UNITED COMMUNITY BANKSHARES INC, S-4/A, 1996-05-13

UNITED COMMUNITY BANKSHARES INC
S-4/A, 1996-05-13
STATE COMMERCIAL BANKS

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As filed with the Securities and Exchange Commission on May 13, 1996

Registration No. 333-3296

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

AMENDMENT NO. 2

FORM S-4

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

UNITED COMMUNITY BANKSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)

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<S> <C> <C>
Virginia 6711 54-1801876
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code) Identification No.)
</TABLE>

<TABLE>
<S> <C> <C>
Copy to: Copy to:
Wenifred O. Pearce D. Eugene Brittle Hugh B. Wellons
President and CEO Executive Vice President and COO Mays & Valentine
United Community Bankshares, Inc. United Community Bankshares, Inc. 1111 East Main St.,
100 East 4th Avenue 100 East 4th Avenue NationsBank Center
Franklin, Virginia 23851 Franklin, Virginia 23851 Richmond, Virginia 23219
Telephone: (804) 562-5184 Telephone: (804) 697-1374
(Name and Address of Agent for Service)
</TABLE>

Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.

If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]

The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.

<PAGE>

UNITED COMMUNITY BANKSHARES, INC.
Cross Reference Sheet
(Not required pursuant to Item 501 of Regulation S-B,
provided in conformity with Item 501 of Regulation S-K)

See item A. 3. below regarding location within prospectus
of the applicable risk factors
disclosures.

A. Information About the Transaction Facing Page of
1. Forepart of Registration Registration
Statement and Outside Cover Statement;
Cross Reference
Sheet; Outside
front cover page
of Prospectus

2. Inside Front and Outside Back Available Information; Documents
Cover Pages of Prospectus Delivered and
Incorporated by
Reference; Table
of Contents

3. Risk Factors, Ratio of Earnings Summary; Selected
to Fixed Charges and Other Financial Information;
Information Pro Forma
Condensed
Financial Informa-
tion; The
Shareholder
Meetings; The
Reorganization;
Information
Concerning The
Bank of Franklin;
Information
Concerning The
Bank of Sussex and
Surry

4. Terms of the Transaction Summary; The
Reorganization;
Description of
United Community
Bankshares, Inc.

5. Pro Forma Financial Information Pro Forma
Condensed
Financial
Information

6. Material Contracts with the Summary; The Reorganization;
Company Being Acquired Information
Concerning The
Bank of Franklin;
Information
Concerning The
Bank of Sussex and
Surry

7. Additional Information Required Not Applicable
for Reoffering by Persons and
Parties Deemed to be
Underwriters

8. Interests of Named Experts and Experts; Legal
Opinion Counsel

9. Disclosure of Commission's Not Applicable
Position on Indemnification for
Securities Act Liabilities

B. Information About the Registrant

10. Information with Respect to Not Applicable
S-3 Registrants

11. Incorporation of Certain Not Applicable
Information by Reference

12. Information with Respect to Available
S-2 or S-3 Registrants Information; Documents
Delivered and
Incorporated by
Reference;
Information
Concerning The
Bank of Franklin;
Information
Concerning The
Bank of Sussex and
Surry; United
Community
Bankshares, Inc.;
Description of
Holding Company
Common Stock

13. Incorporation of Certain Available
Information by Reference Information: Documents Delivered
and Incorporated
by Reference

14. Information with Respect to Not Applicable
Registrants Other than S-2 or
S-3 Registrants

C. Information About the Companies
Being Acquired

15. Information with Respect to Not Applicable
S-3 Companies

16. Information with Respect to Not Applicable
S-2 and S-3 Companies

17. Information with Respect to Documents Delivered and
Companies Other than S-2 Incorporated by
Reference Information Concerning
The Bank of Franklin;
Information
Concerning The
Bank of Sussex and
Surry

<PAGE>

D. Voting and Management Information

18. Information if Proxies, The Shareholder
Authorizations Meetings; Information
Are to be Solicited Concerning The Bank of Franklin;
Information Concerning The
Bank of Sussex and Surry;
United Community Bankshares,
Inc.; The Reorganization

19. Information if Proxies, Not Applicable
Consents or Authorizations
Are Not to Be Solicited or
in an Exchange Offer

<PAGE>

May 13, 1996

Dear Fellow Shareholder:

You are cordially invited to attend the Annual Meeting of
Shareholders of The Bank of Franklin ("BOF") to be held at the American Legion
Building, located at 935 Armory Drive, Franklin, Virginia on June 27, 1996 at
7:30 p.m.

At the meeting, shareholders will consider and vote on the
Agreement and Plan of Reorganization, dated January 25, 1996 (the "Agreement"),
between BOF and The Bank of Sussex and Surry ("BSS") pursuant to which, among
other things, BOF and BSS will affiliate under a holding company structure. This
will be accomplished by BOF and BSS forming a corporation, United Community
Bankshares, Inc. (the "Holding Company"), followed by a share exchange
transaction with each of the respective banks, such that each bank will become a
wholly-owned subsidiary of the Holding Company (the "Reorganization"). The
resulting banks will have the same name, employees, branch offices and business
operations as BOF and BSS, respectively. Under the terms of the Agreement, each
share of common stock of BOF outstanding immediately prior to consummation of
the Reorganization will be converted into and exchanged for 4.806 shares of
Holding Company Common Stock, and each share of common stock of BSS outstanding
at such time will be converted into and exchanged for 3.0 shares of Holding
Company Common Stock. Following the Reorganization, BOF and BSS each will
continue to carry on its banking business as a wholly-owned subsidiary of the
Holding Company in substantially the same manner as before the Reorganization.

Approval of the Agreement requires the affirmative vote of the
holders of more than four-fifths of the outstanding shares of BOF Common Stock.
Therefore, the Bank needs significant shareholder participation on this matter.
Your Board of Directors approved the Reorganization and believes that it is in
the best interests of BOF and its shareholders. Accordingly, the Board
recommends that you VOTE FOR the Reorganization and asks that you return the
enclosed proxy card within 10 days of receipt of the enclosed Proxy
Statement/Prospectus.

At the meeting, you also will vote on the election of three
Class A directors to serve until the consummation of the Reorganization between
BOF and BSS or, if the Reorganization is not consummated, to serve three year
terms until the 1999 Annual Meeting of Shareholders. Your Board of Directors
unanimously supports these individuals and recommends that you VOTE FOR them as
directors.

The last item of business at the meeting will be ratification
of the appointment of Goodman & Company, L.L.P. as BOF's independent certified
public accountants.

We hope you can attend the Annual Meeting. Whether or not you
plan to attend, please complete, sign and date the enclosed proxy card and
return it promptly in the enclosed envelope. Your vote is important regardless
of the number of shares you own. We look forward to seeing you at the Annual
Meeting.

Sincerely,

Wenifred O. Pearce
President and Chief
Executive Officer

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on June 27, 1996

The Annual Meeting of Shareholders of The Bank of Franklin
("BOF") will be held on Thursday, June 27, 1996, at 7:30 p.m. at the American
Legion Building, located at 935 Armory Drive, Franklin, Virginia for the
following purposes:

1. To approve the Agreement and Plan of Reorganization, dated
January 25, 1996, between BOF and The Bank of Sussex and Surry ("BSS") and
related Plans of Share Exchange (collectively, the "Agreement"), providing for
the formation of United Community Bankshares, Inc., a Virginia corporation (the
"Holding Company"), to act as a holding company for BOF and BSS (the
"Reorganization") upon the terms and conditions set forth in the Agreement,
including among other things that each issued and outstanding share of BOF
common stock as of the Effective Date will be converted into and exchanged for
4.806 shares of Holding Company Common Stock. The Agreement is enclosed with the
accompanying Joint Proxy Statement as Appendix A.

