of shares and subsidiaries 69,789 100,205 44,192 Investments 217,562 168,318 176,133 the net income used to determine earnings per share for Investment in bank subsidiaries 738,018 658,550 570,779 the applicable years (dollars in thousands): Excess of cost over equity in net assets-bank subsidiaries 4,249 4,523 4,846 Investment in bank-related Year Ended December 31 subsidiaries 28,513 18,409 11,152 1985 1984 1983 Excess of cost over equity in net assets-bank-related Average shares outstanding 41,753,824 39,812,598 37,557,359 subsidiaries 294 334 374 Effect of common stock Other assets 42,400 29,547 23.052 C ptions 230,013 218,316 237,351 Totalassets $1,189,571 $987,886 $838,528 Primary average shares outstanding 41,983,837 40,030,914 37,794,710 I BLT ND HA E ER, Average shares outstanding 41,753,824 39,812,598 37,557,359 Short term borrowings 3 291,016 $241,215 $202,394 Effeet of: Long term borrowings 115,417 41,122 41,836 Common stock options 282,289 315,063 291,802 Otherliabilities 20,012 10,558 15,229 Conversion of debentures 837,027 Total shareholders' equity 763,126 694,991 579,069 Conversion of preferred fhare o stock 538,151 593,702 600,155 'equ ty $1,189,571 $987,886 $838,528 Average shares outstanding, assuming full dilution 42,574,264 40,721,363 39,286,343 Supplemental Nit income $124,176 $107,503 $88,392 Condensed Statement of Income Year Ended December 31, Less dividends on preferred (Parent Company only) 1985 1984 1983 stock 661 714 721 INCOME Dividends from bank subsidiaries S 44,370 $ 38,001 $ 39,430 primary a gs per share $123,515 $106,789 $87,671 Dividends from bank-related N:t income $124,176 $107,503 $88,392 subsidiaries 1,200 1,150 870 Adjustments to income Interest and otherincome from assuming debenture subsidiaries 18,965 21,618 18,846 conversion 339 Otherinterest 17,416 7,874 5,362 Nit income, assuming full Other 1,991 1,764 2,164 dilution $124,176 $107,503 $88,731 Totalincome 83,942 70,407 66,672 EXPENSES On December 15,1983, the Company redeemed the Salar$es and related expenses 1 outstanding 6% convertible subordinated debentures. Had Other 8,955 6,244 14,761 these debentures been redeemed at the beginning of 1983, Totai expenses 47,366 35,236 39,723 primary earnings per share would have been $2.28 for the income before income taxes and year ended December 31,1983 compared with the reported equity in undistributed amount of $2.32. income of subsidiaries 36,576 35,171 26,949 Applicable income tax benefits 4,460 2,478 5,266 Income before equity in undistributed income of subsidiaries 41,036 37,649 32,215 Equity in undistributed income of subsidiaries: Banks 79,561 67,790 53,321 Bank-related 3,579 2.064 2,856 Net income $124,176 $107,503 $88,392 60

Supplemental Condensed. Regulatory agencies impose restrictions on the transfer of ~ assets and retained earnings from subsidiaries to the Parent Year Ended December 31, n al s lo Company. At December 31,1985, net assets restricted from (Parent Company only) 1985-1984 1983 transfer by subsidiaries to the Parent Company amounted SOURCES OF FUNDS to $512.3 million. Funds provided by operations S 41,868 3 38,207 $ 34,126 Issuance of stock 20,107 56,620 34,491 Under regulations controlling national banks, Sovran increase in: Bank may pay dividends up to $119.9 million plus its 1986 L Long te[m tN((ow*inas profits. Suburban Bank, under Maryland banking law, may I Decrease in: pay dividends up to $81.9 million to the Parent Company. Loans to bank-related ' subsidiaries 30,416 7,815 Investments 3,842 Other(net) T;tal sources of funds $216,487 $141,463 $148,461 USES OF FUNDS Cash dividends declared S 42,084 $ 36,399 $ 32,373 Purchase of treasury stock 33,953 11,802 17,721 Acquisition of banks 9,791 Increase in: Loans to bank subsidiaries 80,746 - Loans to bank-related subsidiaries 56,013 436 Investments 49,244 68,887 investment in subsidiaries 6,525 25,759 Decrease in: Long-term borrowings 714 19,253 Other(net) 3,935 10,776 Total uses of funds $216,487 $141,463 $148,461 i Report Of Ernst & Whinney, Independent Auditors l Shareholders and Board of Directors -Sovran Financial Corporation We have examined the supplemental consolidated balance sheet of Sovran Financial Corporation and subsidiaries as of December 31,1985,1984, and 1983, and the related supplemental consolidated statements ofincome, share-l holders' equity, and changes in financial position for the three years then ended. The supplemental financial state-ments give retroactive effect to the merger of Sovran Financial Corporation and Suburban Bancorp on March 31, 1986, which has been accounted for as a pooling ofinterests as described in the notes to the supplemental financial statements. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We did not examine the consolidated financial statements of First & Merchants Corporation and subsidiaries, merged into Sovran Financial Corporation on December 30,1983 in a pooling ofinterests trans-action, which statements reflect total assets and revenues constituting approximately 31% of the related supplemental f consolidated amounts for 1983. These financial statements were examined by other auditors, whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the 1983 amounts included for First & Merchants Corporation and subsidiaries, is based solely upon the report of the other auditors. In our opinion, based upon our examinations and, for 1983, the aforementioned report of other auditors, the supplemental financial statements referred to above present fairl r the consolidated financial position of Sovran Financial Corporation and subsidiaries at December 31,1985,1934, and 1983, and the consolidated results of their operations and changes in their financial position for the years then ended, after giving retroactive effect to the merger of Sovran Financial Corporation with Suburban Bancorp as described in the notes to the supplemental financial statements, in conformity with generally accepted accounting principles applied on a consistent basis. Norfolk, Virginia March 31,1986 h # f fg/ { 61

@%g*" ray",*"aj*f Supplemental Financial Comp:risons Subsidia'ies Consolidated Average B:lznce Sheet (Average balanc] dollars in millions, income or expense dollars in thousands) Year Ended December 31, 1985 1984 1983 Interest Average Interest Average Interest Average Average incomet Yieldel Average income / Yieldst Average incomet Yields / Balance Expensei Rates 8 Balance Expense' Rates 2 Balance Expense' Rates 2 ASSETS

Loans net of uneamed income:

Commercial 3 2,347.6 3 248,124 10.57 % $1,720.3 $ 216,137 12.56 % $1,320.0 $155,700 11.80 % Real estate. construction 748.3 91,389 12.21 490.7 70,071 14.28 380.5 52,609 13.83 Real estate. mortgage . 1,474.3 178,227 12.09 1,439.1 174,395 12.12 1,411.8 170,865 12.10 Consumer 1,978.1 261,771 13.23 1,599.3 225,074 14.07 1,289.0 193,148 14.98 Bank card 525.1 83,267 15.86 446.6 70,472 15.78 369.2 57,047 15.45 Lease financing 176.5 19,777 11.20 123.1 14,619 11.88 99.6 12,460 12.51 Foreign 30.0 3,183 10.60 40.9 5,348 13.07 45.5 5,126 11.27 Tax exempt 543.3 78,449 14.44 350.6 56,087 16.00 276.3 42,431 15.36 Loans net of unearned income 7,823.2 964,187 12.32 6,210.6 832,203 13.40 5,191.9 689,386 13.28 investment securities: United States Treasury 834.0 89,001 10.67 748.9 83,963 11.21 687.9 76,923 11.18 Federal agencies 106.2 11,454 10.78 128.2 15,224 11.87 188.9 21,620 11.45 States and political subdivisions 776.3 101,537 13.08 749.9 96,308 12.84 760.0 94,123 12.38 Other 40.6 4,102 10.11 27.0 3,405 12.60 23.2 2,833 12.21 T tallnvestment securities 1,757.1 206,094 11.73 1,654.0 198,900 12.03 1,660.0 195,499 11.78 Federal funds sold and securities purchased under agreements to resent 283.4 24,115 8.51 327.8 34,533 10.54 444.3 41,626 9.37 Due from banks. interest bearing 445.1 41,244 9.27 349.9 38,818 11.09 480.1 47,878 9.97 Trading account securities 11.8 1,234 10.50 9.3 1,210 13.01 6.0 698 11.63 Other 112.2 9,401 8.38 34.4 3,647 10.61 36.7 3,444 9.38 T.tal earning assets 10,432.8 1,246,275 11.95 8,586.0 1,109,311 12.92 7,819.0 978,531 12.51 Allowance forloanlosses (88.4) (71.4) (64.7) Cash cnd due from banks 740.3 666.9 651.3 Other assets $22.1 497.4 478.9 T;tal Assets $11,606.8 $ 9,678.9 $ 8,884.5 LIABILITIES AND SHAREHOLDERS' EQUITY interest bearing deposits: Int: rest checking $ 565.6 29,618 5.24 $ 497.0 26,107 5.25 $ 480.7 25,259 5.25 Money-market accounts 1,498.6 110,151 7.35 1,101.8 97,500 8.85 637.3 51,181 8.03 Regular savings 842.8 45,779 5.43 876.0 47,221 5.39 973.7 50,305 5.17 Consumer certificates 2,726.9 259,384 9.51 2,392.8 247,781 10.36 2,448.6 251,400 10.27 Certificates of deposit, $100,000 or more 1,095.6 99,626 9.09 852.8 90,426 10.60 749.9 69,830 9.31 Foreign 54.1 4,890 9.04 11.5 768 6.68 9.6 868 9.04 T2talinterest bearing deposits 6,783.6 549,448 8.10 5,731.9 509,803 8.89 5,299.8 448,843 8.47 Federal funds purchased and securities sold under agreements to repurchase 1,110.7 89,946 8.10 769.5 77,979 10.13 654.7 58,140 8.88 Other short. term borrowings 579.4 44,652 7.71 418.7 41,801 9.98 290.8 24,779 8.52 Long-t:rm borrowings 147,7 14,500 9.82 83.3 6,616 7.94 103.0 8,236 8.00 T.tal interest bearing liabilltles 8,621.4 698,546 8.10 7,003.4 636,199 9.08 6,348.3 539,998 8.51 Noninterest bearing deposits 2,024.8 1,843.4 1,835.9 Oth:rliabilities 227.7 203.4 164.2 I T;tal Liabilitles 10,873.9 9,050.2 8,348.4 { Total Shareholders' Equity 732.9 628.7 536.1 Total Uabilities and Shareholders' Equity $11,606.8 $9,678.9 $8,884.5 Int: rest spread 3.85 % 3.84 % 4.00 % N:t int: rest income / margin 3 547,729 5.25 % $ 473,112 5.51 % $438,533 5.61 % T:tal deposits S 8,808.4 $ 7,575.3 $ 7,135.7 ' Includes fees on loans of approximately $25,354, $18,660, $21,213, $16,809, $14,549, $17,684, for the years 1985 through 1980, respectively. Computed on a fully taxable equivalent basis using the corporate Federal tax rate of 46% and including the of fects of nonaccruing loans. I f 62

7. . ~ ~ [- [ V ~

f

. Avera9e Balance - y' . 1981r 1980. Increase (Decrease) = "1962 ~ I nteseet ? Avera9e Intesset. Amera9e Ono#ser FiveMeerCornpound ~ l J Intesent Avera9e - Awara9e incomel ( Yieldel - Avera9e ! Incomet ' Yieldal /. Avera9e Incomet. Yieldel Change Geowth Rate Betance Expensei.

• Rateen~

Balance JExponee' Rateen -. Balance - Exponeet4 Rates'. 1985n984 1985N980 i I 81,172.5 L $174,486 I ' '14AB% [$ 987A. $189,627 - 117,17%' S 9473 ' $134,313. = 14.18% L $36.5% ' i 19.9 %. - 318.1 , 52,589 16.53 298.5 ' 58,808 ' '19.83 291.0. 47,235 -: -16.23 - 52A 20A i

1,305.9

.154,286 11.80.

1,176.4 i 129,884 ' '11.04 1,151.2

.119,211 10.36 . 2.4 ' 5.1 1,056.1

170,588 ~ 16.15 ~

956.6 ' ;145,311 15.19 939.5 - 121,845 1 12.97 ~ c 23.7 - 16.1 296.3 144,342 J 14.97 267.6 1 39,482 : 14.75 247.6 - 35,667. 14.40 ' 17.6. J 16.2 ; , 85.8. '11,837. 13.80 - 1 58.4 - 7,780 .1332-44.1 ~ 5,312 .12.05 ' 43.4 - 32.0-45.1 : 7,389._- ; 16.34 - ' 26.7 - 4,946 18.52 8.7 - _1,319 ~ 15.16 (26.7) - 28.1' 235.4 = 39,648 - 16.84 4 159.9 - 26,005 16.26 - 131.7 19,231 14.80 - 55.0

32A

_q l' -4,516.2 855,085 14.51 3,931.9 581,643 14.79 3,761.1 - 484,123 12.87 ' 26.0.. ? 15.8 : ~ 426.6 '

56,075 - '12.91-415.4 50,176 12.08.

321.5 30,015 9.34 L 11.4, ' ' 21.0 '

176.4 -

20,357 11.54 181.9 ~ 20,617 11.33. 154.8 _ 14,453 9.34 - (17.2) (7.3F 894.2 83,678 12.05 634.1 68,034 10.73 676.7 ' 89,549 - 10.28 3.5 2A ~ 28.6 2,743 9.59 38.0 4,489 11.76 14A 1,357 9.17 50.4 22.4 .l 1,325A -. 161,853. 12.21 1,289.4 143,298 11.29 1,167A - 115,374

9.88 f 6.2 8.5 j

i z 452.5 : 57,031 12.80 380.5 58,707 16.28 - 277.4 36,775 13.26 : (13.5). J.4 426.1 i 80,371' 14.17 170.3 .27,734 16.29 131.7 17,894 13.59 ' 27.2 - 27.6 - 4.7.. 616 13.11. ' 7.9 1,056 1337 5.0 - 588. - 11.36 ~ 26.9 18.7 : ' 21.5. -2,449 11.39 6.4 998 15.59 6.1 689 11.30 100.0 + . 79.0 ' i s 6,746.8.. 937,405 13.89 5,746.4 813,434 14.16 5,349.1 656,423 12.25 21.5 14.3'I . (57.0) (50.1) (43.6) ' 23A . 15.2 ~ ' 800.1 - ~ -585.2 570.5 11.0 5.3 ' ^ ~ 488.5 ~ 364.3 ~ 307.6 5.0 11.2 ' $7,778.4 - 56,645.8 ' $6,183.6 - 19.9 % 13.4 % k ~8 437.4. 23,633 5.46 ' S' 278.0 14,531 5.23 4.8 175' 3.65 13.8 % 159A% . 2.6 240-. 9.23 36.0 986.7 . 51,401 - 5.21 : 971.5 50,585 5.21 1,055.9 55,240 5.23 - (3.8) (4.4)

c 2,272.0 275,085 12.11 1,858.7 221,626 11.92 '

1,534.2 143,191 9.33 14.0 12.2-899.3 - 85,932 12.29 552.7 -82,594 14.94 559.7 - 68,137 12.17 28.5 14.4 -- 13.9 2,096 15.08 17.6 2,986 16.97. 82.9 '11,702 14.12-100.0 + (8.2) 4 4,411.9 438,387 9.94 3,678.5 372,322 :10.12 3,237.5 278,445 8.80 -183 15.9 'l 678.6 - 80,030 11.79 486.7 - 76,472 15.71 376.6 47,372. 12.58 443. 24.1 - ' 217.4 24,940 11.47 164.1 24,641 15.02 180.8 - 19,831 12.33 38.4 29.2 116.9 9,564 - &18 121.9 9,862 8.09 133.7 10,673 - 7.98 77.3 2.0 1 5,424.8 552,921 10.19 - 4,451.2 483,297 10.86 3,908.6 356,321 9.12 23.1 ~ 17.1 1,667.5 1,647.1 1,790.4 9.8 2.5

212 3 121.1 96.2 '

11.9 .18.8 . 7,304.6 6,219.4 5,795.2 20.2 13.4 .t t' 473.8 426.4 388.4 16.6 13.5 ' $7,778.4 - 56,645.8 56,183.6 19.9 % 13.4 % 3.70 % 3.29 % 3.14 % . 3384,484-5.70 % $330,137 5.75 % $299,102 5.50% sim:m=== i I ~ 63

n a 1 7"),y;*a*j'l Supplemental Financi:1 Comparisons ~ ' sums *** [ Consolidated Bal:nco Sheet (Dolfars in thousands.cxc:pt par share dat? December 31, 1985 1%4 1983

Assets Cash and due from banks 926,966

~$ 310,267 ' ? 781,268 Monsy-market investments: Federal funds sold and securities purchased under agreements to resell 422,548 485,E23 435,365i, Due from banks interest bearing 473,064 . 575,110 616,800 ' Trading account securities - 23,153 / 20,716 3,296 Other 107.754 50,206 64,464 Total money-market investments 1,018,519 1,1317;55 1,119,925 investment securities 2,053,622 1,697,425 1,690.833 Loans 8,882,244 7,383,020 6,00S,2 3 Unsained income (311,908) (284,753) (262,3 4) h, loans net of unearied income 8,570,336 7,100,267 5,746,294 '3 l f A!!owance forloan losses (97,784) (79,053) (65,676) Net loans 8,47?.552 7,021,214 5,680,610 Premises and squipment 270,753 249,038 229,726 Due from customers on acceptances 29,581 25,959 28,360 Other assets 261,350 301,390 271,992 Total Assets S13,041,363 $ 11,237,048 $9,802,722 . _.. = e== i, Liabilities Deposits: Noninterest bearing $ 2,320,805 $ 2,111,057 $1,943,287 Interest bearing 7,195,526 6,279,500 5,690,188 Total depoclis 9,f16,331 8,390,557 7,633,475 Short term borrowings: Federal funds purchgsed and securities sold under agreements to repurchase 1A34,514 1,386,547 765,789 la Other short-term tmrowings 703,178 454,172 527,865 Total short-term borrowings l4137,692 ' 1,840,719 1,293,654 Long-term borrowings 1E6,565 81,639 85,291 L Acceptances outstanding 29,581 25,959 28,$ tic Otherliabilities 238,069 203,483 182,873 i Total Liabillyes 12,278,238 10,542,357 9,223,653 Shareholders' Equity Preferred stock 3,718 5,134 5,320 Common stock - 210,484 138356 129,275 Surplus 4,876 71,582 42,156 Retained earnings 561,711 479,619 408,516 Treasury atock at cost (17,664) (6,197) Total Shareholders' Equity 763,125 694,991_ 579,069 Total Liabilities and Shareholders' Eculty $ 13,041,363 $ 11,237,348 $9,802,722 a Preferred stock-par value $25.00 per sharo: Shares authorized 5,000,000 5,000,000 5,000,000 f' Shares issued 212,493 293,402 304,002 Common stock-par value $5.00 per share: 1 Shares authorized 100,000,000 50,000,000 50,000,0G.) Shares issued 42,096,624 27,731,350.25,855,027 Shares outstanding 41,482,PJ 27,731,350 T13.662,520 64

l>, Five-year Compound e,J Growth Rate 1tf2 .'1981 1980 1985/1980 $ j 752,334 y 737,742 $ 700,794 - 5.8% ) a S I' 350,566 314,4G8 6.1 '559,385 i a 500,037 X 255,359 156,2 % 24.8 r/ 3,283 15,864 1,298_ 77.9 / 31,731 10,595 2,350 114.9 ~ 1,094,436 632,384 474,369 16.7 1,584,676 1,287,609 1,230,534 10.8 s . ).5,214,86J 4,614,919 3,G87,206 17.5 . - (271,426) ~ (221,165) (167,296) 13.3 - 4,943,443, 4,393,754 3,799,912_ 17.7 (59,948); __ (52,967) (43,894) ' 17.4 4,883,495 - 4,340,787 3,756,018 17.7 223,949 205,959 197,687 6.5 47,897 . 63,557 4,325' 40.9 258,897 174,020 136,510 13.9 $8,845,684 $7,442,058 $6,500,237 14.9 % i $1,955,358 $1,805,956 01,956,604 3.5% J 5,072,124 4,013,460 3,295,441 17.5 7,027,482 5,815,416 5,252,045 13.1 710,484 6eS,7G6 413,747 28.2 290,519, 177,276 207.66f - 27.6 3 1,001,003 864,044 621,415 28.0 114,646 119,839 116,576 6.1 47,897 63,557 4,325 46.9 148,201 117,573 101,567 18.6 8,339,229 6,990,429 6,095,920 15.0 5,321 5,321 126,520 123,002 121,252 11.7 31,834 24,292 21,154 (25.4) 352,496 303,639 262,933 z 16.4 (9,716) (4,625) (1,030) 76.5 506,455 451,629 404.309 13.5 $8,845,684 $7,442,058 $6,500.237 14.9 % 5,000,000 5,000,000 5,000,0C0 304,050 304,050 50,000,000 5^,000,000 50,000,000 1 25,304,080 24,600,351 24,250,570 I 24,641,440 '24,249,011 24,142,956 l 1 l 1 65

f &"l*o"rf!"*"!,@' Supplemental Financi:1 Comparisons Subsidiaries Consolidated Statement cf Income (Dollars in thousand:) Year Ended December 31, 1985 1984 Interest income Loans, including fees S 926,903 67.4 % $ 805,183 66.2 % investment securities: Taxable 104,198 7.5 102,408 * ~ 8.4 Tax-exempt 56,393 4.1 52,612 4.3 Total investment securities 160,591 11.6 155,020 12.7 Money-market investments: Federal funds sold and securities purchased under agreements to resell 24,115 1.8 34,533 2.8 Due from banks-interest bearing 41,244 3.0 38,818 3.2 Trading account securities 998 .1 971 .1 Other 9,227 .6 3,647 .3 ~75 77,% 9 6.4 Total money-market investments 75,584 5 ~ Total Interest income 1,163,078 84.5 1,03! 172 85.3 Interest Expense Deposits 549,448 39.9 509,803 41.9 / Short term borrowings: / Federal funds purchased and securities h sold under agreements to repurchase 89,946 6.5 77,979 6.4 f Other short term borrowings 44,652 3.3 41,801 3.4 Total short-term borrowings 134,598 9.8 119,780 9.8 Long-term borrowings 14,500 1.1 6,616 .6 TotalInterest Expense 698,546 50.8 636,199 52.3 N:t interest income Net Interest income 464,532 33.7 401,973 33.0 Provision forloan losses 40,186 2.9 26,678 2.2 Net Interest income After Provision for Loan Losses 424,346 30.8 375,295 30.8 Other income Trust income 28,812 2.1 26,555 2.2 Service charges on deposit accounts 49,540 3.6 41,003 3.4 Other service charges and fees 113,694 8.3 96,401 7.9 Trading account profits and commissions 5,811 .4 2,599 .2 Securities gains and (losses) 3,654 .3 407 Gain on branch divestitures, net of merger.related expenses (280) Other 11g .8 11,747 1.0 Total Other income Q(MC 15.5 178,432 14.7 Other Expenses Salaries and employee benefits I as, v.. 18.8 231,506 19.0 Net occupancy expense 29,452 2.1 26,737 2.2 + Furniture and equipment expense 50,347 3.7 45,313 3.7 Other 149,467 10.9 126,468 10.4 Total Other Spenses 488,380 35.5 430,024 35.3 N:t income Income Before Income Taxes 148,814 10.8 123,703 10.2 Applicable income taxes (benefits) 24,638 1.8 16,200 1.4 Net income $ 124,176 9.0% $ 107,503 8.8 % Total income $1,375,926 100.0 % $1,216,604 100.0 % t i bh

Five Y;U Compound 1 1 Growth Rate 1983 1982 1981 1980 1985/1980 .$ 668,346 62.9 % $635,193 63.8 % $567,832 65.3 % $473,557 69.0 % 14.4 % 102,625 9.7 80,021 8.0 75,855 8.7 46,187 6.7 17.7 - - 50,028 4.7 43,670 4.4 36,131 4.1 37,036 5.4 8.8 i 152,653 14.4 123,691 12.4 111,986 12.8 83,223 12.1 14.1-41,626 3.9 57,031 5.7 58,707 6.7 36,775 5.3 (8.1) 47,878 4.5 60,371 6.1 27,733 3.2 17,894 2.6 18.2 .544 .1 483- ~- 956 .1 436 .1 18.0 3,444 .3 2,449 .3 998 .2 689 .1 68.0 ' 93,492 8.8 120,334 12.1 88,394_ 10.2 55,794 8.1 6.3 914,491 86.1 879,218 88.3 768,212 88.3 612,574 89.2 13.7 448,843 42.2 438,387 44.0 372,322 42.8 278,445 40.6 14.6 58,140 5.5 80,030 8.0 76,472 8.8 47,372 6.9 13.7 24,779 2.3 24,940 2.5 24,641 2.8 19,831 2.9 17.6 82,919 7.8 104,970 10.5 101,113 11.6 67,203 9.8 14.9 1.5 6.3 8,236 .8 9,564 1.0 9,862 1.2 10,673, 539,998 50.8 552,921 55.5 483,297 55.6 356,321 51.9 14.4 374,493 35.3 326,297 32.8 284,915 32.7 256,253 37.3 12.6 18,087 1.8 16,376 1.7 20,209 2.3 20,895-3.0 14.0 356,406 33.5 309,921 31.1 264,706 30.4 235,358 34.3 12.5 22,250 2.1 18,770 1.9 15,791 1.8 14,035 2.0 15.5 36,621 3.4 31,307 3.1 20,639 3.1 18,388 2.7 21.9 83,792 7.9 68,499 6.9 57,317 6.6 43,015 6.3 21.5 3,070 .3 3,181 .3 1,243 .1 (186) (11,752) (1.1) (13,525) (1.4) (5,599) (.6) (9,418) (1.4) 6,039 .6 8,087 .7 8,321 .9 6,230 .7 8,102 1.1 7.0 148,107 13.9 116,553 11.7 101,621 11.7 73,936 10.7 23.5 216,349 20.4 186,098 18.7 159,294 18.3 144,275 21.0 12.4 26,711 2.5 - 25,098 2.5 20,145 2.3 19,502 2.8 8.6 42,129 4.0 36,357 3.7 32,770 3.8 25,732 3.7 14.4 120,191 11.2 100,895 10.1 79,863 9.2 67,401 9.9 17.1 405,380 38.1 348,448 35.0 292,072 33.6 256,910 37.4 13.7 99,133 9.3 78,026 7.8 74,255 8.5 52,384 7.6 23.2 10,741 1.0 2,473 .2 9,467 1.1 329 137.1 88,392 8.3% $ 75,553 7.6 % $ 64,788 7.4 % $ 52,055 7.6% 19.0 % $1,062,598 100.0 % $995,771 100.0 % $869,833 100.0 % $686,510 100.0 % 14.9 % l 67

. Co",,o",5.ln"e'e"a*# Supplemental Selected Statistical Inform 2 tion o subsidi Year Ended December 31,- 1985 1984 1983: 1982 1981 -1980 - Earnings 3 Net income (dollars in thousands) _ $124,176

$107,503

' $88,392

375,553

$64,788 _ $52,055, iPrimary eamings per share 2.94 - 2.67 2.32 2.04 1.77. 1.45 ' Fully 'lluted eamings per share : 2.92 2.64 2.26 -1.96 1.72 - 1.41 ~ Performance Ratios Retum on assets. ' 1.07% ' 1.11 % - .99%. .97% - .97% '.84'% Retum on equity; _18.94 - 17.10 16.49 -15.95' 15.19 13.40 l tint; test spread' 3.85 3.84 '- 4.00 3.70 ' 3.29 ' 3.14-i ' Net interest margin' 5.25 - '5.51 5.61 ~5.70 = 5.75 5.59 - Loan Loss Ratios - . N;t charge-offs to average loans .27% .21 % .25% '.26 % ' .32% ~.52% <

Allowance to period-end loans 1.14 1.11 1.14-1.21 1.21 1.16-i

~ Loan loss coverage. 8.64X 11.28X - 10.11X 9.11X - 8.02X - J4.24X i ' Liquidity and Capital Ratios -

Average shareholders' equity to average:

- Loans net of uneamed incorne 9.37 % -10.12 % 10.33 % 10.49 % : ' 10.84 % 10.33 % : - Assets 6.31 6.50 6.03 6.09 6.42.

6.28

Deposits -

8.32 8.30 7.51 7.79 8.01 7.72 L Average loans net of uneamed income to L average deposits and borrowed funds 73.48 70.20 63.44 63.68 64.48 66.00 L Average long-term debt to average long. t:rm debt and total shareholders' equity 18.77-11.70 16.12 -19.79 22.24 25.61 F

Capital adequacy:

~ - Primary - 7.12 6.84 6.53 6.36-6.73 - 6.85 : Total 7.55 7.34 7.12 7.23 7.81 8.09 . Common Stock Data , Common shares outstandin' g (in thousands): ' Weighted average Primary - 41,984 40,031 37,795 - 36,667 36,311 35,896 - Fully diluted 42,574 40,721 39,286 38,789 38,099 '37,350 i . Period-end 41,482 27,731 25,663 - 24,641 24,249 24,143 Book value at period-end $18.31 $16.59 $14.91 $13.56 - $12.27 $11.17 - [ [Non Financial Data ; 1Numberof shareholders 30,322 31,599 30,605 28,688 27,216 27,815 L. ~ Number of domestic bank offices 350 351 363 387- -361 336 Number of full time equivalent employees 10,314 9,991 10,035 10,152 9,557 9,461 l" - Number of bank related offices' 197 104 90 79 65 72 Numberof automated tellermachines 296 278 245 196 162 109 i: Market Prices and Dividends Declared Market prices: Hint $32.88 $25.75 $22.13 $13.63 $13.13 $8.63 ~ Low - 23.38 16.88 13.13 9.38 7.63 6.00 l 1 DiQ!er>d declared on common stock 1.20 1.06 '.98 .87 .75 .65 j O Computed on a fully taxable equivalent basis Dividends per share represent Sovran Financial Corporation's historical data. All weighted average shares and common stock per share data for all periods presented have been restated to give effect to the three-for-two stock split,in the form of a 50% stock dividend, effective August 23,1985. I ( P 68

Manag:m:nt's Discussion and Analysis of Financial Condition and Results of Operations Table 1 Sovran Financial Corporation and Subsidiaries Contribution of Affiliates (Dollars in thousands) December 31.1985 Net % Of Total % Of l Income Total Assets Total Sovran Bank, N.A. $80,890 87.4 % $9,426,971 97.5 % Sovran Mortgage Corporation 7,878 8.5 246,628 2.5 Sovran Leasing Corporation 1,845 2.0 126,101 1.3 Sovran Equity Mortgage Corporation 1,532 1.6 96,775 1.0 Other companies, including adjustments and eliminations 976 1.1 (450.846) (4.6) Sovran Bank, N.A. and Subsidiaries 93,121 100.6 9,445,629 97.7 Sovran Credit Corporation 1,578 1.7 47,790 .5 Sovran Life Insurance Company 978 1.1 6,764 .1 Other companies, including adjustments and eliminations (3,100) (3.4) 171.493 1.7 $92,577 100.0 % $9,671.676 100.0 % j that would have been incurred had such income S ovran Financial Corporation (SFC or Company), headquartered in Norfolk, been taxable at statutory rates. Virginia, was a one bank holding company

• On December 27,1985, the Company acquired at December 31,1985. At that time, Sovran Virginia Southern Bank (VSB), which had assets Bank, N.A., the Company's principal sub-of $49.9 million. This acquisition was accounted sidiary, offered commercial banking services through for under the pooling-of-interests accounting method.

268 domestic bank offices in Virginia and one foreign Consequently, historical financial data has been office in Nassau, The Bahamas. The Company also offered restated to reflect the combination. mortgage lending, leasing, commodities futures trading,

• Br all periods presented, weighted average shares ATM interchange, consumer financing, credit insurance, outstanding and common stock per share amounts investment management and advisory services, and have been restated for the 3-for-2 stock split, securities brokerage services. Table 1 shows each of in the form of a 50% stock dividend, effective the Company's major subsidiaries' contribution to net in-August 23,1985.

come for 1985 and to total assets as of December 31,1985.

• During 1985, the Company executed definitive The year 1985 was highly successful for SFC and was merger agreements with two other bank holding highlighted by strong earnings performance and asset companies: Suburban Bancorp (Suburban), based in growth. The following discussion provides information Maryland; and D.C. National BanCorp, Inc. (DCNB),

about the Company's results ofoperations and financial located in the District ofColumbia. At December 31, condition. While the majority of the discussion compares 1985, these mergers had been approved by their 1985 to 1984 and 1984 to 1983, in certain instances, in-respective shareholders and were awaiting regula-formation is presented on a five-year basis to assist in tory approval. Consummation of these mergers was the analysis oflonger-term trends. This discussion should completed on March 10,1986 for DCNB and on be read in conjunction with the financial statements, March 31,1986 for Suburban. as well as other supplementary financial data contained in this report. The following information is provided PERFORMANCE

SUMMARY

to enhance understanding of the discussion: o All information is presented on a consolidated SFC's reported net income of $92.6 million repre-basis, unless otherwise indicated. sented a 14.8% increase over the $80.6 million earned o Where indicated, tax-exempt income has been in 1984. In comparison, earnings in 1984 increased increased by an amount equal to the income taxes 22.7% over the 1983 total. Growth in the volume of 69

Management's Discussion and Analysis of Financi:1 Canditi:n rnd Results of Operati:ns (c:ntinued) Table 2 Sovran Financ;al Corporation and Subsidiaries Selected Financial Data Year Ended December 31, 1985 1984 1983 1982 1981 Eamings (In thousands, except per share data) Interest income $866,545 5778,M5 $706,693 $686,918 $599,897 Net interest income 345,140 307,451 294,852 254,385 215,470 Provision forloan losses 29,286 18,930 14.995 12,754 13,120 Net income 92,577 80,636 65,720 56,750 47,135 Primary per share 3.50 3.14 2.73 2.46 2.09 Fully diluted per share 3.45 3.09 2.61 2.31 1.97 Dividends declared on common stock 31.103 26,594 23,236 17,973 15,344 Per share 1.20 1.06 .98 .87 .75 Average balances (in millions) Assets S 8,591.8 $ 7,214.4 $ 6,726.7 $ 5,995.6 $ 5,118.6 Earning assets 7,632.4 6,320.4 5,825.7 5,109.6 4,352.8 Deposits 6,570.9 5,703.2 5,438.7 4,694.1 4,062.5 L;ong. term borrowings 144.4 79.7 99.0 112.5 117.2 Shareholders' equity 536.2 466.8 397.4 348.0 309.4 Rutlos Return on average assets 1.08 % 1.12 % .98% .95% .92% Return on average shareholders' equity 17.27 17.28 16.54 16.31 15.23 Dividends declared on common stock per share as a percent of primary net income per share 34.29 33.76 35.90 35.37 35.89 Average earning assets to average total assets 88.83 87.61 86.61 85.22 85.04 Average st'areholders' equity to average: Loans net of uneamed income 8.76 9.46 9.37 9.51 9.97 Total assets 6.24 6.47 5.91 5.80 6.04 Total deposits 8.16 8.18 7.31 7.41 7.62 Dividends per share represent Sovran Financial Corporation s historical data. All weighted average shares and common stock per share data for all periods presented, have been restated to Olve effect to the three.for.two stock split. In the form of a 50% stock dividend. af fective Au0ust 23,1985. earning assets, which resulted in greater interest income, for each of the three years in the period ended Decem-and growth in fee income contributed to the increased ber 31,1985. Each major component of the income state-1985 earnings. Table 2, Selected Financial Data, contains ment is expressed as a percentage of average earning assets: selected earnings information for each of the five years ended December 31,1981 through 1985. Year Ended Decembu 31, Primary earnings per share were $3.50, $3.14, and $2.73 M85 1984 G83 for the years 1985,1984, at:d 1983, respectively. These earnings represented an 11.5% increase from 1934 to 1985 Fully taxable net interest inc me 5.34 % 5.68 % 5.84 % and a 15.0% increase from 1983 to 1984. On a fully diluted basis,per share earnings for 1985 increased 11.7% rax equivaient adjustment (.c2) (.81) (.77) to $3.45, while fully diluted earnings per share for 1984 Provision for loan losses (.38) (.30) (.25) were 18.4% greater than for 1983. Net overhead expense (2.73) (3.11) (3.51) 7 axes (.20) (.a) (.17) Return on average assets (ROA), a frequently used Re n on amage eaming measure of performance, indicates how effectively the 1.21 1.27 1.13 Company employs its assets in the production of net uuttipiied by average eaming income. The 1985 ROA of 1.08% was down slightly from assets to average totai assets 88.8 7.6 86.6 the 1.12% reported in 1984, which was up from 1983's Retum on average assets i.08 % 1.12 % .98% .98%. The following table provides an analysis of ROA 70

Another frequently used measure of performance, the NETINTERESTINCOME return on average equity (ROE) indicates the income ital invested Net interest income and net interest margin are affected earned in relation to the total equity cap % remained in the company. The 1985 ROE of 17.2 t by changes in interest rates and in the volume and mix relatively unchanged from 1984's ROE of 17.28%, which of earning assets and interest bearing liabilities. In 1985, 1 was a 74 basis point increase from the 1983 level. An net interest income, on a fully taxable. equivalent basis, analysis of the Company's internal capital generation rate increased 13.6% over 1984. This increase followed a for the three years in the period ended December 31, 5,5% growth in 1984 compared with 1983. The principal 1985 follows: contributors to the increase in net interest income in 1985 compared with 1984 were: ofinterest earning assets.Th.W U Year Ended December 31, isincreasedincome more int:rnal Capital Generation 1985 1984 1983 than offset the additional expense from greater Return on average assets 1.08 % 1.12 % .98% volumes of interest bearing liabilities.