2. To elect three Class A directors of the Bank to serve until
the consummation of the Reorganization between BOF and BSS or, if the
Reorganization is not consummated, to serve three year terms until the 1999
Annual Meeting of Shareholders and until their successors are elected and
qualified;

3. To ratify the appointment of Goodman & Company,
L.L.P. as BOF's independent certified public accountants; and

4. To transact such other business as may properly
come before the meeting or any adjournments or postponements thereof.

The Board of Directors has fixed May 1, 1996 as the record
date for the Annual Meeting, and only holders of record of BOF Common Stock at
the close of business on that date are entitled to receive notice of and to vote
at the Annual Meeting or any adjournments or postponements thereof.

By Order of the Board of
Directors

Wenifred O. Pearce
President and Chief
Executive Officer

May 13, 1996

PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING.

THE BOARD OF DIRECTORS OF THE BANK OF FRANKLIN RECOMMENDS THE
SHAREHOLDERS VOTE TO APPROVE THE REORGANIZATION AGREEMENT,
FOR THE ELECTION OF THE NOMINEE DIRECTORS AND
FOR APPOINTMENT OF THE AUDITORS

<PAGE>

May 13, 1996

Dear Fellow Shareholder:

You are cordially invited to attend the Annual Meeting of
Shareholders of The Bank of Sussex and Surry ("BSS") to be held at the Virginia
Diner, located at 408 County Drive North (Highway 460), Wakefield, Virginia on
June 27, 1996 at 11:00 a.m.

At the meeting, shareholders will consider and vote on the
Agreement and Plan of Reorganization, dated January 25, 1996 (the "Agreement"),
between BSS and The Bank of Franklin in Franklin, Virginia ("BOF") pursuant to
which, among other things, BSS and BOF will affiliate under a holding company
structure. This will be accomplished by BSS and BOF forming a corporation,
United Community Bankshares, Inc. (the "Holding Company"), followed by a share
exchange transaction with each of the respective banks, such that each bank will
become a wholly-owned subsidiary of the Holding Company (the "Reorganization").
The resulting banks will have the same name, employees, branch offices and
business operations as BSS and BOF, respectively. Under the terms of the
Agreement, each share of common stock of BSS outstanding immediately prior to
consummation of the Reorganization will be converted into and exchanged for 3.0
shares of the Holding Company Common Stock, and each share of common stock of
BOF outstanding at such time will be converted into and exchanged for 4.806
shares of Holding Company Common Stock. Following the Reorganization, BSS will
continue to carry on its banking business as a wholly-owned subsidiary of the
Holding Company in substantially the same manner as before the Reorganization.

The conversion of shares (other than for cash in lieu of any
fractional shares) will be a tax-free transaction for federal income tax
purposes. Details of the proposed Reorganization are set forth in the
accompanying Joint Proxy Statement, which you are urged to read carefully in its
entirety. Approval of the Reorganization requires the affirmative vote of more
than a majority of the outstanding shares of BSS common stock.

Your Board of Directors approved the Reorganization and
believes that it is in the best interests of BSS and its shareholders.
Accordingly, the Board recommends that you VOTE FOR the Reorganization.

At the meeting, you also will vote on the election of three
Class II directors to serve until the consummation of the Reorganization between
BSS and BOF or, if the Reorganization is not consummated, to serve three year
terms until the 1999 Annual Meeting of Shareholders. Your Board of Directors
unanimously supports these individuals and recommends that you VOTE FOR them as
directors.

We hope you can attend the Annual Meeting. Whether or not you
plan to attend, please complete, sign and date the enclosed proxy card and
return it promptly in the enclosed envelope. Please provide the signatures of
both holders if the stock is held jointly. Your vote is important regardless of
the number of shares you own. We look forward to seeing you at the Annual
Meeting.

Sincerely,

<PAGE>

D. Eugene Brittle
President and Chief
Executive Officer

<PAGE>

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on June 27, 1996

The Annual Meeting of Shareholders of The Bank of Sussex and
Surry ("BSS") will be held on Thursday, June 27, 1996, at 11:00 a.m. at the
Virginia Diner, located at 408 County Drive North (Highway 460), Wakefield ,
Virginia for the following purposes:

1. To approve the Agreement and Plan of Reorganization, dated
January 25, 1996, between BSS and the Bank of Franklin in Franklin, Virginia
("BOF") and related Plans of Share Exchange (collectively, the "Agreement"),
providing for the formation of United Community Bankshares, Inc., a Virginia
corporation (the "Holding Company"), to act as a holding company for BSS and BOF
(the "Reorganization") upon the terms and conditions set forth in the Agreement,
including among other things that each issued and outstanding share of BSS
common stock as of the Effective Date will be converted into and exchanged for
3.0 shares of Holding Company Common Stock. The Agreement is enclosed with the
accompanying Joint Proxy Statement as Appendix A.

2. To elect three Class II directors of the Bank to serve
until the consummation of the Reorganization between BOF and BSS or, if the
Reorganization is not consummated, to serve three year terms until the 1999
Annual Meeting of Shareholders and until their successors are elected and
qualified; and

3. To transact such other business as may properly
come before the meeting or any adjournments or postponements thereof.

The Board of Directors has fixed May 10, 1996 as the record
date for the Annual Meeting, and only holders of record of BSS Common Stock at
the close of business on that date are entitled to receive notice of and to vote
at the Annual Meeting or any adjournments or postponements thereof.

By Order of the Board of
Directors

D. Eugene Brittle
President and Chief
Executive Officer

May 13, 1996

PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING.

THE BOARD OF DIRECTORS OF THE BANK OF SUSSEX AND SURRY RECOMMENDS
THE SHAREHOLDERS VOTE TO APPROVE THE REORGANIZATION AGREEMENT AND
VOTE FOR THE ELECTION OF THE NOMINEE DIRECTORS

<PAGE>

THE BANK OF FRANKLIN

AND

THE BANK OF SUSSEX AND SURRY

JOINT PROXY STATEMENT

PROSPECTUS
OF

UNITED COMMUNITY BANKSHARES, INC.

INTRODUCTION

This Joint Proxy Statement is being furnished to shareholders
of The Bank of Franklin ("BOF") and The Bank of Sussex and Surry ("BSS") in
connection with the solicitation of proxies by the Board of Directors of BOF for
use at its Annual Meeting of Shareholders (the "BOF Meeting") and by the Board
of Directors of BSS for use at its Annual Meeting of Shareholders (the "BSS
Meeting") (the BOF Meeting and the BSS Meeting collectively referred to as the
"Shareholder Meetings"), and any postponements or adjournments of either
meeting.

BOF Meeting. At the BOF Meeting, shareholders of BOF will be
asked to approve the Agreement and Plan of Reorganization, dated as of January
25, 1996, between BOF and BSS and the related Plans of Share Exchange
(collectively, the "Agreement"), a copy of which is attached as Appendix A to
this Proxy Statement. Upon consummation of the Reorganization at the effective
date of the Reorganization (the "Effective Date"), each outstanding share of
common stock of BOF ("BOF Common Stock"), other than shares held by dissenting
shareholders, will be converted, in a tax-free transaction, into 4.806 shares of
common stock, par value $1.00 per share, of the Holding Company ("Holding
Company Common Stock"), and each outstanding share of common stock of BSS ("BSS
Common Stock"), other than shares held by dissenting shareholders, will be
converted, in a tax-free transaction, into 3.0 shares of Holding Company Common
Stock. The share exchange ratio was determined upon the advice of the investment
firm of Scott & Stringfellow, Inc. of Richmond, Virginia, which used standard
valuation methods, and pursuant to negotiation of additional the terms in the
Agreement. After consummation of the Reorganization, BOF and BSS each will
conduct its respective business as a wholly-owned subsidiary of the Holding
Company in substantially the same manner and with the same offices, management
and employees as BOF and BSS had before the Reorganization. Following the
Reorganization, the current shareholders of BOF will own approximately 50% of
the outstanding shares of the Holding Company. See "The Reorganization."