• N atively affecting net interest income was a shift Av ra sse s to avet je equity 16.0 15.5 16.9 e tx o S ans,w pdced narrower Return on average equity 17.3 17.3 16.5 spreads between the yields earned and rates paid Multiplied by Earnings retained 66 66 64 to fund these loans.

ii.4% 11.4 % 10.6 %

• Declining interest rates decreased 1985 net interest income. Yields on earning assets declined 97 basis points while rates on interest bearing liabilities declined 87 basis points.

Tabb 3 Sovran Financial Corporation and Subsidiaries Comparative Operating Data Fully Taxable Equivalent Basis (Dollirs in thousands) Increase (Decrease) Year Ended December 31, Year 1985 over 1984 Year 1974 over 1983 1985 1984 1983 Amount Percent Amount Percent incom] from earning assets: Loans $762,909 $667,381 $574,379 $95,528 14.3 % $ 93,002 16.2 % Investment securities 133,585 131,316 132,479 2,269 1.7 (1,163) (.9) M ney-marketinvestments 32,335 31,489 44,950 846 2.7 (13,461) (29.9) Totalincome from eaming assets 928,829 830,186 751,808 98,643 11.9 78,378 10.4 1 Int; rest expense on: Deposits 412,127 382,851 345,222 29,276 7.6 37,629 10.9 Short. term borrowings 94,940 82,216 58,579 12,724 15.5 23,637 40.4 Long-term borrowings 14,338 6,437 8,040 7.901 100.0+ (1,603) (19.9) T1tal interest expense 521,405 471,504 411,841 49,901 10.6 59,663 14.5 N;t interest income 407,424 358,682 339,% 7 48,742 13.6 18,715 5.5 Provision forloan losses 29,286 18,930 14,995 10,356 54.7 3,935 26.2 Nit interest income after provision for loan losses 378,138 339,752 324,972 38,386 11.3 14,780 4.5 Other income, excluding securities gains and (losses) 168,690 142,729 131,080 25,961 18.2 11,649 8.9 Securities gains and (losses) 2,212 388 (11,6%) 1,824 100.0 + 12,084 (100.0 +) Total Otherincome 170,902 143,117 119,384 27,785 19.4 23,733 19.9 Other expenses 379,207 339,800 324,121 39,407 11.6 15,679 4.8 income before income taxes 169,833 143,069 120,235 26,7S4 18.7 22,834 19.0 Applicable income taxes 14,972 11,202 9,400 3,770 33.7 1,802 19.2 Tax equivalent adjustment 62,284 51,231 45,115 11,053 21.6 6.116 13.6 N;t income $ 92,577 $ 80,636 $ 65,720 $ 11,941 14.8 % $ 14,916 22.7 % 71

M:nagem:nt's Discussi:n cnd Analysis of Financist Condition and Iksults of Operations (continued) Factors affecting the change in net interest income of deposits divested at year-end 1983 in the First & in 1984 compared with 1983 were: Merchants Corporation / Virginia National

• The prime rate decline in the latter half of 1984, Bankshares, Inc. (F&M/VNB) merger.

negatively affected net interest income because the Core deposits primarily consist of demand, savings, volume of earning assets which reprice immediately interest checking and money. market accounts. Shifts upon rate changes exceeded the volume of those between these categories ofcore deposits combined with interest bearing liabilities which reprice immediately. the generally higher cost of additional funds to support a

• The cost of total interest bearing liabilities increased significant growth in earning assets resulted in a decline 50 basis points in 1984 over 1983, compared with a in the net interest margin. The net interest margin was 23 basis point increase in the yields on earning assets.

5.34% in 1985, down from 5.68% and 5.84% in 1984 and

• The Company's cost of funds increased in 1984 as 1983, respectively. Table 4 provides an analysis of the a result of the cost associated with the replacement changes in net interest income for the years 1985 compared with 1984 and 1984 compared with 1983.

Table 4 Sovran Financial Corporation and Subsidiaries Net Interest income Analysisi Fully Taxable Equivalent Basis (Dollars in thousands) Year Ended 1985 Compared With Year Ended 1984 Compared With Year Ended 1984 Year Ended 1983 Increase (Decrease) Increase (Decrease) Due to Change in: Net Due to Change in: Net Averar,e Average increase Average Average increase Volume Rate (Decrease) Volume Rate (Decrease) Interest income Loans net of unearned income: Commercial $ 51,986 $(28,831) $23,155 $ 31,803 $ 7,891 $39,694 Real estate-construction 23,183 (8,838) 14,345 7,633 1,165 8,798 Real estate-mortgage 182 (104) 78 (193) (1,438) (1,631) Consumer 38,230 (11,725) 26,505 35,941 (10,343) 25,598 Bank card 9,116 (391) 8,725 9,152 570 9,722 Lease financing 3,657 (612) 3,045 2,436 (492) 1,944 Foreign (1,266) (899) (2,165) (493) 715 222 Tax exempt 25,938 (4,098) 21,840 7,415 1,240 8,655 Total loans 151,405 (55,877) 95,528 93,355 (353) 93,002 Investment securities: United States Treasury 4,711 (3,675) 1,036 (542) (542) Federal agencies (2,864) (721) (3,585) (5,765) 700 (5,065) States and political subdivisions 2,993 748 3,741 4,293 1,318 5,611 Other 990 87 1,077 (629) (538) (1,167) Total investment securities 6,571 (4,302) 2,269 (3,325) 2,162 (1,163) Federal funds sold and securities purchased under agreements to resell (1,077) (3,671) (4,748) (10,941) 2,554 (8,387) Due from banks-Interest bearing 162 (51) 111 (5,634) (155) (5,789) Trading account securities (71) (200) (271) 421 91 512 Other 6,669 (915) 5,754 (203) 406 203 Total Interest income 163,215 (64,572) 98.643 64,785 13,593 78,378 Interest Expense laterest bearing deposits: Interest checking 2,430 37 2,467 (24) (40) (64) Money-market accounts 18,124 (9,061) 9,063 17,900 2,611 20,511 i Regular savings (2,006) 404 (1,602) (4,537) 1,198 (3,339) Consumer certificates 26,182 (17,059) 9,123 5,333 (819) 4,514 Certificates of deposit, $100,000 or more 16,181 (10,078) 6,103 8,659 7,448 16,107 Foreign 3,763 359 4,122 135 (235) (100) Total interest bearing deposits 61,278 (32,002) 29,276 23,257 14,372 37,629 Federal funds purchased and securities sold under agr:ements to repurchase 21,861 (11,935) 9,926 4,960 6,054 11,014 Other short-term borrowings 9,767 (6,%9) 2,798 9,726 2,897 12,623 i Long-term borrowings 6,163 1,738 7,901 (1,564) (39) (1,603) Total interest Expense 97,937 (48,036) 49,901 35,049 24,614 59,663 Change in Net Interest income $ 71,191 $(22,449) $48,742 $ 27,046 $ (8,331) $18,715 i The change in interest due to both rate and volume has been allocated to "due to change in average volume" and "due to change in average rate" in proportion to the relationship of the absolute dollar amounts of the change in each. The changes in interest income and expense are calculated independently for each line in the table. The totals for the volume and rate columns are not the sum of the individual Hnes. N

Interest Income PROVISION FOR LOAN LOSSES Total interest income in 1985, on a fully taxable equ.iva-lent basis, was 11.9% greater than interest income earned While Sovran has aggressively pursued expansion of in 1984, which was up 10.4% over 1983. The principal its loan portfolio, extreme care has been exercised to main-reason for the 1985 growth was the additional mcome tain sound credit policies and to continue to emphasize which was generated by significant increases in the asset quality. The 1985 provision for loan losses in-commercial, consumer and tax-exempt loan categories. creased 54.7% over 1984. This year-to-date increase This additional income more than offset the mcome compares with a 26.2% increase in 1984 over 1983. Signifi-reduction resulting from lower yields in 1985. cant loan growth in both years was the principal reason The principal contributor to the increased m. for the provision growth. The Company regularly analyzes terest income in 1984 compared with 1983 was the additional its loss risk and makes additions, through the provision income which resulted from significant growth in com-for loan losses, to the allowance for loan losses. This mercial and consumer loan volumes. However, lower allowance is available to absorb potentiallosses associated volumes in most other earning asset categories negative' with lending activities. In 1985, the provision for loan ly affected interest income growth in 1984. losses exceeded net charge-offs by $14.622 million, while To assist in the analysis of fully taxable equ.ivalent the 1984 provision was $5.664 million greater than 1984 interest income, the following table shows the amount net charge-offs. The 1983 provision exceeded net charge-ofincome added to each major earning asset category t offs by $2.308 million. convert tax-exempt income to a fully taxable equivalent For additional information regarding the provision for basis (in thousands): loan losses, refer to the discussion in the section loans and the Allowance for Ioan losses, beginning on page 77. I Year Ended December 31 OTHERINCOME 1985 1984 1983 toans ss2,338 522.831 s19.044 Other income is principally derived from service-related Investment securities 29,538 28,161 25,917 fees. In 1985, total other income increased 19.4% compared Oth;r 410 239 154 with 1984. This increase followed a gain of 19.9% in 1984 Total $62.284 551,231 545.115 compared with 1983. The Company recognizes the im-portance of fee income for improved profitability. There-fore, the Company evaluates opportunities as they arise. Interest Expense Fee structures are also monitored to ensure that they are Interest expense in 1985 was up 10.6% over 1984. In both equitable and profitable. Principal contributors to the the latter part of 1984, interest rates began to decline; change in other income in 1985 compared with 1984 were: this decline continued into 1985, stabilized at mid-year, e increased service charges on deposit accounts resulted and remained relatively constant throughout the latter from a new fee structure implemented in 1985. part of 1985. Although the Company's average interest

• Bank card fees increased principally due to the bearing liabilities increased 22.2% in 1985, declining implementation of a new fee beginning in the fourth rates reduced the additional expense created by increased quarter of 1984.

volumes. While the Company has expanded its deposit

• Increased mortgage servicing fees resulted from an base, it has also increased its use of purchased funds to improved mix in the portfolio of mortgage loans support asset growth, resulting in an increase in interest serviced.

expense. Additionally, the January 31,1985 issuance of

• Underwriting and letter of credit fees produced

$75 million of unsecured floating rate subordinated notes greater other income. led to an increase in interest expense in 1985 compared

• Net securities gains increased in 1985.

with 1984. At the time of the note issuance, the Company . The sale of certain mortgage servicing rights produced entered into an interest rate swap agreement, which effec-a $3.0 million gain in 1985. tively converted the Company's interest cost on the float-

• A $1.2 million loss from the write-offof the Company's ing rate notes to a fixed rate of a roximately 11%%.

common stock investment in Allied International Interest expense in 1984 was 14. / greater than in 1983. Bancorp (Allied), an Edge Act Corporation, of Contributing to the greater expense was the additional which the Company is a one-twelfth owner reduced expense resulting from increases in the volume of and rates the growth in other income. paid on most categories ofinterest bearing liabilities. Significant factors affecting the change in total other Also, slight shifts from low interest rate and noninterest income in 1984 compared with 1983 were: bearing deposits to higher rate deposit instruments . Increased trust business and improved market values occurred. Combined with this shift, a greater reliance ofcertain trust accounts under management resulted on purchased funds resulted in increased interest expense. in greater trust income in 1984. 33

Managem:.nt's Discussion cnd Analysis of Financi.1 Condition end Results of Operati:ns (continued) Table 5 Sovran Financial Corporation and Subsidiaries Otherincome (Dollars in thousands) Increase (Decrease) Year Ended December 31, Year 1985 over 1984 Year 1984 Over 1983 1965 1984 1983 Amount Percent Amount Percent Trust income $ 26,765 $ 24,332 $ 20,753 $ 2,433 10.0 % $ 3,579 17.2 % Service charges on deposit accounts 33,700 27,281 25,953 6,419 23.5 1,328 5.1 Service charges and fees: Bank card fees 42,258 37,571 34,821 4,687 12.5 2,750 7.9 Mortgage servicing fees 22,012 18,943 16,743 3,069 16.2 2,200 13.1 Other 29,241 23,142 18,721 6,099 26.4 4,421 23.6 Trading account profits and commissions 5,109 2,599 3,070 2,510 96.6 (4 71) (15.3) Other 9,605 9,141 4,980 464 5.1 4,161 83.6 168,690 143,009 125,041 25,681 18.0 17,968 14.4 Gain on branch divestitures, net of merger-related expenses (280) 6,039 280 (100.0) (6.319) (100.0 +) 168,690 142,729 131,080 25,961 18.2 11,649 8.9 Securities gains and (losses) 2,212 388 (11,696) 1,824 100.0 + 12,084 (100.0 +) $170,902 $143,117 $119 384 $ 27,785 19.4 % $ 23.733 19.9 % o Fee income, especially from mortgage servicing in-loan volumes and ensure maintenance ofSFC's high asset come, increased in 1984. quality standards. Also in 1985, the Company incurred o Nonrecurring income in 1984 aggregating approx-costs related to its merger activity. imately $2.4 million resulted from the sale of branch The Company recognizes the importance of maintain-offices, a settlement related to a previously acquired ing a proper balance between growth and the control of bank and mortgage servicing cancellation fees. noninterest related expenses. The Company is dedicated o In 1984, losses related to the Company's ownership to containment of other expense growth and will continue of Allied, accounted for on the equity method, were to monitor these expenses and develop policies to keep less than $100,000, significantly below the Company's their growth at a minimum level. Table 6 shows other 1983 loss of approximately $1.3 million. expenses for 1983 through 1985. o A 1984 F&M/VNB merger related gain of $1.036 The principal contributors to the change in total other million resulted from the sale of an operations facili-expenses for 1985 as compared to 1984 were: ty. Netted against this gain and negatively affecting

• Higher salary expense resulted from increased business other income were F&M/VNB merger-related ex-activities, greater expense for part-time ernployees penses of $1.316 million. In 1983, F&M/VNB merger-and higher incentive compensation paid to employees related gains on divestitures were $16.751 million, whose performance resulted in improved company with merger-related expenses of $10.712 million profitability.

netted against this gain.

• Higher occupancy expense resulted from the renewal i

of certain leases at escalated rates. OTHER EXPENSES

• In the latter part of 1984, the Company purchased new data processing equipment which resulted in increased During the 1983 throu h 1985 period, factors such as operating expenses and depreciation in 1985.

asset growth, mergers anb increases in the general price

• In 1985 the Company inct.rred certain expenses level have affected other expenses. Asset growth, while related to its merger activity that were included in increasing business activity, and therefore income, also other expenses. In 1984 merger-related expenses were produced greater expenses. During 1985, the Company reported in other income net of merger-related gains.

was able to contain the growth of other expenses to only Those expenses were $1.316 million m 1984. 11.6% when compared with 1984. This containment was

• Expenses were incurred related to a 1984 special achieved while the Company was incurring costs asso, advertising campaign designed to increase consumer ciated with the greater business activity and while main, awareness of the Company.

taining a quality credit staff to handle the increased l l N

o The principal factors causing the change in the categories experiencing increases in 1984 included salaries other category of total other expenses for 1985 as and employee benefits, advertising, communications, compared with 1984 were: bank card expenses, professional fees, and stationery

• Additional costs were incurred associated with and supplies expense. Increases in these categories were increased business activity including processing primarily related to activities designed to promote fees, FDIC insurance, and other fees that are Sovran as a new organization.

directly associated with the volume of activity.

• Nonrecurring expenses of approximately $4.2 APPLICABLEINCOMETAXES million were incurred in 1985 for an employee promotional campaign, which was designed to Income taxes in 1985 were up 33.7% over 1984, fol-enlarge Sovran Bank's customer base, and a lowing an increase of 19.2% in 1984 when compared provision related to the termination of a con-with 1983.

tract for processing certain of the Company's Income taxes for financial reporting purposes differ from bank card transactions. the amount computed at statutory rates. These differences SFC was formed at year-end 1983 by the F&M/VNB are primarily due to tax-exempt income from certain loans merger; therefore, the year 1984 was a year of operations and investment securities, nondeductible merger-related consolidation for the Company. In 1984, the Company expenses, investment tax credits, and foreign loan tax reduced its number of branches by 16, sold one operations credits. For additional information, refer to Note L of center and consolidated two others. Additionally,34 Notes to Financial Statements on page 93. branches were divested at year-end 1983. The absence Reported taxes do not fully portray a bank's total tax of expenses of the branches and operations centers which cost. Banking companies and other financial institutions were sold and consolidated had a significant impact on are required to maintain noninterest bearing deposits at 1984 expenses when compared to 1983. These reduced the Federal Reserve Bank, usually have substantial in-1984 expenses were partially responsible for the small 4.8% vestments in state and municipal securities and tax-exempt increase in other expenses in 1984 when compared with loans, and often pay franchise taxes in lieu of state income 1983. The categories of total other expenses which taxes. Had the effect of these requirements been considered showed slower growth rates in 1984 as compared with 1983 in determining income taxes, the Company's pro forma were furniture and equipment expense, occupancy ex-tax rate would have been 48.8%. pense and amortization of intangibles expense. Those Tabb 6 Sovran Financial Corporation and Subsidiaries Other Expenses (Doll rs in thousands) Increase (Decrease) Year Ended December 31, Year 1985 Over 1984 Year 1984 Over 1983 1985 1984 1983 Amount Percent Amount Percent S1 art;s $170,484 $154,042 $145,705 $ 16,442 10.7 % $ 8,337 5.7% Employee benefits 34,549 32,017 30,321 2,532 7.9 1,6 % 5.6 Total salaries and emp!oyee benefits 205,033 186,059 176,026 18,974 10.2 10,033 5.7 N;t occupancy expense 20,442 18,069 18,542 2,373 13.1 (473) (2.6) Furniture and equipment expense 39,756 36,033 33,748 3,723 10.3 2,285 6.8 Advertising 4,902 7,585 6,233 (2,683) (35.4) 1,352 21.7 Amortization of intangible assets 7,772 7,736 9,687 36 .5 (1,951) (20.1) Bank card expenses 17,905 17,455 15,588 450 2.6 1,867 12.0 Communications 12,609 11,134 9,423 1,475 13.2 1,711 18.2 Postage and shipping 9,843 9,249 9,097 594 6.4 152 1.7 Professional fees 8,499 7,439 6,217 1,060 14.2 1,222 19.7 St;ti:nery and supp!ies 8,571 7,485 6,381 1,086 14.5 1,104 17.3 Othir 43,875 31,556 33,179 12,319 39.0 (1,623) (4.9) 5379,207 $339.800 $324,121 $ 39,407 11.6 % $15,679 4.8% 75

I Management's Discussion cnd Analysis of Financial C::ndition end Results of Operations (c:ntinued) Table 7 Sovran Financial Corporat!on and Subsidiaries Rate-Related Assets and Liabilities Statistics Fully Taxable Equivalent Basis (Average balance dollars in millions, income and expense dollars in thousands) Average Balance income / Expense Average Yields / Rates 1985 1984 1983 1985 1984 1983 1985 1984 1983 Interest Eaming Assets Loans net of uneamed income: Commercial $1,789.2 $ 1,320.0 $ 1,060.9 $187,175 $164,020 $124,326 10.46 % 12.43 % 11.72 % Real estate-construction 544.3 361.3 307.9 66,178 51,833 43,035 12.16 14.35 13.98 Real estate-mortgage 1,077.7 1,076.3 1,077.9 134,442 134,364 135,995 12.47 12.48 12.62 Consumer 1,686.5 1,400.7 1,138.6 223,083 196,578 170,980 13.23 14.03 15.02 Bank card 411.5 354.1 296.7 65,271 56,546 46,824 15.86 15.97 15.78

1. ease financing 102.6 74.8 56.8 13,385 10,340 8,396 13.05 13.83 14.78 Foreign 30.0 40.9 45.5 3,183 5,348 5,126 10.60 13.07 11.27 Tax-exempt 479.4 304.2 257.3 70,192 48,352 39,697 14.64 15.90 15.43 Totalloans 6,121.2 4,932.3 4,241.6 762,909 667,381 574,379 12.46 13.53 13.54 investment securities:

United States Treasury 510.0 407.0 471.8 54,086 53,050 53,592 10.60 11.36 11.36 Federal agencies 87.3 112.7 162.7 9,764 13,349 18,414 11.18 11.85 11.32 States and political i subdivisions 519.6 496.6 463.3 68,103 64,362 58,751 13.11 12.96 12.68 Other 23.8 92 17.2 1,632 555 1,722 6.87 6.03 10.01 Totalinvestment securities 1,140.7 1,085.5 1,115.0 133,585 131,316 132,479 11.71 12.10 11.88 Federal funds sold and securities purchased under agreements to resell 196.8 207.8 321.4 16,536 21,284 29,671 8.40 10.24 9.23 Due from banks-Interest bearing 52.7 51.1 105.0 5,459 5,348 11,137 10.36 10.46 10.61 Trading account securities 8.8 9.3 6.0 939 1,210 698 10.75 13.01 11.63 Other 112.2 34.4 36.7 9,401 3,647 3,444 8.38 10.61 9.38 TotalInterest Earning Assets $ 7,632.4 $ 6,320.4 $ 5,825.7 928,829 830,186 751,808 12.17 13.14 12.91 Intirest Bearing Liabilities Interest bearing deposits: Interest checking 3 413.5 $ 367.6 3 368.0 21,900 19,433 19,497 5.30 5.29 5.30 Money-market accounts 955.9 719.3 506.2 69,957 60,894 40,383 7.32 8.47 7.98 Regular savings 555.3 591.9 680.9 30,076 31,678 35,017 5.42 5.35 5.14 Consumer certificates 2,223.2 1,956.8 1,904.0 211,741 202,618 198,104 9.52 10.35 10.40 Certificates of deposits, $100,000 or more 805.5 637.4 550.8 73,563 67,460 51,353 9.13 10.58 9.32 Foreign 54.1 11.5 9.6 4,890 768 868 9.04 6.68 9.04 Totalinterest bearing deposits 5,007.5 4,284.5 4,019.5 412,127 382,851 345,222 8.23 8.94 8.59 Federal funds purchased and securities sold under agreements to repurchase 804.4 550.2 497.0 64,657 54,731 43,717 8.04 9.95 8.80 Other s5 ort-term borrowings 373.2 263.8 167.2 30,283 27,485 14,862 8.11 10.42 8.89 Long-tdm borrowings 144.4 79.7 99.0 14,338 6,437 8,040 9.93 8.08 8.12 TotalInterest Bearing Liabilities $ 6,329.5 $5,178.2 $4,782.7 521,405 471,504 411,841 8.24 9.11 8.61 Nit interest income / Margin $ 407,424 $358,682 $339.967 5.34 % 5.68 % 5.84 % FINANCIAL CONDmON EARNING ASSETS Management of sources and uses of funds is affected In 1985, average earning assets increased 20.8% over by such variables as economic conditions, interest sen-1984. This increase followed an 8.5% growth in 1984 when sitivity, liquidity, credit risk and the mix of assets and compared with 1983. All major categories ofearning assets liabilities. The Company's ability to manage its sources increased during 1985 with the most significant growth and uses of funds is essential for improved profitability. occurring in the domestic loan portfolio. Average loans Information related to SFC's rate-related sources and uses increased 24.1% in 1985 over 1984. This rise in average of funds for each of the three years in the period ended loans compares with a 16.3% increase in 1984 when com-December 31,1985 is shown in Table 7. pared with 1983. Both average investment securities and 76

average money-market investments increased in 1985 The allowance for loan losses is available to absorb when compared with 1984. These increases followed potential losses associated with lending activity and is declines in both of these categories in 1984 when compared maintained at a level management deems necessary to with 1983. As a percent of total average assets, average provide for potential losses related to SFC's lending earning assets were 88.8%,87.6% and 86.6% in 1985, activities. Factors considered in determining the ade-1984 and 1983, respectively. quacy of the allowance for loan losses include: Loans and The Allowance For Loan Losses e The character and size of the loan portfolio and Durin 1985,theCompa ively pursued expan, related loan loss experience; sion ofits loan portfolio wiEaN directed principally e A continuing review and examination of the over-e 111 an quahty, including assessment of troubled at Virginia. based, middle-market companies. Another I ns; and factor contributing to the hrowth of the loan portfolio

• ^" ssessm,ent of current economic conditions and was the strong, diversified irginia economy, which their potential impact upon individual loan customers.

bolstered consumer demand, particularly for automobile As a result ofincreased lending activity, the allowance financing. Also during 1985, interest rates continued to f r loan losses was increased dunng 1985. At December 31, decline until mid-year when they stabilized; this decline 1985, the ratio of the allowance for loan losses to loans in interest rates stren thened consumer confidence in the economy, thereby further contributing to strong net of unearned income was 1.05%, ugfrom the.99% f 1984, but slightly below the 1.08 level of 1983. loan growth. Tabl]8 Sovran Financial Corporation and Subsidiaries Summary of Allowance for Loan Losses and Selected Loan Loss Statistics (Dollars in thousands) Year Ended December 31, 1985 1984 1983 1982 1981 Allowance for loan losses at beginning of year $55,431 $49,767 $47,059 $41,463 $34,835 Allowances of purchased banks at dates of acquisition 400 2,454 1,337 Provision for loan losses 29,286 18,930 14,995 12,754 13,120 84,717 68,697 62,454 56,671 49,292 Loans charged off: Commercial 7,631 6,730 4,055 3,462 4,147 Real estate-construction 2 169 473 414 R:al estate-mortgage 43 1,000 133 154 Consumer 8,391 6,165 8,713 6,556 6,441 Bank card 6,649 6 479 5,337 4,199 4,103 44 569 81 88 L ase financing T;tal chargeoffs 22,671 19,463 19,843 14,904 15,347 Recoveries of loans previously charged off: Commercial 4,449 2,446 2,037 1,156 2,689 Real estate-construction 4 503 92 270 Real estate-mortgage 26 17 105 132 220 Consumer 2,469 2,445 3,379 2,880 3,370 Bank card 1,031 1,259 1,125 891 929 Lease financing 32 26 7 141 40 T.tal recoveries 8,007 6,197 7,156 5,292 7,518 N:t loans charged off 14,664 13,2G6 12,687 9,612 7,829 Allowance for loan losses at year-end $70,053 $55,431 $49,767 $47,059 $41,463 Loans net of uneamed income: Outstanding at year-end $6,699,763 $5,573,078 $4,604,873 $4,066,228 $3,540,360 Average 6,121,180 4,932,292 4,241,583 3,658,008 3,103,794 Riti:s: Allowance to year.end loans 1.05 % .99% 1.08 % 1.16 % 1.17 % Recoverles to chargeoffs 35.32 31.84 36.06 35.51 48.99 N;t chargeeffs to average loans .24 .27 .30 .26 .25 Loan loss coverage' 9.18X 8.32X 8.02X 8.86X 9.02X l Allowance to net charge-of fs coverage 4.78 4.18 3.92 4.90 5.30 Provision for loan losses to: Net charge offs 2.00X 1.43X 1.18X 1.33X 1.68X j Average loans .48% .38% .35% .35% .42% i ' Income before income taxes and securities transactions plus the provision for loan losses, divided by net charge-offs. 77

Managem:nt's Discussi:n end Analysis cf Financi:1 Condition and Results of Operations (continued) - Table 9 countries which, because ofliquidity problems, are Sovran Financial Corporation and Subsidiaries negotiating or have negotiated modified loan terms. The Nonperforming Assets and Loans Contractually Past Due Company believes that the revisions in loan terms which monars in munus) have occurred or may occur are within normal banking Year Ended Decernber 31, practice and that these revisions will not have a material-ly adverse impact on the results of operations. 1985 1984 1983 1982 1981 Nonperforming assets: SFC's one-twelfth ownership in Allied Bank, an Edge Other real estate s 6.8 s 8.2 s12.3 s12.8 s10.0 Act Corporation, represents no direct foreign exposure; Nonperforming loans: however, Allied is impacted by international economic cIu* red .i onMm. Mng N, SOmpany me-&s com-t 9 m n stock investment in Allied. At December 31,1985, 7:tal nonperforming assets s20.3 s23.4 s31.2 s40.4 sas.4 support of Allied approximated $15.5 million. Manage-contractually past duei s 2s.3 s22.3 s17.9 s 31.7 s33.8 ment believes that the Company's current support of i oata rep,...ni, ioans pa.i du, as io principai or ini.,..i sor 90 day, or,nor,. Allied will not have a material impact on the results Loans classified as either nonaccrual or restructured are excluded from this o[ operations. category. Investment Securities Investment securities, the second la Net charge-offs as a percent of average loans in 1985 of earning assets, averaged $1.1 billion, wIest compo totaled.24%.This low charge-off rate represents a decline a 5.1% increase over 1984. This increase followed a 2.6% from the already low rates of.27% and.30% in 1984 and decrease in 1984 from the 1983 total. 1983, res ectively. Table 8 on page 77 provides a summary In addition to ' ding interest income, the investment of the al owance for loan losses and selected loan loss securities portfo$i Iso provides liquidity. At December statistics for the past five years. The low level of charge-31,1985, the market value ofinvestment securities offs and past due loans and the reduction of nonper-exceeded the book value, principally due to declining forming assets from 1983 to 1985 are indicative of SFC's market interest rates. The book value of the investment excellent asset quah,ty. portfolio at year-end 1984 and 1983 was less than the i Nonperforming Assets market value. While SFC has aggressively pursued expansion ofits Money-Market Investments loan portfolio, the Company has emphasized sound credit pohcies, which have contnbuted to its high rank in asset Money-market investments are short-term investments quality among peer banking organizations. Dunng 1985, that, in addition to providing income from the investment asset quahty contmued to improve. Total nonperformm, g ofexcess funds, provide liquidity. In 1985, averabe market investments increased 22.4% over 1984. is year-assets of $20.3 milhon were down from the $23.4 milhon m 1984 and $31.2 milhon m 1983. Over the past five to-year increase followed a decrease of 35.5% in 1984 when com ared with 1983. In 1985, the avera years, nonperforming assets have dechned 42.7% from of federal f(mds sold and securities purchase [ under $35.4 million reported in 1981. In 1985, mterest recorded nI ns that were on nonaccrual or had been restructured agreements to resell, and interest bearing balances due at December 31,1985 was $537,000. Had these loans been from banks remained relatively stable. At the same time, performmg m accordance with their ongmal terms, commercial paper, a component of other money-market $1.567 million would have been earned. nvestments, increased significantly. In 1984, federal fu nds Loans contractually past due (as to pnncipal or interest) sold and securities purchased under agreements to resell, for 90 days or more were $26.3 million at December 31, combined with interest bearing balances due from banks, 1985 compared with $22.3 million and $17.9 million at experienced the largest declines in average volume. year-end 1984 and 1983, respectively. As a p of period-end loans, past due loans were.39%,ercentag and.40% INTEREST BEARING LIABILITIES at year-end 1985 and 1984, respectively. Table 9 displays nonperforming assets and contractually past due loans for Average interest bearing liabilities, the primary source each of the five years ended December 31, 981 thmugh 1985. of funds used to support earning assets, grew 22.2% in 1985 when compared with 1984. This growth followed an in-Foreign Outstandings crease of 8.3% in 1984 over 1983. Average interest bear-The Company's foreign outstandings consist ofloans, ing liabilities, expressed as a percent of average total acceptances and interest bearing deposits with other earning assets, were 82.9%,81.9% and 82.1% in 1985, banks. Foreign outstandings of $56.3 million represented 1984 and 1983, respectively. a slight increase for 1985 when compared to the $52.6 million level in 1984. However, both the 1985 and 1984 DePOSMS amounts were significantly less than the $150.3 million in Tota 1 average deposits were up 15.2 , 1985 over 1984, n 1983. On a percentage basis, foreign outstandings in 1985 followm, g an mcrease of4.9 n 1984 over 1983. In addi-were.58% of total assets, less than.63% and 2.08% in tion to exceeding the 1984 growth rate, the 1983 growth 1984 and 1983, respectively. m deposits was well in excess of the five-year compound The Company has limited foreign outstandings in gmwth rate of 12.8%. The most sigmficant mcrease m deposit accounts in 1985 compared with 1984, as well 78

the Company's long-cs in 1984 compared with 1983, was in the money-market additional information regardinfotes to Financial State-c~ tegory. Also, noninterest bearing deposits increased term borrowings, see Note 1ofI 10.2% in 1985 over the 1984 level. This increase followed ments on page 90, a relatively unchanged balance in 1984 compared with 1983.The change in average deposits for 1984 compared with 1983 was affected by the divestiture of approx. SHAREHOLDERS' EQUITY imately $282 million in deposits at December 31,1983. Although some shifts from lower to higher-cost interest Total shareholders' equity at December 31,1985 in-rate instruments have occurred in 1985,1984, and 1983, creased 9.1% over 1984. This compares with an increase the Company's core deposit base has remained relatively of 18.3% in 1984 over 1983 and a five-year compound stable over these years. Sovran's core deposit base growth rate of 13.8%. The growth experienced in share-represented 53.1%,54.3% and 54.7% of deposits, holders' equity has resulted primarily from the retention respectively, in 1985,1984 and 1983. ofincome after the payment ofdividends, and from the issuance of shares under the Dividend Reinvestment and OtherIntemst Bearing Liabilities Stock Purchase Plan and employee stock plans. Details As was the case in 1984, average loans in 1985 grew faster of capital changes are presented in the Consolidated than average depos,ts, creatmg a need for additional Statement of Changes in Shareholders' Equity, on page 86. i funding sources. Average short-term bormwmgs mcreased Total shareholders' equity at the end of 1985 increased 44.7 n 1985 compared with 1984, following an increase less than average shareholders' equity, which increased of 22.6% in 1984 when compared with 1983. Addmonal 14.9% in 1985, principally due to the Company's year-end information regarding short-term borrowings may be acquisition of SFC common stock which was used in the found in Note H of Notes to Financial Statements on acquisition of DCNB. Upon consummation of the DCNB i page 90. merger on March 10,1986, the Company issued approx-Average long-term borrowm.gs mcreased 81.2%,.n 1985 imately 1.9 million shares, the majority of which were compared with 1984, following a decline of 19.5 n1984 issued from treasury. Upon consummation of the Subur-from 1983. The increase in 1985 resulted fmm the January ban merger on March 31,1986, the Company issued 31,1985 issuance of$75 million ofunsecured floatmg rate approximately 15.8 million shares. subordinated notes due m 1997. The dechne in 1984 Cash dividends on common stock rose 17.0% in 1985 compared with 1983 resulted from t,he call for redemption when compared with 1984, following an increase of 14.5% at year-end 1983 of the Company s 6% convertible in 1984 over 1983. This 1985 increase compared favorably subordinated debentures, which were due in,1994, as with the five-year compound growth rate of 15.2%. On well as from the retirement of the Company s variable a per share basis,1985 dividends increased 13.2%, rate mortgage indebtedness due August 1,1986. For Tabb 10 Sovran Financial Corporation and Subsidiaries Average Deposits and Borrowings (Dollars in millions) 1985 1984 1983 % of % of % of Amount Total Amount Total Amount Total Deposits: Noninterest bearing $1,563.4 19.8 % $ 1,418.7 21.5 % $ 1,419.2 22.9 % int: rest bearing: Interest checking 413.5 5.2 367.6 5.6 368.0 5.9 Money market accounts 955.9 12.1 719.3 10.9 506.2 8.2 Regular savings 555.3 7.1 591.9 9.0 680.9 11.0 Consumer certificates 2,223.2 28.2 1,956.8 29.7 1,904.0 30.7 Certificates of deposit, $100,000 or more 805.5 10.2 637.4 9.7 550.8 8.9 Foreign 54.1 .7 11.5 .1 9.6 .1 Total interest bearing 5.007.5 63.5 4.284.5 65.0 4.019.5 64.8 Total deposits 6,570.9 83.3 5,703.2 86.5 5,438.7 87.7 Short-term borrowings: Fed:ral funds purchased and securities sold under agreements to repurchase 804.4 10.2 550.2 8.3 497.0 8.0 Commercial paper 35.6 .4 15.1 .2 10.3 .2 Other short. term borrowings 337.6 4.3 248.7 3.8 156.9 2.5 Total short-term borrowings 1,177.6 14.9 814.0 12.3 664.2 10.7 Long-term borrowings 144.4 1.8 79.7 1.2 99.0 1.6 $ 7,892.9 100.0 % $ 6.596.9 100.0 % $ 6.201.9 100.0 % 79