BSS Meeting. At the BSS Meeting, shareholders of BSS will be
asked to approve the Agreement (as referenced in the preceding paragraph, dated
as of January 25, 1996, between BOF and BSS and the related Plans of Share
Exchange), a copy of which is attached as Appendix A to this Proxy Statement.
Upon consummation of the Reorganization at the Effective Date, each outstanding
share of BSS Common Stock, other than shares held by dissenting shareholders,
will be converted, in a tax-free transaction, into 3.0 shares, par value $1.00
per share, of Holding Company Common Stock, and each outstanding share of BOF
Common Stock, other than shares held by dissenting shareholders, will be
converted, in a tax-free transaction, into 4.806 shares of Holding Company
Common Stock. The share exchange ratio was determined upon the advice of the
investment firm of Scott & Stringfellow, Inc. of Richmond, Virginia, which used
standard valuation methods, and pursuant to negotiation of additional the terms
in the Agreement. After consummation of the Reorganization, BOF and BSS each
will conduct its respective business as wholly-owned subsidiaries of the Holding
Company in substantially the same manner and with the same offices, management
and employees as BOF and BSS had before the Reorganization. Following the
Reorganization, the current shareholders of BSS will own approximately 50% of
the outstanding shares of the Holding Company. See "The Reorganization."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

The date of this Proxy Statement is May 13, 1996.

The Holding Company. This Joint Proxy Statement also serves as
the prospectus of the Holding Company as it relates to the 1,829,584 shares of
Holding Company Common Stock to be issued to shareholders of BOF and BSS in
exchange for their respective shares of BOF Common Stock and BSS Common Stock.
The Holding Company has filed a registration statement ("Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with the Securities and Exchange Commission ("SEC") with respect to the shares
of Holding Company Common Stock to be issued in connection with the
Reorganization.

The principal offices of BOF and the Holding Company are at
100 East 4th Avenue, Franklin, Virginia 23851 (telephone: (804) 562-5184). The
principal office of BSS is at 205 Railroad Avenue, Wakefield, Virginia 23888
(telephone: (804) 899-2501).

No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this Joint Proxy
Statement, and, if given or made, such information or representation should not
be relied upon as having been authorized. This Joint Proxy Statement does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Joint Proxy Statement in any jurisdiction to or from
any person to whom it is unlawful to make such an offer or solicitation in such
jurisdiction. Neither the delivery of this Joint Proxy Statement nor any
distribution of the securities being offered pursuant to this Joint Proxy
Statement shall, under any circumstances, create an implication that there has
been a change in the affairs of BOF or BSS or the information set forth herein
since the date of this Joint Proxy Statement.

<PAGE>

AVAILABLE INFORMATION

BOF is subject to the information requirements of the rules
and regulations of the Federal Deposit Insurance Corporation (the "FDIC") as
promulgated under the Exchange Act, and in accordance therewith files reports,
proxy statements and other information with the FDIC. Current reports, proxy
statements and other information can be inspected or copied at the FDIC,
Registration and Disclosure Section, 1776 F Street, N.W., Room F-643,
Washington, D.C., and copies of such records may be requested by calling (202)
898-8902.

The Holding Company has filed a Registration Statement as a
"small business issuer" with the SEC under the Securities Act relating to the
shares of Holding Company Common Stock issuable in the Reorganization. As
permitted by the rules and regulations of the SEC, this Joint Proxy Statement
omits certain information contained in the Registration Statement. For further
information and reference, the Registration Statement and the exhibits thereto
may be inspected without charge at the public reference facilities of the SEC at
450 Fifth Street, N.W., Washington, DC 20549, and copies may be obtained from
the SEC at prescribed rates. Pursuant to the Reorganization, the Holding Company
will assume reporting and filing responsibilities under the Exchange Act,
similar to the responsibilities previously performed by BOF under rules and
regulations of the FDIC. Following the Reorganization, the Holding Company must
comply with the reporting requirements of the SEC, and will file such reports
with the SEC, rather than the FDIC.

DOCUMENTS DELIVERED AND INCORPORATED BY REFERENCE

The shareholders of BOF have received BOF's 1995 Annual Report
to Shareholders. The shareholders of BSS have received BSS's 1995 Annual Report
to Shareholders. This Joint Proxy Statement incorporates by reference documents
relating to BOF which are not delivered herewith. The annual report (including
financial statements and schedules related thereto) on Form F-2 of BOF, as filed
with the FDIC for the year ended December 31, 1995, which reports include
audited consolidated financial statements of BOF for the two years ended
December 31, 1995, prepared in conformity with generally accepted accounting
principles, quarterly reports on Form F-4 and interim quarterly call reports for
1995 as filed with the FDIC, as appropriate, are available free of charge to
shareholders of BOF and BSS who request a copy. The documents relating to BOF
incorporated herein by reference (not including exhibits thereto) and not
delivered herewith are available to any person receiving a copy of this Joint
Proxy Statement, without charge, upon written request directed to: Wayne
Carruthers, The Bank of Franklin, 100 East 4th Avenue, Franklin, Virginia 23851;
telephone number (804) 562-5184. Copies of BOF's annual report on Form F-2,
including audited financial statements, quarterly reports on Form F-4, and call
reports will be available for inspection by shareholders at the Shareholder
Meetings. In addition, copies of the bylaws of the Holding Company will be
available for inspection at the Shareholder Meetings and will be provided upon
request made to the Secretary of each of BOF and BSS at his address listed
above, prior to the meetings.

The following documents filed with the FDIC and the SEC by BOF
are incorporated by reference in this Joint Proxy Statement: BOF's annual report
on Form F-2 for the year ended December 31, 1995. All documents filed by BOF and
the Holding Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to date hereof and prior to the date of the Annual
Meetings shall be deemed to be incorporated by reference herein.

Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement to the extent that a statement contained herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement.

<PAGE>

TABLE OF CONTENTS

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Page
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Introduction
BOF Meeting 1
BSS Meeting 1
The Holding Company 2

Available Information 3

Documents Delivered and Incorporated by Reference 3
Summary 5
Recent Developments 12

Selected Financial Information
Selected Historical Financial Information of BOF 13
Selected Historical Financial Information of BSS 14
Selected Pro Forma Combined Financial Information 15
The Shareholders' Annual Meetings 16
The Reorganization 19
BOF - Opinion of Financial Advisor 20
BSS - Opinion of Financial Advisor 22
Comparative Stock Prices and Dividends 33
Election of Directors of The Bank of Franklin 35
Election of Directors of The Bank of Sussex and Surry 40
Information Concerning The Bank of Franklin 43
BOF's Management's Discussion and Analysis and Results of Operations 48
Information Concerning The Bank of Sussex and Surry 63
BSS's Management's Discussion and
Analysis and Results of Operations 69
United Community Bankshares, Inc. 87
Description of Holding Company Capital Stock 90
Comparative Rights of Shareholders 92
Supervision and Regulation Pro Forma Condensed Financial 98
Information 104
Pro Forma Condensed Balance Sheet 105
Pro Forma Condensed Statements of Income (1995) 106
Pro Forma Condensed Statements of Income (1994) 107
Notes to Pro Forma Condensed Financial Information 108
Costs and Means of Proxy Solicitation 109
Ratification of Appointment of Independent Auditor 109
Other Matters 109
Financial Statements 109
Experts 109
Legal Opinions 110
Shareholder Proposals 110
General
Appendix A -- Agreement and Plan of Reorganization A-1
Appendix B -- Excerpts from the Virginia Code Relating to
Dissenting Shareholders. B-1

BOF Appendices

Appendix C -- Opinion of Scott & Stringfellow, Inc. C-1
Appendix D -- BOF Financial Statements D-1

BSS Appendices

Appendix E -- Opinion of Davenport & Co. of Virginia, Inc. E-1
Appendix F -- BSS Financial Statements F-1

- 5 -

<PAGE>

SUMMARY

The following summary is not intended to be complete and is
qualified in its entirety by the more detailed information and financial
statements contained elsewhere in this Joint Proxy Statement, including the
Appendices hereto and the documents incorporated herein by reference.