Management's Discussi:n cnd Analysis of Financial Conditi:n end Results of Operations (c ntinued) I ) l Table 11 Sovran Financial Corporation and Subsidiaries Selected Shareholders' Equity Data (Dollars in thousands, except per share data) Year Ended December 31, 1985 1984 1983 1982 1981 Shareholders' equity at December 31, $555,387 $508,943 S430,354 $372,273 $328,598 Shareholders' equity and long. term borrowings at year end 708,852 587,132 511,845 482,769 443,937 Book value per share 21.45 19.47 17.36 15.95 14.38 Capital growth rate' 9.13 % 18.26 % 15.60 % 13.29 % 12.82 % Dividends declared as a percent of net income 34.31 33.87 36.45 32.94 33.19 Year end shareholders' equity as a percent of year end: Loans net of uneamed income 8.29 9.13 9.35 9.16 9.28 Assets 5.74 6.11 5.96 5.56 5.68 Deposits 7.68 8.11 7.68 6.94 7.27 Shareholders' equity and long-term borrowings 78.35 86.68 84.08 77.11 74.02 ' increase in shareholders' equity divided by beginning shareholders' equity. compared with an increase of 8.2% in 1984 over 1983. The Rbruary 28,1986 there were 23,236 shareholders of recoid annualized dividends per share rate in 1985 of $1.28 was of SFC common stock. Table 12 displays the high and up from the annualized dividend of$1.12 in 1984 and $1.00 low market price of common stock and the quarterly in 1983. On a percentage basis, the 1985 annualized divi-dividends per share for both common and preferred dend represents a 14.3% increase over 1984. Historically, stock for each of the quarters in 1985 and 1984. SFC has consistenti rovided its shareholders with Capital Adequacy increased dividends ile retaining sufficient earnings for res nsible expansion. Table 2 on age 70 provides Ca ital adequacy is a measure ofthe amount ofcapital divide d information for each of the tve years in the needed to sustain asset growth. Durin the past five years the Company has experienced su stantial growth penod ended December 31,1,985. while maintaining a strong, sound capital position. Thi-Federal regulator encies impose certam restnctions capitalstren h is evidenced by the Compa y's excellent on the pa ment o idends, extensions of credit and primary an total capital ratios. At Decem er 31,1985, transfers o assets from subsidiaries to bank holding com-the Company's primary ca ital ratio was 7.06% and the panies. Histoncally, these restnctions have had no impact on SFC s dividend pohcy, and it is anticipated that total capital ratio was 7.73. Both of these ratios are wellabove the FederalReserve's uired minimum ratios they will have no impact m the future. For additional of 5.5% for primary capital ann 0% for total capital mformation on these restrictions, see Note N of Notes and com are very favorably with the capital ratios of to Emancial Statements on age 95. peer ban ing organizations. Thecommonand refer stocks ofSovran Financial Corporation are tra ed m the over-the-counter market The Com any's management is dedicated to the main-tenance an improvement ofits capital position. As and are quoted on NASDAQ(National Association of growth occurs, the Company will continue to evaluate Secunn,es Dealers Automated Quotation System) under its capital and take a[ position. propriate action to maintain a SOVN for common stock and SOVNP for the Senes A strong, sound capita $2.37 cumulative convertible preferred stock. On Table 12 Sovran Financial Corporation and Subsidlaries Stock Prices and Dividends Declared Price Range Cash Dividends Declared Common Stock Common Stock Preferred Stock 1985 High Low First quarter $28.25 $25.38 $.28 $.5925 Second quarter 31.38 26.38 .28 .5925 Third quarter 31.25 23.38 .32 .5925 F:urth quarter 32.88 23.88 .32 .5925 Total $1.20 $2.37 IS84 First quarter $24.00 $19.88 $.25 $.5925 Second quarter 21.88 16.88 .25 .5925 Third quarter 23.63 19.88 .28 .5925 Fourth quarter 25.75 22.88 .28 .5925 Total $1.06 $2.37 80

l l 1 l i Tcble 13 the mix and maturities of assets and liabilities. The Sovran Financial Corporation and Subsidiaries Company monitors its interest sensitivity position over Consolidated Statement of income Adjusted for Generalinflation varying time intervals, while assessing changes in external (Dollars in thousands) factors which might affect the targeted mix and maturities Year Ended of assets and liabilities. The Company may use a variety Dec. 31,1985 of techniques to achieve its desired interest sensitivity Net income as reported $92,577 position. Among these are the sale and purchase of securi-Adju;tment for the effect of generalinflation on ties and the establishment of rates on consumer deposits depreciation and amortization' 5,920 which will encourage the desired results. Within pre-Net income as adjusted for general inflation $86,657 scribed limits, the Company also may use such financial l Purchasing power loss oa net monetary assets S 8,889 instruments as interest rate swaps and financial futures to control its interest sensitivity position. i cepreciation adiustments are not tax ef fected. SUPPLEMENTALINFORMATION LIQUIDITY EFFECTS OF CHANGING PRICES Liquidity is the ability to satisfy demands for deposit The disclosure of the effects of changing prices is in-withdrawals, lending obligations, or other corporate tended to address the effect of the rise in the general needs and is monitored by the asset / liability committee price level on the exchange value or purchasing power of under guidelines established by management. the dollar. Since a bank's asset and liability structure is i In addition to the liquidity provided from investments, substantially different from that of an industrial company I loan repayments and deposits, the Company is in an in that virtually all assets and liabilities of a bank are { excellent position to obtain borrowed funds at a reason-monetary in nature, changes in interest rates may have a able price. A relatively low level of debt and access to significant impact on a bank's performance. Interest rates national markets create a favorable environment for do not necessarily move in the same direction or in the obtaining additional funds to meet liquidity needs. same magnitude as the prices ofother goods and services. ) Therefore, reference to other financial schedules shown INTEREST SENSITIVITY within this section should also assist in the understanding of how well the Company is positioned to react to Interest sensitivity management allows for the max-changing interest rates and inflationary trends. j imi:ation of net interest income and management ofin-The supplemental information on changing prices does l terest rate risk through the planning and controlling of I Tabl214 i Sovran Financial Corporation and Subsidiaries f I Effect of Changing Prices on Selected Financial Data (Dollars in millions, except per share data) December 31, l 1985 1984 1983 1982 1981 I l Hist:rical Cost Dollars N;t interest income $ 345.1 $ 307.5 $ 294.9 $ 254.4 $ 215.5 I N;t income 92.6 80.6 65.7 56.8 47.1 Average assets 8,591.8 7,214.4 6,726.7 5,995.6 5,118.6 i N;t assets at year end 555.4 508.9 430.4 372.3 328.6 i Per share data-N;t income 3.50 3.14 2.73 2.46 2.09 Dividends declared on common stock 1.20 1.06 .98 .87 .75 Market price at year-end 32.25 25.75 21.38 13.13 11.13 { 1 Average 1985 Constant Dollars: N;t interest income $ 345.1 $ 316.4 $ 316.9 $ 285.7 $ 253.7 N;t income 86.7 77.4 63.2 52.9 47.9 Average assets 8,59 t.8 7,423.2 7,217.9 6,646.5 6,023.3 N;t assets at year.end' 636.3 596 2 580.9 567.6 532.4 Purchasing power loss on net monetary assets 8.9 8.2 4.9 3.e 8.4 Per share data: N;t income 3.28 2.99 2.63 2.35 2.15 Dividends declared on common stock 1.20 1.10 1.06 .97 .89 Market price at year.end 31.88 26.25 22.75 14.63 12.75 Average Consumer Price Index 321.9 311.1 298.4 289.1 272.4 i Represents historical shareholders' equity decreased by the loss in general purchasing power of net monetary assets held and increased by the inflation adjustment Ctributed to premises and equipment and other assets. 81

Management's Discussion and Analysis cf Financist Condition and Results of Operations (continued) not reflect a comprehensive application ofchanges in the All liabilities were considered to be monetary in the general price level. The information presents: (1) the calculation of the purchasing power loss on net mone-effect of general inflation on properties and the related tary items. depreciation expense; and (2) the effect of general infla-pjs.e. lear Comparison O/ Selected Financial Data tron on monetary assets and liabilities. Calculation of the purchasing power loss on net 'Ihble 14 on p ge 81 presents selected financial data on monetary items is based upon a theoretical concept. both a historical and general price level adjusted basis. All Under th,s concept, all monetary assets increase or amounts in the five-year comparison of selected s i mental financial data are stated in average 1985 do decrease m value at th,e rate of the consumer price index Constant dollar amounts for 1981 through 1984 have (CPI). Because a bank s monetary assets are greater than its monetary liabilities, an increase in the CPI results in been increased from amounts reported last year in order to restate them to 1985 constant dollars. As described a dechne m the purchasmg power of net assets. However, because there is no clear evidence that there is a relation' previously, the determination of net assets reflects a partialab88.5 million inlication ofinflation account ship between the purchasing power of a bank s net assets assets o 1985, $98.4 million in 1984, and future earning streams, the purchasing power loss be reflective of the effect and $62.7 million in 1983, including real estate held for on net monetary items may not,s operations. The follow' resale, intangibles and deferred charges, have not been ofinflationary trends on a bank Ing assets have been classified as non-monetary for pur-adjusted for general inflation. poses of computing the purchasing power loss on net monetary assets (in thousands): QUARERI.Y DATA Table 15 presents quarterly results of operations for December 31, the years ended December 31,1985 and 1984. 1985 1984 1983 Bank premises and equipment $225,286 $204,288 $185,303 Other 88,493 98,436 62,716 Total nonmonetary assets $ 313,779 $302,724 $248,019 Table 15 Sovran Financial Corporation and Subsidiaries Quarterly Data (in thousands, except per share data) 1985 1984 Three Months Ended Three Months Ended March June Sept. Dec. March June Sept. Dec. 31 30 30 31 31 30 30 31 Int: rest income $207,869 $214,789 $219,571 $224,316 $181,269 $191,628 $200,957 $205,101 Int: rest expense 128,524 129,359 130,753 132,769 109.723 113,166 121,887 126,728 Net interest income 79,345 85,430 88,818 91,547 71,546 78,462 79,070 78,373 Provision for loan losses 8,524 7,403 5,688 9,671 3,979 4,650 4,967 5.334 Net interest income af ter provision forloan losses 72,821 78,027 83,130 81,876 67,567 73,812 74,103 73,039 Other income excluding securities gains and (losses) 39,117 40,555 40,944 48,074 33,823 34,305 35,744 38,857 Securities Gains and (losses) 1,049 983 177 3 264 (390) 33 481 Other expenses 89,266 94,009 93,323 102,609 81.132 84,722 85,331 88,615 income before income taxes 23,721 25,556 30,928 27,344 20,522 23,005 24,549 23,762 Applicable income taxes 2,413 3,152 5,998 3,409 2,290 3,234 3,278 2,400 Net income $ 21,308 $ 22,404 $ 24,930 $ 23,935 $ 18,232 $ 19,771 $ 21,271 $ 21,362 N;t income per share: Primary $.80 $.85 S.94 S.91 S.73 $.77 $.83 3.81 Fully-diluted .79 .83 .93 ,90 .71 .77 .81 .80 l 82

W,,,$34*ag Consolid ted Binc3 Sheet. Subsidiaries (Dollars in thousands, cxcipt per share data) ' December 31, 1985 1984' 1983 )

Assets Cash and due from banks-Note J

$ 735,023 $ 649,760 $ 629,600 Money-market investments: Federal funds sold and securities purchased ) under agreements to resell 328,122 365,523 315,365 Due from banks-interest bearing 10,816 95,109 125,806 Trading account securities 23,153 20,716 3,296 Other 107,754 50,206 64,464 i Total money market investments 469,845 531,554 508,931 Investment securities (market value: l 1985-$1,396,275; 1984-$1,123,611; l 1983-$1,066,517)-Note C 1,390,197 1,167,383 1,111,655 Loans-Note D 7,011,636 5,857,723 4,866,907 Unearned income (311,873) (284,645) (262,034) Loans net of unearned income 6,699,763 5,573,078 4,604,873 Allowance for loan losses-Note E (70,053) (55,431) (49,767)' Net Icans 6,629,710 5,517,647 4,555,106 Premises and equipment-Note F 225,286 204,288 185,303 Due from customers on acceptances 29,581 25,959 28,360 Other assets 192,034 234,831 203,815 Total Assets $9,671,676 $8,331,422 $7,222,770

Liabiliti:s Deposits:

Noninterest bearing $1,750,087 $1,622,374 $1,471,208 interest bearing 5,477,494 4,656,605 4,128,814 Total deposits-Note G 7,227,581 6,278,979 5,600,022 Short term borrowings: Federal funds purchased and securities sold under agreements to repurchase 1,114,610 1,026,061 549,793 Other short-term borrowings 432,061 275,010 404,327 Total short-term borrowings-Note H 1,543,671 1,301,071 954,120 Long-term borrowings-Note i 153,485 78,189 81,491 Acceptances outstanding 29,581 25,959 28,360 Other liabilities 158,991 138,281, 6,792,416 128,423 Total Liabilities 9,116,289 7,822,479

Shareholders' Equity Commitments and contingencies-Notes I and J Shareholders' equity-Notes I,K,M and N Preferred stock-par value $25.00 per share:

Authorized-5,000,000 shares; issuable in series: Series A $2.37 cumulative convertible; Issued-1985-212,493 shares; 1984-293,402 shares; 1983-304,002 shares;(Net of discount of $1,594, $2,201 and $2,280, respectively) -Note M 3,718 5,134 5,320 Common stock-par value $5.00 per share: Authorized-100,000,000 shares issued-1985-26,331,773 shares; 1984-17,247,255 shares; 1983-10,516,939 shares 131,659 86,236 82,585 Surplus 22,202 62,914 47,315 Retained earnings-Note N 415,472 354,659 301,331 Treasury stock, at cost-1985-614,596 shares; 1984-shares; 1983-192,507 shares (17,664) (6,197) Total Shareholders' Equity 555,387 508,943 430,354 Total Liabilities and Shareholders' Equity $9,671,676 $8,331,422 $7,222,770 See accompanying notes to financial statements. 83

co#ra$"*"ats' Consolid1ted Stat: ment cf Incomo S* Subsidiaries (Dollars in thousands, C xcept per share datd Year Ended December 31, 1985 1984 1983 interest income Loans, including fees $730,573 $644,550 $555,335 Investment securities: Taxable 66,407 68,552 75,511 Tax-exempt 37,640 34,603 31,051 Total investment securities 104,047 103,155 106,562 Money-market investments: Federal funds sold and securities purchased under agreements to resell 16,536 21,284 29,671 Due from banks-interest bearing 5,459 5,348 11,135 Trading account securities 703 971 544 Other 9,227 3,647 3,444 Total money-market investments 31,925 31,250 44,796 Total interest income 866,545 778,955 706,693 Interest Expense Deposits-Note G 412,127 382,851 345,222 Short-term borrowings: } Federal funds purchased and securities sold under agreements to repurchase 64,657 54,731 43,717 Other short term borrowings 30,283 27,485 14,862 Total short term borrowings 94,940 82,216 58,579 Long-term borrowings 14,338 6,437 8,040 Total Interest Expense 521,405 471,504 411,841 Net interest income Net Interest income 345,140 307,451 294,852 Provision for loan losses-Note E 29,286 18,930 14,995 Net Interest income After Provision for Loan Losses 315,854 288,521 279,857 Other income Trust income 26,765 24,332 20,753 Service charges oa deposit accounts 33,700 27,281 25,953 Other service charges and fees 93,511 79,656 70,285 Trading account profits and commissions 5,109 2,599 3,070 Securities gains and (losses) 2,212 388 (11,696; Gain on branch divestitures, net of merger related expenses (280) 6,039 Other 9,605 9,141 4,980 Total Other income 170,902 143,117 119,384 Other Expenses Salaries and employee benefits-Note K 205,033 186,059 176,026 Net occupancy expense 20,442 18,069 18,542 Furniture and equipment expense 39,756 36,033 33,748 Other 113,976 99,639 95,805 Total Other Expenses 379,207 339,800 324,121 N:t Income income Before income Taxes 107,549 91,838 75,120 Applicable income taxes-Note L 14,972 11,202 9,400 Net income $ 92,577 $ 80,636 $ 65,720 Net income Per Share-Note M Primary $3.50 $3.14 $2.73 Fully diluted $3.45 $3.09 $2.61 Gee accompanying notes to financial statements. l l 84

l by,ay3"2 Consolidated Stat: ment cf Ch:nges in Fin:nci:1 Position Subsidianes '(Dollars in thousands) Year Ended December 31, 1985 1984 1983 Sources cf Funds Net income 92,577 80,636 $ 65,720 Items not requiring (providing) funds: Depreciation and amortization of premises and equipment 25,644 20,156 19,239 Other amortization and accretion 8,369 5,958 11,389 Provision for loan losses 29,286 18,930 14,995 Deferred income taxes (reversal) 91 5,209 (1,453) Funds provided by operations 155,967 130,889 109,890 Issuance of: Common stock 8,620 20,164 10,348 Treasury stock 11,076 16,899 23,866 i increase in: Deposits 948,602 678,957 422,042 Short term borrowings 245,600 346,951 53,428 l Long-term borrowings 75,276 Decrease in: 7,550 Cash and due from banks 38,100 Money-market investments 61,701 Other(net) 55,405 9,839 Total Sources of Funds $1,562,247 $1,193,860 $675,063 Uses cf Funds Cash dividends declared: Common stock 31,103 26,594 $ 23,236 Preferred stock 661 714 721 Sale of divested branches: 282,098 Deposits (214,757) Short-term borrowings (57,701)- Other(net) 9,640 Sale of divested branches (net) Cash in lieu of fractional shares issued in merger 175 Cash in lieu of fractional shares to effect the 3-for-2 stock split 112 Purchased and acquired treasury stock 33,953 11,802 17,721 Loans charged off (net of recoveries) 14,664 13,266 12,687 increases in: Cash and due from banks 85,263 20,160 22,576 Money-market investments Investment securities 224,099 54,875 25,058 Loans net of unearned income 1,125,750 967,157 523,928 Premises and equipment 46,642 39,141 23,101 Acquisition of banks: Investment securities 46,560 Loans net of unearned income 39,010 Deposits (98,716) Other(net) 22,937 Acquisition of banks (net) 9,791 Decrease in long-term borrowings: J Conversion and redemption of 6% convertible subordinated debentures 18,556 Other 3,302 10,449 i Other(net) 34,273 Total Uses of Funds $1,562,247 $1,193,860 $675,063 see accompanying notes to financial statements. 85

u Mra?"*"M Consolidated Stat: ment cf Subsidiaries Changes in Shareholders' Equity (Dollars in thousands, except per share data) Preferred Stock Common Stock Treasury Stock Retained Shares Amount Shares Amount Surplus Eamings Shares Cost Total F!R THE YEAR ENDED DECEMBER 31,1983: i Balance at beginning of year 304,050 $5,321 15,996,274 $ 79,981 $37,119 $259,568 (662,640) $ (9,716) $372,273 Net income 65,720 65,720 Dividends declared on: Common stock-$.98 per share (23,236) (23,236)' Preferred stock-$2.37 per share (721) (721) Treasury stock: Purchased (638,158) (17,721) (17,721) j issued for acquisitions 2,033 288,801 3,812 5,845 Retired (22,900) (115) (619) 22,900 - 734 Common stock issued: Upon conversion of convertible preferred stock (48) (1) 62 1 Pursuant to sale of stock of an acquired bank 26,709 134 412 546 Shares issued pursuant to dividend reinvestment, stock purchase, employee thrift, and stock option plans 176,615 884 2,566 345,413 7,954 11,404 Shares issued upon conversion of 6% convertible subordinated debentures 344,959 1,725 5,954 451,177 8,740 16,419 Cash in lieu of fractional shares issued in merger (4,780) (24) (151) (175) Balanc)at end of year 304,002 $5,320 16,516,939 $ 82,585 $47,315 $301,331 (192,507) $ (6,197) $430,354 F!R THE YEAR ENDED DECEMBER 31,1984: Balanc)at beginning of year 3C 5,002 $5,320 16,516,939 $ 82,585 $47,315

• 301,331 (192,507) $ (6,197) $430,354 N:t income 80,636 80,636 Dividends declared on:

Common stock-$1.06 per share (26,594) (26,594) Preferred stock-32.37 per share (714) (714) ' Treasury stock: Purchased (317,000) (10,825) (10,325) Acquired through stock option exercise (29,384) (977) (977) Shares lisued pursuant to dividend reinvestment, stock purchase, employee thrift, and stock option plans 717,274 3,586 15,512 537,988 17,965 37,063 Shares issued upon conversion of c nvertible preferred stock (10,600) (186) 13,042 65 87 903 34 Balancyt end of year 293,402 $5,134 17,247,255 $ 86,236 $62,914 $354,659 - $508,943 FOR THE YEAR ENDED DECEMBER 31,1985: Balancnt beginning of year 293,402 $5,134 17,247,255 $ 86,236 $62,914 $354,659 $506,943 N:t Income 92,577 92,577 Dividends declared on: Common stock-51.20 por share (31,103) (31,103) Pref;rred stock-$2.37 per share (661) (661) Treasury stock: Purchased (961,181) (32,001) (32,001) Acquired through stock option exercise (48,630) (1,952) (1,952) Sharesissued pursuant to dividend reinvestment, stock purchase, employee thrif t, and stock option plans 274,005 1,370 4,918 379,469 13,408 19,696 Shares is:ued upon conversion of t convertible preferred stock (80,909) (1,416) 61,983 310 (1,775) 93,940 2,881 Issuanc3 of common stock to effect 3-for 2 etock split 8,748,530 43,743 (43,855) (78,194) (112) Balanent end of year 212,493 $3,718 26,331,773 $131,659 $22,202 $415,472 (614,596) $(17,664) $555,387 See acccmpanying notes to financial statements. l l l l 86

NEtes to Financial Stnt:m:nts NOTE A-ACCOUNTING POLICIES portfolio and the exercise of judgment and assumptions The accounting and reporting policies of Sovmn Financial with respect to economic conditions. Corporation and subsidiaries (the Company) follow general-Premises and Equipment ly accepted accounting principles and practices within the Premises and equipment are stated at cost,less accumu-financial services industry. The following is a summary of lated depreciation and amorti:ation. For financial reporting the more significant policies: purposes, the Company principally uses the straight-line Principles of Consolidation method of depreciation and amorti:ation for buildings, The consolidated financial statements include the accounts furniture, equipment, and leasehold improvements. of Sovran Financial Corporation and subsidiaries which Capital leases are recorded at the lower of the present includes its principal subsidiary, Sovran Bank, N.A. and its value of minimum lease payments at the beginning of the subsidiaries (Sovran Bank), all of which are wholly owned. lease term or the fair value of the leased property at that All significant intercompany balances and transactions date. The capital lease asset is amortized on the straight-h1ve been eliminated in consolidation. line method over the lease term, and the amortization is Money Market Investments included in depreciation expense. Money-market investments, with the exception of trading Other Assets cccount securities, are carried at cost, which approximates Real estate held for resale, acquired principally through market. Trading account securities are carried at market, foreclosure, is reported at the lower of cost or estimated net G: ins or losses resulting from sales and adjustments to realizable value and is included in other assets. Any write-market are included in other income. The Company selec-downs at the date of acquisition are charged to the allow-tively uses interest rate futures contracts as a part of its ance for loan losses. Expenses incurred in connection with overall management ofinterest rate risk. Gains and losses ownership of the properties, subsequent write-downs, and on futures contracts used in securities trading operations gains and losses upon sale are included in other expenses. rre recognized currently by the mark to-market method of Mortgage servicing acquisition costs, deposit intangibles accounting and included in trading account income. and the excess of cost over equity in net assets of acquired Securities subsidiaries are also included in other assets in the con-Investment securities are stated at cost adjusted for amor, s lidated financial statements. Mortgage servicing acquisi-tization of premiums and accretion of discounts. The ad, tion costs are amortized in proportion to the estimated in-justed cost of a specific security sold is used to compute c me net of related expenses derived from servicing the gain or loss on the sale of that security. Futures contracts related mortgage loans. Deposit intangibles represent the hedging the repricing of certificates of deposit are used in net present value of the future income streams related to asset / liability management. The Company may also hedge assets and liabilities acquired through mergers and are other interest bearing assets or liabilities against interest amortized on an accelerated basis over lives ranging rate fluctuations. Gains and losses arising from these con, generally from 3 to 20 years. The excess of cost over equity tmcts me deferred and amorti:ed over the lives of the hedged in net assets of acquired subsidiaries is amortized on the assets or liabilities as an adjustment to interest income straight-line method over periods ranging from 10 to 40 years. Net intangibles included in other assets were $58.0, or expense. $58.3 and $57.0 million at December 31,1985,1984, and Loans 1983, respectively. Interest on loans and amortization of unearned income is Pension Costs computed by methods which generally result in level rates of return on principal amounts outstanding. Equipment Pension costs are accrued based on accepted actuarial leased to others is generally accounted for using the direct methods. The primary pension plan is normally funded to the maximum amount deductible for federal income tax financing method for financial reporting purposes. The Company discontinues the accrual ofinterest on purposes, whereas supplemental pension plans are not loans based on delinquency status, an evaluation of the funded. Prior service costs are amorti:ed over periods of related collateral and the financial strength of the borrower. 10 to 30 years. loans other than installment and credit card loans are Income Taxes generally placed on nonaccrual status when the payment of When income and expenses are recognized in different interest is more than 90 days past due and collectibility is periods for financial reporting purposes and for income tax uncertain. Income recogni:ed on installment and credit card purposes, deferred taxes are provided in recognition of loans is discontinued and the loans charged off after a these timing differences. delinquency of 90 and 120 days, respectively. When in-Investment tax credits generated from leasing activities terest accruals are discontinued, interest credited to income are recogni:ed on the deferral method. Other investment in the current year is reversed, and interest accrued in prior tax credits are recognized in the year the asset is acquired. years is charged to the allowance for loan losses. The Company files a consolidated federalincome tax Allowance for loan losses return. Provisions for current income taxes are allocated to The allowance for loan losses is determined using the the members of the consolidated group on the basis of Company's loan loss experience, an evaluation of the loan the effect of their respective operations on consolidated 1 Y

= Notes to Financial Statements (continued) income. Provisions for deferred income taxes are allocated interests in 1986 and, accordingly, premerger historical on the basis of the related timing differences. financial data will be restated thereafter to include the ac-Reclassifications counts of Suburban. Supplemental Financial Statements Certain amounts in the 1984 and 1983 financial state-and Notes thereto giving effect to the merger of Suburban ments have been reclassified to conform with the 1985 are included on pages 48 through 61. presentation. The merger of DCNB was consummated March 10, 1986. Pursuant to the merger agreement, sufficient shares of the NOTE B-MERGER AND ACQUISITIONS Company's common stock were issued to provide DCNB The Company was formed on December 30,1983 upon shareholders with Sovran common stock having a total the merger of Virginia National Bankshares, Inc. and First market value of $72.50 for each share of DCNB common & Merchants Corporation in a pooling-of-interests trans-stock held. A total of approximately 1.9 million shares of the action. To obtain regulatory approval for the merger,34 Company's common stock was issued, of which approxi-branches with deposits of $282 million were divested. mately 1.3 million was represented by shares recently acquired On December 27,1985, the Company issued 219,725 in the open market. Soon after the merger the Company will sh:res ofits common stock in exchange for all of the purchase additional shares equivalent to the excess. The outstanding common stock of Virginia Southern Bank merger was accounted for as a purchase. Accordingly, the ac-(VSB)in a transaction accounted for as a pooling-of-counts of DCNB will be included in the consolidated interests. The accompanying financial statements have amounts from the effective date of the emnsaction. 'Ihe been restated for all periods presented to include the ac-anticipated total cost of the merger of approximately $69.8 counts of VSB, which were not material to the Company. million will be allocated to DCNB's tangible and intangible In two separate transactions during 1985, the Company assets based on their fair market values. executed definitive agreements for the mergers of Suburban The following unaudited pro forma information sum-Bancorp (Suburban), a Maryland bank holding company, mari:es the 1985 consolidated results of operations assum-and D.C. National BanCorp, Inc. (DCNB), a bank holding ing both the DCNB and Suburban mergers had been con-company in the District of Columbia. The terms of both summated January 1,1985 and includes the effects of amor-transactions were approved by the respective companies' ti:ing intangible assets. These pro forma results are not shareholders on December 11,1985. At December 31,1985, necessarily representative of the actual results that would i Suburban and DCNB reported total assets of $3.4 billion have occurred or may occur in the future if the transactions and $453.8 million, respectively, and net income of $31.6 had been in effect on the date indicated (in thousands, ex-million and $3.8 million, respectively. cept per share data): Suburban was merged with and into the Company on March 31,1986. Under the terms of the merger agreement, Year Ended based upon an exchange ratio of 2.926 shares of the Com. December 31.1985 pany's common stock for each outstanding share of Subur-Net interest income $474,220 b:n common stock, the Company issued approximately Net income 120,543 15.6 million shares ofits common stock and cash in lieu of Earnings per share: fractional shares in exchange for all outstanding stock of Fully Diluted 2.83 Suburban. The merger was accounted for as a pooling-of-NOTE C-INVESTMENT SECURITIES Investment securities are summarized as follows (in thousands): December 31, 1985 1984 1983 Book Market Book Market Book Market Value Value Value Value Value Value United States Treasury $ 557,421 $ 567,935 $ 521,734 $ 529,245 5 450,842 $ 454,413 Federal agencies 42,323 43,342 104,750 103,909 130,877 128,902 States and political subdivisions 756,625 749,326 529,175 477,479 515,827 467,053 Other 33,828 35,672 11.724 12,978 14,109 16.149 $ 1,390,197 $ 1,396,275 $1,167,383 $1,123.611 $1,111.655 $1.066.517 Investment securities with aggregate book values of approximately $342.8, $311.9 and $237.8 million at December 31,1985,1984 and 1983, respectively, were pledged to secure public deposits, trust deposits and for other purposes as required or permitted by law. The carrying value of securities sold under agreements to repurchase was approximately $434.8, $337.3 and $226.5 million at December 31, 1985,1984 and 1983, respectively. 88

NOTE D-IDANS NOTE F-PREMISES AND EQUIPMENT Totlloans net of unearned income are summarized as Nmises and equipment include the following (in thousands): follows (in thousands): December 31, December 31, 1985 1984 1983 1985 1984 1983 Land 5 21,746 $ 20,082 $ 20,708 Buildings and improvements 157,974 151,205 146,270 Domestic: Commercial $ 1,874,089 $1,574,644 $1,175,272 Furniture and equipment 175,296 142,0 % 112,180 Real estate-construction 651,517 461,639 314,891 355,016 313,383 279,158 Real estate-mortgage 1,150,156 1,025,855 1,048,765 Less accumulated depreciation Consumer 1,818,848 1,511,086 1,293,093 and amortization 132,831 113.043 98,399 Bank card 470,377 407,855 346,914 222,185 200,340 180,759 Lease financing 121,786 97,820 61,487 Property under capital leases: Tax-exempt 583,660 464,786 299.300 Land 215 219 219 T;tal domestic loans 6,670,433 5,543,685 4,539,722 Buildings and improvements 8,059 8,525 8,684 F; reign 29,330 29,393 65.151 Equipment 10 2,805 3,152 $6,699,763 $5,573,078 $4,604,873 8,284 11,549 12,055 Less accumulated amortization 5,183 7,601 7,511 The effects of nonperforming and restructured loans on 3,101 3,948 4,544 net income, as well as their outstanding balances, were not $ 225,286 $204,288 $185,303 material. There were no material commitments to provide additional funds on such loans at December 31,1985. The Company occupies certain facilities and uses certain Loans to related parties were not material. equipment under various cancellable and noncancellable lease arrangements. Those leases having contractual at-NOTE E-ALLOWANCE FOR LOAN LOSSES tributes normally associated with purchased property are Transactions in the allowance for loan losses are summar. capitalized and are included in the table above. Rent ex. ired as follows (in thousands): pense applicable to both cancellable and noncancellable operatmg leases amounted to $9,6 million in 1985, $11.9 million in 1984 and $14.2 million in 1983. Year Ended December 31 Most of the operating leases provide that the lesree pay 1985 1984 1983 taxes, maintenance, insurance, and certain other operating Balanc]at beginning of year $ 55,431 $49,767 $47,059 expenses applicable to the leased assets, Allowance of purchased bank 400 The future minimum lease payments under capitalleases Provision for loan losses 29,286 18,930 14,995 Loans charged off (22,671) (19,463) (19,843) and noncancellable operating leases with remaining terms Less recoveries on loans 8,007 6,197 7,156 in excess of one year at December 31,1985, are as follows N t charge offs (14,664) (13,266) (12,687) (in thousands): Exc:ss of provision over net charge offs 14,622 5,664 2,308 Balanc]at end of year $70,053 $55,431 $49,767 Capital Oper$ ting Total Year Leases Leases Commitments 1986 $1,051 $ 6,863 $ 7,914 1987 1,061 5,753 6,814 1988 1,029 3,732 4,761 1989 884 2,194 3,078 1990 756 1,615 2,371 Later years 2,149 9,243 11,392 Total minimum lease payments 6,930 $29,400 $36,330 Amount representin0 interest 2,516 Present value of net minimum capital lease payments $4,414 i 89

NoteNo Financial Statemenn (continued) NOTE G-DEPOSrIS Deposits outstanding at December 31,1985,1984 and 1983 and the related interest expense for the years then ended are summari:ed as follows (in thousands): 1985 1984 1983 Amount Expense Amount Expense Amount Expense Noninterest bearing $ 1,750,087 $ $ 1,622,374 $ $ 1,471,208 $ Interest bearing: Interest checking 463,492 21,900 393,874 19,433 366,000 19,497 Money-market accounts 1,157,426 69,957 784,855 60,894 637,960 40,383 Regular savings $55,092 30,076 561,592 31,678 607,504 35,017 Consumer certificates 2,336,222 211,741 2,080,019 202,618 1,875,453 198,104 Certificates of deposit, $100,000 or more 950,979 73,563 777,481 67,460 633,867 51,353 Foreign 14,283 4,890 58.784 768 8,030 868 Totalinterest bearing 5,477,494 $412,127 4.656.605 $382,851 4,128,814 $345.222 $ 7,227.581 $ 6,278.979 $ 5.600,022 NOTE H-SHORTFERM BORROWINGS NO'rE l-LONGTERM BORROWINGS Short. term borrowings are summari:ed as follows (in Iong-term borrowings are summari:ed as follows (in thousands): thousands): December 31 December 31, 1985 1984 1983 _ 1985 1984 1983 Federal funds purchased and Notes payable: securities sold under 8.875% notes due August 1,1986 $ 30,000 $30,000 $30,000 agreements to repurchase $ 1,114,610 $1,026,061 $549,793 7.80% capital notes due Commercial paper 39,807 17,157 16,167 October 1,1996 20,311 20,311 20,311 Due to purchasers of divested Unsecured floating rate branches 214,757 subordinated notes due Other 392,254 257,853 173,403 January 31,1997 75,000 $1,546,671 $1,301,071 $954,120 125,311 50,311 50,311 Mortgage indebtedness 13,632 14,425 15,976 The Company maintains lines of credit for commercial ",",0,j',[ny,gayons under capital b 4,414 6,016 7,032 p:per back-up and general operating purposes, on which otner long-term borrowings 10.108 7,437 8,172 r:tes generally approximate prisne lending rates at the time $153,465 $78.189 $81,491 of borrowing. Unused lines amounted to approximately $47,8 million at December 31,1985. The Company's finan. The 8.875% notes of the Ihrent Company due August 1,1986, cing arrangements require maintenance of compensating became redeemable on August 1,1983, at the option of the b: lances which were not material st December 31,1985, Parent Company, in whole or in part, at their principal amount Withdrawals of the compensating blances were not legally plus accrued interest. The 7.80% unsecured capital notes restricted. due October 1,1996, were issued by the Bank, and are subor-dinated to deposits and certain other liabilities. They are redeemable at the option of the Bank, at prices declining from 103,9% to 100% of principal. The unsecured floating rate subordinated notes issued in January 1985 by the Parent Company require the creation of a note fund to qualify a portion of the notes as primary capital for bank regulatory purposes; however, the note fund will not secure the notes and note holders will have tio right thereret The Company has covenanted that it will sell or issue capital [which may include the sale of securities pursuant to the Company's dividend reinvestment and em-playee benefit plans (See Note K)]in amounts sufficient to make periodic deposits into the note fund, The amount of the notes to be treated as " primary capital" is presently 90

limited to 10% of shareholders' equity plus the allowance funded supplemental pension plans, was $3.3 million, $2.4 for loan losses. Through the use of an interest rate swap million, and $4.1 million for 1985,1984 and 1983, agreement the effective interest cost on the notes was con-respectively. verted to a fixed rate of approximately 11%% through Aggregated accumulated plan benefit information and J nuary 31,1992. plan net assets at the date of the most recent actuarial hiortgage indebtedness consisted of notes secured by valuation were (dollars in thousands): deeds of trust on premises with carrying values of $21.1 million, $20.9 million and $57.7 million in 1985,1984 and oecember 31, 1983, respectively. 1985 1984 1983 The aggregate maturities and sinking fund requirements of valuation date 111/8 5 1/1/84 1/1/83 long-term borrowings at December 31,1985 are summan:ed Actuarial present value of . s follows (in thousands): accumulated plan benefits: r Vested $68,775 $59,248 $42,509 Nonvested 2,569 5.022 4,355 There- $71,344 $64,270 $46,864 1986 1987 1%8 1989 1990 after Net assets available for Parent $32,702 3 137 $ 150 $ 164 $ 179 $ 82,085 benefits $88,924 $79,845 $64,992 Other 3,121 3,186 3.362 3,434 5,536 19,409 Consolidated $35,823 $3,323 $3.512 $3,598 $5.715 $101,494 The assumed rate of return used in determining the actu-arial present value of accumulated plan benefits was 9% for loan Agreements all periods presented, and the projected unit credit funding In connection with its borrowings, the Company has method was used. The decrease in pension plan expense for agreed to certain restrictions on, among other things, the 1984 was due primarily to 1983 plan amendments. sale or issuance of capital stock of certain subsidiaries, the Thrift Plan priority ofliens associated with its indebtedness and lease The Company also has a contributory Thrift Plan which commitments. It is not anticipated that these restrictions is available to all salaried employees who have completed

• • N have any effect on the Company s current operatmg three years of service. Employee contributions of up to 6%

I. P 'C' of base compensation are matched by the Company. In ad-dition, the Company makes an annual profit sharing con-NOTEJ-OTHER COhthilThiENTS AND tribution to the Plan and an annual tax credit contribu-CONTINGENCIES tion. Shares of the Company s common stock issued m Restrictions on Cash and Due From Bank Accounts conjunction with these contributions were 161,901 in 1985, The Bank maintains reserve balances as required by the 166,050 in 1984, and 153,817 in 1983. Federal Reserve Bank. Average required reserves during The Company's Thrift Plan expense for 1985,1984, and 1985 were $227.4 million of which $112.9 million were 1983 was $10.5 million, $9.8 million, and $7.6 million, satisfied by vault cash. respectively. letters of Credit Stock Options On December 31,1985, the Company had outstanding The Company has a stock option plan (the Plan), which standby letters of credit and guarantees to issue standby also provides for stock appreciation rights (SARs). SARs letters of credit of $538.9 million. entitle the holder to receive payment, equal to the increase Pending Litigation in the market value of the Company's common stock from The Company is defendant in various lawsuits generally the date of grant to the date of exercise. SARs issued under incidental to its business. hianagement is of the opinion the plan may be paid in cash or the Company's common that the financial position of the Company will not be stock at the election of the holder. SARs are issued in nuterially affected by the ultimate resolution oflitigation tandem with options so that the employee may elect to pending or threatened at December 31,1985. exercise either the option or the SARs, thereby cancelling the other. In addition to the Plan, stock options and SARs, NOTE K-EhiPLOYEE BENEFIT PLANS granted separately (non-tandem), under two other plans Pension Plan which were terminated on December 30,1983, remain The Company has a noncontributory pension plan outstanding. covering substantially all employees who qualify as to age The Plan provides that incentive or non qualified options and length of service. Pension plan expense, including un-to purchase shares of common stock of the Company and 91

Notes to Financi:1 Statementhtcontinued) 1 I as SARs may be granted to key of6cers and employees. All op-tions are gmnted, SARs in ttndtm may be added at cry tions and SARs are granted at market value at date of grant time thiough expiration. The oittions remaining autstand-and are exercisable over periods of two to n;ne years. SARs ing under the tc mirwed plani have substantiallpdentical may be granted only in tandem with options, and once op-terms to those of the 1%n. 1 The following is a summary of stock option and tandem SARs trnsact.ons, in'duding those of the terminated stock option plans, as adjusted where applicable for the effects of the three-for two stock split in the form of a 50% stock dividend, effective August 23,1985. Shares Under Stock Option Plan + Range of Exercito Prices Year Ended Decernber 31 HiW1 Low 1985 1984 1963 Outstanding at beginning of year 854,503 966,835 540,217 Add (deduct): Granted 3ME8 $30.83 108,537 94,613 705,497 Cancelled or expired 21.99 t; X (18,78J) (15.G37) (9,600) Exercised 21.fw 6.58 (284,045) (190,715) (289,279) Exercised but not issued _ (343) Outstanding at end of year ' 30 88 6.58 663,192 } 54,503 966.835 Average I, rice per share: Exercised during year $14.33 $11.13 $8.96 Outstanding at end of year 20.79 17.29 15.96 Options exercisable 479,100 3S2,031 117.331 Shares available for future grants 524,402 620,655 18.303 At December 31, SARs had been issued in tandem with 500,738 outstanding options in 1985, 538,652 in 1984, and 498,144 in 1983. The following is a summary of non-tandem SARs transactions of terminated plans. Non-tandem Stock Appreciation Rights Range of Exercise Prices Year Ended Decernber 31, High Low 1985 1984 1983 Outstanding at beginning of year 154,491 283,571 135,294 Add (deduct): Granted 227.6 M Cancelled or expired (9.6M Exercised 17.% 9.67 (67,446) (129.080) (69.8 W, Outstanding at end of year 17.96 9 67 87,045 154,491 283.571 Average price per share: Exercised during year 314.44 $13 44 $9.67 Outstanding at end of year ' 4.59 14.53 14.03 SARs exercisable 87045 154.491 59,625 As of December 31,1985, there were 319,648 SARs exercisable under wb).h payment could be in common stock of the Company. The options anJ SARs outstanding at Decerrber 31,1985 expire on various dates thmuah July,1995. e h-e \\ h') _y

+ ./ L / Other Postretirement Benefits providing this benefit for 7,710 and 7,677 participating The Company provides certain hen'ch care and lif:in-active employees. The Company is self-insured for its [ surance benefits to active and retired employees. Substan-health care benefits. The cost of providing this benefit is tialb all of the Company's employees may become eligible recogni:ed by expensing claims and administrative costs as < for the retired employees health care and life insurance incurred. Such costs approximated $9.1 million in 1985 and benefits if they reach normal retirement um while working $8.2 million in 1984. The cost of providing health care for the Company. Life insurance benefits are prnided benefits for 747 and 663 participating retirees in 1985 and through an insurance policy maintained by the Company. 1984, respectively, is not separable from the cost of pro-The cost of providing this benefn is recogni:ed by expens-viding benefits for 8,262 and 6,007 participating active ing the insurance p:emiums which approximated $892,000 employees. The costs given above for providing both life in-in 1985 and $681:000 in 1984. The cost of providing life in-surance and health care benefits are before any allocation surance coverage for 826 and 837 particitvting retirees in of contributions or salary redistributions from active 1985 and 1984 respectively, is not sepamble from the cost of employees. m NOTE l -INCOME TAXE3 The components of tax expense (benefit) are summari:ed Deferred taxes (benefits) resulted from recognition of the as follows (in thousands): following revenue and expense items for income tax pur-poses in periods different than for financial reporting pur-Year Endecdecember 31, poses (in thousands): 1985 1564 1983 Currert S14,861 ' $ 5,993 $10,853 Year Ended December 31, Deferrsd 11 5.209 (1,453) 1985 1984 1983 S14,972 511,202 $ 9,400 Loan loss provision $(6,608) $(2,219) $(2.410) Depreciation 2,716 2,231 813 Ttxes resulting frons securities transactions included in interest income and related items 972 2,587 2,174 current income taxes ame.unted to tax expense of $865,000 y'pf,ian 2g 2g ) and $179,000 for the years ended DWmber 31,1985 and s 91 3 5,209 $0,453) 1984, respectively, and a tax bene!!it of $5.4 million for the year ended December 31,1983. The latio of applicable income taxes to income before income taxes differed from the statutory fedevi income tax rate of 46% The reasons for the differences and their effects on the Com-pany's #cctive tax rate are as follows (dollars in thousands): Year Ended December 31, 1985 1984 1983 Amount Amount Amount Tax expeese at statutory rate $ 49,473 46.0 % $42,245 46.0 % $34,555 48.0 % inen aso (decrease) resWting f rom: Tax.enmpt Interest income (32,661) (30,4) (27,064) (29.5) (23,644) (31.5) Investnent Iay credits (3,558) (3.3) (3,391) (3.7) (2,102) (2.8) Other (net) 1,718 1.6 (588) ( 6) 591 .8 $ 14,972 13.9 % $11,202 12.2 % $ 9,400 12.5 % as 93

Notes to Financial Statements (continued) NOTE ht-PREFERRED SIDCK, COhihf 0N SIOCK, The following table sets forth the number of shares and AND NET INCOhf E PER COhihf 0N SHARE the net income used to determine earnings per share for Preferred Stock the applicable years (dollars in thousands): The nonvoting Series A $2.37 cumulative convertible preferred stock is convertible into 1.974 shares of common Year Ended December 31, stock and is redeemable at the option of the Company 1985 1984 1983 beginningJuly 1,1986 at prices declining from $27.25 on Average shares outstanding 26,024,681 25,212,791 23,566,029 that date to $25.00 on January 1,2003 and thereafter, Effect of common stock Holders of the preferred stock are entitled to a cumulative pu ns 230,013 218,316 237,351 Prima average shares cash dividend of $2.37 per share before any dividends may be paid to holders of the Company's common stock. Common Stock Average shares outstanding 26,024,681 25,212,791 23,566,029 Effect of: The Company's Board of Directors declared a three for. common stock options 282,289 315,063 291,802 two split ofits common stock effected in the form of a 50% co$I$"$et ~ ~ red stock dividend paid on August 23,1985. Weighted average stock 538,151 593,702 600,155 shares and per share amounts have been restated to give Average shares outstanding, effect to the stock split. Shares outstanding prior to the assuming full dilution 26,845,121 26.121,556 25,295,013 effective date of the stock split, which are presented on the Net income $92,577 $80,636 $65,720 Balance Sheet and in the Statement of Changes in Share-b58 dividends on preferred ,,,cg holders' Equity, have not been restated. During 1985, Net income applicable to tuthomed shares of common stock were mcreased from 50 primary earnings per share $91,916 $79,922 $64,999 million to 100 million, Net income $92,577 $80,636 $65,720 N:t Income Per Common Share Adjustments to income Primary net income per common share is based upon the cny,$n 885"

• debenture average number of shares of common stock outstanding Net income, assuming full and common stock equivalents of dilutive stock options.

dilution $92,577 $80,636 $66,059 Fully diluted net income per common share prior to 1984 is based upon the assumption that the 6% convertible On December 15,1983, the Company redeemed the subordinated debentures due 1994 which were outstanding outstanding 6% convertible subordinated debentures. Had in 1983, were converted to common stock. In addition, the these debentures been redeemed at the beginning of 1983, conversion of Series A $2.37 cumulative convertible pre-primary earnings per share would have been $2.65 for the ferred stock is assumed in the computation of fully diluted year ended December 31,1983 compared with the reported per share amounts for all years shown. amount of $2.73. 94

NOTE N-PARENT COMPANY FINANCIAL Condens d ' nt of Changes Year Ended December 31, INFORMATION pn,eatPos on Condensed financialinformation for Sovran Financial (Parent Company only) 1985 1984 1983 Corporation (Parent Company only) is as follows (in SOURCES OF FUNDS thousands): Funds provided by operations S 30,777 $ 28,149 $ 24,581 issuance of stock 19,696 37,063 34,214 increase in: (Parent Company only) 1985 1984 1983, Short-term borrowings 16,721 39,382 December 31, Condensed Balance Sheet Long-term borrowings 74,295 l Decrease in: 1 1,254 ASSETS Investments Loans to bank subsidiary $ 8,746 $ 8,000 $ 8,000 Other(net) 6,686 4.825 Loans to bank-related subsidiaries 38,169 36,580 34,250 Total sources of funds $148,175 $ 66,466 $103.002 investments 147,550 67,427 68,681 Investment in bank subsidiary 539,937 480,686 428,940 USES OF FUNDS Excess of cost over equity in net Cash divideinds declared S 31,764 $ 27,308 $ 23,957 assets-bank subsidiary 4,249 4,523 4,346 Purchase of treasury stock 33,953 11,802 17,721 investment in bank related Acquisition of banks 9,791 subsidiaries 23,123 12,823 9,824 increase in: Excess of cost over equity in net Loans to bank subsidiaries 746 assets-bank-related Loans to bank-related subsidiaries 294 334 374 subsidi4 ries 1,589 2,330 2,745 Other assets 21,815 27,094 19,940 Investments 80,123 29,535 Decrease T.tal assets $783,883 $637,467 $574,855 e borrowings 10,469 LIABILITIES AND Long-term borrowings 714 19,253 SH AREHOLDERS' EQUITY Cther(net) 13,843 Short term borrowings S 94,899 $ 78,179 $ 88,648 Total uses of funds $148,175 $ 66,466 $103,002 Long-t:rm borrowings 115,417 41,122 41,836 Other tiabilities 18,180 9,223 14,017 T;t3 shareholders' equity 555.387 508,943 430,354 Regulatory agencies impose restrictions on the transfer of T;talliabilities and assets and retained earnings from subsidiaries to the Parent shareholders' equity $783,883 $637,467 $574,855 Co:npany. At December 31,1985, net assets restricted from transfer by subsidiaries to the Parent Company amounted Year Ended December 31, to $407,7 million. Condensed Statement of Income (Parent Company only) 1985 1984 1983 Under regulations controlling national banks, Sovran INCOME Bank may pay dividends up to $119.9 million plus its 1986 Dividends from bank subsidiary $ 33,449 $28,898 $ 30,643 Erofits* Dividends from bank-related subsidiaries 1,000 1,000 720 int: rest and other income from subsidiaries 10,221 10,756 11,542 Otherinterest 12,075 5,041 3,806 i Other 2,000 1,046 1,269 T;talincome 58,745 46,741 47,980 EXPENSES Interest 18,684 10,467 9,827 Salari:s and related expenses 6,541 6,253 7,140 Other 7,779 5,405 13,693 Tital expenses 33,004 22,125 30,660 Income before income taxes and equity in undistributed income cf subsidiaries 25,741 24,616 17,320 Applicable income tax benefits 4,193 2.629 5,391 Income before equity in f undistributed income of subsidiaries 29,934 27,245 22,711 Equity in undistributed income (f subsidiaries: Bank 59,343 51,655 40,422 Bank-related 3,300 1,736 2.587 Net income $ 92,577 $ 80.636 $ 65,720 ) 95

Report Of Ernst & Whinney, Independent Auditors Shareholders and Board of Directors Sovran Financial Corporation We have examined the consolidated balance sheet ofSovran Financial Corporation and subsidiaries as of December 31,1985,1984, and 1983, and the related consolidated statements ofincome, changes in shareholders' equity, and changes in financial position for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We did not examine the 1983 consolidated financial statements of First & Merchants Corporation and subsidiaries, merged into Sovran Financial Corporation on December 30,1983 in a pooling of interests transaction, which statements reflect total assets and total revenues constituting approximately 42% and 40%, respectively, of the related consolidated amounts. These statements were examined by other auditors, whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the 1983 amounts included for First & Merchants Corporation and subsidiaries, is based solely upon the report of the other auditors. In our opinion, based upon our examinations and, for 1983, the aforementioned report of other auditors, the financial statements referred to above present fairly the consolidated financial position of Sovran Financial Cor-poration and subsidiaries at December 31,1985,1984, and 1983, and the consolidated results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting i principles applied on a consistent basis. i Norfolk, Virginia h4/ - January 31,1986, except as to Note B as to which the date is March 31,1986 Report Of Management Management is responsible for the financial statements which have been prepared in accordance with generally accepted accounting principles. In management's opinion, the financial statements present fairly the financial condition and results of operations of the Company and its subsidiaries at the dates and for the periods indicated. The financial data includes amounts that are based on the best estimates and judgments of management. The Company and its subsidiaries maintain a system ofinternal accounting control designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization, and are recorded as necessary to maintain accountability for assets and to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies, procedures, and an internal audit program. The Audit Committee of the Board of Directors, composed of nine directors who are not employees, meets periodically with management and the Company's internal and independent auditors. The Committee's principal responsibilities include approving the engagement of the independent auditors, subject to appropriate ratification, making periodic examinations of the affairs of the Company and reviewing the audit scope of the internal and independent auditors. The Committee also reviews the results of the internal and independent audits, considers and approves certain of the Company's accounting principles and their release. As a matter ofpolicy, the Chief Financial Officer, the Corporate General Auditor and the independent auditors periodically meet alone with the Audit Committee and have access to the Committee at any time. Ernst & Whinney, certified public accountants, have been engaged to examine the financial statements of the Company and its subsidiaries. Their examination is conducted in accordance with generally accepted auditing standards and their report on the Company's financial statements is set forth above. i t 96

M Board of Directors l SOVRAN BANK N.A. Hunter B. Andrews William E. leggett - David T. Shannon ' Attorney-at-l.aw Vice President of Real Estate Vice President for Academic Sersices and Store Development and Academic Dean John B. Bernhardt Irggett Department Stores Interdenominational Theological Center Vic Chairman of the Board Department Stores John W. Snow James A. Brown,Jr. Andrew M.' lewis. President and Chief Executive Officer; President ' Chairman of the Board Chessie System. - Paramont Land Cck,Inc. Best Products Company, Inc-Relmads Mineral and Land Holding Company- . Catalogue Showroom Merchandiser Charles G.Thalhimer Rudolph H. Bunzl. Joseph J. Mahoney, Jr. Ermer Vice Chairman of the Board ' Chairman of the Board ' President - Thalhimer Brothers,Inc. . American Filtrona Corporation Mahoney Mortgage Company Department Stores M:nufacturer ofFiber, Filler, Plastic' Real Estate ind Packaging Products Bernard C. Wampler - Randolph W. McElroy . President C. A. Cutchins,111 Vice Chairman of the Board Pulaski Furniture Corporation - Chairman of the Board and Chief Executive Officer C. Coleman McGehee .Fumiture Manufacturing, President and Chief Operating Officer Robert G. Weeks - Robert J. Grey

M: nager of Community Relations-

- John D. Munford Vice President, Chemical, Packaging - A. H. Robins Company Executive Vice President and Minerals - Pharmaceuticals Union Camp Corporation Mobil Corporation krest Products Manufactun rs Energy J:hn D. Hatre, Jr. ' Chrirman of the Board George R Ramsey, Jr. H. Walter Whittemore Delta Oil Company

President President Ret:ilFuel OilSales and Service.

Taylor-Ramsey Corporation Crenshaw & Whittemore, Ltd. - Lumber Products Ibanut Bmkers A. Anson Jamison Chairman of the Board Elliot S. Schewel Harrison B. Wilson, J'r. . Southern Stone Industries, Inc. Vice President President

Decorati5e Building Pmducts.

. Schewel Furniture Company, Inc. Norfolk State University Retail Furniture and Appliance Sales W. MacKenzie Jenkins,Jr. Ch irman of the Board Dixie Manufacturing Company Manufacturer ofCushioning Materials as of March 31,1986 - Mrnagement Committee ' Bryant W. Baird, Jr. L Ralph Hicks, Jr. Robert M. Schonk . President-Sovran Mortgage Corporation Corporate Executive Officer-Retail Chief Financial Officer and Treasurer L J;hn B. Bernhardt - Doyle E. Hull W. Kelly Scott Vice Chairman of the Board Senior Executive Vice President Corporate Executive Officer-Marketing Services LJohn W. Boyle, Jr. Hugh K. Leary

Corprate Executive Officer-U.S. Banking Corporate Executive Officer-Trust John J. Sponski-L John C. Brewington T. Russell McConchie Group Executive Officer-Operations Corporate Executive Officer-Operations Corporate Executive Officer-Charles R. Talley Investment Services Corporate Executive Officer-

William G. Colby,Jr.

Administrative Services . Corporate Executive Officer-Financial Services Randolph W. McElroy Vice Chairman of the Board Zach Toms, Jr. Page D. Cranford Seni r Executive Vice President Corporate General Counsel and C. Coleman McGehee - Deputy Corporate Secretary President and Chief Operating Officer Edwin C. Wallace, Jr. C/A.Cutchins,'lli David L Norton Corporate Executive Officer-Human Resources . Chairman of the Board and Corporate Secretary and John B. Werner - Chief Executive Officer Deputy General Counsel Senior Executive Vice President - Albert B. Gornto, Jr. Daniel A. Polk C. Lee Wilkinson, Jr. ' Senior Executive Vice President Senior Vice President-Personnel Corporate Executive Officer-Virginia Banking J. O. Guyant Gerald A.Saunders Corprate Executive Officer-Corporate General Auditor J ! Real Estate Finance i M -

Board of Directors SOVRAN BANK /DC NATIONAL James R. Beers Joseph B. Gildenhorn. .-John E Miller,111 Managing Panner Vice Chairman of the Board; Ci. airman : ' Beers and Cutler - Attorney-at Law. Miller & long Co., Inc. CertinedPublicAcountants Brown, Gildenhorn & Jacobs Concwee Construction Parmer,JBG Associates Henry E. Catto, Jr. RealEstate Management Warren K. Montouri Vice Chairman Real Estate Investments H&C Communications C. Robert Kemp President Andrew M. Ockershausen - ' Anna Chennault - Opportunity Funding Corporation Executive Vice President. . President -Non-Pmnt Development Finance . WMAL, Inc. = TAC International - CommercialRadio Public Relations Consulting . Victor Krakower Vice President & Treasurer ' Robert R Pincus George Chopivsky, Jr. McGregor Printing Corporation President and Chief Executive Officer - President Chopivsky Corporation Jack 1. Luria - Lipman Redman Business Dewlopment andFinancing Executive Vice President ' Attorney-at Law - The Artery Crganization,Inc. Melrod, Redman & Gartlan, PC. ~ Robert L Cohen Residential and Commercial Real Estate. President Dewlopment Jeffrey R. Reider Barnes, Morris & Pardoe ' Private Investments CommewialRealEstate Management Arthur K. Mason Attorney-at-Law John Safer Kent T. Cushenberry Hydeman, Mason, Burzio & Lloyd Chairman of the Board Director of Community Relations IBM Corporation C. Coleman McGehee Joseph R. Schuble - President and Chief Operating Officer - Executive Vice President S. Greenhoot Fischer Sovran Financial Corporation Dreyfuss Brothers,Inc.~. Chairman of the Board Pmperty Management andRealtors Greenhoot, Inc. H. Peter Meisinger CommercialPmpertyIcosing, President, Electronics Group - Stanley R. Zupnik M:nagement Development and Keene Corporation President Syndication Manufacturer ofFiber Optics Majestic Builders Corpotation Construction as of March 31,1986 Senior Officers Robert E Pincus Violet H. West President and Chief Executive Officer Senior Vice President-Retail Banking J:mes C. Brandon Thomas B. Lerch Executive Vice President and Chief Financial Officer Vice President and Senior Operations Officer i Albert A.D'Alessandro Dorothy R. Smedley Executive Vice President and Manager-Commercial Banking Vice President-Human Resources M:rybeth E Bernhardt Sheldon C. Stewart Senior Vice President and Manager-Commercial loan Dept. Vice President and General Auditor Joseph B. Head l Senior Vice President-Credit Administration and Corporate Communications t 98 l

Board of Directors - , SOVRAN BANK / MARYLAND Evelyn J. Bata - bbert Gladstone Peter E O'Malley Owner President Attorney-at 1.aw and Managing Partner Bata Associates Quadrangle Development Corp. O'Malley, Miles, McCarthy & Harrell

M:nagement and Plublic Affairs RealEstate Development Consultants Foster Shannon Frank Hirsch President and Chief Executive Officer

- DuMood L. Boeglen - Attorney-at-Law Shannon & luchs Chairman RealEstate Maryland Drywall. .J. Henry Hoskinson ~ BuildingMaterials Private Investor Benjamin C. Shaw Retired President - ' Richard V. Caruso -

G. J. Manderfield Suburban Bank President President and Chief Administrative Officer Omni Construction, Inc.

Alfred R Shockley GeneralBuilding Contractor ~ Harry Martens, Jr. President Chief Executive Officer Shockley Volkswagen,Inc. Vincent N. Cook The Martens Companies Retail Automobile Sales - President, Federal Systems Division Retail Automobile Sales and - Vice President, IBM Corporation RealEstate Deselopment John Brooks Slaughter Chancellor C. A. Cutchins,III Walter M. Meinhardt, Sr. University of Maryland Chairman of the Board and Chief President Executive Officer Brandywine Auto Parts,Inc. hbert E Tardio Sovran Financial Corporation - Chairman of the Board and Chief Edward E Mitchell Executive Officer Francis O. Day, Jr. President and Chief Administrative Officer President Ibtomac Electric Power Co. John M. Waltersdorf E O Day Cct,Inc. President Asph?lt Paving - hbert J. Mulligan Tristate Electrical Supply Co., Inc. - Vice Chairman and Chief Molesale Electrical & ducts . Blaine H. Eig, M.D. Administrative Officer . Physician Woodward & lothrop, Inc. Ralph W. Frey, Jr. as of March 31,1986 Retired Vice President '_ C & P Telephone Company Senior Management Committee Robert E Tardio Herbert J. Stangl Chairman of the Board and Chief Executive Officer Treasurer G. J. Manderfield ' Terry L. Eikenberry President and Chief Administrative Officer Senior Vice President-Electronic Banking /Information Systems Dennis R. Hanson William M. Lynn, Jr. ? Executive Vice President-Financial Services Senior Vice President Operations Frank A.Rauscher Janet L. Sciunidt Executive Vice President Retail Senior Vice President-Human Resources - W. rren R bthe Deanna J. Belli - Executive Vice President-Corporate Vice President-Marketing Services 99

- Sovran Financial Corporation Banking locations-One Commercial Place, Norfolk, Virginia 23510 (804)441 4000 SOVRAN BANK N.A. 12th and Main Streets, Richmond, Virginia 23219 (804) 788-2000 ~ Abingdon Chatham krt Eustis McLean. Rural Retreat - Alberta Chesapeake; Brt Story Merrifield Shenandoah Alexandria Clarksville Franklin Midlothian Smithfield Amphibious Base-Little Creek. Coeburn Fries Montpelier South Boston Annandale Collinsville Galax Naval Base-Norfolk Springfield Arlington Colonial Heights Gate City Newport News Stanardsville Ashland Crewe. Gordonsville Norfolk Suffolk. Glade Spring Nickelsville Staunton Baileys Crossroads Crockett '- Bedford Crozet Grafton Norge Troutville Big Island Dale City Hampton Norton Victoria Big Stone Gap Daleville Harrisonburg Oakton Vienna - Boykins Danville Herndon Oceana Naval Air Station Vinton Bristol Dillwyn Hillsville Orange Virginia Beach ~ Brodnax Drakes Branch _ Hopewell The Pentagon . Waynesboro Buena Vista Duffield Independence Petersburg Weber City Burke DullesInternational Airport - Lawrenceville Portsmouth Williamsburg Burkesille Dumfries Leesburg Pound Wise. . Cape Charles Elkton louisa Pulaski Woodbridge Capron : Fairfax Lynchburg Quantico Woodstock Centerville " Fairlawn Manassas Reston Wytheville Centreville ' Falls Church Marine Corps Base-Quantico Richmond Nassau, The Bahamas Charlottesville Farmville Martinsville Roanoke Washington, DC Chase City Fieldale Mathews SOVRAN BANK /DC NATIONAL - 1801 K Street, N.W., Washington, DC 20006 (202) 955-8700 Washington, DC SOVRAN BANK / MARYLAND 6610 Rockledge Drive, Bethesda, Maryland 20317 (301) 270-5000 Annapolis ~ Colesville Greenbelt Lutherville Silver Sprlng ~ Baltimore College Park Hagerstown Mount Rainier St. Charles Beltsville Columbia Hancock Olney. Suitland Bethesda Coral Hills Hillcrest Heights Oxon Hill Takoma Park Bowie. East Riverdale Hyattsville Pikesville Thurmont Camp Springs . Forestville Landover Pbtomac. Towson Cascade. Frederick Landover Hills Randallstown Upper Marlboro Chevy Chase Gaithersburg Langley Park Rockville Waldorf Clinton Germantown Laurel Seat Pleasant Wheaton i i SOVRAN BANK / DELAWARE 800 Silver Lake Boulevard, Dover, Delaware 19901 (302) 734-6800 Dover l 100

7 1 41 7 Y l i d i !Ia i CI A p i: 1 i l !i -3 = t k e g h 101 I

Sovran Financial Corporation Bank Related SubSidicies

One Commerci 1 Place, Norfolk, Virginia 23510

(804)441-4000-SOVRAN CAPITAL CORPORATION.

SOVRAN CAPITAL MAJAGEMENT CORPORATION ~ 410 East Main Street, Elizabeth City, North Carolina 27909 till East Main Street, Richmo vi, Virginia 23261 (919)355-0546 (804) 788-3100 SOVRAN CREDIT CORPORATION SOVRAN EQUITY MORIGAGE CORPORATION 410 East Main Street, Elizabeth City, North Carolina 27909 - 3600 West Broad Street, Suite 452, Rich.nond, Virginia 23230 (919)335 0546 (804) 353-5544 North Carolina - Mount Olive Virginia Virginia Florida North Carolina Edenton Murfreesboro' Charlottesville Annandale Clearwater Charlotte. Elizabeth City New Bern Hampton Charlottesville Ibre I.auderdale Greensboro Farmville Oxford.

Harrisonburg -

- Danville ' Jacksonville Raleigh - Goldsbom Roanoke Rapids . Pbrtsmouth Fairfax Tampa Oh! ' Greenville

Rocky Mount Richmond Falls Church Winter Park H rnderson Washington Springfield Hampton "h*

High Point Williamston ' Suffolk - Newport News Georgia Reynoldsburg Atlanta Kill Devil Hills. Wilson. Virginia Beacli Norfolk South Carolina 1 Decatur ~ Kinston . Zebulon Richmond Greenville Roanoke . Maryland Tennessee SOVRAN FUNDING CORPORATION k' na Nashville n R t! e PO Box 600, Norfolk, Virginia 23501' (804)441 4041 Virginia Beach Silver Spring Williamsburg Suitland SOVRAN FUTURES CORPORATION ' PO Box 600, Norfolk, Virginia 23501 (804) 446-3711 SOVRAN INSURANCE AGENCY,INC.' ) POBox 600, Norfolk, Virginia 23501 (804) 441-4803 SOVRAN INSURANCE INC.L 255 North Washington Street, Rockville, Maryland 20850 (301)251 3579 SOVRANINVESTMENT CORPORATION 12th and Main Streets, Richmond, Virginia 23219 M :ryland (804) 788-2246 Bethesda 1.andover Hills Rockville SOVRAN LEASING CORPORATION Silver Spring 1510 Willow Lawn Drive, Richmond, Virginia 23230 - (804)282-6522 SOVRAN LIFEINSURANCE COMPANY ra tn n I a ha lotte PO Box 600, Norfolk, Virginia 23501 Richmond Raleigh - (804)441-4803 Virginia Beach SOVRAN MORTGAGE CORPORATION 1 ow 1 awn Drive, Richmond, Virginia 23230 F1, Ro t Iding ~ Two Commercial Place, Norfolk, Virginia 23510 Virginia Richmond Gaithersburg (804) 441 4139 Bristol Roanoke Severna Park Charlottesville Vienna Towson lonial Heights trgmia Beach FINANCIAL INTERSTATE INSURANCE COMPANY North Carolina 255 North Washington Street, Rockville, Maryland 20850 - Charlotte (301) 251-3579 Falls Church Woodbridge Greensbom Fredericksburg Delaware Raleigh Lynchbt.rg SUBURBAN CAPITAL CORPORATION l Manassas Wilmington Pennsylvania 6610 Rockledge Drive, Bethesda, Maryland 20817 l Martinsville Maryland Camp Hill (301) 493-2803 Newport News Columbia Rosemont Pulas':1 Dunkirk West Chester VNB EQUITY CORPORATION 3600 West Broad Street, Suite 452, Richmond, Virginia 23230 SUBURBAN FUNDING CORPORATION (804) 353-5544 l 6610 Rockledge Drive, Bethesda, Maryland 20817 (301)493-2950 M:ryland Virginia Baltimore Charlottesville Bethesda i 102 l

-w-- a.. 4 - ma, 2 -.u. -.a .ae _s am a sea _.w.a a a. + "g3 " ~ lA' - ~ i

M

. MOl . [ . 'Al. J J L.,..sc ::,y fh*ly JAa - .afr$ I ' :, [ EM J M3 GA. gy;:- f: i 4 rJ' e i 103

Shareholder Inf;rmatirn ANNUAL MEETING-STOCK LISTING The annual meeting of shareholders will be . The common stock of Sovran Financial Corporation is traded in the over-the-held at 11:00 a.m. on Wednesday, May 21,. . counter (OIC) market and is quoted on the National AssocNtion of Securities 1986, at the Marriott Hotel,500 East Broad. Dealers Automated Quotations (NASDAQ) National Market System under the Street,' Richmond, Virginia. Symbol SOVN.' The Company's $2.37 Cumulative Convertible Preferred Stock is traded in the . CORPORATE HEADQUARTERS - OIC market under the NASDAQ Symbol SOVNR Sovran Financial Corporation Sovran Center -DIVIDEND SCHEDULE

One Commercial Place Dividends on common stock are normally paid on the first day ofJanuary,

~ Norfolk, Virginia 23510 April, July and October. ' Telephone:(804) 441-4000 Dividends on the Company's $2.37 Cumulative Convertible ~ Preferred Stock. r n rmally paid on the first day of March,-June, September and December. INFORMATION A copy of Erm 10-K, the Annual _ Report DIVIDEND REINVESTMENT PLAN filed with the Securities and Exchange Sovran Financial Corporation provides shareholders ofits common stock with ; Commission, is available without charge a convenient method of purchasing additional shares of the Company's 1 upon written request. common stock. The major advantages of the Company's Dividend Reinvestment Shareholders, analysts and others seeking and Stock Purchase Plan are: financialinformation are requested to contact:

• Automatic reirwestment of dividends at a 5% discount from market price; James A. Kirkpatrick
• Opportunity to invest up to $5,000 per quarter at 100% of market price;i Director ofInvestor Relations

No brokerage commissions or record keeping fees on reinvested dividends Sovran Financial Corporation

- or cash investments. Sovran Center One Commercial Place For more information or a Prospectus describing'the Plan,' call Investor Relations Norfolk, Virgmta 23510 (804) 441-4705 or write Investor Relations Departme'nt, Sovran Financial Corporation, Sovran Center, One Commercial Place, Norfolk, Virginia 23510. Telephone: (804) 441-4705 News media representatives and others SECURITIES RATINGS seeking general information should contact: Fitch . Moody's . Standard & Poor's William R. Craig I.ong-term debt. Senior Vice President 8.875% notes due Sovran Bank, N.A. Sovran Center August 1,1986 - A +' Al- .A+ 12th and Main Streets 7.80% capital notes due not not-Richmond, Virginia 23219 October 1,1996 -AA rated rated Telephone:(804) 788-2258 Floating rate subordinated notes' not. TRANSFER AGENT - due 1997 rated A2 A-Those shareholders seeking assistance Short-term borrowings not regarding change of address; transfer of stock Commercial paper rated P-1 A-1 certificates; replacement oflost, stolen or destroyed certificates and dividend checks; and elimination ofduplicate mailings should contact Sovran Bank, N.A. Corporate Trust Department, Eighth and Main Building, 707 East Main Street, RQ Box 26904, Richmond, Virginia 23261, telephone (804) 788-2148. 104

5%g % . 7 A$ gh g Y .3,_ 00ssing %ww ~ x :: 4 w.,w,;; w..... s.w. . ~. e c..:. . ::... -[.. s- ... - 62, ' f#- J 3: 9 -.-'q' A. J,. ~d g p ,.. X ;.;Z.g.,g g ':,.; j.. -* d.;i..,, e(.3, '. . f3..*.,e ';s- ,[. y ' '.

f. y -

3 7 v_. '. y%'$^.ya,s:.[.n.. : : ,.. yf,h f .' e

=:r

.n... s, s u%.,.v.m W

r...jn:

.c.. : :. x .o. . ^;O ::.y.9 9_ n.; ;... . ".\\.' : N..... z. "y: ' ;. [?.;

'.t;q u

%.#g - t; - ;...1;-;4 u;. .. d s ..liQ :? $. N ~ 4,'h'.'. f; +: -:.m...h.,.