The Companies

BOF: BOF is a state bank organized under the laws of the
Commonwealth of Virginia whose deposits are insured by the FDIC. At
December 31, 1995, BOF had assets of $80.8 million, deposits of $71.8
million and shareholders' equity of $8.2 million. The principal executive
offices of BOF are located at 100 East 4th Avenue, Franklin, Virginia
23851, and its telephone number is (804) 562-5184. See "The Bank of
Franklin."

BSS: BSS is a state bank organized under the laws of the
Commonwealth of Virginia whose deposits are insured by the FDIC. At
December 31, 1995, BSS had assets of $62.5 million, deposits of $52.5
million and shareholders' equity of $9.6 million. The principal executive
offices of BSS are located at 205 Railroad Avenue, Wakefield, Virginia
23888, and its telephone number is (804) 899-2501. See "The Bank of Sussex
and Surry."

The Shareholder Meetings

BOF: The BOF Meeting will be held at the American Legion
Building, 935 Armory Drive, Franklin, Virginia on Thursday, June 27, 1996. Only
holders of record of BOF Common Stock at the close of business on May 1, 1996
will be entitled to vote at the BOF Meeting.

BSS: The BSS Meeting will be held at the Virginia Diner, 408
County Drive North (Highway 460), Wakefield, Virginia on Thursday, June 27,
1996. Only holders of record of BSS Common Stock at the close of business on May
10, 1996 will be entitled to vote at the BSS Meeting.

The shareholders of BOF and BSS are being asked to consider
and approve the Agreement, which provides for the Reorganization of BOF and BSS
as wholly-owned subsidiaries of the Holding Company and the conversion of the
common stock of BOF and BSS into Holding Company Common Stock. The Agreement is
attached as Appendix A to this Joint Proxy Statement.

In addition, shareholders of common stock of each of BOF and
BSS will be asked to elect the respective bank's board of directors to serve
until the consummation of the Reorganization between BOF and BSS or, if the
Reorganization is not consummated, to serve three year terms until the 1999
Annual Meeting of Shareholders and until their successors are elected and
qualified. In addition, the shareholders of BOF will be asked to ratify the
appointment of that bank's independent certified public accounts.

For additional information relating to the Shareholder
Meetings, see "The Shareholder Meetings."

The Reorganization

The Agreement provides for the exchange of each outstanding
share of BOF Common Stock and BSS Common Stock for Holding Company Common Stock.
The Holding Company will serve as the parent bank holding company for both BOF
and BSS, each of which will continue to carry on its banking business in the
same manner as before the Reorganization, with no immediate change in their
respective names, management, staff, or office locations.

<PAGE>

At the Effective Date of the Share Exchange, the following
will occur: each share of BOF Common Stock will be exchanged for 4.806 shares of
Holding Company Common Stock; and each share of BSS Common Stock will be
exchanged for 3.0 shares of Holding Company Common Stock. Cash will be paid in
lieu of fractional shares. As a result, each of BOF and BSS will become
wholly-owned subsidiary banks of the Holding Company which is currently
organized to facilitate the Reorganization and will continue in permanent
operation undertaking normal, permissible activities of a holding company
following the Reorganization.

The Board of Directors of the Holding Company after the
Reorganization will initially be comprised of ten members, with five
members designated by BOF and five designated by BSS. See "The
Reorganization."

Recommendations of the Boards of Directors of BOF and BSS

The Boards of Directors of BOF and BSS have each approved the
Agreement, and the Reorganization. Each director and executive officer,
with the exception of John A. Murray for BOF and L. A. Brantley for
BSS, has declared his or her support for the Agreement and Reorganization. Each
of the boards believes the Reorganization is fair to and in the best interests
of the shareholders of its respective company and recommends a vote FOR the
Agreement and the Reorganization.

The Boards of Directors of BOF and BSS believe that the
Reorganization will result in a company with expanded market opportunities
for profitable long-term growth and diversification, and that the combined
resources and capital of BOF and BSS in a Holding Company structure will
enhance each bank's ability to compete in the rapidly changing and highly
competitive financial services industry. See "The Reorganization."

Opinions of Financial Advisor

BOF: Scott & Stringfellow, Inc., Richmond, Virginia ("Scott &
Stringfellow"), has served as financial advisor to BOF in connection with the
Reorganization and has rendered its opinion to the Board of Directors of BOF
that, as of the date of this Joint Proxy Statement and on the basis of the
matters referred to herein, the exchange ratio is fair, from a financial point
of view, to the BOF shareholders. A copy of the opinion of Scott & Stringfellow
is attached as Appendix - to this Joint Proxy Statement and should be read in
its entirety for information with respect to the assumptions made and other
matters considered by Scott & Stringfellow in rendering its opinion. See "The
Reorganization."

BSS: Davenport & Company of Virginia, Inc., Richmond, Virginia
("Davenport"), has served as financial advisor to BSS in connection with the
Reorganization and has rendered its opinion to the Board of Directors of BSS
that, as of the date of this Joint Proxy Statement and on the basis of the
matters referred to herein, the exchange ratio is fair, from a financial point
of view, to the BSS shareholders. A copy of the opinion of Davenport is attached
as Appendix - to this Joint Proxy Statement and should be read in its entirety
for information with respect to the assumptions made and other matters
considered by Davenport in rendering its opinion. See "The Reorganization."

- 7 -

<PAGE>

Votes Required

Approval of the Agreement by the shareholders of BOF requires
the affirmative vote of the holders of more than four-fifths of the outstanding
shares of BOF Common Stock and for BSS by a majority of the outstanding shares
of BSS Common Stock.

A failure to vote, either by not returning the enclosed proxy
or by checking the "Abstain" box thereon, will have the same effect as a vote
against approval of the Agreement, and thereby the Reorganization.

As of the record date for the Shareholder Meetings, the
directors and executive officers of BOF and their affiliates held approximately
18.45% of the outstanding BOF Common Stock entitled to vote at the BOF Meeting.
Also on that date, the directors and executive officers of BSS and their
affiliates held approximately 40.79% of the outstanding BSS Common Stock
entitled to vote at the BSS Meeting. See "The Shareholders' Meetings" and "The
Reorganization."

Effective Date

If the Reorganization is approved by the requisite vote
of the shareholders of BOF and BSS and by the FDIC, the Federal Reserve and
the Virginia State Corporation Commission (the "SCC"), and other conditions
to the Reorganization are satisfied (or waived to the extent permitted by
applicable law), (the "Effective Date"), and the Reorganization will be
consummated at the time the BOF Share Exchange and the BSS Share Exchange
are declared effective by the SCC pursuant to the Virginia Stock
Corporation Act. See "The Reorganization."

It is anticipated that the Effective Date of the
Reorganization will be on or about July 1, 1996, although there can be no
assurance as to whether or when the Reorganization will occur.

Management and Operations After the Reorganization

On the Effective Date, BOF and BSS will become bank
subsidiaries of the Holding Company, which will then serve as the parent
holding company for both BOF and BSS and will operate under the name United
Community Bankshares, Inc. See "The Reorganization."

The Board of Directors of the Holding Company, after the
Reorganization, initially will be comprised of ten members, five designated by
BOF and five designated by BSS. The Boards of Directors of BOF and BSS,
respectively, have designated the following persons to serve as directors of The
Holding Company following consummation of the Reorganization:

BOF Designees BSS Designees

Hunter Darden, Jr. J. P. Bain
Harvey Pope J. Philip Bain, Jr.
J. D. Spivey G. O. Huber
F. Bruce Stewart J. Russell West
Wenifred O. Pearce D. Eugene Brittle

Approval of the Agreement by the shareholders of BOF and BSS
will be deemed to constitute the election of the ten designees as directors of
the Holding Company at the Effective Date. For a period of three years following
the Effective Date, if any person designated to serve as a director of the
Holding Company is unable or unwilling to serve, the remaining directors who
originally were designated by BOF or BSS, as the case may be, shall be entitled
to nominate the candidate then serving as a director of BOF or BSS, as the case
may be, for election to fill the vacancy so created. The Holding Company Board
is divided into three classes, and directors are elected to serve three-year
staggered terms. See "The Reorganization" for information concerning the classes
in which the above designees will serve.

<PAGE>
The principal executive officers of the Holding Company will
include Wenifred O. Pearce, President and Chief Executive Officer; and D. Eugene
Brittle, Executive Vice President and Chief Operating Officer. The BSS Board has
recommended and nominated J. Russell West to serve as Chairman of the Board of
the Holding Company, and BOF has recommended and nominated Harvey Pope to serve
as Vice Chairman of the Board of the Holding Company. The Boards of Directors,
officers and employees of BOF and BSS will not change as a result of the
Reorganization.

Following the Reorganization, BOF and BSS will keep their
existing names and office locations and will continue to carry on their
respective banking businesses in the same manner as before the
Reorganization. See "The Reorganization."

Distribution of Stock Certificates and Payments for Fractional Shares

As soon as practicable after the Effective Date of the
Reorganization, BOF, as the exchange agent, will mail to each BOF shareholder
(other than dissenting shareholders) and to each BSS shareholder (other than
dissenting shareholders) a letter of transmittal and instructions for use in
order to surrender the certificates representing shares of BOF or BSS Common
Stock, as the case may be, in exchange for certificates representing shares of
Holding Company Common Stock. Cash will be paid in lieu of fractional shares.
See "The Reorganization" and "Comparative Stock Prices and Dividends."

Conditions to Consummation of the Reorganization

Consummation of the Reorganization is subject to various
conditions, including among other matters: (i) receipt of the approvals of both
the shareholders of BOF and BSS solicited hereby; (ii) receipt of an opinion of
counsel as to the tax-free nature of the Reorganization (except for cash
received in lieu of fractional shares or upon the exercise of dissenters'
rights, if applicable); (iii) receipt of a letter from independent certified
public accountants to the effect that the Reorganization qualifies to be
accounted for as a pooling of interests if consummated in accordance with the
terms of the Agreement; and (iv) approval of the Federal Reserve of the Share
Exchanges and the Holding Company formation under the Bank Holding Company Act
of 1956, as amended ("BHC Act"), the FDIC of the Share Exchanges under the
Federal Deposit Insurance Act, and the SCC of the Share Exchanges
and the Holding Company formation under the Virginia Stock Corporation Act (the
"Virginia SCA") and the Virginia Banking Act. If the shareholders of either BOF
or BSS do not approve the Reorganization, it cannot be consummated.
Substantially all of the conditions to consummation of the Reorganization except
for items (i) and (iv) referred to above may be waived, in whole or in part, to
the extent permissible under applicable law by the party for whose benefit the
condition has been imposed, without the approval of the shareholders of that
party. See "The Reorganization."

Certain Federal Income Tax Consequences

Mays & Valentine, counsel for the Holding Company, will
deliver an opinion that, among other things, (i) the Reorganization will
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code, (ii) no gain or loss will be recognized by BOF or BSS as a result
of the Reorganization, (iii) no gain or loss will be recognized by BOF or BSS
shareholders who receive shares of Holding Company Common Stock pursuant to the
Reorganization, (iv) the aggregate tax basis of the Holding Company Common Stock
received by a BOF or BSS shareholder will equal the aggregate tax basis of the
stock surrendered in exchange therefor by such shareholder (reduced by any
amount of fractional share interests for which a shareholder receives cash), and
(v) the holding period of the Holding Company Common Stock received will
generally include the holding period of the BOF or BSS stock surrendered. For a
more complete description of the federal income tax consequences of the
Reorganization, see "The Reorganization." Due to the individual nature of the
tax consequences of the Reorganization, it is recommended that each BOF and BSS
shareholder consult his or her own tax advisor concerning the tax consequences
of the Reorganization.

- 9 -

<PAGE>

The Agreement may be terminated and the Reorganization
abandoned notwithstanding shareholder approval (i) by mutual agreement of the
Boards of Directors of BOF and BSS, (ii) by either BOF or BSS if the Effective
Date has not occurred by October 31, 1996, or (iii) if certain specified events
occur. In addition, the Agreement provides for waiver, amendment and termination
of Agreement under certain circumstances. See "The Reorganization - Waiver,
Amendment and Termination."

Effects of the Reorganization on the Rights of BOF and BSS Shareholders

Upon consummation of the Reorganization, BOF and BSS
shareholders will become shareholders of the Holding Company. The rights of the
former shareholders of BOF and BSS will continue to be governed by the Virginia
SCA, since the Holding Company is a Virginia corporation. The rights of BSS and
BOF shareholders will also be as provided for under the articles of
incorporation and bylaws of the Holding Company. See Exhibit B to Appendix A for
the Holding Company articles of incorporation. The provisions of the articles of
incorporation of the Holding Company differ in certain respects from the
articles of incorporation of BOF and BSS. See "Comparative Rights of
Shareholders."

Accounting Treatment

It is intended that the Reorganization will be accounted
for as a pooling of interests, and it is a condition to consummation of the
Reorganization that BOF and BSS receive an opinion from an independent
certified public accountant that the Reorganization will be accounted for
as a pooling of interests. See "The Reorganization."

Appraisal Rights

Each holder of BOF or BSS Common Stock who dissents from the
Reorganization is entitled to the rights and remedies of dissenting shareholders
provided in Article 15 of the Virginia SCA, subject to compliance with the
procedures set forth therein. Copies of Article 15 of the Virginia SCA are
attached as Appendix B to this Joint Proxy Statement, and a summary thereof is
included under "The Reorganization."

BOF and BSS Stock Option Plans

Neither BOF nor BSS presently has a stock option plan in place
for the benefit of bank employees, officers or directors. The Agreement
provides that Messrs. Pearce and Brittle will receive employment agreements with
the Holding Company, but the Agreement does not promise any stock options for
those individuals. Those employment agreements will not be finally negotiated
until after this Reorganization is completed. However, the Board of the
Holding Company expects that stock options will be among the matters considered
when the employment agreements are negotiated. Accordingly, it is possible that
shareholders of Holding Company will be asked by the Holding Company Board to
consider adoption of an incentive stock option plan at some
point after consummation of the Reorganization, if the Board finally determines
that such options are in the best interests of the Holding Company. The possible
parameters of such options cannot be known at this time.

Market and Trading Prices

Neither BOF Common Stock nor BSS Common Stock is registered on
any exchange, traded in the over-the-counter market, or quoted by NASDAQ.
Sporadic sales of each stock occur from time to time on a local basis.
Accordingly, there is no established public market for either stock and the
volume of trading has been insufficient to establish a meaningful market price.
To the best knowledge of BOF, the predominant price at which BOF Common Stock

<PAGE>

has traded since year-end 1995 is $45.00 per share. To the best knowledge of
BSS, no trades of BSS Common Stock have occurred since year-end 1995. The last
two trades of BSS Common Stock were 820 shares at $31.00 per share on August
3, 1995 and 162 shares at $26.00 per share on November 7, 1995. See "Comparative
Stock Prices and Dividends."