- -s.

g

,,y 1

...r...<.- ., l' l, '

3. -f,." ?.,

j.: $. ;k.YP.).,,. _.. \\,._ :[WhylQA'g7J.;j.3g }:.li; f... ::{ '{l gju ~ ? . :q. _ l..;;} : 5:. ', N '%s;# W C D......s%.MVM& #:W y ~ ,ln,' %:. - T.: Q .. m. v .+, s.. y.. - - . w y p.a : .h y g'.y' y:z..6.,. .,,.;ppygg 3.;;ggggy; ;.,:.;'.:pw;c ;;.a ..WT

:Q.y '..m }m :7. '. : : y. e J. :;.:

. Y _ ', +. -C :: -l c-e ? = .a e u;- :. x,. .;.:v._ w. ~;..:n.: &Y ' Th,,:_a,:., ;., .Qy j;;- Y::. .}; - %:y :. Q. : ^d'.' : :.~ ~ ' ~ ~h, g.K, ?' ' 'iN ,..;....? ' ' '. :' ?

Q,_...G..RL " : '.

f.y._ : , _7:; 3 7 ,gggyggy3y_3.g_gjy : tQ Ulk'n N'asliington crossed tlk' icv OclaWilre on Christ-tellers and 17hh automated teller Connecnons nLis nielit Iri !77D. lx' knewone thme insanenvelv Obviousk the new Sovran will draw oli t}x consxteriible The nme was neht. strengths of the mereme partners Suburban. a consumer And so it is again Virginia's leadine bank hascrossed the bankme leader m Niaryland D C Nanonal.a gratung com-Ibromac intoWashmeron and Niarvland. joinmg tuth DC mercial force m the Ibtnet And Sovran. already a major N itional llank arxl Suburban llank Smran. A il; i bilhon recional banking Presence insntunon with the resiurces of a ntijor recional bank Clearlv. it's a fold. histonc more mto new terntory And. ('A niisidefine the iritlux of liieli tecli. liieli-crowth irxtu-as lustory lias proven again aixi aeairi, timine is evers tiiirie. try to the area. it's a move that comes not a moment too soon Quesnon s ' Call ont roll-f rce.\\tcrger Informanon Centcr Arwl tiitlx peopleist tlx U;ishirtetori metri> area. perli.ips diiririg regidar barikirig Iti,iirs 1600415-150.3.\\ictriber FDIC the most mobile societv in Amenca today. N veran bnnes a kvel of banking convenience that coes bewnd even state brx s AcrossVirginia. Ntarsl.irxl arxl tlie Ibtrict. Sis r.iri lias more than H0 hications plus over 300 Cash Flow" 2+ hour \\Wn RightlirTlwTmws. e-s...%..<.~

.' b~ ? E.e - . *W4 -, s.. W m:.+..a*k w w :n,Q.y. * ,, ' ~.,,. Lim.m..d-M h %.&,,"R.,.&,,.^. .... 3.

• • Y,.....;

.......L..'v } (D:-' R. N..g'. , b. -d.,% W-' yh..N.. 'L-$.t;p.Qg+&~.p;%$.9.,MQ2:.b./W'YQ4Q[- ls.hr. ), yl. V n; ::: s,. [L',y-- - + 3 f g&.4y-- :.,..' :. y;; 4 T= ,-. O. .~ 1 t -

• 'd.

, ( '< af..' < <. v -.., ~'y j,,. t (6.. '"f .,...'m,"..,,+,rr'. r,4,J --,.- -.. s s.. ,,,..q,.,. .N.;4,..,. M'W=' .n. ; -.* '.. - .e,.,. x< v .n g. g- ..*(, ... ' i,- t*' g .m..',.i.',s.r*g- <a v .,*,,,?i,,'~ .h.,j'..,,..,...m t- ' - - ~ I, .i g, 3 + g* jf-l.. i. .. ' :-. -. 1 f., ? ,.t' - 1 ,..--,-~'.;& ',',*5 /9.'.~. - i. - [:.,, -*/.-:~~.....,. Y.-, ,p ?, e6

• i ?,.

a.*f < -A... .*9 -A g '. +.,..,s-4.'--_ .,..,./,.....'..-f., --.s .v-s .o n s...

.,,1

~ > .o.? ..g 1.- -y....e..r n. --..r,., - s. ..t'. . s.t.,~. J....v s.,. s..

e. y A<., = a g... 8, z a.1y :,

.,.a o J p... ~ n...... t.,. -},... s,. =' ..o. c,:c :q, ,. ~ p".,. n.g?;: 3.;.:g..a.. -3 _ n :y.;,-,. ', *. r); t -n' ,s s',. t r". r,. -s .p .h..,.,...*:. f. ' f s,. .v.. y,

- - -n

'4 :'. -,3.\\ ,),.. ,, > :-, Jj,. Th- -.,....,.'. y: I. '. y). -<;, 6 ....M y (,,.,, '.. , ', - =.. g: . > y, ".<,.. e. ,c. .,. s

. ",e. -y,g

,,. ~ ~ *..f.6..,. & ^ nl q. :...Qt, e, ) ?.,,. t + ,y ..,,.,-s a, N T;h,Y p,s.: 'r.G.,,-4,,3:).,f '-k ., n: ;y .:-,- - ~ ~.<v.' 3 ... '.p. g Y.'.'..* -l h,.'Q k,[..s. w 4.n -'} [- :. u :;.,7g.'(* ,d' 'F! 'c. , (M f.M.;. w, jj, [.4'O ~

• * ' * '.,j, ' t s '

,.. :_4. - ~. '.s ' 1..,ap ,y ., : ";. e,G:

,,,q.,

.u ,-.54- -.- v u;: " i... - \\' [* .w~ ...f,, ^ 1 d- .~ ' ' A r - [?,., e.. . ' ' '/{ ' P' -,' '... -:3 pp ' y +. '..g y.y r..\\ ,.y . L . ' g,i y g ; % j..,,,., -y ,,,l 1b -... l'., p!, <-7',,+ l I,, j.;,.. 6, 1,- r. r 'r - e C., a.t4- . i, *..t. p.m.

r-

-./ l

3., ;...

f a <..n' -. h. ", g,.,p,< - g ,3 7.. y 9 .T',..,. q....- 4,, <,... - 'n -A .t '

1. 4e, o -

j. 7., ,z . ',;,.,.,.,.,a,,..g. '.',6 -(,:.., .,5,< ,$.I - -t v - ..s.' s-c,<- +d*.,","^',.N,.".'s-... -v., J.

• i,',, ~ ~

'**r.*,~:4 '  ? e **..* '. ',; t. C,- y f,, ~ /. :D J. j. .h ', 's s.- 4 ,..'.,3; ".c p,.

• ? -

-) y ,s .r ~...,g, is '.g,'. *&. 'lll ~ ^ -f.h,- NW e' . L' ,8 - * *- s- .%..i 's .- :,?; - )3 Y. 9 g..h <,., ~~ % . l-* .f.. ,.,.,.9,,+_',,,.',,'s".'.:,....'p.3.....,n.%.. '.4% -n. .y, d - - y. (p?* .,.g....4- .,:,y.=-.v',.,.o.-d 1 . ".y,g.. (,. ,4'.*- .y y',, > ;Q- - f, i 1 $

e. +

5.- % Q ,. p,,p . g. 1, ,!.t.; <e,,. g ..,A.s- .e., - * .,.,,. +. ,,g-g,.e,.,..---* 6 ;-,=.m, -s

',q

.,c., x.., - ,s. 4 -e =u G ~. ?; 5 %.. g ~ .g ),, $.-~,..1 m,..' '.., %. :: y.j.:. a... =y ;; m...'. p y ;;., 7.:. % ;,,,j.'., 'N * + ?, s.,* ' i, ~ ' }~ '.- b. -ll l %- n y..?.:s.' "q L.,'.' ^r . '., 4, *, D 9,.i N ' '. ^m..*.~ ..s ..;,; ;.f.c.t.- I' .? :y i ~n *Mz .,,,C,,t

., ~

+* y . '..

• y p:

g,. :- - e.'- .n x,.;Q.,- e e ~. -

• s

,. ~:. n%.. &...,,. -m, u... c..., 4, ;,.,. " x y

• s-

,J Y .s. . '. ' ~. ., - ;,.. ' - t s - .w . g-, w' .,n ; r s. ~g.,., ;; n g n:::. . v .- ~.,,e z,.:.y; y ,..- ~ n. t ,e y%.: ;',p, %. g g. S.. ' /,n: ).n.r?:.. % : m :.'s &... ,a.' 1 .,s. y -:, d; : - n. .s o y A,%~ (eL % i 4 4. v. w p.?,..t. K...; Q & ;./ e,i, .c ..c . y., .u -[_)s:..f: :. - - ~.* ", y ' /..,,.. t J.,.. t u,.c v '.. e r- . ',g ~ c. :., c s. 1 : :. v',3.,.

t. - (f..M f,r.i. k.,{',, e.d#S;,

/-. 2 gA $. /,/.... ',, e

• '4,.,; ' j,.,',,

i *,s, 9 - -/f, "$ j. 7' gc;.,, ,', p,;., S c .'f, ..b. i 3 ,,.%,'"j-7,3, v g,., 1:lr' g,g,',* j ,'.,q.* ..,,..,..7.,* f., '- (',. . W, f c .v. '. ~9. r >3 ..c S', /.c,

e..e,M' 4%

. y 7.*tg, - ,'. 5, ' g,,,, q.. ; n q.r g,,.,;,.y:'. *,y

• .~-

, j, '.4 *.a.,,; ~A ... -.-r 7, p,, .'s ,*y _."p...#., p$. gj..., l.' _ '.,,... ;, g?j yJ. 4 q'. ,e t ,.r',- 9,c,. N ? 1 lj. - 4 p, n<, '*,.g ..,.4,

• j* y- *=\\,,Li /2, =%, w...- G,,.',l. %

5 >.i'. 9 9 >- '..r..

,.. 3

-

• e{. + v $.:9 g,.3W Kea.:..:. q.e 3

.f. +.. - -i ., y .. s.y- ,e* g-g. D'QM 4 ?-3 w,7 ',.'y,.d. d '.i y+.Y '..fy-}.--6b - ' k. -- i, s - . q,9, 1k*~,.,$,, k."y;b;,. L. i' \\- c.. *.N. '. s (M e ad.ddM,,4 - - -Q1 n- g Ir-m ..r .; r. - ' ?-..:.. w ',P.'3 .y n ,n. O r. y,..c,v.,..,-'}' b;.P a, ...?.'. m g'. y.s 3 a..A -s.. .9 yss .p e.4. <

1. m, 7

c ...p , '. [ ,,y". yk.h. '.-j. '.k _ f., hN.. . h.t4 b.fk..,i[ k;y .b .k -- N.. I' 2 ? e 94 - [,Q-I, i. _,,*... P., Y(~ h.% 2. M.... ,. Y 'S ij8':.. T"k ".2*W f.'Y. ".5 [ 'g/ /(:...,' er-- N m - s' o D ' h... r

7. N ' 2 ' j3 ', %.2[!

. %. '[MM[ c,' -S. I N g.d' pD'},,L Q b[)f' i 'I .9< . - 1 -. l-Y  %

7?;2,.'f'.;. 3.&. g_R, f n y

. ~.Q.c,.)y,'V. %.i&~Rh',','Q.'i.

i . ln l.% Q$'!-l.z *{':.},~ l.t-?. ;b'."% ~, f* - } ' h &-<.h{ Q., :p,,'%

'f.<k.

W.s n;.~ ..g l .i c;f.rQf, T.f' _ -( Ep'f,h'.-}A.N.h . L *f *,. < 2: , -[.,1 l,:.'. .,.T 'f*,- '.,'C q VQ.$j$, i,.m g}';.s} O 4..., y,, ' /, '.,l y,*f'U '4[ .. G }*.. ; y ,-2l..,.,i-i,; y *l'l.,; .[, Q.' '

• l V n %, 'l,f%e ',4 f ; 3 :x. % ?' *4' '.'. *,., i,,. :

- hi..*: 9 5.:.< :.h' ^

• n .'s e',.

-~ - Q1 - h? s . %>-?.m c}K.,,,%', ,,Z % j - ,M 1.M '.4 ll. ' 7;'; - ,-* '.:1 {,p,.,.,, Q'? [% y.{y.';: %'.y,-4 S' tU (; ;^k_f,q'y:[ ', Q : ' 'lg Q' ' f..' 1 ig . d.,Q -l' r,1 y *.g , V 4. ?.'. - I , ti' y ' '2., gr ' pl' 7 g 3.Q 4 i W y:Q ~ +;-i Q;:)>y.g*g &l*. {,f*p,[- t-

. I. -

.d_ ._y . ;D: y.'%. *,. - W.: ' ~.(Q 1, r.,

• k ;Q i K IN

W

., W;,4, f. . 3;f. ~,, /.,' V,' y% ',% l:'T. ;.N.

• ^

W k ., h, ': b. f1,$n lV, $%: 1 ':% ;6? 9,'Q ?\\..Y%*, t). ' > s... p - 9. %. W:K,..'F.W' y. < R. :, ~. n f,.,i I .*f . e 5 ~ g..,-. 33 - : #- -t.2 - .e sY. M, h ' 3, 't,'..).-D.V f... '.'J v'3,. t,f ^^.9h'.9 4.. v. ,,s.9.,.'. h h ', f [yg Y k. h. ' > f M] y., 'd ',,1 ;, :.,,,k ),- [. *. e ..y ..,4 c.y, .e s., [n 51 3 .N'.,k ., [ 1 ', ' L. [M -%. "N ~.h (.p l ;, '4 [ ~ h*h;.4. r I !'-j(. - - N'1-(%. $' /-p 1 'h" f,- g .b , +,* fh. _.4-s_ ' h O $",Q P '.,/ l ?-t.. # *. ' <r5 .-r*q .{ h' 'U.&" T.% ie.' ' ". ,t._' .V D.e-<. N.. t ,I s. .. h k Y Y - s ?Y ].., 4 ?!Y,0 ' f.. i'h.' '%;fg...,., o,/. f,}J [.k.h' k[W[ k.k..I,. ;*' *: : f.,.r"' ' 4'T ;@-f - j'"k.. hh, ;*(klu - 0 f 4 f.j.y v. E 5 N ? .. '..L, l:' ' f ej ('h.,. f..T -; -b q 7 %,'._ S -^ .':d <. j,( w ?, p; n.* g l;.. - ' ; ,n. \\ . j. : -3 .. ;.. -:* - ?? i..,.1

~ y ' % < ' '

.:,7. V 'c.' - * >,,4,'-- i "C 'L,. E' L2 ;;.::?. -l-s l)f v .f. ,,.".)', , ~? :

f. + j.)..' P. ; j. ;s.;e q v;.* f, %n

..*'_1.'.'i. c.. f,$'......... : if .e. 3 ', ' ' - s .. y *. ,/ g..,..> '. yj g,,,'p .u,_.e .~;,.,. % ",.7 *..'s.'.k .g i y, j, 'y ,,,. '. y;? 'y:h,,:,* r.; ?* 6.y, - Q' f..~ -. ',, -3.,., A,3 . l-9.. V -% =h 3

• d-7 y 3.. ' 1 4.

,-7 g., (, g, g h..,. W : ( 4 -- , " j-= .Wt ,y .,t,. a lk. <M

; y ;,,,,..,-

t ,.k-n., 1.g> <,. p 4? :.., > 'a

4. m

- = e.. a -,,. e

• n,

.g,._ s .x " r :. y;-~ ~, = Ltt.. :~~;

. %4

,. fi nw 2. y. QQ,'. '. K f h.a.g.7 t r. ~. ; 3.:' . 'Q 1.<.- v y 4. '. f. '.W; ~, % y^_.h &' _ :. t',.E.*.',l.l ,0 ' "$,h h.' N'. ' h,w'*l.'alQ:.,L .') t, i. 'f-}ptm. f.ac. .Q -r ' ;. ' $.^ f <-. *.,; G 'v. . % 5, :.,g _.,.. +,,~..:.c. v ; m. '., y <'e f .m g-2.s.: - w -e fg".y,,,&.. 6 g < .a. <,+A, z ::; :,; 't u. p. ~. y,.n.'/. *,**,y, ,8 : y,",9 1 r. y v. M; '.., t. .-n..s.,. 9"... -* *; 6- - k. .,Y, E. ge v 4w ?- , :n y.: Y. :,. 1 E)' R. -*b. t,#*-- f* %; y.% A s, >. yN .p x..g .M a s,--1 :,,,

• gf. _. '. 1 l

';.s .r:_ ,;, " :. q. Tt7_? 1 m T e' r4y e v. :- + ',. 7 +a. *. t,- _.r%.,. :..

• t,. 2,

.r.

\\ y v. VF ! ' n..., 6..., y c w'."- a v.< N.. - ~ F t - 0. ^ a.Y. ' ~.~g y n,.... y(p.,.,, '.A..F. >1...-, ~u, t *; A- - n. %. M g. ,.g- . -... gp 4

• r P,Yr9:).

,h ,so .c....: -4<. - w, .e 9 r a... ga 2.,v~z y.s .:,,. :,..:, :.. a .y<,: .m .p.

n

..e c sa. ~ n, v.?.4 b. s['.. h: >- e. m. e t.%. ',D'...., Y g v h.,$: ;f :l ~ ~l.l4., r E;. Y ?' h f p a;;: ;. tT.

W~.m.-

Qy._qw.%:;y.j:g% /w..,en,;$ -l v3.a p.. s 6 Q{w,. < ~{% f.y ;M.; Q ji,$,C.. b. 3;- . f,f --, >,. il.y .9 9 ...Y;w~..,, v...?d.. ';.M..,>,.. %..& 3Q. m.. 4, %. w.,.., m.. p.u,,.,.,~~.w., ,- z e . e. +4 e. r

. r

.,. ~ .,..m 2- , n.: :, % y:%. '9,3..w:x. m

yg

.e . e g d? np.s. 4;. -: p :. r,..' r, m y y.

u. u,.

9. ',a ;'

m,, r. ',. + w v _. w,,... ~',4. .. k +a;.. s s

% f. y,.

. u, c. w v. -i vg,, m.g n n)'.h1 i b,;..,. h.,. c., - g'.. . y;9 - 9Q 1W m,'. @. .yn p' '.,,; ?: 2 't ' )M. h'"..S 6:.. y~Q-. ',s ,i:, M./ v . ; y.{.1. . u.fn :.W'v

s '.Tr, a,;;m 3

t:, . t.,W. ~.:, v: 4.. 5,, fh , g x:: *.; ([ Y. ~ -, 9 .h,' .[_[ , l[.ff N~ -h h[. ;, N . ). i Ab- 'k -' ik -[$ k.'. -$ 6 f M' 9. '.af., k 4 :,.4, ; q 2.; hdpp., -% I oh'. . ' % %,b.,;... j - .u, , p,

u... i';j.'

• 5 e. #. p W..,. %

/ .i.a , p v{ ',p '% y' !, ,,? y; '(.,y -;.._, n$, ? :6 .p.I.J :',-O.J 4%- e ' b ' e','y q, ~' q. -... -, t f '- i"Q -08

• C f.: q,,"...:.fp; M i. '.lq,,.g.. +- b*# ' W, %. y v

-%.., V V,? i,5,,, W .N,. 4.r.' V. '.b dm.5',c.: p.g d i - - 4 .M- .k ~ i, f, A V,,q ]-h .'%+1 L .':?.l's...Yr.$ .... ha t,g ! ' "..'. '.'.. o.f. 4 x.:.r.- C t - i Q' t.] J. "..' ,.. % Q,.f_,;:} & d.)[y#' ~.. - .y r ,. r.~ v - n e v S ' Qk.,'.. l.: {.,1.u . s s., r,:.-g... -*t_ y,.:.+y.. 4 .... pN' x,,u .c :.g,, -.,b.... ; ~.. w.. /.., ?. ?- .QC ,s % '. m. Q.'p. N,;.3..., [ 4.. Y ;h h..a w . - ng.. - 2y .n m a-x., u. =1.. '.%.y, 3n.3 o s .g - er. n.. L.. ~m W, b... + ;M ,.k..l)_ l..

n.

u JS . y. %.% l * [ Q.., Q:;S Q:% - d.' %(v 9l1.$ N f&'N,ey;YW>: g#.n L.; qu. : g.: r: .. s p.1. %.g;,.8 k, v:e.: y%.., W:..,w":.. %...:.n ; W}: W:.. q'v

.t.gs

,.: r.x.. q.

a..

.,.5, -n. &.,f,Wf.. Q &.Y - N &a y p N

h 1

.':L v..,.,y%.9,g$v y[,d 'U W$. %+ D.,U: d M .g, m Q $..g).y &:V.% %~.$e,.:A e m. v a Y hg .m. y. .c e ; xA: &.,#,,..~.,)..J b : (...pV.,. x[ J,V..>[. a h ~t%, p: W &- 4 Q ., 4.. N..~+;. w y...h09.p E:;:' % '.% .S..- .vw :. s M m. s,- -:s .,,ye y. 9s p.-s n., y. y,1y g~.s y, m.,.,, b. 4 , e c,v. w ~.. y ;. 4 3 MN@.w,..N.x'&..r.'MA c.@<W. '.. w g. &vm. w..r.gm: r.m

W;s..h-0.

6.y7 6 4 ? Y,, /. g 4 tc - M b:p..;n'4'iyM....( k.fs.. ' [4%p,,N,. % g.. 2 oD/ m. n%y,,W:n. ~ar-F.3. W v q a w,. w. h, W M 2 W W.,%.y. g @ ~.. m g p..yw y 4 m, L M W4fi M EW i@ W.r-m w.,:0.s..y.;f.ftp# m,y

e. n

-c.. w, 4 ew.n .newm,g%n.,g,2,:,,.?, q v.'i.w@,.lgg y n s~;p % .,f. g.$,;;.?,3.. Q..,.s. n^ ws n m.h.m. 4 . v. 3 2 ud ~c g, u. m,,1. v e 4 w. & 3. - w g., e,:.. ,, wge.. .f( ' h h h ?? I.

f.

~ p : ; M, m. E aM T 7*y,e-%e. M,;m;?. -p ~y$ s.m ,'W ^ %n., k % u :n .~.,.<w+., xqc y. y.1. y M.1 4.4 M L .va 5.y: %.s;p s. . r w.vh. - . k. M n, ayy +: a,:; J.f i,.. 3.7, $m..,.. y 'N. 9m% *.x y.y 5. 6,9 f. W ,m 3 .,.M.t?.. . k. . y,, e. r 4 6. A e.d hi q # ,1 l -i ' ( 4s, My.. +4_g%,T.- A".,1 %@.t 2 E, %+ y,& >WNQ% t,.W r N &s.'.M. .r ;"v%

4 4 ;.? g.w.p.' p vg %.3,:~m # s a,k.( Q7ys i8. F -

+.. pm e.r w' a..w.,9,

m..-

_ 4,, + .,. c s.... i .y. a, s ,A3e . ~. mn.,;. -9. t %.Nyt.m., ~ m bg, y1+...; - p.y. w ,(. .u g,]h(,m:? g@u.m.y: m,"p42.%m' n v: ,s, A

g..

4 W -Q.. 6 ._ i . g.... ,54. y..g n. @v.a.. y:, =gQ:. p v >~. 8 m.. -n ~ w. ~ ,. g y.,.p., e.,+; a a.m.n. :b, ?,m.::g%p.6 M. 7.>4. :;..' fpq.,....., g(y... a.. r. .d,,,...gn,p. gyy-.?, J 6 ..w.4.s.v.,~.a., r . g. ,.y n,.m. .w e fh l

• Y,if. f f.

ng W..-f>. >k. m,w e $.r.y$}-v. f .-.f"m. W,. $. m&e..>,a.:.

. waker @w.s ~ : uk.x,... ~.....mm m r w.

+ a. ~v~c. w.a.. M p

. CE3 W W Y*U.. ' ',' k'; .Xfl[ /d k ,.,m d} '. : 3 +e J jj ), %[.* - 7.3. s 3_# it]t[, l. V v A yggll. _ y"& h h;.q, m-.

• ;k, u..

c, e'Y" Q,g h ;f;' }f l m:;& $, ;W' 7' . p ? ? & ?c 5 ~ lz s n - ~ Q$, I,fD 'llQ: ,.&i: ~i ? *^.. v [j%plk:W' = J6;?.]h':.COWJ ;LCD% - ,50l3 7 '

• a Y A,,,.dj.,j,...s u g.1[Q. la=Rf vi M-

,l & lg;h:Q3lQ. 4b gM-fQf }f '};fj%"$;hk:Mb '%,:(9-y-5 ?&Q L,,,. ~ %,A R ls%.&%$? %@L ;' hj[W,5;f'*'y, 4 s-j. " +pg9 g; ~ t:9%'Q I~. W & ' ' R WR: h;g !W ' Rpjl7Q% p'fylMMlW gy :MMW , < yw ~ ww @WW p 4;g , gg;;g:qw:Afgf wllYf J 7. . f m, $h'ha$m - 3yy b n w y ;$ bfkIk,fkgf.% o;f;gpa 4

w;y z g 3-

=Nh he p; e gpy5 'b5 h Y ._N:. n . p;;so w : > s&g, gyv, +(hbbb hh O ($ .,.- Wh ' t - % -- ifh tWY': e

~ 3*, a

)k'L nn .M. y wwny~~- $h t SIgg. .;ng- _ M MMsfL ges;s4,%w gj- ~ vn y. u w g 1 w ;n.., 'f-r,- y. efghfY ,m. L*-S - _ 3% #%l&m$$p&am[ aDM**.2s Q .g

&.5, (?

4&kk? ,y w ~- .; ? *' .,ds llh0? 1 lh m -f,i 3 E d! ly W W m. 3 i gg g W h 3 IfW o e ' g-; a ,+e m,j .m.

u Tble'of Contci ts i Page Financial Highlights -1 letter to Shareholders 23 The Tax Reform Act of 1986 4-5 - Management's Discussion and Analysis 6 Quarterly Earnings Summary - 14 Interest Sensitivity Analysis 14 Financial Statements and Notes 15-21 Consolidated Average Balance Sheet ' 22-23

Selected StatisticalInformation 24 Sovran locations 25-26 Board of Directors 27

-Shareholder Information 28 Common Stock Data 28 Coverphotography selection hom the 1985 AnnualReport

Financial Highlights Sovran Financial Corporation and Subsidiaries Three Months Ended Year Ended December 31, December 31, increase increase 1986 1985 (Decrease) 1986 1985 (Decrease) For the Period (In thousands) N:t income $ 39,481 $ 28,853 36.8 % $ 147,956 $ 124,176 19.2 % Nat interest income 134,626 123,204 9.3 523,055 464,532 12.6 N:t interest income on a fully taxable equivalent basis 157,736 146,391 7.7 631,174 547,729 15.2 Cash dividends declared on common stock 14,348 10,869 32.0 53,015 41,423 28.0 W;ighted average shares 42,365 41,838 1.3 42,447 41,984 1.1 Per Common Share N tincome .93 .68 36.8 % 3.48 2.94 18.4 % Cash dividends declared .34 .32 6.3 1.32 1.20 10.0 Book value 20.43 18.31 11.6 20.43 18.31 11.6 Finrncial Ratios R turn on assets 1.10 % .94% 1.08 % 1.07 % R: turn on equity 18.71 15.31 18.10 16.94 N:t interest margin 4.83 5.23 5.09 5.25 Dilly Averages (Dollars in millions) Assets $ 14,344.4 $ 12,330.6 16.3 % $ 13,744.3 $ 11,606.8 18.4 % Earning assets 12,948.6 11,112.7 16.5 12,390.5 10,426.1 18.8 Loans net of unearned income 9,798.4 8,314.5 17.8 9,424.6 7,816.5 20.6 Investment securities 2,219.3 1,851.3 19.9 2,183.4 1,757.1 24.3 Deposits 10,970.2 9,248.7 18.6 10,344.9 8,808.4 17.4 Total shareholders' equity 844.2 753.8 12.0 817.4 732.9 11.5 At Period End (Dollars in millions) Assets $ 14,952.2 $ 13,041.4 14.7 % Earning assets 13,232.3 11,638.9 13.7 Loans net of unearned income 9,911.0 8,558.7 15.8 investment securities 2,145.5 2,053.6 4.5 D: posits 11,610.6 9,716.3 19.5 Total shareholders' equity 864.3 763.1 13.3 Common shareholders' equity 862.1 759.4 13.5 Fintncial data has been restated to reflect the pooling of-interests merger with Suburban Bancorp on March 31,1986. Divid:nds per share represent Sovran Financial Corporation's historical data. I

To Our Shareholders The year 1986 was a rewarding one for Sovran to sales of real estate, increases in service Financial Corporation. It was a year marked by charges on deposit accounts and gains on significant change as the Company grew from a securities transactions. In addition to gains one-bank to a multi-bank holding company. on sales of real estate, the increase in non-Consistent with Sovran's emphasis on quality, it interest income for the year principally re-was also a year highlighted by strong growth in flected increased service charges and fees. earnings, excellent asset quality and continued The higher income levels were partially offset high profitability. by increased noninterest expenses, which rose 4.5% Earnings Growth-For the fourth quarter of for the fourth quarter of 1986 and 13.3% for the 1986, net income of$39.5 million rose 36.8% from year over the comparable periods in 1985. The the $28.9 million earned in the same quarter last increase between quarters was primarily due to year. Net income per common share was $.93 for higher salaries and employee benefits, and expenses the 1986 fourth quarter,36.8% higher than the associated with expanded business activity. The $.68 earned last year. Net income for the 1986 year-to-year rise in noninterest expenses included fourth quarter included an after-tax gain of $5.5 nonrecurring expenses related to early retirements million, resulting from the sale of a parcel of real and resignations under employment contracts. estate in northern Virginia. The gain from the Asset Quality-Sovran's asset quality remained sale partially offset the effects of certain non-high throughout 1986, with nonperforming assets recurring expenses incurred throughout 1986. totaling $28.9 million, or.19% of total assets, on Net income of $148.0 million for 1986 was 19.2% December 31,1986. These figures compared with above the $124.2 million earned in 1985. For 1986, nonperforming assets of $22.1 million, or.17% of net income per common share, including the gain total assets, at year-end 1985. Ebr the fourth quarter from the sale of real estate, totaled $3.48, an 18.4% of 1986, net ch irged offloans totaled $12.5 million, increase over the $2.94 for 1985. or.51% of average totalloans on an annuali:cd Those factors which had a significant positive basis, compared with $8.3 million, or.40%, for effect on earnings included the following: the same period in 1985. Net charged offloans of a Net interest income on a fully taxable equiva- $35.7 million in 1986 represented.38% of average lent basis increased 7.7% for the fourth total loans, which compared with $21.5 million, quarter and 15.2% for the year over the com-or.27% of average loans, for 1985. parable periods in 1985. This growth was pri' Profitability-Return on average assets (ROA) marily due to continued loan expansion, re-of 1.10% for the fourth quarter of 1986 increased flecting the strong economies of the Com' from the.94% reported for the same quarter of pany s combmed Virgmia, Maryland and 1985. Return on average shareholders' equity Distnct of Columbia markets. (ROE) of 18.71% for the 1986 fourth quarter in-

• Noninterest income for the fourth quarter of creased from 15.31% for the same 1985 quarter.