The following tables set forth, to the best knowledge of BOF
and BSS, the trading price of both BOF and BSS Common Stock and the equivalent
per share price (as explained below) of Holding Company Common Stock on January
24, 1996, the first business day preceding the public announcement and press
release of the proposed Reorganization.

Equivalent
Trading Price BOF Holding Company
Per Share at Common Stock Per Share Price

January 24, 1996 $45.00(1) $9.36

Equivalent
Trading Price BSS Holding Company
Per Share at Common Stock Per Share Price

January 24, 1996 $26.00(2) $8.67

(1) On January 5, 1996, 513 shares were sold at $45.00 per
share.

(2) The last two trades of BSS Common Stock were 820 shares at
$31.00 per share on August 3, 1995 and 162 shares at $26.00
per share on November 7, 1995.

The equivalent per share price of a share of BOF Common Stock
and the equivalent per share price of a share of BSS Common Stock represents the
indicated price of a share of Holding Company Common Stock on such date divided,
respectively, by the BOF Exchange Ratio of 4.806 shares of Holding Company
Common Stock for each share of BOF Common Stock, and the BSS Exchange Ratio of
3.0 shares of Holding Company Stock for each share of BSS Common Stock.

No assurance can be given as to the trading price of
Holding Company Common Stock at or after the Effective Date of the
Reorganization.

- 11 -

<PAGE>

In an effort to enhance the marketability of the stock, it is
anticipated that an application will be filed after consummation of the
Reorganization to have the shares of Holding Company Common Stock approved for
quotation on NASDAQ and for trading in the over-the-counter market. The
Holding Company will need to have at least two investment firms committed as
market makers for approval of such an application. In the event that an
application is not approved, the stock of the Holding Company will continue to
be traded in the over-the-counter market but the overall marketability of the
stock may not be as favorable. Regardless of whether the Holding Company becomes
listed for trading on NASDAQ, there can be no assurance that any significant
market for Holding Company Common Stock will develop following the
Reorganization.

COMPARATIVE PER SHARE DATA

The following financial information reflects certain
comparative per share data relating to (i) net income and cash dividends per
common share for both BOF and BSS on a historical basis and on a pro forma
combined basis assuming the Reorganization had been effected for the periods
presented, and (ii) net income and cash dividends per common share on a pro
forma equivalent basis per common share for the Holding Company assuming the
Reorganization had been effected for the periods indicated and accounted for as
a pooling of interests. The information shown below should be read in
conjunction with the historical consolidated financial statements of BOF and
BSS, including the respective notes.

- 13 -

<PAGE>

</TABLE>
<TABLE>
<CAPTION>

Years Ended December 31,
1995 1994
<S> <C> <C>
Per Common Share:
Net Income:
BOF-historical $4.94 $4.25
BSS-historical 2.54 1.99
Pro forma combined(1) .94 .77
BOF pro forma equivalent(2) 4.52 3.70
BSS pro forma equivalent(2) 2.82 1.98

Cash Dividends Declared:

BOF-historical 1.10 1.00
BSS-historical .70 .65
Pro forma combined(1)(3) .23 .21
BOF pro forma equivalent(2) 1.11 1.01
BSS pro forma equivalent(2) .69 .63
<CAPTION>

At December 31, 1995
<S> <C>
Book Value:
$42.85
BOF-historical 31.50
BSS-historical 9.63
Pro forma combined(1) 46.28
BOF pro forma equivalent(2) 28.89
BSS pro forma equivalent(2)

</TABLE>

- -----------

(1) Pro forma combined and equivalent amounts
represent historical information adjusted for the
BOF Exchange Ratio of 4.806 shares of Holding
Company Common Stock for each share of BOF Common
Stock, and the BSS Exchange Ratio of 3.0 shares
of Holding Company Common Stock for each share of
BSS Common Stock. The approximate number of Holding Company
shares oustanding for current BOF and BSS shareholders following
consummation will be 914,764 and 914,820, respectively.

(2) The pro forma equivalent information is computed
by multiplying the pro forma information by the
exchange ratio of 4.806 shares of Holding Company
Common Stock for BOF Common Stock, and 3.0 shares
of Holding Company Common Stock for BSS Common
Stock.

(3) The proforma combined and equivalent annual basis
of the dividend paid by the respective banks in
1995 is $0.23 per share. In other words, if the
Reorganization had been effected in 1995, no
shareholder of BOF or BSS would have received
less in dividends as a Holding Company
shareholder than they actually received as a
shareholder of BOF or BSS. By the Effective
Date, both BOF and BSS will have paid at least
one half of their projected 1996 annual dividends
to shareholders. Accordingly, the Holding Company
is expected to pay a dividend not less than the
$0.12 per share in the second half of this year,
an amount that will ensure that Holding Company
shareholders receive no less in 1996 dividend
payments than they would have received as
shareholders of BOF or BSS. In fact, the Holding
Company hopes to increase its semi-annual
dividend later this year or next year, possibly
by as much as 30%, depending on financial
projections, amounts available, and advice from
independent financial advisors; however, the
Holding Company can make no assurances as to this
increase. The Holding Company plans to continue
paying its dividend semi- annually in 1997 and
for the foreseeable future. See "Comparative
Stock Prices and Dividends" for a discussion of
the Holding Company's anticipated dividend policy
subsequent to the Reorganization.

<PAGE>

- 13 -

RECENT DEVELOPMENTS

BOF

Three Month Results. BOF's results for the first three months of 1996
compare favorably with the same period in 1995. Net income was $269,000 for the
first three months of 1996, 10.7% above $243,000 earned in the first three
months of 1995. Total assets were $81.8 million compared to $80.8 million at
year end and shareholders' equity was $8.018 million compared to $8.156 million
at year end.

The following unaudited financial data for the three months ended March
31, 1996 and 1995 includes, in the opinion of BOF's management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations. These results are not necessarily
indicative of the results which may be expected in future periods.

Condensed Statements of Income

Three Months Ended
March 31,
1996 1995

(Unaudited)

(In thousands)

Net Interest Income $ 748 $ 697
Provision for loan losses 4 0
Other income 156 104
Other expense 551 481
Income tax expenses 80 82
Net income $ 269 $ 238
Balance Sheet Data
<TABLE>
<CAPTION>

March 31, 1996 December 31, 1995

(Unaudited)

(In thousands)
<S> <C> <C>
Assets $81,775 $80,814
Loans, net of unearned income 38,970 37,334
Securities 33,004 31,196
Deposits 72,634 71,472
Shareholders' equity 8,018 8,156
</TABLE>
- 15 -

<PAGE>

Nonperforming Assets, The condition of BOF's
nonperforming assets as of March 31, 1996 is consistent with its position as of
December 31, 1995. Total nonperforming assets at March 31, 1996 was $183,288,
compared to $305,003 at March 31, 1995 and $194,123 at December 31, 1995.
Similarly, the allowance for loan losses at March 31, 1996 as $641,097, compared
to $608,975 at March 31, 1995 and $653,474 at December 31, 1995.

Net charge-offs amounted to $16,378 in the first
quarter of 1996, compared to $12,688 in the first quarter of 1995.

BSS

Three Month Results. BSS's results for the first
three months of 1996 compare favorably with the same period in 1995. Net income
was $192,256 for the first three months of 1996, compared to $189,610 earned in
the first three months of 1995. Total assets were $61.8 million compared to
$62.5 million at year end and shareholders' equity was $9.7 million compared to
$9.6 million at year end.

- 17 -

<PAGE>

The following unaudited financial data for the
three months ended March 31, 1996 and 1995 includes, in the opinion of BSS's
management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations. These results
are not necessarily indicative of the results which may be expected in future
periods.

Condensed Statements of Income

Three Months Ended
March 31,
1996 1995
(Unaudited)
(in thousands)

Net Interest Income $578 $593
Provision for loan losses 6 12
Other income 57 45
Other expense 383 374
Income tax expenses $ 54 $ 62
Net income $192 $190

Balance Sheet Data

March 31, 1996 December 31, 1995
(Unaudited)
(in thousands)

Assets $ 61,816 $62,477

Loans, net of unearned income 29,852 29,445
Securities 27,354 26,923
Deposits 51,721 52,483
Shareholders' equity 9,701 9,606

Nonperforming Assets. BSS's nonperforming
assets, which consists of nonaccrual loans, restructured loans and foreclosed
properties, as of March 31, 1996, were $270,000 compared to $431,000 at
March 31, 1995, and $270,000 at December 31, 1995. Loans over 90 days and
accruing interest were an additional $279,000 at March 31, 1996 compared to
$1,000 at March 31, 1995 and $75,000 at December 31, 1995.

Net charge-offs amounted to $1,000 in the first
quarter of 1996, compared to $$18,000 in net recoveries in the first quarter of
1995.

<PAGE>

SELECTED FINANCIAL INFORMATION

The following tables set forth certain selected historical financial
information for BOF and BSS and certain pro forma financial information giving
effect to the Reorganization as a pooling of interests. The selected historical
financial information should be read in conjunction with the historical
consolidated financial statements of BOF and BSS and the related notes thereto
included elsewhere in this Joint Proxy Statement or in documents incorporated
herein by reference. See "Documents Delivered and Incorporated by Reference."
All of the following selected financial information should be read in
conjunction with the pro forma financial information, including the notes
thereto, appearing elsewhere in this Joint Proxy Statement. See "Pro Forma
Condensed Financial Information." The pro forma financial information is not
necessarily indicative of the results that actually would have occurred had the
Reorganization been consummated on the dates indicated or that may be obtained
in the future.

- 19 -

<PAGE>

<TABLE>
<CAPTION>
Selected Historical Financial Information
of BOF

Years Ended December 31,

1995 1994
(Dollars In thousands)
<S> <C> <C>
Income Statement Data:
Net interest income $ 2,868 $ 2,574
Provision for loan losses 0 0
Other income 483 469
Other expenses (2,093) (1,930)
Income tax expense (318) (303)
Net income $ 940 $ 810

Per Share Data:(1)
Net income $ 4.94 $ 4.25
Cash dividends 1.10 1.00
Book value 42.85 38.20

Balance Sheet Data:

Assets $ 80,814 $ 63,141
Loans, net of unearned income
and allowance for loan losses 37,988 32,402
Total investment securities(2) 31,196 22,745
Deposits 71,808 55,103
Stockholders equity 8,157 7,271

Average Balance Sheet Data:

Average assets $ 68,235 $ 60,011
Average equity 7,726 7,079

Average shares outstanding 190,338 190,338

Performance Ratios:

Return on average assets 1.38% 1.35%
Return on average equity 12.17 11.44
Dividend payout(3) 22.23 23.46

Capital Ratios:

Risk-based:

Tier 1 capital 15.30 19.43
Total capital 16.55 20.60

Average equity to
average assets 11.32 11.80

</TABLE>
(1) Based upon 190,338 average common shares outstanding.

(2) At December 31, 1995 and 1994, $31.2 million and $6.9
million of securities, respectively, are classified as
available for sale and recorded at fair value, including
unrealized pre-tax gain (loss) of $94,000 and ($140,000),
respectively. At December 31, 1994, $15.9 million of
securities classified as held to maturity are recorded at
amortized cost.

(3) Represented as a percentage of net income.

- 13 -

<PAGE>

Selected Historical Financial Information
of BSS

Years Ended December 31,

1995 1994
(Dollars in thousands)
<S> <C> <C>
Income Statement Data:

Net interest income $2,431 $2,323
Provision for loan losses 183 218
Other income 260 225
Other expenses 1,486 1,528
Income tax expense 246 195
Net income $ 776 $ 607

Per Share Data(1):

Net income $ 2.54 $ 1.99
Cash dividends 0.70 0.65
Book value 31.50 28.68

Balance Sheet Data:
Assets $62,477 $58,391
Loans, net of unearned income 29,445 29,506
Total investment securities(2) 26,923 23,341
Deposits 52,483 49,413
Shareholders equity 9,606 8,746
Average shares outstanding 304,940 304,940

Average Balance Data:

Average Assets $60,196 $57,554
Average Equity 9,249 8,685

Performance Ratios:
Return on average assets 1.29% 1.05%
Return on average equity 8.39 6.99
Dividend payout(3) 27.5 32.6

Capital Ratios:
Leverage 15.38 15.03
Risk-based:

Tier 1 capital 26.65 24.79
Total capital 28.15 26.29
Average equity to
average assets 15.36 15.09
</TABLE>

(1) Based upon 304,940 shares outstanding.

(2) At December 31, 1995, and December 31, 1994, $16.2 million and
$5.4 million classified as available-for-sale and recorded at fair
market value, including unrealized pre-tax gain of $620,000 and
$169,000, respectively.

(3) Calculated as a percentage of net income.

<PAGE>

Selected Pro Forma Combined Financial Information
(Unaudited)

Years Ended December 31,
1995 1994
(Dollars in thousands)
<S> <C> <C>
Income Statement Data:

Net interest income $ 5,299 $4,897
Provision for loan losses 183 218
Other income 743 694
Other expenses 3,579 3,458
Income tax expense 564 498
Net income $ 1,715 $1,417

Per Share Data:
Net income $ 0.94 $0.77
Cash dividends 0.23 0.21
Book value $ 9.63 $8.75

Balance Sheet Data:

Assets $143,291 $121,532
Loans, net of unearned
income 87,433 61,908
Total investment securities(1) 58,119 46,086
Deposits 124,291 104,516
Shareholders' equity 17,613 16,017
Average shares outstanding 1,829,584 1,829,584

Average Balance Data:

Average Assets $ 128,431 $ 117,565
Average Equity 16,825 15,764

Performance Ratios
Return on average assets 1.22% 1.21%
Return on average equity 9.31 8.99
Dividend payout (2) 24.65 27.42

Capital Ratios (3):

Leverage 11.89 13.41

Risk-based:

Tier 1 capital 19.89 22.00
Total capital 21.24 23.33
Average equity to
average assets 13.10 13.41
</TABLE>

(1) At December 31, 1995 and December 31, 1994, $47.4 million and
$12.3 million securities classified as Available for Sale are
recorded at fair market.

(2) Calculated as a percentage of net income.

(3) Includes estimated merger expenses of $150,000.

- 17 -

<PAGE>

THE SHAREHOLDER MEETINGS

BOF Meeting

Date, Place and Time. The BOF Meeting will be
held at the American Legion Building, located at 435 Armory Drive, Franklin,
Virginia on Thursday, June 27, 1996 at 7:30 p.m., local time.

Record Date. The Board of Directors of BOF has
fixed the close of business on May 1, 1996 as the record date (the "BOF Record
Date") for the determination of holders of BOF Common Stock entitled to receive
notice of and to vote at the BOF Meeting. At the close of business on the BOF
Record Date, there were 190,338 shares of BOF Common Stock outstanding held by
approximately 801 shareholders of record.

Vote Required. Each share of BOF Common Stock
outstanding on the BOF Record Date entitles the holder to cast one vote upon
each matter properly submitted at the BOF Meeting. The affirmative vote of the
holders of more than four-fifths of the shares of BOF Common Stock outstanding
as of the BOF Record Date, in person or by proxy, is required to approve the
Agreement, and thereby the Reorganization.