1986 and the year grew 18.4% and 16.1%, For 1986, ROA and ROE were 1.08% and 18.10%, respectively, over the 1985 periods. Non-respectively, compared with 1.07% and 16.94%, interest income during the fourth quarter of respectively, for 1985. 1986 primarily benefited from gains related 2

To Our Shareholders (continma) e New Tax Law-On October 22,1986, President The focus during 1986 has been on consolidcting Reagan signed new tax legislation, leading to the Sovran's expanded market. We are pleased by the most comprehensive changes in the Federal income accomplishments thus far and look forward to a tax system within the past 40 years. An overview continuation of the Company's quality perfc,r-of the provisions affecting banking companies and mance in the year ahead. the expected impact on Sovran is provided in the following section of this report. Dividend Declared-At its January meeting, the Board of Directors declared a regular quarterly C. Coleman McGehee C. A. Cutchins, III dividend of $.34 per share on the Company's President and chairman of the Board a,i common stock, payable April 1,1987 to share-chief operating officer chief Exectaire officer holders of record on February 27,1987. The Board also declared a regular quarterly dividend of January 27,1987 $.5925 per share on the Company's Series A $2.37 Cumulative Convertible Preferred Stock, payable March 1,1987 to shareholders of record on February 13, 1987. Quarterly Earnings Quarterly Return Per Common Share on Equity $.93 $. 5 18.28Y. N $M $.82 17.88 % 17.95 % 1712 % 17.68 % 5.76 16.67 % IE h[j$ '% g$.68. 'N '~ , I.5 'k% P $ (.-h/,] [f'. b ~ .. 'g i ,( ;; Q '. ;'

)

.,f t 1 ,q y', 6),' ), L77

i. ~. ',

d We V ' dC

1. (.d M

? y f k' k: qi ' ~ UK.: n.; c.. bs $3 dj d ld b 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1985 1986 1985 1986 3

The Tax Reform Act of 1986 On October 22,1986, President Reagan signed taxes based on the new, lower statutory rate, into law the Tax Reform Act of 1986 ("the Act"), the Act requires companies to perform a which includes the most comprehensive changes second calculation which takes into account a to the Internal Revenue Code since its enact-broader income base. That base includes sev-ment. Designed to be "faircr" than the former eral tax preference items which are excluded i system, the Act is generally expected to reduce from the regular calculation. Companies then the burden of taxation on individuals. The new will have to pay the higher of the two taxes. tax law dramatically reduces income tax rates . Sovran Impact-The Company does not for individuals and corporations and limits anticipate being subject to additional taxes or eliminates numerous deductions and other under the AMT in 1987. tax advantages. While the Act is expected to lower total in-Investment Tax Credit dividual taxes, it is anticipated that total cor'

• The Act-Investment tax credits (previously, porate income taxes will increase. With respect as much as 10% of a qualified investment) to the bankmg mdustry, the Act addresses a were repealed, retroactive to January 1,1986.

large number of tax issues related to bankmg institutions. The following briefly outlines

• Sovran Impact-In the past, Sovran has benefited from investment tax credits the most important of these provisions and their expected impact on Sovran Financial generated by equipment purchases and its Corporation.

leasing activities. The reduction in the cor-porate tax rate more than offsets the invest-Corporate Tax Rate ment tax credits realized on the Company's o The Act-Effective July 1,1987, the statutory equipment purchases. With regard to the loss f the credits related to the leasing business, corporate tax rate will be lowered to 34% from 46%. Since the lower rate takes effect halfway e rnings could be negatively impacted, but through 1987, the corporate tax rate will de-nly to the extent the Company is unable to cline from 46% in 1986, to a blended 40% in m ke up any lost income through adjusting 1987, then to 34% in 1988 and thereafter. the pricing structure on leases. o Sovran Impact-The new, lower tax rate will Bad Debt Reserves reduce the Company's income taxes, thereby

• The Act-The use of the reserve method increasing Sovrans net mcome.

of accounting for potential loan losses for tax Alternative Minimum Tax purposes was generally repealed. Under the concept of an " allowance for loan losses," o The Act-For taxable years beginning after funds are set aside in advance for future pos-December 31,1986, the Act establishes an sible losses on loans. In repealing this method Alternative Minimum Tax (AMT), designed of reserving for bad debts, the Act allows to prevent profitable corporations from avoid' large commercial banks, such as Sovran, to ing taxes by imposing a minimum level of take a tax deduction only for loan losses as taxes on all firms. In addition to calculating they occur and requires banks to recapture 4

The T:x Reform Act of 1986 (continuca) the reserve balance for tax purposes at Decem-Other Changes ber 31,' 1986 into taxable income over a four-

• The Act-There are numerous other provisions year period. In other words, banks will have which will directly or indirectly impact bank to pay taxes on deductions previously taken e rnings. Those provisions include: certain limita-under prior law. However, it is important to tions on foreign tax credits; a reduction in the note that the law specifies that the recapture ttractiveness ofindividual retirement accounts applies to the reserve for income tax purposes, (IRA), reflecting a change in the deductibih,ty which is generally much lower than the re-f contributions; a reduction in the dividends serve included in financial statements.

received deduction; a phase-out of consumer o Sovran Impact-For financial statement interest deductions; and a modification to the purposes, the Company's tax expense will not net operating loss carryback provisions. be increased. The principal effect of this

• S Vran Impact-On a comb.ined basis, these change is an increase in the interest expense ther provisions are not expected to signift-to fund the earlier tax payments.

cantly affect the Company,s earnings. Interest Expense Incurred t GENERAL IMPLICATIONS FOR Fund Tax-Exempt Assets THE BANKING INDUSTRY c The Act-Under prior law, banks were At the time ofits passage, the tax writers allowed to deduct 80-100% of the interest estimated that the banking industry's tax bill expense incurred to fund purchases of tax-would increase by $10 billion over the next five exempt securities (e.g. municipal bonds), years. Such a projection would seem to imply depending upon when the investment was lower earnings if one were to assume that the made. The Act eliminates this deduction for banking industry is static. In fact, the exact most tax-exempt securities acquired after opposite is true: with the advent of deregula-August 7,1986. However, interest deductions tion, banks have become particularly adept at to carry issues acquired on or before August 7, adjusting their businesses to take into account 1986 are grandfathered under the prior law. various economic, business and competitive o Sovran Impact-Since Sovran's sizeable pre-forces, of which the Act is only one. August 8 portfolio is grandfathered and there GENERAL IMPLICATIONS FOR SOVRAN have only been nominal acquisitions since August 7, there will be no meaningful impact Even before its final passage, Sovran's on net income from this change in 1987. Going management began conducting an intensive forward, investments in tax-exempt assets will review of the provisions of the Tax Reform Act, be made only to the extent the yield is greater with a view towards developing strategies which than or equal to the yield of an equivalent will protect Sovran's financial position for 1987 taxable investment. Therefore, it is not an-and beyond. It is anticipated that these efforts, ticipated that net income after 1987 will be coupled with expected general marketplace affected by this change. changes in response to the new tax law, will, for the most part, neutralize the effect of most of the tax changes on Sovran's net iricome. 5

Management's Discussion and Analysis of Financial Condition and Results of Operations the D.C. National Bancorp, Inc. (DCNB) acquisition, EARNINGS

SUMMARY

dividend reinvestment, and various employee benefit Fourth quarter 1986 net income of $39.481 million, plans. The holding of the Company's shares resulted or $.93 per share, increased 36.8% over the compar, in a slower growth rate in average equity and had a able quarter of 1985. Ibr the year ended December 31, positive effect on the ROE ratio. The following table 1986, net income rose 19.2% to $147.956 million from displays the internal capital generation rate for the the $124.176 million earned last year. Per share earn, three months and the years ended December 31,19S6 e and 1985. g ings of $3.48 were up 18.4% over 1985. Higher levels of net interest income and noninterest income con-tributed to the growth in earnings. Three Months In the fourth quarter of 1986, the return on average Ended Year Ended December 31, December 31, assets (ROA) increased to 1.10% from.94% in the fourth quarter of 1985. ROA for the year ended Internal capital Generadon 1986 1985 1986 1985 December 31,1986 was 1.08%, compared with 1.07% for 1985. The following ROA analysis expresses each Return on average 1.10 % .94 % 1.08 % 1.07 % major component of the income statement as a per, sse(s centage of average earnm, g assets. Average assets to average equity 16.99X 16.36X 16.81X 15.84X Three Months Return on average Ended Year Ended equity 18.71 % 15.31 % 18.10 % 16.94 % December 31, December 31, X Earnings retained 63.46 % 61.82 % 63.90 % 66.11 % 1986 1985 1986 1985 Fully taxable net interest income 4.83 % 5.23 % 5.09 % 5.25 % During the fourth quarter of 1986, the Company a equivalent adjustment (.70) (.83) (.87) (.80) reali:ed after-tax gains of approximately $6.1 million Provision for resulting from sales of real estate. The after-tax gain of loan losses (.42) (.49) (.38) (.38) $5.5 million on the sale of a parcel of real estate in n rthern Virginia was used to offset the effects of cer-expen e (2.26) (2.78) (2.47) (2.64) tain nonrecurring expenses incurred during 1986. The Income taxes (.23) (.09) (.17) (.24) f 11 wing table presents selected financial data, ex-Return on average earning assets 1.22 1.04 1.20 1.19 cluding the effects of these fourth quarter 1986 gains: X Average earning Three Months Ended assets to average December 31,1986 total assets 90.27 90.12 90.20 89.83 Net income (in thousands) $33,346 Retum on average assets 1.10 % .94 % 1.08 % 1.07 % Earnings per common share .78 Retum on average assets .93 % Return on average equity 15.80 % in the fourth quarter of 1986, the return on average equity (ROE) totaled 18.71%, up from 15.31% for the The following discussion is an analysis of the results fourth quarter of 1985. For the year ended December of operations and financial condition of the Com-31,1986, ROE was 18.10%, an increase from the pany. This discussion should be read in conjunction 16.94% for 1985. Throughout 1986, shares were ac' with the financial statements, notes and other finan-quired m the open market for use in connection with cial data contained in this report. 6

M1nagem:nt's Discussion and Analysis (conunuca COMPARATIVE OPERATING DATA Sovran Financial Corporation and Subsidiaries Fully Taxable Equivalent Basis (Dollars in thousands) Three Months Ended increase Year Ended increase December 31, (Decrease) December 31, (Decrease) 1986 1985 Amount Percent 1986 1985 Amount Percent int ~ rnt income $332,350 $326,032 $ 6,318 1.9 % $ 1,355,676 $1,246,275 $109,401 8.8 % Int;reit expense 174,614 179,641 (5,027) (2.8) 724,502 698,546 25,956 3.7 N:t interest income 157,736 146,391 11,345 7.7 631,174 547,729 83,445 15.2 Provision for loan losses 14,050 13,696 354 2.6 47,630 40,186 7,444 18.5 N:t interest income af ter provision for loan losses 143,686 132,695 10,991 8.3 583,544 507,543 76,001 15.0 N:ninterest income, excluding securities gains and (losses) 68,836 59,326 9,510 16.0 238,910 209,194 29,716 14.2 Securities gains and (losses) 1,408 (7) 1,415 100.0 + 8,286 3,654 4,632 100.0 + Noninterest expense 143,553 137,336 6,217 4.5 553,338 488,380 64,958 13.3 income before taxes 70,377 54,678 15,699 28.7 277,402 232,011 45,391 19.6 Current and deferred taxes 7,786 2,638 5,148 100.0 + 21,327 24,638 (3,311) (13.4) Tzx cquivalent adjustment 23,110 23,187 (77) (.3) 108,119 83,197 24,922 30.0 N:t income $ 39,481 $ 28,853 $ 10,628 36.8 % $ 147,956 $ 124,176 $ 23,780 19.2 % the tax impact, refer to the discussion of income taxes NETINTERESTINCOME on page 12 and Note H on page 21. The principal contributors to the 7.7% increase in As a result of the adjustments to fully taxable fully taxable equivalent net interest income for the equivalent lease income, declining interest rates, and fourth quarter of 1986 were significant growth in the increased volumes of average earning assets, the net average volumes of earning assets and liabilities, as interest margin for the fourth quarter of 1986 declined well as declines in interest rates. While declining rates to 4.83% from 5.23% for the same quarter of 1985. reduced the benefit of increased interest income pro. Excluding the adjustments to fully taxable equivalent duced by higher average volumes of earning assets, lease income, the net interest margin for the fourth interest expense actually declined in the quarter quarter of 1936 would have been 4.92%. comparison due to lower rates. For the year ended December 31,1986, fully taxable In addition, as a result of actions necessitated by the equivalent net interest income rose 15.2% to $631.174 Tax Reform Act of 1986, fully taxable equivalent net million. Higher volumes of average earning assets pro-interest income was reduced by approximately $3.0 duced additional interest income, which was partially million. This reduction resulted from the recomputa, offset by greater interest expense generated by in-tion of projected leveraged lease income in accordance creased volumes of average interest bearing liabilities. with FASB Statement No.13, Accounting for leases, Declining rates during 1986 reduced both interest in-and the reversal of the fully taxable equivalent income come and interest expense. The leveraged lease ad-adjustments related to investment tax credits. While justments made during the fourth quarter of 1986 did the recomputation of projected leveraged lease income not materially impact net interest income for the year. reduced lease income, the recomputation also resulted The net interest margin declined to 5.09% for the year in reduced income tax expense. Ibr information on ended December 31,1986 from 5.25% for 1985. 7 l l

Managcment's Discussion and Analysis (coniinued) NETINTEREST INCOME ANALYSIS' Sovran Financial Corporation s'.hubsidiaries Fully Taxable Equivalent Basis (Dollars in thousands) Year Ended December 31,1986 Fourth Quarter 1986 Compared With Compared With Fourth Quarter 1985 Year Ended December 31,1985 increase (Decrease) Increase (Decrease) Due to Changes in: Net Due to Changes In: Net Average Average Increase Average Average Increase Volume Rate (Decrease) Volume Rate (Decrease) Interest income Loans net of unearned income: Commercial $14,312 S(10,447) $ 3,865 5 60,626 $(34,376) $26,250 Real estate-construction 6,236 (4,286) 1,950 26,958 (11,717) 15,241 Real estate-mortgage 7,537 (3,977) 3,560 27,396 (8,028) 19,368 Consumer 4,952 (6,149) (1,197) 30,681 (18,627) 12,054 Bank card 2,784 (445) 2,339 12,020 112 12,132 Lease financing 867 (2,792) (1,925) 5,602 (2,851) 2,751 Foreign 8 (156) (148) (129) (380) (509) Tax-exempt 3,508 (3,119) 389 17,965 (8,648) 9,317 Total loans 41,816 (32,983) 8,833 186,174 (89,570) 96,604 investment securities: United States Treasury (2,447) (4,298) (6,745) (969) (14,098) (15,067) Federal agencies 3,263 (567) 2,696 5,786 (3,302) 2,484 States and political subdivisions 8,461 (2,743) 5,718 44,742 (1,494) 43,248 Other 638 (426) 212 2,068 (778) 1,290 Total Investment securities 9,856 (7,975) 1,881 47,277 (15,322) 31,955 Federal funds sold and securities pur-chased under agreements to resell 789 (1,218) (429) 327 (4,237) (3,910) Due from banks-Interest bearing (3,576) (1,854) (5,430) (11,885) (6,061) (17 946) 1 Trading account securities (29) 9 (20) 6 (192) (186) Other 2,373 (890) 1,483 4,993 (2,109) 2,884 Total interest income 50,083 (43,765) 6,318 220,910 (111,509) 109,401 Interest Expense Interest bearing deposits: Interest checking 2,577 (581) 1,996 7,850 (747) 7,103 Money-market accounts 8,951 (7,611) 1,340 36,598 (21,301) 15,297 Regular savings 1,843 86 1,929 4,345 173 4,518 Consumer certificates 3,565 (8,399) (4,834) 21,274 (32,277) (11,003) Certificates of deposit, $100,000 or more 4,843 (4,949) (106) 18,824 (15,597) 3,227 Foreign (127) (99) (226) (3,329) (923) (4,252) Total interest bearing deposits 23,780 (23,681) 99 90,940 (76,050) 14,890 Federal funds purchased and securities sold under agreements to repurchase (2,393) (6,234) (8,627) 19,935 (17,%0) 1,975 Other short term borrowings 3,683 (2,612) 1,071 10,498 (7,402) 3,096 Long term borrowings 2,472 (42) 2,430 5,950 45 5,995 Total Interest Expense 27,537 (32,564) (5,027) 126,570 (100,614) 25,956 Change in Net Interest income $23,072 $(11,727) $11,345 $100,545 $(17,100) $83,445 1The change in interest due to both rate and volume has been allocated to "due to change in average volume" and "due to ch mge in average rate" in proportion to the relationship of the absolute dollar amounts of the change in each.The changes in interest income and expense are calculated independently for each line in the table. The totals for the volume and rate columns are not the sum of the individual lines. 8

I Fourth Quarter 1986 Compared With Third Quarter 1986 increase (Decrease) Dua to Changes In: Net Average Average Increase Volume Rate (Decrease) $ 2,633 $ (2,549) 84 (100) 1,640 1,540 507 (2,722) (2,215) 1,146 (2,427) (1,281) 744 (428) 316 235 (2,938) (2,703) 5 (83) (78) (349) (1,152) (1,501) 5,167 (11,005) (5,838) (2,727) (914) (3,641) 1,126 (222) 904 (625) (1,570) (2,195) 224 (111) 113 (2,129) (2,690) (4,819) 2,760 269 3,029 (38) (671) (709) (4) 58 54 446 (281) 165 7,701 (15,819) (8,118) 889 (247) 642 1,525 (2,956) (1,431) 684 119 803 (398) (3,335) (3,733) 1,397 (1,629) (232) 33 (17) 16 4,865 (8,800) (3,935) (2,891) (246) (3,137) 1,616 (545) 1,071 (121) 45 (76) 3,319 (9,396) (6,077) $ 3,676 $ (5,717) $ (2,041) 9

M:nagement's Discussion and Analysis (continued) CREDIT QUALITY Sovran Financial Corporation and Subsidiaries Three Months Ended Year Ended December 31, December 31, 1986 1985 1986 1985 For the period ended: N;t charge-offs as a percent of average loans .51 % .40% .38% .27% Loan loss coverage 1 4.80X 5.43X 5.84X 8.64X Period.end: Allowance for loan losses as a percent of loans net of unearned income 1.15 % 1.14 % Nonperforming assets as a percent of; Loans net of unearned income and other real estate .29 .26 Total assets .19 .17 IPretax income excluding securities transactions plus provision for loan losses divided by net charge-offs. " f "'"* PROVISION FOR LOAN LOSSES creased. This increase is reflective of an industry-wide trend toward higher losses related to consumer lend-The provisic.n for loan losses, the charge to earnings for potential losses associated with lending activities, !ng. As a result, Sovran has taken action to mmimize was $14.050 million for the fourth quarter of 1986. its futury losses. Steps taken during the latter part Fourth quarter 1986 net charge-offs were $12.482 mil-f 1986 mclude increasing collection and recovery lion, representing.51% of average loans on an annual. staffs, introducing a new credit point scoring system, i:ed basis. For the fourth quarter of 1985, net charge-and continuing an intensive training program for I " O C"'8' offs of $8.319 million represented.40% of average loans. He aH w nce f r 1 n I sses is mamtamd at a Ibr the year ended December 31,1986, the provi-sion for loan losses totaled $47.630 million, up 18.5% level necessary to provide for potential future losses. Additions to the allowance for loan losses are made over 1985's provision. Net charged offloans totaled $35.716 million and $21.455 million for the years end-through the provision for loan losses. At December 31, ed December 31,1986 and 1985, respectively. Net 1986, the allowance for loan losses as a percentage of I ns net of unearnd income was N, compared charge-offs as a percent of average loans were.38% w th 1.14% at December 31,1985. and.27% for 1986 and 1985, respectively. 10

M:nagem:nt's Discussion and Analysis (coniinuca) NONINTEREST INCOME Sovran Financial Corporation and Subsidiaries (Dollars in thousands) Three Months Ended increase Year Ended increase December 31, (Decrease) December 31, (Decrease) 1986 1985 Amount Percent 1986 1985 Amount Percent Trust income $ 7,694 $ 7,391 $ 303 4.1 % $ 32,897 $ 28,812 $ 4,085 14.2 % Service charges on deposit accounts 15,498 13,088 2,410 18.4 57,407 49,540 7,867 15.9 Oth;r service charges, income and fees: Bank card fees 17,053 16,084 969 6.0 61,037 57,970 3,067 5.3 Mortgage servicing fees 6,197 5,651 546 9.7 24,158 22,012 2,146 9.7 Glins on sales of real estate 9,223 9,223 9,223 9,223 Other 11,766 15,311 (3,545) (23.2) 47,292 45,049 2,243 5.0 Trading account profits and commissions 1,405 1,801 (396) (22.0) 6,896 5,811 1,085 18.7 68,836 59,326 9,510 16.0 238,910 209,194 29,716 14.2 Securities gains and (losses) 1,408 (7) 1,415 100.0 + 8,286 3,654 4,632 100.0 + $70,244 $59,319 $ 10,925 18.4 % $247,196 $212,848 $34,348 16.1 % NONINTERESTINCOME NONINTEREST EXPENSE During the fourth quarter of 1986, noninterest in-Fourth quarter 1986 noninterest expense increased come increased 18.4% over the comparable 1985 4.5% over the comparable quarter of 1985. The largest period. As shown in the table, most categories of component of noninterest expense, salaries and em-noninterest income increased for the fourth quarter of ployee benefits, increased 7.3% for the quarter. Affect-1986 over 1985. During the fourth quarter of 1986, ing this increase were expenses in the fourth quarter the Company realized approximately $9.2 million in of 1985 of approximately $4.0 million due to the exer-nonrecurring real estate gains resulting from the sales cise of stock appreciation rights by certain Suburban of bank premises. In addition, gains on securities Bancorp employees. Furniture and equipment, net transactions of $1.408 million in the fourth quarter of occupancy, and amortization ofintangible assets ex-1986 compared with net losses of $7 thousand for the pense, all experienced significant growth in the fourth same quarter of 1985. The other category of other ser-quarter of 1986. Data processing equipment purchased vice charges, income and fees decreased for the fourth in late 1985 and during the fourth quarter of 1986 quarter of 1986 principally as a result of the inclusion contributed to increased furniture and equipment ex-of nonrecurring income of approximately $4.2 million pense. Higher levels of occupancy expense were in-in the 1985 fourth quarter. The nonrecurring income curred primarily as a result ofincreased rent expense was primarily due to a gain on the sale of mortgage for bank premises. The March 1986 purchase of servicing rights and additionalincome from under-DCNB resulted in increased amortization ofintangi-writing and letters of credit fees. ble assets expense in the fourth quarter of 1986, com-For the year ended December 31,1986, noninterest pared with the same quarter of 1985. Also affecting income increased 16.1% over last year, with all major the increase in amortization of intangible assets ex-categories showing significant growth. During 1986, pense were higher levels of amortization of purchased the Company revised various fee schedules to align mortgage servicing rights. charges at its subsidiary banks. These revisions, as well as increased business activity, contributed to the greater noninterest income for both the 1986 fourth quarter and year. Securities gains for the year ended December 31,1986 totaled $8.286 million, compared with 1985 gains of $3.654 million.

p.

hEnagem:nt's Discussion:nd Anclysis(continued) \\ NONINTEREST EXPENSE Sovran Financial Corporation and Subsidiaries (Dollars in thousands) Three Months Ended increase Ye ar Ended increase December 31, (Decrease) December 31, (Dec'Toase) 1986 1985 Amount Percent 1986 1985 Amount Percent Salaries $ 64,555 $ 61,031 $ 3,524 S.67 $247,999 $216,529 $31,470 14.5 % Employee benefits 12,305 10,568 1.737 16 4 49,412 ; 42,585 6,827. 16.0 Total salarles and employee benefits 76,860 71,599 5,261 7.3 w297,411 259,114 38,297 14.8 N:t occupancy expense 8,843 7,052 1,791 25.4 3h067 29,452 3,615 12.3 Furniture and equipment expense 15,954 12,248 3,706 30.3 58,248 50,347 7,901 15.7 Advertising 2,317 2,424 (1071 (4.4) ,19,376 9,643 733 7.6 Amortization of intangible assets 3,427 2,077 1,350 65.0 f2,533 7,772 ' 4,701 6!.3 Bank card expenses 6,809 8,045 (1,236) (15 4) 25,519 26,917 (1,308) (5.2) s Communications 3,138 3,770 (632) (16.8) 13,330 0,758 (1,428) (9.7) Postage and shipping 3,763 3f69 6G4 22.6 14,390 11,791 2,5 M 22.0 Professional fees 3,195 5,105 (1,970) (38.1) 11,843 11,384 450 4.0 St:tionery and supplies 3,916 3,362 554 16.5 14,129 11,866 2,261 19.1 Other 15,331 18,525 (3,194) (1.7.2) 62,492 55,336 7,156 12.9 $143,553 $137,336 $ 6,217 4.5 % $553,338 $488,380 $64,958 13.3 % During the fourth quarter of 1986, bankcard ex' INCOME TAXES pense dechned principally due to efficiencies achieved. and the termination of processing services with out' Income tax expense for the fourth quarter of 1980 side agencies. Increased levels of volume-related ex-was $7.786 million, compared with $2.638 million fee penses for the quarter, which are included in the other the same quarter of 1985. The higher tax expehse wa's category, were offset by an approximate $2 million ' principally attributable to a significant increase in tax-increase in the value of mortgage loans held for resale. able incon.e. This increase was partially offset by a net Noninterest expense for the year ended December 31, tax benefit related to the enactment of the 'IarReform 1986 increased 13.3% over 1985. Salaries and employ' ' Act of 1986. The change in assumed future tax rates ce benefits comprised approximately half of the in' required a recomputation of projected leveraged lease crease m nonmterest expense during this pened. The ' income, resulting in a net benefit to tax expense. The higher levels of salaries and employee benefits in 1986 benefit more than offses expenses attributed to the included nonrecurring expense of approximately $6.5 recapture of previously. accrued investment tax credilis million related to early retirements and resignations lost due to the:r repeahnider the new tax law. under employment contracts. As in the quarterly Income tax expense for the year ended December 31, comparison, furniture and equipment, net occupancy, 1986 totaled $21.327 nullion, a decrease from the and amorti:ation of intangible assets expenses, all in'

1. 24.638 million incurred in 1985. The decrease for the creased, while bankcard ext.ense declined. Most other year was primarily due to the effech of higher levels of categories of noninterest expense ncreased in 1986 tax-exempt income, which were partially offset by the over 1985, principally as a result ofincreased business items noted above. For additional information regard-and the Company's merger activities.

ing income caxes, refer to Note H on page 21. The following schedule shows the tax-equivalent ad-justment made to interest income for the three and 12

r Management's Discussion and Analysis (continued) 5 tselve month periods ended December 31,1986 and The Company's foreign assets, which are comprised 1985 (in thotnands): ofloans, acceptances and interest bearing deposits ~ with other banks, decreased significantly between 'Three Months December 31,1985 and year-end 1986. The majority . Ended Year Ended of the Company's foreign assets are interest bearing December 31, December 31, deposits with other banks. Total foreign loans at 1986 1985 1986 1985 December 31,1986 were $29.0 million, of which only Loans S 8,015 $10,021 $ 42,744 $37,284 $1.2 million were in the private sector. Irygtment securities 15,016 13,005 65,074 45,503 Ot'ier 79 161 301 410 FOREIGN OU'ISTANDINGS $23,110 $23,187 $ 108,119 $83,197 Sovran Financial Corporation and Subsidiaries (Dollars in thousands) December 31, FINANCIAL CONDITION 1986 1985 Loans 5 29,018 $ 29,330 A: December 31,1986, totWassets were $15.0 bil-Acceptances 23,994 21,250 lion, compared with $13.0 billion on the same date in Interest bearing deposits with other banks 72,322 317,840 1985. This t.sset growth was primarily the result ofin, c:wsed loan volume and higher levels of money-mar. $125,334 $368,420 ket atid investment securitiep. Total deposits increased Foreign outstandings as a 19.5"6 to $11.6 billion at De ember 31,1986. Between percent of total assets .84% 2.83 % year-end 1985 and year-end 1986, the Company re-duced its short-term borrowings position, while long-term borrowings incremd. The increase in long-term Total equity capital increased 13.3% to $864.3 mil-li n t December 31,1986. The primary sources of borrowings reflected the June 1986 issuance of $125 million 9.23% notes. capital growth have been the retention of income and the issuance of stock in connection with the dividend While assets have grown significantly, the Company has maintained its commitment to high standards of n investment and employee benefit plans. Additional asset quality. At December 31,1986, nonperforming mf nn tion regarding the Company's capital ts assets of $28.9 million represented.19% of total assets. presented in the Consolidated Statement of Changes At December 31,1985, nonperforming assets totaled in Shareholders' Equity on page 18. $22.1 million, or.17% of total assets. NONPERFORMING ASSETS AND LOANS CONTRACTUALLY PAST DUE Sovran Financial Corporation anc' Subsidiaries (In millions) December 31, 1980 1985 Nonperforming assets: d Other real estate $ 7.1 $ 7.8 Nonperforming loans: Nonaccrual 17.3 12.1 Restructured 4.5 2.2 Total nonperforming assets $28.9 $22.1 Contractually past due' $39.9 $28.7 e i Data tapresentr. loans past due as to principal or interest for 90 day 3 or more. Lran s classified as eithe r nonaccruat or restructured are cycluded from this category. 13

! QUARTERLY EARNINGS

SUMMARY

Sovran Financial Corpor;tlin and Subsidiarlis Fully Taxable Equivalent Basis g (In thousands, except per share data) 1986 1985 4th 3rd 2nd 1st 4th 'Ouader Quader Quader Quader Quader Interest income $ 332,350 $340,468 $344,573 $338,285 $326,032 Interest expense 174,614 180,691 183,370 185,827 179,641 Net Interest income s;157,736 159,777 161,203 152,458 146,391 Provision for loan losses 14,050 13,103 10,908 9,569 13,696 Net interest income after provision for loan losses 143,686 146,674 150,295 142,889 132,695 Noninterest income excluding securities gains and / losses) 68,836 57,710 57,735 54,629 59,326 Securities gains and (losses) 1,408 2,957 2,763 1,158 (7) Noninterest expense 143,553 139,007 140,532 130,246 137,336 Income before income taxes 70,377 68,334 70,261 68,430 54,678 Applicable income taxes 7,786 2,967 4,164 6,410 2,638 Tax equivalent adjustment 23,110 28,073 29,242 27,694 23,187 N:t income. $ 39,481 $ 37,294 $ 36,855 $ 34,326 $ 28,853 Nat income per common share $.93 S.88 S.85 $.82 $.68 ' INTEREST SENSITIVITY ANALYSIS Sovran Financial Corporation and Subsidiaries December 31,1986 (Dollars in millions) Months Over Over one three Over six Within through through through Total Non-one three six twelve One Year Sensitive Total Errning Assets: Loans $4,705 $ 570 $ 500 $ 752 $6,527 $3,384 $9,911 Investment securities 77 34 69 139 319 1,826 2,145 Money-market investments 997 100 79 1,176 1,176 Total earning assets 5,779 704 648 891 8,022 5,210 13,232 Interest Bearing Liabilities: Deposits 3,126 720 936 641 5,423 3,232 8,655 Short-term borrowings 1,773 78 81 6 1,938 2 1,940 Long-term borrowings 255 255 Total interest bearing liabilities 4,899 798 1,017 647 7,361 3,489 10,850 N t Noninterest Bearing Liabilities: Demand deposit accounts, net of cash 1,791 1,791 Other 591 591 Total net noninterest bearing liabilities 2,382 2,382 Interest sensitivity gap $ 880 $ (94) $(369) $ 244 $ 661 $ (661) $ Cumulative gap $ 880 $ 786 $ 417 $ 661 $ 661 Ratio of interest sensitive assets to -Interest sensitive liabilities 1.18X .88X .64X 1.38X 1.09X 14

$37*"rs">*"d*/ -C nsilid:ted Binca Sheet (unaudit d> Subsidiaries (Dollars in thousands, except per share data) December 31, 1986 1985 ' Assets Cash and due from banks $ 1,164,624 $ 926,986 Money-market investments: Federal funds sold and securities purchased under agreements to resell 715,007 422,548 Due from banks-interest bearing 336,418 473,064 Trading account securities 32,465 23,153 Other 91,861 107,754 Total money-market investments 1,175,751 1,026,519 investment securities (market value of $2,228,978 and $2,066,641, respectively)-Note C 2,145,498 2,053,622 Loans (net of uneamed income of $281,046 and $311,908, respectively)-Note D 9,911,032 8,558,748 Allowance for loan losses-Note E (113,512) (97,784) Net loans 9,797,520 8,460,964 Premises and equipment 295,477 270,753 Due from customers on acceptances 40,733 29,581 Other assets 332,553 272,938 Total Assets $14,952,156 $13,041,363 Liabilities Deposits-Note F: Noninterest bearing $ 2,95F,233 $ 2,320,805 Interest bearing 8,655,366 7,395,526 Total deposits 11,610,599 9,716,331 Short term borrowings-Note G: Federal funds purchased and securities sold under agreements to repurchase 1,028,798 1,434,514 Other short-term borrowings 910,823 703,178 Total short term borrowings 1,939,621 2,137,692 Long-term borrowings 255,087 156,565 Acceptances oatstanding 40,733 29,581 Other liabilities 241,781 238,069 Total Liabilities 14,087,821 1? ?78,238 Shareholders' Equity Commitments and contingencies-Note J Preferred stock-par value $25.00 per share: Authorized-5,000,000 shares; issuable in series: Series A $2.37 cumulative convertible; Issued-130,110 shares and 212,493 shares, respectively (Net of discount of $976 and $1,594, respectively) 2,277 3,718 Common stock-par value $5.00 per share: Authorized-100,000,000 shares; Issued-42,191,929 shares and 42,096,824 shares, respectively 210,960 210,484 Surplus-Note 1 24,840 4,876 Retained eamings-Note 1 626,258 561,711 Treasury stock, at cost-614,596 shares at December 31,1985-Note 1 (17,664) Total Shareholders' Equity 864,335 763,125 l Total Liabilities and Shareholders' Equity $14,952,156 $13,041,363 ( See accompanying notes to condensed financial staternents. l i 15

s",;*oray"*"at*l Censolidst:d Stat:m:nt cf inc:ma<unauditedi a = Subsidiaries (Dollars in thousands, except per share data) Three Months Ended Year Ended December 31, December 31, 1986 1985 1986 1985 Inter:st income Loans, including fees $252,894 $242,055 $1,018,047 $ 926,903 Investment securities: Taxable 21,331 25,099 91,605 104,198 Tax-exempt 19,510 15,872 81,370 56,393 Total investment securities 40,841 40,971 172,975 160,591 Money market investments: Federal funds sold and securities purchased under agreements to resell 6,783 7,212 20,205 24,115 Due from banks-interest bearing 4,405 9,835 23,298 41,244 Trading account securities 196 206 839 998 Other 4,121 2,566 12,193 9,227 Total money-market investments 15,505 19,819 56,535 75,584 Total interest income 309,240 302,845 1,247,557 1,163,078 Int:r:st Expense Deposits 138,248 138,149 564,338 549,448 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 18,321 26,948 91,921 89,946 Other short term borrowings 11,833 10,762 47,748 44,652 Total short term borrowings 30,154 37,710 139,669 134,598 Long-term borrowings 6,212 3,782 20,495 14,600 Total Interest Expense 174,614 179,641 724,502 698,546 r N tInterestincome Net interest income 134,626 123,204 523,055 464,532 Provision for loan losses-Note E 14,050 13,696 47,630 40,186 Net Interest income After Provision for Loan Losses 120,576 109,508 475,425 424,346 N:ninterest income Trust income 7,694 7,391 32,897 28,812 Service charges on deposit accounts 15,498 13,088 57,407 49,540 Other service charges, income and fees 44,239 37,046 141,710 125,031 Trading account profits and commissions 1,405 1,801 6,896 5,811 Securities gains and (losses) 1,408 (7) 8,286 3,654 Total Noninterest income 70,244 59,319 247,196 212,848 N:ninterest Expense Salaries and employee benefits 76,860 71,599 297,411 259,114 Net occupancy expense 8,843 7,052 33,067 29,452 Furniture and equipment expense 15,954 12,248 58,248 50,347 Other 41,896 46,437 164,612 149,467 Total Noninterest Expense 143,553 137,336 553,338 488,380 Nit income income Before income Taxes 47,267 31,491 169,283 148,814 Applicable income taxes-Note H 7,786 2,638 21,327 24,638 Not income $ 39,481 $ 28,853 $ 147,956 $ 124,176 Per Share Not income per common share-Note i S.93 S.68 $3.48 $2.94 Weighted average shares 42,365 41,838 42,447 41,984 See accompanying notes to condensed financial statements. 16

$'g,3*"ata' Crnsolidited St tzm:nt Of - 8 * *' diad'$ Changes in Financial Position (unaudited) (Dollars in thousands) Year Ended December 31, 1986 1985 Funds Provided (Applied) Operations: Net income $ 147,956 $ 124,176 Non-cash charges: Provision forloan losses 47,630 40,186 Depreclation and amortization, deferred taxes and other 61,193 46,092 Loans charged off net of recoveries (35,716) (21,455) Cash dividends declared (53,409) (42,084) 167,654 146,915 Deposits and Other Financing Activities: Liabilities acquired through acquisition 427,644 Noninterest bearing deposits 539,703 209,748 Interest bearing deposits 929,574 1,116,026 Short term borrowings (200,724) 296,973 Long-term borrowings 98,522 74,926 Purchased and acquired common stock (87,521) Purchased and acquired treasury stock (33,953) Issuance of common stock for DCNB 69,030 Otherissuances of common stock 25,263 20,107 Cash in lieu of fractional shares (109) (112) 1,801,382 1,683,715 Other Activities: Other, net acquired through acquisition (44,037) Cash and due from banks (200,861) (116,719) Premises and equipment (62,182) (54,948) Other. net (64,857) 59,488 (371,337) (112,179) Total Funds Provided (Applied) $1,597,099 $1,718,451 Funds Applied (Provided) Change in Earning Assets: Earning assets acquired through acquisition S 413,946 Money-market invettments 133,232 (105,028) Investment securities 18,773 357,482 Loans net of unearned income 1,031,118 1,465,997 Total Funds Applied (Provided) $1,597,098 $1,718,451 See accompanying notes to condensed financial statements. 17

$ 3 7,ay">*"a*U C nsolidit::d St:t:m:nt ef Changes in Shareholders' Equity (unaudited) Subsidiaries (Dollars in thousands, except per share data) Retained Treasury Stock Preferred Stock Common Stock Shares Amount Shares Amount Surplus Eamings Shares Cost Total FOR THE YEAR ENDED DECEMBER 31,1985: Balance at beginning of year 293,402 $5,134 27,731,350 $138,656 $71,582 $479,619 -. $694,991 N:t income 124,176 124,176 Dividends declared on: Common stock-$1.20 per share (41,423) (41,423) Preferred stock-52.37 pet share (661) (661) . Treasury stock: Purchased (961,181) (32,001) (32,001) Acquired through stock option cxercise (48,630) (1,952) (1,952) Shares issued pursuant to dividend reinvestment, stock purchase, em-ployee thrif t and stock option plans 311,546 1,558 5,141 379,469 13,408 20,107 Shares issued upon conversion of . convertible preferred stock (80,909) (1,416) 61,983 310 (1,775) 93,940 2,881 Is uance of Common Stock to effect 3-f r-2 stock split 13,991,945 69,960 (70,072) (78,194) (112) Balance at end of year 212,493 $3,718 42,0 %,824 $210,484 $ 4,876 $561,711 (614,596) $(17,664) $763,125 FIR THE YEAR ENDED DECEMBER 31,1986: Balance at beginnin0 of year 212,493 $3,718 42,096,824 $210,484 $ 4,876 $561,711 (614,596) $(17,664) $763,125 Reclassification, pursuant to a change in Virginia Law, of shares held on January 1,1986 (614,596) (3,073) (14,591) 614,596 17,664 Transferof retainedeamingstosurplus 30,000 (30,000) N:t income 147,956 147,956 Dividends declared on: Common stock-51.32 per share (53,015) (53,015) Preferred atock-$2.37 per i, hare (394) (394) Shares purchased (2,196,992) (10,985) (73,107) (84,092) Shares acquired through stock option sxercise (87,518) (438) (2,991) (3,429) ' Shares issued pursuant to dividend reinvestment, stock purchase, em-ployee thrif t and stock option plans 904,560 4,524 20,739 25,263 Sh:res issued upon conversion of convertible preferred stock (82,383) (1,441) 162,585 813 628 Shires issued upon acquisition of DCNB 1,930,098 9,650 59,380 69,030 Cash in lieu of fractional shares (3,032) (15) (94) (109) B:Rnce at end of year 130,110 $2,277 42,191,929 $210,960 $24,840 $626,258 - $864,335 See accompanying notes to condensed financial statements. 18

Notes to Financial Statements (unaudited) NME A-BASIS OF PRESENTATION The accounting and reporting policies of Sovran Financial historical financial statements of the Company and are Corpomtion and Subsidiaries (the

• Company") follow genemlly included in the Company's 1985 Annual Report to accepted accounting principles and practices within the finan-Shareholders.

cial services industry. All significant intercompany accounts During the third quarter of 1986, the Company elected and transactions have been eliminated in consolidation. early adoption of FASB Statement No. 87," Employers' The information contained in the financial statements Accounting for Pensions." The effect of this adoption, is unaudited. In the opinion of management, all adjust-which decreased employee benefits expense, was immaterial ments necessary for a fair presentation of the results of to the results of operations for the individual quarters the interim periods have been made. The notes included of 1986. herein should be read in conjunction with the notes to the Certain previously reported amounts have been reclassified supplemental financial statements which are the restated to conform to current presentation. NME B-MERGERS AND ACQUISITIONS On March 31,1986, the Company merged with Subur-On March 10,1986, the Company acquired D.C. ban Bancorp (Suburban), a bank holding company with National BanCorp, Inc. (DCNB), a bank holding con 3pany consolidated assets of $3.150 billion. The Company issued with consolidated assets of $457 million, in exchange for 15,846,695 shares of common stock in exchange for all of 1,930,098 shares of the Company's previously acquired the outstanding shares of Suburban common stock. The common stock valued at $70.3 million. Accordingly, the merger was accounted for as a pooling-of. interests trans-merger was accounted for as a purchase, and the results action and, accordingly, all financial data has been restated. of operations of DCNB have been included since the date The Company did not have any previous material inter-of acquisition. The acquisition of DCNB included intangible company transactions with Suburban and followed the assets of approximately $44 million, which will be amortized same accounting practices. over their estimated lives of 6 to 25 years. Er the three months ended March 31,1986, Suburban The following proforma information summari:es the had net interest income and net income of $31.417 million effect of the mergers on the Company's results ofoperations, and $7.631 million, respectively. A reconciliation of net assuming consummation on January 1,1985. These pro-interest income and net income as previously reported and forma results are not representative of the actual results as restated follows (in thousands): that would have occurred or may occur in the future if the transactions had been in effect on the date indicated Three Months (in thousands, except per share data): December 31,1985 December 31,1985 Year Ended N;t Interestincome December 31, Sovran S 91,547 $345,140 Suburban 31,657 119,392 1986 1985 Pooled Sovran $123,204 $ 464,532 Net interest income $519,983 $473,598 Net income 145,221 120,637 N:t income Earnings per share 3.41 2.86 Sovran $ 23,935 $ 92,577 Suburban 4,918 31,599 Pooled Sovran $ 28,853 $124,176 NOTE C-INVESTMENT SECURITIES Investment securities are summari:ed as follows (in thousands): December 31, 1986 1985 Book Market Book Market Value Value Value Value United States Treasury $ 748,299 $ 762,484 $ 838,274 $ 853,127 Federal agencies 249,550 252,561 64,282 65,412 States and political subdivisions 1,064,907 1,131,699 1,098,193 1,093,374 Other 82,742 82,234 52,873 54,728 $2,145,498 $2,228,978 $2,053,622 $2,066.641 N

Notes to Financial Statements (cominura) NOTE D-IDANS NET OF UNEARNED INCOME Totalloans net of unearned income are summarized as follows (in thousands): December 31, 1986 1985 Domestic: Commercial $3,202,417 $2,502,677 Real estate-construction 1,068,642 843,289 Real estate-mortgage 1,721,837 1,566,502 Consumer 2,328,395 2,146,656 Bank card 651,712 590,970 Lease financing 247,966 229,352 Tax-exempt 661,045 649,972 Total domestic loans 9,882,014 8,529,418 Foreign 29,018 29,330 $9,911,032 $8,558,748 z NOTE E-ALLOWANCE FOR LOAN LOSSES Tra:1sactions in the allowance for loan losses are summarized as follows (in thousands): Three Months Ended Year Ended December 31 December 31, 1986 1985 1986 1985 Balance at beginning of period $111,944 $ 92,407 $ 97,784 $ 79,053 Allowance of purchased bank at date of acquisition 3,814 Provision forloan losses 14,050 13,696 47,630 40,186 L.oans charged off (15,067) (11,454) (44,572) (31,413) Recoveries on loans 2,585 3,135 8,856 9,958 Net charge-of fs (12,482) (8,319) (35,716) (21,455) Excess of provision over net charge-offs 1,568 5,377 11,914 18,731 Balance at end of period $113,512 $ 97,784 $113,512 $ 97,784 NOTE F-DEPOSITS Deposits are summarized as follows (in thousands): December 31, 1986 1985 Noninterest bearing $ 2,955,233 $ 2,320,805 Interest bearing: Interest checking 917,041 655,875 Money market accounts 2,301,738 1,737,350 Regular savings 1,046,027 854,981 Consumer certificates 2,959,934 2,876,465 Certificates of deposit, $100,000 or more 1,409,638 1,256,572 Foreign 20,988 14,283 Total interest bearing 8,655,366 7,395,526 $11,610,599 $9,716,331 20

Notes to Financi:1 Statements (continutas NOTE G-BORROWINGS Short-term borrowings are summarized as follows (in thousands): December 31, 1986 1985 Federal funds purchased S 396,135 $ 744,235 Securities sold under agreements to repurchase 632,663 690,279 Term federal funds purchased 244,135 176,198 Master notes 323,096 251,209 Commercial paper 85,275 39,807 Demand notes to the U.S. Treasury 251,969 195,225 Other 6,348 40,739 $ 1,939,621 $ 2,137,692 NOTE H-INCOME TAXES Income tax expense for financial reporting purposes dif-credits. The enactment of the Tax Reform Act of 1986 fers from the amount computed by applying the statutory and the related change in assumed future tax rates required tax rate to income before income taxes. These differences a recomputation of projected leveraged lease income. primarily are due to tax-exempt income from certain loans This resulted in a net benefit to tax expense of $3.328 mil-and investment securities, non-deductible merger-related lion. Additionally, income tax expense was increased by expenses, investment tax credits and foreign loan tax $1.117 million due to the repeal ofinvestment tax credits. NOTE l-COhihf 0N STOCK AND EARNINGS PER SHARE Pursuant to a change in Virginia law, effectiveJanuary 1,1986, had no effect on total shareholders' equity. treasury shares are no longer deemed to exist; accordingly, Net income per common share is based upon the average shares held at December 31,1985 have been reclassified as a number of shares of common stock outstanding during reduction ofissued common stock. All acquisitions ofshares each period and common stock equivalents of dilutive of the Company's common stock since January 1,1986 stock options and rights. The following table sets forth are treated as decreases in common stock issued. the number of shares and the net income used to determine During the third quarter of 1986, a transfer of $30 million earnings per share for the applicable periods (in thousands, was made from retained earnings to surplus. The transfer except per share data): Three Months Ended Year Ended December 31, December 31, 1986 1985 1986 1985 Average shares outstanding 42,202 41,648 42,190 41,754 Effect of common stock options and rights 163 190 257 230 Average shares outstanding 42,365 41,838 42,447 41,984 Net income $ 39,481 328,853 $147,956 $124,176 Dividends on preferred stock (79) (146) (394) (661) Net income applicable to earnings per share $ 39,402 $ 28,707 $147,562 $123.515 Earnings per common share g g $3.48 $2.94 NOTE J-COhihilThiENTS AND CONTINGENCIES In the normal course of business, there are outstanding which are not included in the financial statements. At various commitments and contingent liabilities, such as December 31,1986, the Company had standby letters of commitments to extend credit, futures contracts, letters credit and guarantees to issue standby letters of credit of credit, guarantees, indemnification agreements, etc., of $979.9 million. 21

g*oray",*"a,'*,' C:nsolidzted Averags B.l:n3D Sheet a Subsidiaries (Average balances in millions, income and expense in thousands) Tbee Months Ended December 31 Three Months Ended December 31, 1986 1985 Interest Average Interest Average Average incomel Yields / Average incomel Yields / Balance Expense 1 Rates 2 Balance Expenset Rates 2 ASSETS Loans net of unearned income: Commercial 5 3,132.2 3 67,686 8.57 % $ 2,511.0 $ 63,821 10.08 % Real estate-construction 1,047.6 27,319 10.35 823.1 25,369 12.23 Real estate-mortgage 1,772.8 49,183 11.01 1,508.7 45,623 12.00 Consumer 2,286.1 67,451 11.71 2,125.8 68,648 12.81 Bank card 612.3 24,380 15.80 542.6 22,041 16.12 Lease fimncing 241.7 3,634 5.97 205.0 5,559 10.76 F; reign 28.9 568 7.80 28.6 716 9.95 Tax. exempt 676.8 20,688 12.13 569.7 20,299 14.14 Total loans 9,798.4 260,909 10.56 8,314.5 252,076 12.03 investment securities: United States Treasury 762.0 15,387 8.01 865.6 22,132 10.14 Federal agencies 255.2 4,771 7.42 85.8 2,075 9.60 States and political subdivisions 1,126.4 34,235 12.06 853.6 28,517 13.25 Other 75.7 1,464 7.68 46.3 1,252 10.73 Total investment securities 2,219.3 55,857 9.99 1,851.3 53,976 11.57 Federal funds sold and securities purchased under agreements to resell 386.2 6,783 6.97 345.6 7,212 8.28 Due from banks-interest bearing 267.2 4,405 6.54 464.9 9,835 8.39 Trading account securities 10.4 245 9.37 11.6 265 9.06 Other 267.1 4,151 6.16 124.8 2,668 8.48 Total earning assets 12,948.6 332,350 10.18 11,112.7 326,032 11.64 Allowance for loan losses (112.0) (94.9) Cash and due f rom banks 871.1 775.3 Oth;r assets 636.7 537.5 Total Assets 314,344.4 $ 12,330.6 LIABILITIES AND SHAREHOLDERS' EOUlTY Int; rest bearing deposits: Int: rest checking $ 808.5 10,166 4.99 $ 605.9 8,170 5.35 M:ney. market accounts 2,248.5 30,385 5.36 1,654.9 29,045 6.96 Regular savings 988.6 13,595 5.46 854.3 11,666 b.42 Consumer certificates 2,980.7 58,783 7.82 2,816.7 63,617 8.96 Certificates of deposit, $100,000 or more 1,409.2 25,161 7.08 1,162.4 25,267 8.62 Foreign 10.6 158 5.93 17.7 384 8.62 Total interest bearing deposits 8,446.1 138,248 6.49 7,111.9 138,149 7.71 Federal funds purchased and securities sold under agreements to repurchase 1,219.5 18,321 5.96 1,348.1 26,948 7.93 Oth;r short. term borrowings 798.9 11,833 5.88 571.4 10,762 7.47 Long-term borrowings 253.1 6,212 9.74 152.4 3,782 9.85 Totalinterest bearing liabilities 10,717.6 174,614 6.46 9,183.8 179,641 7.76 N:ninterest bearing deposits 2,524.1 2,136.8 Oth:r liabilities 258.5 256.2 Total liabilitles 13,500.2 11,576.8 Shireholders' equity 844.2 753.8 Total Liabilities and Shareholders' Equity $ 14.344.4 5 12.330.6 int: rest spread 3.72 % 3.88 % N ;t interest income / margin $ 157,736 4.83 % $ 146,391 5.23 % Total deposits $ 10,970.2 5 9,248.7 Includes tax equivalent adjustments of $23,110; $23,187; $108,119; $83,197; and $28,073, respectively. 2 Annualized 22

l Year Ended December 31, Year Ended December 31 Three Months Ended September 30, 1986 1985 1986 Interest Average Interest Average Interest Average Average incomel Yields / Average income / Yleids/ Average income / Yields / Balance Expense 1 Rates Balance Expense 1 Rates Balance Expense 1 Rates 2 $ 2,974.3 $ 274,374 9.22 % $ 2,347.6 $ 248,124 10.57 % $ 3,012.8 5 67,602 8.90 % 989.9 106,630 10.77 748.3 91,389 12.21 1,051.6 25,779 9.73 1,708.9 197,595 11.56 1,474.3 178,227 12.09 1,755.4 51,398 11.62 2,220.6 273,825 12.33 1,978.1 261,771 13.23 2,247.9 68,732 12.13 593.1 95,399 16.08 518.4 83,267 16.06 593.6 24,064 16.08 231.6 22,528 9.73 176.5 19,777 11.20 232.7 6,337 10.80 28.8 2,014 9.29 30.0 3,183 10.60 28.7 646 8.94 677.4 87,766 12.96 543.3 78,449 14.44 687.7 22,189 12.80 9,424.6 1,060,791 11.26 7,816.5 964,187 12.34 9,610.4 266,747 11.01 824.8 73,934 8.96 834.0 89,001 10.67 895.1 19,028 8.43 171.3 13,938 8.14 106.2 11,454 10.78 195.4 3,867 7.85 1,123.3 144,785 12.89 776.3 101,537 13.08 1,146.3 36,430 12.61 64.0 5,392 8.42 40.6 4,102 10.11 64.4 1,351 8.33 2,183.4 238,049 10.90 1,757.1 206,094 11.73 2,301.2 60,676 10.46 287.3 20,205 7.03 283.4 24,115 8.51 228.2 3,754 6.53 301.1 23,298 7.74 445.1 41,244 9.27 269.2 5,114 7.54 11.8 1,048 8.88 11.8 1,234 10.50 10.6 191 7.16 182.3 12.285 6.74 112.2 9,401 8.38 239.3 3.986 6.61 12,390.5 1,355,676 10.94 10,426.1 1,246,275 11.95 12,658.9 340,468 10.67 (107.7) (88.4) (109.8) 830.0 740.3 892.9 631.5 528.8 644.7 $ 13,744.3 $ 11,606.8 $ 14,086.7 $ 718.0 36,721 5.11 $ 565.6 29,618 5.24 738.1 9,524 5.12 2,063.4 125,448 6.08 1,498.6 110,151 7.35 2,142.3 31,816 5.89 922.5 50,297 5.45 842.8 45,779 5.43 939.0 12,792 5.41 2,962.4 248,381 8.38 2,726.9 259,384 9.51 3,000.2 62,516 8.27 1,321.8 102,853 7.78 1,095.6 99,626 9.09 1,333.5 25,393 7.55 9.2 638 6.96 54.1 4,890 9.04 8.5 142 6.66 7,997.3 564,338 7.06 6,783.6 549,448 8.10 8,161.6 142,183 6.91 1,385.5 91,921 6.63 1,110.7 89,946 8.10 1,411.9 21,458 6.03 730.1 47,748 6.54 579.4 44,652 7.71 690.5 10,762 6.18 208.1 20,495 9.85 147.7 14,500 9.82 257.9 6.288 9.67 10,321.0 724,502 7.02 8,621.4 698.546 8.10 10,521.9 180,691 6.81 2,347.6 2,024.8 2,487.0 258.3 227.7 261.5 12,926.9 10,873.9 13,270.4 817.4 732.9 816.3 $ 13.744.3 $ 11,606.8 $ 14,086.7 3.92 % 3.85 % 3.86 % $ 631,174 5.09 % $ 547,729 5.25 % $ 159,777 5.01 % $ 10,344.9 $ 8,808.4 $ 10.648.6 21

Si,"'oray",*"a*,l*,' Selected St:tistir1 inform:ti:n a Subsidiaries (Dollars in thousands, except per share data) 1986 1985 4th 3nd 2nd 1st 4th 3rd 2nd 1st Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Earnings Net income $39,481 $37,294 $36,855 $34,326 $28,853 $33,425 $32,518 $29,380 ' Netincome percommon share .93 .88 .85 .82 .68 .80 .76 .70 Performance Ratios Return on assets 1.10 % 1.06 % 1.08 % 1.07 % .94% 1.13 % 1.14 % 1.09 % Return on equity 18.71 18.28 17.68 17.72 15.31 17.95 17.88 16.67 Interest spread 3.72 3.86 4.05 4.10 3.88 3.83 3.86 3.83 Net interest margin 4.83 5.01 5.26 5.31 5.23 5.18 5.31 5.31 Loan Loss Ratios Net charge-offs to average loans .51 % .42% .34 % .24% .40% .25 % .21 % .23% Allowance to period-end loans 1.15 1.15 1.15 1.15 1.14 1.15 1.13 1.13 Allowance to nonperforming assets 3.93X 3.26X 2.97X 3.50X 4.42X 3.67X 4.34X 3.35X Loan loss coverage 4.80 5.02 6.16 9.43 5.43 9.99 11.93 10.26 Liquidity and Capital Ratlos Average shareholders' equity to: Average assets 5.89 % 5.79 % 6.11 % 6.02 % 6.11 % 6.27 % 6.39 % 6.52 % Average loans 8.62 8.49 8.85 8.75 9.07 9.25 9.50 9.75 Average deposits 7.70 7.67 8.17 8.12 8.15 8.20 8.38 8.58 Average loans to average deposits and borrowed funds 74.00 73.88 75.11 74.66 73.45 73.86 73.33 73.00 Average long term borrowings to average long term borrowings and total shareholders' equity 23.07 24.01 16.40 16.78 16.82 17.02 17.50 15.67 Capital adequacy: Primary 6.99 7.10 7.03 7.39 7.12 7.47 7.62 7.84 Total 7.97 8.13 8.28 7.80 7.55 7.92 8.09 8.35 Non Financial Data Common and preferred shareholders 30,592 32,064 32,108 30,531 30,322 29,336 30,155 31,228 Full time equivalent employees 10,961 10,883 10,972 10,680 10,314 10,080 10,096 9,971 Domestic bank of fices 357 357 356 357 351 351 352 353 Bank.related offices 131 126 121 124 119 118 117 115 Automated teller machines 311 305 302 301 296 292 291 285 24

Sovran Financial Corporation Banking locations One Commerci 1 Place, Norfolk, Virginia 23510 (804) 441-4000 SOVRAN BANK N.A. 12th and Alain Streets, Richmond, Virginia 23219 (804) 783-2000 Abingdon Chatham Fort Story hicLean Rural Retreat Alberta Chesapeake Franklin hierrifick! Shenandoah Alexandria Clarksville Fries hiidlothian Smithfield Amphibious Base-Little Creek Coeburn Galax hiontpelier South Boston Annandale Collinsville Gate City Naval flase-Norfolk Springfield Arhngton Colonial Heights Glade Spring Newport News Stanardsville Ashland Crewe Gordonsville Nickelsville Staunton Baileys Crossroads Cro:et Grafton Norfolk Suffolk Bedford Dale City Hampton Norge Troutville Ihg bland Daleville Harrisonburg Norton Victoria Big Stone Gap Danville HernJon Oakton Vienna Ikiykins Dillwyn Ihllsville Oceana Naval Air Station Vinton Bristol Drakes Branch Hor ewell Orange Virginia Beach Ilrodnax Duffield Independence The Pentagon Waynesboro Iluena Vista Dulles International Airport Lawrenceville Petersburg Weber City Burke Dumfries tresburg Portsmouth Williamsburg Burkeville Elkton louisa Pound Wise Cape Charles Fairfax Lynchburg Pulaski Woodbridge Capron Fairlawn hianassas Quantico Woodstock Centerville Falls Church hfarine Corps Base-Quantico Reston Wytheville Centreville Farmville Ntartinsville Richmond Nassau, The Bahamas Charlottesville Fieldale hlathews Roanoke Washington, D.C. Chase City Ebrt Eustis SOVRAN HANKlDC NATIONAL 1801 K Street, N.W., Washington, D.C. 20W (202) 955-8700 Washington, D.C. SOVRAN llANKlh!ARYLAND 6610 ihkledge Drive, Bethesda, htaryland 20817 001) 270-5000 Annapolis Colesville Greenbelt Lutherville Silver Spring Baltimore College Park Hagerstown hiount Rainier St. Charles Beltsville Columbia Hancock Olney Suitland Bethesda Coral Hills Hillcrest Heights Oxon Hill Takoma Park Bowie East Riserdale Hyattsville Pikesville Thurmont Camp Springs Ibrestville Landover Potomac Towson CascaJe Frederick Landover Hills RanJallstown Upper htarlboro Chevy Chase Gaithersburg Langley Park RmLville Waldorf Chnton Germantow n Laurel Seat Pleasant Wheaton SOVRAN llANKIDELAWARE 8N Silver Lake Boulevard, Dover, Delaware 1%'t 002) 734-6800 Dover 25

Sovran Financi:1 Corporation Bank Related Subsidiaries One Commercial Pl:ce, Norfo!E Virginia 23510 (804)441-4000 SOVRAN CAPITAL CORPORATION SOVRAN CAPITAL h1 ANAGEhlENT CORPORATION 410 East hiain Street, Elizabeth City, North Carolina 27909 1111 East hiain Street, Richmond, Virginia 23261 (919) 3354 546 (804) 788-3100 SOVRAN CREDIT CORPORATION SOVRAN EQUITY NIORTGAGE CORPORATION 410 East hiain Street, Elizabeth City, North Carolina 27909 3600 West Broad Street, Suite 452, Richmond, Virginia 23230 (919) 335-0546 (804) 353-5544 N:rth Carolina hiount Olive Virginia Virginia Florida North Carolina EJenton hiurfreesboro Charlottesville Annandale Clearwater Charlotte Eli:abeth City New Bern Hampton Charlottesville Jacksonville Greensboro Farmville Oxford Harrisonburg Danville Tampa Raleigh Goldsboro Roanoke Rapids Portsmouth Fairfax Winter Park Greenville Rocky hiount Richmond Falls Church Henderson Washington Springfield Hampton Georgia Columbus Atlant Reynoldsburg High Point Williamston Suffolk Newport News Decatur Kill Devil Hills Wilson Virginia Beach Norfolk South Carolina Kinston Zebulon Richmond hiaryland Greenville Roanoke Glen Burnie h "",*,"c' *ga 8pringfield Rockville SOVRAN FUNDING CORPORATION p ing Nashville PD Ibx 600, Norfolk, Virginia 23501

n a Beach tl nJ (804) 441-4041 Williamsburg Towson SOVRAN FUTURES CORPORATION SOVRAN INSURANCE AGENCY, INC.

Ik x 600 Norfolk, N,irginia 23501 POhx 600, Norfolk, Virginia 23501 (804) 624-6070 SOVRAN INSURANCE INC. SOVRAN INVESThiENT CORPORATION 255 Nort! Washington Street, Rockville, hlaryland 20850 12th and hiain Streets, RichmonJ, Virginia 23219 (804) 788-2246 SOVRAN LIFE INSURANCE COh!PANY SOVRAN LEASING CORPORATION PD. Ibx 600, Norfolk, Virginia 23501 (804)624-6070 1510 4,illow Lawn Drive, Richmond, Virginia 23230 (804) 282-6522 SOVRAN hlORTGAGE CORPORATION Virginia hlaryland North Carolina 1512 Willow Lawn Drive, Richmond, Virginia 2 3230 Arlingt n Baltimore Charlotte (804) 289-3500 R,ichmond Bethesda Raleigh A irgima Beach Virginia South Ikiston North Carolina Cl.) tt sville r a Beach D I ar CASil FLOW, INC. Chesapeake Waynesboro Greensboro 5th Floor, Royster Building Colonial Heights Wilhamsburg Raleigh Two Commercial Place, Norfolk, Virginia 23510 Danville Woodbrid,;e (804)44I'4I39 Pennsylvania Fans Chun h Fredericksburg I.';Id{" I FINANCIAL INTERSTATE INSURANCE COh!PANY Harrisonburg 800 Silver Lake Boulevard, Dover, Delaware 19901 West Chester Lynchburg klaryland (302) 734-6800 htanassas Bethesda Tennessee N ws D nkir SU13UR13AN CAPITAL CORPORATION Oakton Gaithersburg 6610 Rockledge Drive, llethesda, htaryland 20817 Pulaski Greenbelt (301)493-2803 Richmond Severna Park Roanoke VN13 EQUITY CORPORATION 3600 West Broad Street, Suite 452, Rit hmond, Virginia 232 30 (804)353 5544 26

Board of Directors Sovran Financial Corporation John B. Bernhardt liarry Martens, Jr. John Safer Vice Chairman of the Board Chief Executive Officer Chairman of the Board President and Chief Executive Officer The hiartens Companies Sovran Bank /DC National Sovran Services Retail Automobile Sales and RealEstate Development Toy D. Savage, Jr. William W. Berry Attorney at. Law Ch:irman of the Board and Chief Randolph W. McElroy Willcox & Savage, PC. Executive Officer Vice Chairman of the Board Dominion Resources, Inc. President and Chief Executive Officer Wallace Stettinius Public Utiliry Holding Company Sovran Bank, N.A. Chairman of the Board Cadmus Communications Corporation Edw:rd J. Campbell C. Coleman McGehee Printers President and Chief Executive Officer President and Chief Operating Officer Newport News Shipbuilding & Chairman of the Board Robert E Tardio Dry Dock Co. Sovran Bank, N.A. Real Estate Development Consultant Shipbuilding and Repair Robert J. Mulligan Thomas R. Towers Robert B. Claytor Vice Chairman and Chief Vice Chairman Chairman of the Board and Chief Administrative Officer Universal leaf Tobacco Company, Inc. Executive Officer Woodward & Lothrop, Inc. 7obacco Products Norfolk Southern Corporation Department Store Chain Holding Company with Railroad James S. Watkinson Subsidiaries Peter E O'Malley President Attorney-at Law and hianaging Partner Morton G. Thalhimer, Inc. C. A. Cutchins,111 O'Malley, Miles, McCarthy & Harrell Realtors Chairman of the Board and Chief Executive Officer George C. Palmer,11 Robert C. Williams Chairman of the Board President and Chief Operating Officer Joshua P. Darden, Jr. Piedmont Tractor Company, Inc. James River Corporation of Virginia Chairman of the Board Retail Farm Equipment Sales Afanubcturer ofSpecialty thvers and The Colonial Auto Group Chemically TrearcJFiber Webs Rcrail Automobile Sales Stanley E Pauley Chairman of the Board R. W. Wiltshire Joseph B. Gildenhorn E. R. Carpenter Company, Inc. Chairman of the Board and President Attorney-at Law Afanu6crun r ofComfort Cushioning Home Beneficial Corporation and Brown, Gildenhorn & Jacobs lhlucts Home Beneficial Life Insurance Company Frank llirsch John B. Rogan Attorney.at Law President Boar's Head Inn, Inc. J. II:nry lloskinson Hotel Private Investor ll:rbert V. Kelly Attorney-at-Law Jones, Blechman, Woltz & Kelly, fr. 27

Sharehold:r Information STOCK LISTING: REQUEST 3 FOR INFORMATION: Traded OverThe-Counter Analysts, investors, and others seeking financial information are requested to contact: NASDAQ Symbols: James A. Kirkpatrick, Director ofInvestor Relations Common Stock-SOVN Sovran Financial Corporation $2.37 Cumulative One Commercial Place Convertible Norfolk, Virginia 23510 Prefernx! Stock-SOVNP (804)441-4705. TRANSFER AGENT: DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN: Sovran Bank, N.A. Sovran Financial Corporation provides shareholders ofits common stock with a con-Corporate Trust Department venient method of purchasing additional shares of the Company's common stock. The Eighth and Main Building major advantages of the Company's Dividend Reinvestment and Stock Purchase Plan are: PO. Box 26904

• Automatic reinvestment of dividends at a 5% discount from market price; Richmond, Virginia 23261 (804) 788-2148
• Opportunity to invest up to $5,000 per quarter at 100% of market price;
• No brokerage commissions or record keeping fees on reinvested dividends or cash investments.

For more information or a Prospectus describing the Plan, call Investor Relations (804) 441-4705 or write Investor Relations Department, Sovran Financial Corporation, Sovran Center, One Commercial Place, Norfolk, Virginia 23510. Common Stock Data Sovran Financial Corporation and Subsidiaries 1986 1985 4th 3rd 2nd 1st 4th 3rd 2nd 1st Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Per share: Cash dividends declared' $.34 $.34 $.32 $.32 $.32 $.32 $.28 $.28 Book value 20.43 19.84 19.45 19.38 18.31 18.04 17.59 17.03 Market price:' High 36.75 42.63 44.50 36.25 32.88 31.25 31.38 28.25 Low 32.63 33.00 34.75 32.25 23.88 23.38 26.38 25.38 Period end 33.75 35.38 41.88 34.75 32.25 23.63 29.63 26.13 Shares outstanding (000): Period.end 42,192 42,147 42,277 42,962 41,482 41,847 27,940 27,824 Weighted average 42,365 42,382 43,155 41,875 41,838 42,001 42,106 41,993 Trading volume (000): 5,783 5,227 7,516 5,984 5,499 2,765 2,531 2,099 Shareholders 30,220 31,683 31,715 30,084 29,856 28,856 29,646 30,723 M rket capitalization (mil)' $1,424 $1,491 $1,771 $1,493 $829 $612 $769 $674 P/E Multiple' 9.70X 10.95X 13.30X 11.36X 9.21X 6.95X 9.01X 8.09X Market / Book' 165.20 % 178.33 % 215.32 % 179.31 % 150.35 % 111.94 % 143.77 % 130.45 % 8 R; presents Sovran Financial Corporation's 1985 historical data. For periods prior to August 23,1985, data has been adjusted for the three.for. two stock split,in the form of a 50% stock dividend. 2R; presents Sovran Financial Corporation's historical data. 28

s-h A_ Sovran Financial Corp' o' ration-BULK RATE One Commercial Place - LIS. POSTAGE Norfolk, Virginia 23510; PAID - SOVRAN FINANCIAL CORPORATION I 4 CENTRAL p.. SVRN LE A5hG-CNTR/RCH 9090101 WILLIAM' N-SMITH JR

' if l. w 4-SECURITIES AND EXCHANGE COMMISSION Washington, D.C. ' 20549 FORM 10-K ' ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1985. Commission file number 1-7582. SOVRAN FINANCIAL CORPORATION (Exact name of regis trant as specified in its charter) Virginia 54-0898250 (State or other jurisdiction of (I.R.S. Employer Identifica tion No. ) incorporation or organization) One Commercial Place Norfolk, Virginia 23510 (Address of principal executive of fices) (Zip Code) Regis trant's telephone number, including area code (804) 441-4000 Securities registered pursuant to Section 12(b) of the Act: 8-7/8% Notes due 1986 New York Stock Exchange (Title of each class) (Name of each exchange on which lis ted) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5.00 par value (Title of class) Series A $2.37 cumulative convertible preferred stock, $25.00 par value (Title of class) Sovran Financial Corpora tion ( the "Regis trant") has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the pas t 90 days. The aggrega te marke t value of the voting s tock held by non-affiliates of the Registrant as of January 31,1986 was $807,318,070. l The number of shares ou ts tanding of each of the issuer's classes of common s tock as of January 31,1986 was: Common S tock, $ 5.00 par value 25,266,275 s ha re s. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to shareholders for the fiscal year ended December 31, 1985 are incorporated by reference into Parts I, II, and IV. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 21, 1986 are incorporated by reference into Part III. i 4 - - - _ _ ~ 2-- __m. _.m, ,,__,_.,rm. ,,.,,c,,r _m, ...y,, ,,,,,,m. 7..,ymm,,.y.,,.,-,._----_w.m.,,,,,y..,_m..--...

l l TABLE OF CONTENTS i 'PART I Page-Item 1.' Business............................................. 2-12 I te m 2. Properties............................................13 Item 3. L e g a l P r o c e e d i n g s..................................... 13 I tem 4. Submission of Ma tte rs. to a Vo te of Se curi ty Holders... 13 Exe cu tive Officers of the R e g i s t r a n t....................... 14 PART II Item 5. Market for the Re gis tran t's Common S tock and Rela ted S e cu ri ty H o l d e r M a t t e r s............................. 15 I tem 6. Se le c te d F i n a n c i a l D a t a............................... 15 Item 7. Managemen t's Discussion and Analysis of Financial Condition and Results of O p e r a t i o n s................. 15 Item 8. Financial S ta temen ts and Su p p lemen ta ry D a t a........... 16 Item 9. Disagreemen ts on Accounting and Financial Disclosure..........................................N/A PART III Item 10. Directors and Executive Officers of the Re g is tran t.... 17 I.. I Item 11. Executive C o m p e n s a t i o n................................ 17 i Item 12. Security Ownership of Ce r tain Beneficial Owners a n d M a n a g e m e n t...................................... 17 I tem 13. Certain Rela tionships and Re la ted Tran sa c tion s........ 17 i PART IV I I Item 14. Exhibi ts, Financial S ta temen t Schedules, and Re por ts on Form 8-K...................................... 18-21 i l Signa ture s................................................. 22-23 4 f i i

4 Business Sovran Financial Corpora tion Sovran Financial Corpora tion (the Re gis tran t), was inco rpora ted in 1971 under the laws of the Commonwealth of Virginia. .The Regis tran t is-a bank holding company regis tered under the Bank Holding Company Act of 1956, as amended. Its principal executive offices are loca ted at One Commercial P lace, Norfolk, Virginia. On December 31, 1985, the registrant had 8,326 f ull-time equivalent employees. The Regis trant's ~ principal assets are i ts inve s tmen ts in its subsidiaries and loans to subsidiaries. _The princip 1 s ources of revenue are interes t and f ee-rela ted income from subs sries, and dividends from Sovran Bank, N.A. (Sovran Bank). There are various' legal limi ta tion s on Sovran Bank's ability to supply Landss to the Regis trant and its bank-rela ted af filia tes. Additional inf orma tion is contained in Note N on page 95 of the Re gis tran t's 1985 Annual Report to shareholders and is incorpora ted herein by reference. 3 Virginia S ou the rn Bank, Clarksville, Virginia, was acquired in a pooling-of-in te res ts transaction on December 27, 1985, and merged into Sovran Bank. Sovran Bank and Subsidiaries Sovran Bank is a na tional banking associa tion headquar tered in Richmon d, - V irginia and the principal subsidiary of the Registrant. o Sovran Bank is a full-service commercial bank providing banking services through 268 offices loca ted throughou t Virginia and a branch in Nassau, Bahamas. Foreign opera tions a re not s igni f ica n t. Sovran Mortgage Corpora tion is a wholly-owned mortgage banking subsidiary of Sovran Bank. With 33 offices, Sovran Mo r tga ge l Corpora tion is primarily engaged in the origination, purchase, sale. l and servicing of mortgage loans for inve s tors. At December 31, 1985, Sovran Mor tgage Corpora tion serviced approxima te ly 163,000 loans to talling $6.6 billion. I Sovran Leasing Corpora tion, a wholly-owned subsidiary of Sovran Bank, opera tes 6 offices and is engaged in leasing and financing of equipment for business, hos p i tals, and gove rnmen tal en ti tie s, as well as f or o ther leasing companies. Sovran Equity Mor tgage Corpora tion, a wholly-owned subsidiary of Sovran Bank, is engaged in the production and servicing of second mortgage loans. At December 31, 1985, Sovran Equity Mor tgage Corpora tion ope ra ted 37 offices. } ~ Cash Flow, Inc., a wholly-owned subsidiary of Sovran Bank, opera tes a shared au toms ted te lle r machine and debit card point of sala ne two rk. 2

o-r i l ) Bank-Rela ted Subsidiaries Sovran Credit Corpora tion,

a. wholly owned subsidiary of the Registrant is primarily engaged in consumer and floor plan lending.

At December-31, 1985, Sovran Credit Corpora tion opera ted 27 offices in Virginia and North Carolina. The Regis tran t is also engaged in ce r ta in cre di t-re la te d insurance a c tivi tie s through tw o of i ts wholly-owned subsidiaries. Sovran Insurance Agency, Inc. acts as agent for life, property, and ca s ua l ty insurance sold in connec tion with credit re la te d transa c tions or financial services performed by various subsidiaries of the Regis tran t. Sovran Life Insurance Company is a reinsurer of credit life and credit disability insurance written by various subsidiaries of the Regis tran t. The Regis trant formed two new companies during 1985; Sovran Capital Managemen t Corpora tion and Sovran Inve s tmen t Corporation. Sovran Capital Management Corpora tion will provide inves tmen t managemen t and advisory services to large pension and profit sharing funds, s ta te and local government units, f ounda tion endowmen t funds and o the r ins ti tu tiona l inves tors. The Re g is tran t' s second new subsidiary, Sovran Inves tmen t Corpora tion, provides a varie ty of brokerage services to its cus tome rs, including 20 corresponden t ins ti tu tions throughou t the Sou theas t. 4 Compe ti tion The Registrant and its subsidiaries are subject to in ten s e cotpe ti tion in their various ma rke t a rea s. They compe te for financial produc ts and services not only with o ther commercial banks, but also with savings and loan a s s o cia tion s, credit unions, money marke t and mu tual funds, consumer finance companies, leasing companies, mortgage companies, insurance companies and various o the r financial services firms. In e a rly 1985, the Virginia General Assembly passed a regional in ters ta te banking bill allowing Virginia bank holding companies to acquire banks in Alabama, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, Nor th Ca rolina, Sou th Carolina, Tennessee, Wes t Virginia and the District of Columbia. This bill became effective July 1, 1985. The Un i te d S ta te s Supreme Court upheld the legali ty of s ta tes' regional reciprocal in ters ta te banking laws in a June ~10, 1985 decision. The passage of this legisla tion and the Supreme Court decision have crea ted a new comp e ti tive force in banking. During 1985, the Regis tran t entered into definitive agreemen ts of merger with Suburban Bancorp, a Maryland based bank holding company and D.C. Na tional Bancorp, a Dis tric t of Columbia bank holding company. The Regis tran t's ma rke t area will be expanded upon consumma tion of these in te rs ta te mergers. 3

Regula tion and Supervision The Regis trant, as a bank holding company, is subject to supervision, examina tion and regula tion by the Board of Governors of the Federal Reserve Sy s tem. Sovran Bank is a na tional bank cha r te re d under the.Na tional Bank Act and it and i ts subsidiaries are subject to supervision and examina tion by the Comp troller of the Currency. Sovran Bank is also a member of the Federal Reserve Sys tem and has deposits insured by the Federal Deposit Insurance' Corpora tion (FDIC), therefore, Sovran Bank is also subject to regula tion and examina tion under the applicable provisions of the Federal Reserve Ac t and FDIC. All bank-rela ted subsidiaries of th e Regis tran t are subject to supervision, examina tion and regula tion by the Federal Reserve Sys tem. GUIDE 3 - STATISTICAL DISCLOSURE SY BANK HOLDING COMPANIES Dis tribu tion of Assets, Liabilities and Shareholders' Eq u i ty ; In teres t Ra te s and In te res t Differential Schedule I, Consolida ted Average Balance Sheet on page 12 p re s en ts the dis tribu tion of asse ts, liabilities and shareholders' e q u i ty. Also presented are the maj or ca tegories of earning assets and in teres t bearing liabilities, their rela ted income and expense and yields and ra te s. Table 4, Net Income Analysis, on page 7 2 of the Regis tran t's 1985 Annual Report to shareholders incorpora ted herein by reference, se ts forth a summary of the changes in interes t earned and in tere s t paid a ttribu table to changes in volume and changes in yields / ra tes. To ta l income from earning as se ts includes a to ta l tax equivalent ad j us tmen t of $62,284,000, $51,231,000 and $45,115,000 for the years ended December 31, 1985, 1984, and 1983, respectively, compu ted using the federal s ta tu tory income tax ra te of 46%. Inves tmen t Se curi ties Inve s tmen t securities are s ta ted a t cost adju s ted for amor tiza tion of premiums and accre tion of discounts. No te C of No tes to Financial S ta tements, on page 88 of the Regis tran t's 1985 Annual Report to shareholders incorpora ted herein by reference, presents the book and marke t values of inve s tmen t securities on the da tes indica ted therein. The Regis trant did not have any holding of securities to a single issuer other than the United S ta tes Gove rnmen t, which exceeded 10% of shareholders' equity a t De cembe r 31, 1985. 4

The following table presents, by type and ma turity, the book value, market value, weigh ted average ma turity and weigh ted ave rage yields of inve s tmen t securities a t De cember 31, 1985 (in thousands): December 31, 1985 Ave rage Weigh ted Book Marke t Maturity Average 1 Value Va lue In Years Yield U.S. Treasury securities: Within one year $250,257 $253,319 .6 9.69% Af ter one but within five years 307,164 314,616 2.0 9.54 To tal U.S. Treasury securities 557,421 567,935 1.4 9.61 Federal agencies: Mortgage backed securities Af ter ten years 6,418 6,096 13.0 8.90 Other federal agencies Within one year 11.535 11,896 .7 12.81 Af ter one but within five years 24,370 25,350 1.8 10.84 Total federal agencies 42,323 43,342 3.2 11.08 Obligations of s tates and political subdivisions: Within one year 51,298 51,444 .5 13.33 Af ter one but within five years 166,731 170,613 3.5 14.18 Af ter five but within ten years 339,075 340,810 7.1 13.95 Af ter ten years 199,521 186,459 24.0 13.24 To tal a tate and political subdivisions 756,625 749,326 10.3 13.77% Other securities: Stock of the Federal Reserve Bank 5,162 5,162 Other stocks and bonds 28,666 30,510 To tal other securities 33,828 35,672 Total inves tment securities $1,390,197 $1,396,275 IWeighted average interest rates have been computed on a fully taxable equivalent basis using the s ta tutory income tax rate of 46%. 5

Loan Portfolio The following table presents a breakdown of to ta l loans net of unearned income by type for the five years ended Decembe r 31, 1981 through 1985 (in thousands): December 31, 1985 1984 1983 1982 1981 Dome a tic Comme rcial $1,874,089 $1,574,644 $1,175,272 $1,047,930 $ 1,047,041 Real es ta te-cons truc tion 651,517 461,639 314,891 291,051 258,222 Real es tate-mortgage 1,150,156 1,025,855 1,048,765 1,041,891 894,447 Consume r 1,818,848 1,511,086 1,293,093 1,035,594 842,652 Bank card 470,377 407,855 346,914 288,924 230,300 Lease financing 121,786 97,820 61,487 54,585 44,099 Tax-exemp t 583,660 464,786 299,300 262,179 193,861 To tal domes tic loans 6,670,433 5,543,685 4,539,722 4,022,154 3,510,622 Foreign 29,330 29,393 65,151 44,074 29,738 $6,699,763 $5,573,078 $4,604,873 $4,066,228 $3,540,360 The f ollow ing table presents con trac tual ma turity dis tribu tion and ra te s en s i tivi ty da ta for se le c te d loan ca tegorie s as of Decembe r 31, 1985 (in th o u s a nd s ) : Over one One year Through Ove r or less five years five years To tal Comme rcial $1,150,779 $549,699 $173,611 $ 1,8 74,089 Real es ta te-cons truction 511,725 93,758 46,034 651,517 Ta x-e xemp t 104,967 111,179 367,514 583,660 $1,767,471 $754,636 $587,159 $3.109,266 Fixed interes t rate $287,038 $276,517 Variable interes t rate $467,598 $310,642 6

...,4.: .Nonperforming Loans Nonperforming loans consist of loans a ccoun ted for on a nonaccrual basis, res truc tured loans, and loans c on tra c tua lly pas t due 90 days or more as to in te re s t or principal (but not included in nonaccrual loans). Table 9, Nonperforming Assets, on page 78 of the Regis tran t's 1985 Annual Report to shareholders, _incorpora ted herein by reference pre sen ts nonperf orming asse t inf orma tion f or each of the five years ended December 31, 1981 through 1985. There were no loans ou ts tanding a t De cembe r 31, 1985 which were no t included in nonperforming assets as to which serious doubt exis ted concerning the borrowers a bili ty to comply with present loan repayment terms. The Regis tran t discontinues the accrual of in te re s t on loans based on delinquency s ta tu s, an evalua tion of the rela ted colla teral and the financial s treng th of the borrower. Loans o the r than ins tallment and credit card loans are generally placed on nonaccrual s ta tus when the payment of in te res t is more than 90 days past due and co lle c tibili ty is uncertain. Income recognized on ins ta llmen t and credit card loans is discontinued and the loans charged off a f te r a delinquency of 90 and 120 days, respectively. When in te re s t accruals are d is con tinue d, in te re s t credited to income in the current year is reversed, and in teres t accrued in prior years is charged to the allowance for loan losses. In 1985, in teres t recorded on loans tha t were on nonaccrual or had been re s truc tured a t Decembe r 31, 1985 was $537,000. Had these loans been performing in accordance with their original terms, $1.567 million would have been earned. i i i i l l 7 r l 1

i Foreign Ou ts tanding The following ta ble p re s en ts the Re gis tran t's foreign ou ts tanding by coun try a t De cember 31, 1985, 1984 and 1983 (in thousands): Yea r Ended De cemb'e r 31, 1985 1984 1983 Brasil Governments and official ins ti tu tions $ 1,581 $ 1,011 285 570 1,807 Financial ins titu tions T o ta l 1,581 1,581 2,092 Chile G ove rnmen ts and official ins ti tu tions 400 400 400 Financial ins ti tu tions 2,000 2,000 2,000 T o ta l 2,400 2,400 2,400 Ecuador Governments and official ins ti tu tions 2,736 2,736 2,778 Commercial and industrial companies 14 39 58 To ta l 2,750 2,775 2,836 Mexico G ove rnme n ts and official ins titu tions 35,079 37,305 38,590 Financial ins ti tu tions 670 670 670 To ta l 35,749 37,975 39,260 Venezuela G ove rnme n ts and official ins ti tu tions 4,500 4,500 4,500 To ta l 4,500 4,500 4,500 O the r s G ove rnmen ts and official ins titu tions 500 500 30,500 Financial ins ti tu tions 8,216 2,242 68,000 Comme rcial and industrial companies 600 600 751 To ta l 9,316 3,342 99,251 $56,296 $52,573 $150,339 Total ou ts tandings as a percent of to tal as se ts .58% .63% 2.08% Included in the table are loans, accep tance s, and placemen ts of $29,330, $21,250, and $5,716, respectively, for 1985, $29,393, $22,652, and $528, respectively, for 1984, and $65,151, $22,188, and $63,000, respectively for 1983. 8 l J -~ - ,.c- ,,----r,---

r . w;. For more inf orma tion regarding th's Re gis tran t's foreign ou ts tandings refer to page 78 of the Managemen t's Discussion and Analysis of the Re gis tran t's 1985 Annual Report to shareholders incorpora ted herein by reference. Loan Loss Experience The allowance for loan losses is maintained a t a level sufficient-to provide for po ten tia l losses associa ted with the Re gis tran t's - lending a c tivi ties. For a more -de tailed discussion on the allowance for loan losses and loan loss s ta tis tics, please refer to the discussion included in Management's Discussion and Analysis on pages 77.and 78 of the Regis tran t's 1985 Annual Report to shareholders, incorpora ted herein by reference. Table 8, Summary of Allowance for Loan Losses and Se le c te d Loan Loss S ta tis tics, on page 77 in the 1985 Annual Report to shareholders, incorpora te d herein by reference, p re s en ts loan loss s ta tis tics for the five years ended December 31, 1981 through 1985. The following ta b le ref lec ts to ta l loans net of unearned income by maj or ca tegory, with the re s p e c tive amounts of the allowance for loan losses alloca ted to each ca tegory, for each of the five years i ended December 31, 1981 through 1985 (in millions): i December 31, 1985 1984 1983 1982 1981 Loans net of unearned income: Commercia1, rea1 es ta te and other $4,410.5 $3,565.9 $3,004.7 $2,797.0 $2,499.3 Ins tallmen t 1,818.9 1,599.3 1,253.3 980.3 810.8 Bank card 470.4 407.9 346.9 288.9 230.3 $6,699.8 $5,573.1 $4,604.9 $4,066.2 $3,540.4 J Allocation of allowance for loan losses: Commercial, real es tate and other $9.1 $12.3 $10.1 $12.0 $10.3 4 Ins tallmen t 9.8 6.7 6.3 7.7 7.1 Bank card 4.0 5.4 3.2 2.7 2.5 Unalloca ted 47.2 31.0 30.2 24.7 21.6 $70.1 g $49.8 $47.1 $41.5 9 1 .? ~

. N Deposits <? De ta ils on average deposits for each of the three years ended-December 31, 1925, 1984, and 1983 are shown in the Consolida te d Average Ba lan ce Sheet on pageE12 of this document. The f ollow ing table p re s en ts the remaining ba turities of domes tic time ce r tif ica tes of deposit in amoun ts 'of $100,000 or more at December 31, 1985 (in millions): 3 mon ths or less $633.6 Over 3 through 6 mon ths 123.2 Over 6 through 12 months 87.4 Over 12 mon ths 106.8 $951.0 s At Decembe r 31, 1985 all de p o s i ts in foreign offices were in amoun ts of $ 100,000 or more. Re turn on Average Shareholders' Equi ty and Average Assets The re turn on average shareholders' equi ty and ave rage a sse ts, and equity to asse t ra tio for each of the five years ended December 31, 1980 through 1985 are presen ted in Table 2, Se le c te d Financial Da ta, on page 70 of the Re gis tran t's 1985 Annual Report to shareholders incorporated herein by reference. The Regis tran t's dividend payout ra tio for each of the five years ended December 31, 1980 through 198 5 is p re s en te d in Table 11, Selected Shareholders' Equity Da ta, on page 80 of the Re gis trsn t's 1985 Annual Report to shareholders and is incorporated herein by reference. 8 1 p 4 10

a n. .S q i-N' Sh o r t-Te rm Bo r r ow ing s 1-The following table is a three year summary of the Re gis tran t's s ho r t-te rm borrowings as of December 31, 1985, 1984, and 1983 (in thousands): Fede m i Mads Purchased and Due to Securities Sold Purchasers Aggr* ante + Under Agreement Master of Divested Short-Tenn to Repurchase Notes Other Branches Borrowings Year hdad Deceber 31,1985 : $1,546,671 - Outstanding at year-end $1,114,610 $55,092 $376,969 1,564,695 hxiaman outstanding at any month-end 1,114,610 66,354 398,098 1,177,644 Avenge amount outstandir1; 804,414 52,946 320,284 I 8.06% Weighted evenge interest rate 8.04 7.47% 8.22% 8.8 27 Weightad awage intercst T:,ta' at year-end 9.55% 7.00% 6.94 i Year Ended December 31, im $1,301,071 Outstanding at yearwui $1,026,061 $56,822 $218,188 1,301,071 hximam outstanding at any nonth end 1,026,061 63,787 314,463 814,008 Avenge amount mtstanding 550,213 50,599 213,196 1 10.10% Weighted averegn interest rate 9.95% 10.40% 10.42% 8.81% Wrighted avetage interest rate at year-end 8.92% 8.25% 8.45% Year Ended December 31,1983 Outstanding at year-end $ 549,793 $72,481 $117,089 $214,757 $954,120 j Maximaso outstanding at any month-end 549,793 81,306 165,297 214,757 954,120 664,200 i Aveage amount outstuniisg 497,000 50,247 116,953 1 i Weighted average interest rate 8.80% 11.53% 7.76% 9.61% 8.82% Weighted average interest rate at year-end 8.96% 8.78% 9.57% 9.61% 9.0C 1 Actual intarest egense divided by the daily avetage outstandings. t k i 11 i 's

Scheduls I Sovran Timanetal Consolidated Awage Balance Sheet Corpointion and (Avenge balance dollars in millions, incsume or e5=naa dollars in thounsods) Subsidlarios Year Erded Deceber 31, 1985 1984 1983 Intarest Avetage Intarest Aveage Interea t AW Eage Avenge Yieldg/ Average Yieldg/ Avenge Yielps/ anlance Empense Es taa Balance Egense Ratas anlance E gense kte ASSETS 1 mans est of mentned inome: Camarcial $1,789.2 $187.175 10.46% $1,320.0 $1 %,020 12.4 % $1,060.9 $124,326 11.7K Real estate-castruction 544.3 66,178 12.16 361.3 51,833 14.35 307.9 43,035 13.98 Real esmte-sortgage 1,077.7 134,442 12.47 1,076.3 134,364 12.48 1,077.9 135,995 12.62 Constaar 1,686.5 223,083 D.23 1,400.7 196,578 14.03 1,UB.6 170,980 15.02 Rock card 411.5 65,271 U.86 354.1 56,546 D.97 296.7 46,824 D.78 lasse f w nr 102.6 13,385 13.05 74.8 10,340 13.83 56.8 8,396 14.78 Foreign 30.0 3,183 10.60 40.9 5,348 13.07 45.5 5,126 11.27 Tnx-ememp t 479.4 70,192 14.M 3%.2 48,352 15.90 257.3 39,697 15.43 Imans net of smaarned ine<= 6,121.2 762,90s 12.46 4,932.3 667,381 U.53 4,241.6 574,379 U.54 Invastaunt securities: United States Treasury 510.0 54,086 10.60 467.0 53,050 11.36 471.8 53,592 11.36 Fedeal agencies 87.3 9,7% 11.18 112.7 13,349 11.85 162.7 18,414 11.32 Statas and political subdivisions 5 19.6 68,103 13.11 496.6 M,362 12.96 463.3 58,751 12.68 Other 23.8 1.632 6.87 9.2 555 6.03 17.2 1.722 10.01 Total investment securities 1,140.7 D3,585 11.71 1,085.5 131,316 12.10 1,115.0 132,479 11.88 Fedezal funds sold and securities purchased eder agtoments to resell 196.8 16.536 8.40 207.8 21,284 10.24 321.4 29,671 9.23 Due frca banks-interest bearing $2.7 5,459 10.36 51.1 5,348 10.46 105.0 11,137 10.61 Trading account securitas 8.8 939 10.75 9.3 1.210 13.01 6.0 698 11.63 other 112.2 9,401 8.38 34.4 3,M7 10.61 36.7 3.444 9.38 html earning assets 7,632.4 926.829 12.17 6,320.4 830,186 U.14 5,825.7 751.806 12.91 A11==nea for lomo losses (62.4) (53.3) (50.2) Cash and das fra banks 598.1 541.4 546.1 Other assets 423.7 405.9 405.1 Total Assets $6.591.8 $7.214.4 $6.726.7 LIABILITIES AIO SHARDEENRS' MUITY Interest bearing deposits: Interest checking $ 4 U.5 21,900 5.30 $ 367.6 19,433 5.29 $ 368.0 19,497 5.30 heey-unzke t accoats 955.9 69,957 7.32 719.3 60,894 8.47 506.2 40,3E3 7.98 U Regular savirus 555.3 30,076 5.42 591.9 31,678 5.35 680.9 35,017 5.14 [ Censumer certificatas 2,223.2 211,741 9.52 1,956.8 202,618 10.35 1,904.0 19 8,1 % 10.40 l Certificates of deposit, [ $100,000 or more 805.5 73,563 9.13 637.4 67,460 10.58 550.8 51,353 9.32 l Toreign 54.1 4.890 9.M 11.5 768 6.68 9.6 868 9.% Total interest bearing deposits 5,007.5 412,127 8.23 4,264.5 382,851 8.94 4,0 19.5 345,222 8.59 Fedem1 fmds purchased and secacities sold ssnder agreements te repurchase

84. 4 M,657 8.04 550.2 54,731 9.95 497.0 43,717 8.80 Other short-term borrowings 373.2 30,283 8.11 263.8 27,485 10.42 167.2 14,862 8.89 temg-term borrcwings 144.4 14,338 9.95 79.7 6,437 8.08 99.0 8,040 8.12 Total interest bearing liabilities 6,329.5 521,405 8.24 5,176.2 471,50 9.11 4.782.7 411.6.1 8.61 l

Honinterest bearisq; deposits 1,563.4 1,418.7 1,4 19.2 ( Other liabilities 162.7 D0.7 127.4 Total Liabilities 8.055.6 6,747.6 6.329.3 Total Shareholders' Equity 536.2 466.8 397.4 Total Liabilities and Shats-holders' Equitv $8.591.8 $7.214.4 $6.726.7 l Interest spread 3.9% 4.0% 4.29% Net intattat income /amrgin $407,424 5.34'l; $358.682 5.68: $339.967 5.84: Total Jeposits $6.570.9 $5.703.2 $5.438.7 1 1 :cludes fees on loans of appteximatstr f20,W, $D,107, $19,170, for the yests 1985,1984, and 1983, respectively. 1 2Caputed on a fully taxable equivalet basis using the corporata Tederal tax rata of 46 and including the effects of nmaccurring loans. 12

-M ' ITEM 2. PROPERTIES c The executive offices _of Sovran Financial Corpora tion are loca ted a t One Commercial Place, Norfolk, Virginia 23510. This headquarters is part of a three building complex consis ting of a 3 24-story: office tower, an office building, and garage. The Regis tran t occupies app roxima tely 50% of the office space in the c o m p l e x.' The remaining space is leased to o the r s. - Bo th buildings are owned subject to mortgages. For additional inf orma tion regarding the mortgage ind e b tedne s s, please refer to No te I of Notes to. Financial S ta tements on page 90 of the Regis tran t's 1985 Annual Report to shareholders incorpora ted herein by reference. The executive offices of Sovran Bank are loca ted a 1111 Ea s t Main S tree t, Richmond, Virginia 23219. This headquarters building consis ts of a 2 6-s tory tower, a 4-s tory pavilion building, and an 8 1/2-level parking garage. Sovran Bank owns free of any encumbrances, i ts hea dq ua r te rs building, the hea dqua r te rs of Sovran Mortgage Corpora tion and 152 of j i ts branches. An additional branch is owned subject to a mortgage. (See Note I of - the No tes to Financial S ta temen ts of the Re gis tran t and i ts Subsidiaries on page 90 for additional inf orma tion regarding such mortgage inde b te dne s s. ) S ovran Ba nk's ' o the r.115 branches, a warehouse, the We s te rn Ope ra tions Cen te r, and the Credit Ca rd Ope ra tion s Cen te r, toge the r with 110 a f filia te offices are leased from third parties under a greemen ts with expira tion da tes ranging from 1986 to 2031. For additional information regarding such commi tmen ts under current leasing agreemen ts, please refer to No te F of No tes to Financial S ta temen ts on page 89 of the Regis tran t's 1985 Annual Report to shareholders incorpora ted herein by reference. ITEM 3. LEGAL PROCEEDINGS The Regis tran t and its subsidiaries are involved in ordinary and rou tine. li tiga tion in c id e n ta l to their businesses. Management believes tha t the ul tima te re s olu tion of these ma t te rs will not ma te ria lly affect i ts financial position and results of opera tions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At a special mee ting of the Regis tran t's shareholders on December 11, 1985, shareholders approved the me rger of Suburban Bancorp with Sovran Financial Corpora tion with 20,995,601 shares voting for and 706,812 shares voting against the merger. Shareholders also approved an increase in the number of au thorize d shares of Sovran Financial Corpora tion's common s tock from 50,000,000 to 100,000,000. Shareholders cas t votes of 21,284,432 for the increase and 1,040,641 vo te s agains t the increase. 13

EXECUTIVE OFFICERS OF THE REGISTRANT The following se ts f orth inf orma tion with respect to the executive officers of the Regis tran t, all of whom held their positions indica ted or ano the r senior execu tive position wi th the same en ti ty or a predecessor corpora tion for the past five years: Name Age Positions and Offices C. A. Cu tchins, III 62 Chairman of the Board and Chief Executive Officer of the Regis tran t and~ Sovran Bank, N.A. C. Coleman McGehee 61 Presiden t and Chief Opera ting Officer of the Regis trant and Sovran Bank, N.A. John B. Bernhard t 56 Vice Chairman of the Board of th e Re gis tran t and Sovran Bank, N.A. Randolph W. McElroy 51 Vice Chairman of the Board of the Reg 1s tran t and Sovran Bank, N.A. Albert B. Gornto, J r. 56 Senior Exe cu tive Vice President of the Registrant and Sovran l l

Bank, N.A.

Doyle E. Hull 52 Senior Execu tive Vice President of the Regis tran t and Sovran

Bank, N.A.

Zach Toms, J r. 56 Senior Executive Vice President of the Registrant and Sovran

Bank, N.A.

J ohn B. Werner 54 Senior Execu tive Vice President of the Regis trant and Sovran j.

Bank, N.A.

j l l l 14 f ,,.,,.n.

C ....: w - I Part II ITEM 3. MARKET FOR THE REGISTRANT' S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The ' Re gis tran t's common s tock is traded in the ove r-the-coun te r - ma rke t, and transa c tions involving the Regis tran t's common stock are reported on the Na tional As socia tion of Securities Dealers Au toma ted Quo ta tions (NASDAQ) na tional marke t sys tem under the symbol SOVN. The number of holders of record as of the close of business on February 28, 1986 was 23,236. Stock Prices and Dividends Declared on Common Stock are p re sen ted on page 80 of the Regis tra n t's 1985 Annual Report to shareholders and is incorpora ted herein by reference. Federal regula tory agencies impose ce r tain res tric tions on the payment of dividends, ex te n s ion s of credit and transfers of asas ts from subsidiaries to bank holding companies. His torica lly, these res tric tions have had no impact on the Re gis tran t' s dividend policy and it is no t an ticipa ted tha t they will have any impact in the f u ture. For additional inf orma tion on these restrictions, see No te N of Notes to Financial S ta tements on page 95 of the 1985 Annual Report to shsreholders, incorpora ted herein by reference. 1 During 1985, the Regis tran t declared a three-f or-two s tock split, in the form of a 50% stock dividend effective Augus t 23, 1985. We igh ted ave rage shares and per share amoun ts have been res ta ted to reflect the s tock spli t. Shares ou ts tanding prior to the ef f ec tive da te of the s tock split, which are presented on the Balance Sheet and in the S ta temen t of Changes in Shareholders' E q u i ty, have not been re s ta ted. ITEM 6. SELECTED FINANCIAL DATA Table 2, Selec ted Financial Da ta, on page 70 of the Regis tran t's 1985 Annual Report to shareholders p re s en ts s e le c te d financial da ta of the Re gis tran t and is incorpora ted herein by reference. Supp lemen ta l Inf orma tion on the Ef f ec ts of Changing P rices is incorpora ted herein by reference to pages 81 and 82 of the l Regis tran t's 1985 Annual Report to shareholders. ITEM 7. MANAGEMENT' S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Mana gemen t' s Discussion and Analysis of Financial Condition and l Re sul ts of Operations is incorpora ted herein by reference to pages 69 through 82 of the Re gis tran t's 1985 Annual Report to shareholders. l l 15 ~, - -. - _ _

ITEM 8,. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Re gis tran t's Consolida ted Financial S ta temen ts and Notes to Financial S ta tements as lis ted under Item 14 (a)1 on page 18 of this document are inco rp ora ted herein by reference'to pages 83 through 9 5 and pages 48 through 61 of the Regis tran t's 1985 Annual Report to shareholders. In addi tion, an unaudited summary of the quarterly results of ope ra tions for the years ended December 31, 1985'and 1984 is incorpora ted herein by reference to page 82 of the Regis tran t's 1985 Annual Report to shareholders. - e. 1 l 16 l l l =..

PART III The inf orma tion required by Part III of Form 10-K will be con ta ine d in the Re gis tran t's definitive proxy ma te rials f or i ts Annual Mee ting of Sha reholde rs scheduled to be held on May 21, 1986. Such definitive p roxy ma te ria ls will be filed with the commis sion wi thin 120 days af ter December 31, 1985 and, pursuant to general ins truc tion G of Form 10-K, the information responsive to Part III is incorpora ted he rein by reference upon such filing. i 17 i-

B PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The f ollow ing financial s ta temen ts of the Registrant, included in the 1985 Annual Report to shareholders are incorpora ted herein by reference in Item 8 on page 16 of th is documen t. Sovran Financial Corpora tion and Subsidiaries ( Cons olida te d) December 31, 1985, 1984, and Consolida ted Balance Sheet 1983. Years ended December 31, Consolida ted S ta temen t of Income 1985, 1984, and 1983. Consolida ted S ta temen t of Changes in Financial Position - Years ended December 31, 1985, 1984, and 1983. Consolida ted S ta temen t of Changes in Shareholders' Equity For the years ended December 31, 1985, 1984, and 1983 No tes to Financial S ta temen ts Report of Independent Auditors appearing on page 96 Supplemen tal Consolida ted Financial S ta temen ts and No tes the re to 2. FINANCIAL STATEMENT SCHEDULES Schedules normally required on Form 10-K are omi t ted since they a re no t applicable. EXHIBITS 2. PLAN OF ACQUISITION (a) Agreement of Merger, da ted as of Sep tembe r 24, 1985 be twe en the Regis trant and Suburban Bancorp. Incorpora ted herein by reference to Exhibit (C) I to l Re gis tran t' s Form 8-K for the mon th of Sep tembe r 1985. l 18

4 t ~ 3. ARTICLES :0F INCORPORATION. AND BYLAWS '(a)' Res ta ted Articles of Incorpora tion of Sovran Financial Co rpora tion filed as Exhibit I to the Plan of Merger included in Appendix 11 to Lthe Join t Proxy S ta temen t included in Part I to.V i rgini'a Na tional Bankshares, i' In c. ' s Regis tra tion S ta temen t (Form S-14). Number 2-85325, and incorpora ted herein by reference. (b) Amendment to the Res ta ted Ar ticles of' Incorpora tion o f-Sovran Financial Corpora tion ef f ec tive De cembe r 31, t 1985 filed herewith. 3 (c) Bylaws of Sovran Fin'ancial Corpora tion as amended filed as Exhibit 3(b) to Regis tran t's 1985 Annual ~' Report Form 10-K and incorpora ted herein by reference. 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES (a) Articles III and IV of Res ta ted Ar ticles of Inco rp ora tion of Sovran Financial Corpo ra tion filed as Exhibit I to the Plan of Merger included in Appendix II to the Join t Proxy S ta temen t included in Part I to Virginia Na tional Bankshares, Inc.'s Regis tra tion S ta temen t (Form S-14) Number. 2-85325, and incorpora te d herein by reference. (b) Articles of Serial Designa tion for the Sovran Financial Corpora tion Series A $2.37 cumula tive convertible Pref erred S tock included as Appendix III to the Join t Proxy S ta temen t included in Par t I to Virginia Na tional Bankshares, Inc. 's Re gis tra tion ? S ta temen t (Form S-14) Number 2-85325, and incorpora te d l herein by reference. ~ i. (c) Ins trumen ts defining.the righ ts of holders of ce r tain long term debt of the Regis tran t and its cons olida te d subsidiaries are not filed as exhibits because the amount of deb t under each such instrument is less than f 10% of Regis tran t's to ta l consolida ted a sse ts. The Regis tran t unde r take s to file these ins trumen ts wi th g-the Securities and Exchange Commission upon request.

10. MATERIAL CONTRACTS (a)

Sovran Financial Corpora tion S tock Op tion Plan, as { amended. Filed as Exhibit I to Sovran Proxy S ta temen t 4 da ted Ma rch 2 7, 1984 in connec tion with the 1984 annual meeting of s tockholde rs, and inco rpora ted herein by reference. i 19 I

-(b) . Sovran Financial Corpora tion Supplemen tal Execu tive Re tiremen t. Plan. Filed as Exhibit:10(b) to the ~ Re gis tran t's 198 5 Annua l Re por t (Form 10-K) and incorpora ted herein by reference. (c) Amendment to the Sovran Financial Corpora tion Supplemen tal Executive.Re tiremen t Plan e f f ec tive November 1, 1985, filed herewith. (d) ' Sovran Financial. Corpora tion Key Employee Incen tive B o r.u s Plan-as amended January 1, 19 8 5, filed he rewi th. (e) Sovran Financial Co rp ora tion Split Dollar Lif e Insurance Plan. Filed as Exhibit 10(d) to Regis tran t's 1985 Annual Report (Form 10-K) and inco rpora ted herein by reference. (f) Sovran Financial Corpora tion Def erred Compensa tion Plan effective December 1, 1985, filed herewith. 4 (g) First & Merchants Corpora tion 1974 Non-Qualified Stock Op tion Plan. Filed as Exhibit 1 to P os t-Ef f ec tive Amendment No. 4 to F&M' s Regis tra tion S ta temen t on Form S-8 (Regis tra tion No. 2-53437), and incorpora ted herein by reference. (h) First & Merchants Co rpo ra tion 1982 S tock Op tion Plan. Filed as Exhibit A to F&M's Prcxy S ta temen t da ted March 19, 1982, and incorpora ted herein by reference. (i) Form of Employment Agreement be twe en V NB, Virginia l Na tional and F&M and Ce r ta in of Their Respective Officers. Filed as Exhibit LO.8 to V irginia Na tional Bankshares, In c. ' s Regis tra tion S ta tpmen t on Form S-14 (Regis tra tion No. 2-85325), and incorpora ted herein by reference. (j) S tock Op tion Agreement, da ted as of Sep tember 24, 1985 be tw e en the Regis trant and Suburban Bancorp. In co rp o ra te d herein by reference to Exhibit (C) 2 to the Regis tran t's 8-K for the nonth of Sep tembe r 1985. (k) Agreement of Merger, da ted as of October 11, 1985 be tw e e n the Regis tran t and D.C. Na tiona l BanCorp, Inc. Incorpora ted herein by reference to Exhibi t 28.2 to Regis tran t's Regis tra tion S ta temen ts on Form S-4 ( Re gis tra tion No 33-1015). l l

11. S ta temen t Regarding Compu ta tion of Per Share Earnings is shown in No te M of the No tes to Financial S ta temen ts on page 94 of the Regis tran t's 1985 Annual Report to shareholders and incorpora ted herein by reference.

20

13. 1985 Annual Report to shareholders.

Such report, except those por tions thereof which are expressly inco rpo ra te d by reference, is furnished for the inf orma tion of the Securities and Exchange Commission and is not deemed to be filed as a part of the Report.

22. List of Subsidiaries.

Filed herewith.

24. Consent of Exp e r ts and Counsel.

(a) Consent of Erns t & Whinney, Independen t Auditors. Filed herewith, o (b) Consent of Peat, Ma rw i ck, Mitchell & Co., Independent Auditors. Filed herewith. ~

28. O the r Exhibits (a)

Form Il-K rela ting to the Sovran Thrif t Plan and Trust. To be filed' by amendmen t. (b) Report of Independent Auditors. Filed herewith. 'I 21 G

., w SIGNATURES Pursuant to the re quiremen ts of Se c tion 13 or 15(d) of the Securities Exchange Act of 1934, the Regis tran t has duly caused this report to be signed on its behalf by the undersigned, the re un to duly au thorized on the 18 th day of March, 1986. SOVRAN FINANCIAL CORPORATION By C. A. Cutchins, III C. A. Cu tchins, III Chairman of the Board and Chief Execu tive Officer Pursuant to the requiremen ts of the Securities Exchange Act of 1934, this report has been signed below by the - f ollowing persons on behalf of the Regis tran t and in the capacities indica te d on the 18 th day of March, 1986. Signa ture Ti tle Robert M. Schonk Chief Financial Of ficer and Rober t M. Schonk Treasurer (Principal Financial Officer) Donald R. Fisher, J r. Assis tan t Treasurer and Chief Donald R. Fisher, J r. Accounting Officer (Principal Accounting Officer) John B. Bernhardt Dire c to r, Vice Chairman of the John B. Bernhardt Board William W. Berry Director William W. Berry I Edward J. Ca mp be ll Director Edward J. Campbell C. A. Cu tchins, III Director, Chairman of the Board C. A. Cu tchins, III and Chief Exe cu tive Officer (Principal Execu tive Of ficer) Robert J. Grey Director Robert J. Grey 22 - = - - - - - - - -

SIGNATURES ( Con tinued) Herbert V. Kelly Director Herbert V. Kelly Randolph W. McElroy Director, Vice Chairman of the Randolph W. McElroy Board C. Coleman McGehee Director, Chief Opera ting Of ficer C. Coleman McGehee and President (Principal Adminis tra tive Of ficer) George C. Palmer, II Director George C. Palmer, 11 S tanley F. Pauley Director S tanley F. Pauley John B. Rogan Director John B. Rogan Toy D. Savage, J r. Director Toy D. Savage, J r. Wallace S te ttinius Director Wallace Stettinius James S. Wa tkins on Director James S. Wa tkinson l Robert C. Williams Director Robert C. Williams R. W. Wil ts hire Director R. W. Wiltshire 23 l

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) 0F THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1986. Commission file number 0-6500. SOVRAN FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-0898250 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Commmercial Place, Norfolk, Virginia 23510 (Address of principal executive offices) (Zip Code) (804) 441-4000 (Registrant's telephone number, including area code) None l Former name, address and former fiscal year, if changed since last report Indicate by. check mark whether the registrant (1) has filed all reports j required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No l Indicate the number of shares outstanding of each of the issuer's classes l I of common stock, as of October 31, 1986. Common Stock, $5.00 par value 42,225,383 shares 1 i l l I l l

4 4 SOVRAN FINANCIAL CORPORATION Table of Contents Page PART I - FINANCIAL INFORMATION It em 1. - Financi al S ta t eme nt s.................................... 3 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations........... 3 PART II - OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K........................ 4 S I G NAT UR E........................................................... 5 6 i l i l i I i r l 2 i e f

i.- s SOVRAN FINANCIAL CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements The following financial statements required hereunder are incorporated by reference from the Registrant's Quarterly Report to Shareholders for the period ended September 30, 1986 (attached hereto as Exhibit 20), from the respective pages indicated: Page Reference in It em Quarterly Report Consolidated Balance Sheet (Unaudited) 11 Consolidated Statement of Income (Unaudited) 12 Consolidated Statement of Changes in Financial Position (Unaudited) 13 Consolidated Statement of Changes in Shareholders' 14 Equity (Unaudited) Notes to Financial Statements 15-17 The accounting policies followed are set forth in Note A to the Supplemental Financial Statements in the 1985 Annual Report to Shareholders. These Supplemental Consolidated Financial Statements and Notes thereto were filed as Exhibit 28.3 to the Registrant's Form 8-K dated March 31, 1986 and are now considered to be the restated historical financial statements of the Registr' ant. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required hereunder is set forth on pages 4 - 10, inclusive, of the Registrant's Quarterly Report to Shareholders for the period ended September 30, 1986 and is incorporated herein by reference. i 3 1.

PART II.' OTHER INFORMATION Item 6. Exhibits and Reports of Form 8-K (a) Exhibit 11 - Statement Re Computation of Per Share Earnings, incorporated herein by reference from the Quarterly Report to Shareholders, Note I, page 17. 20 - Report Furnished to Security Holders for the period ended September 30, 1986, filed herewith. (b) No reports on Form 8-K were filed for the three months ended September 30, 1986. o l l l i l l 4 r .y

Pursuant to the requirements of the Securities Exchange ~ Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. -SOVRAN FINANCIAL CORPORATION (Regis tran t) f 1 / Da te: November 12, 1986 ' _W Donald R. Fisher, J r., Ch'inf Accounting ~ Of ficer and Treasurer 5 -}}