As of the BOF Record Date, directors and
executive officers of BOF and their affiliates, as a group, owned of record and
beneficially a total of 35,106 shares of BOF Common Stock or approximately 18.45
percent of the shares of BOF Common Stock outstanding on such date. Directors
and executive officers of BOF have indicated an intention to vote their shares
of BOF Common Stock in favor of the Agreement.

Failure to vote, either by not returning the
enclosed proxy or by checking the "Abstain" box thereon, will have the same
effect as a vote against approval of the Agreement.

With regard to the election of directors, votes
may be cast in favor or withheld. If a quorum is present, the nominees
receiving a plurality of the votes cast at the Annual Meeting will be elected
directors; therefore, votes withheld will have no effect. Generally, in other
matters governed by Virginia corporate law, including the ratification of
auditors, the affirmative vote of a majority of the shares cast is required for
passage.

Rights of Dissenting Shareholders. Each holder
of BOF Common Stock may dissent from the BOF Share Exchange and is entitled to
the rights and remedies of dissenting shareholders provided in Article 15 of the
Virginia SCA, subject to compliance with the procedures set forth therein,
including the right to appraisal of his or her stock. A copy of Article 15 is
attached as Appendix B to this Joint Proxy Statement and a summary thereof is
included under "The Reorganization - Rights of Dissenting Shareholders."

Voting and Revocation of Proxies. Shareholders
of BOF are requested to complete, date and sign the accompanying form of proxy
and return it promptly to BOF in the enclosed envelope. If a proxy is properly
executed and returned in time for voting, it will be voted as indicated thereon.
If no voting instructions are given, proxies received by BOF will be voted for
approval of the Agreement, and thereby the Reorganization.

A proxy may be revoked at any time before it is
voted by giving written notice of revocation to BOF by executing and delivering
a substitute proxy to BOF or by attending the BOF Meeting and voting in person.
If a BOF shareholder desires to revoke a proxy by written notice, such notice
should be mailed or delivered on or prior to the meeting date to Wayne C.
Carruthers, Senior Vice President, The Bank of Franklin, 100 East 4th Avenue,
Franklin, Virginia 23851. If a proxy is signed and returned without indicating
any voting instructions, shares of BOF Common Stock represented by the proxy
will be voted FOR the Agreement, and thereby the Reorganization.

If a sufficient number of signed proxies enabling
the persons named as proxies to vote in favor of the Agreement are not received
by BOF by the time scheduled for the BOF Meeting, the persons named as proxies
may propose one or more adjournments of the meeting to permit continued
solicitation of proxies with respect to such approval. If an adjournment is
proposed, unless contrary instructions are contained in the proxy, the persons
named as proxies will vote in favor of such adjournments those proxies that are
entitled to be voted in favor of the Agreement and against such adjournment
those proxies containing instructions to vote against approval of the Agreement.
Adjournment of the meeting will be proposed only if the Board of Directors of
BOF believes that additional time to solicit proxies might permit the receipt of
sufficient votes to approve the Agreement. It is anticipated that any such
adjournment would be for a relatively short period of time, but in no event for
more than 120 days. Any shareholder may revoke such shareholder's proxy during
any period of adjournment in the manner described above.

Solicitation of Proxies. BOF will bear the cost
of its solicitation of proxies. Solicitations may be made by mail, telephone,
telegraph or personally by directors, officers and employees of BOF, none of
whom will receive additional compensation for performing such services. BOF and
BSS will share equally all of the expenses of printing and mailing the Joint
Proxy Statement.

<PAGE>

Each director and executive officer, with the
exception of John A. Murray for BOF and L. A. Brantley for BSS, has declared his
or her support for the Agreement and Reorganization and has agreed to use his or
her best efforts to obtain approval of the Agreement and Reorganization by the
shareholders at the Annual Meeting. The directors shall not be obligated to use
their best efforts to obtain such approval if advised in writing by legal
counsel that to continue to use such best efforts would reasonably be likely to
constitute a violation of applicable law or a breach of the directors' fiduciary
duty to shareholders.

BSS Meeting

Date, Place and Time. The BSS Meeting will be
held in the Virginia Diner, 408 County Drive North, (Highway 460) Wakefield,
Virginia 23888 on June 27, 1996 at 11:00 a.m. local time.

Record Date. The Board of Directors of BSS has
fixed the close of business on May 10, 1996 as the record date (the "BSS Record
Date") for the determination of the holders of BSS Common Stock entitled to
receive notice and to vote at the BSS Meeting. At the close of business on the
BSS Record Date, there were 304,940 shares of BSS Common Stock outstanding held
by approximately 231 shareholders of record.

Vote Required. Each share of BSS Common Stock
outstanding on the BSS Record Date entitles the holder to cast one vote upon
each matter properly submitted at the BSS Meeting. The affirmative vote of the
holders of more than a majority of the shares of BSS Common Stock outstanding as
of the BSS Record Date, in person or by proxy, is required to approve the
Agreement, and thereby the Reorganization.

As of the BSS Record Date, directors and
executive officers of BSS and their affiliates, as a group, owned of record and
beneficially a total of 124,345 shares of BSS Common Stock or approximately
40.79 percent of the shares of BSS Common Stock outstanding on such date.

Failure to vote, either by not returning the
enclosed proxy or by checking the "Abstain" box thereon, will have the same
effect as a vote against approval of the Agreement.

Rights of Dissenting Shareholders. Each holder
of BSS Common Stock may dissent from the BOF Share Exchange and is entitled to
the rights and remedies of dissenting shareholders provided in Article 15 of the
Virginia SCA, subject to compliance with the procedures set forth therein,
including the right to appraisal of his or her stock. A copy of Article 15 is
attached as Appendix B to this Joint Proxy Statement and a summary thereof is
included under "The Reorganization - Rights of Dissenting Shareholders."

Voting and Revocation of Proxy. Shareholders of
BSS are requested to complete, date and sign the accompanying form of proxy and
return it promptly to BSS in the enclosed envelope. If the proxy is properly
executed and returned in time for voting, it will be voted as indicated thereon.
If no voting instructions are given, proxies received by BSS will be voted for
approval of the Agreement, and thereby the Reorganization.

A proxy may be revoked at any time before it is
voted by giving written notice of revocation to BSS by executing and delivering
a substitute proxy to BSS or by attending the BSS Meeting and voting in person.
If a BSS shareholder desires to revoke a proxy by written notice, such notice
should be mailed or delivered on or prior to the meeting date to Douglas A.
Chesson, Secretary, The Bank of Sussex and Surry, 205 Railroad Avenue, P. O. Box
10, Wakefield, Virginia 23888. If a proxy is signed and returned without
indicating any voting instructions, shares of BSS Common Stock represented by
the proxy will be voted FOR the Agreement, and thereby the Reorganization.

If a sufficient number of signed proxies enabling
the persons named as proxies to vote in favor of the Agreement are not received
by BSS by the time scheduled for the BSS Meeting, the persons named as proxies
may propose one or more adjournments of the meeting to permit continued
solicitation of proxies with respect to such approval. If an adjournment is
proposed, unless contrary instructions are contained in the proxy, the persons
named as proxies will vote in favor of such adjournment those proxies that are
entitled to be voted in favor of the Agreement, and against such adjournment
those proxies containing instructions to vote against approval of the Agreement.
Adjournment of the meeting will be proposed only if the Board of Directors of
BSS believes that additional time to solicit proxies might permit the receipt of
sufficient votes to approve the Agreement. It is anticipated that any such
adjournment would be for a relatively short period of time, but in no event for
more than 120 days. Any shareholder may revoke such shareholder's proxy during
any period of adjournment in the manner described above.

Solicitation of Proxies. BSS will bear the cost
of its solicitation of proxies. Solicitations may be made by mail, telephone,
telegraph or personally by directors, officers and employees of BSS, none of
whom will receive additional compensation for performing such services. BSS and
BOF will share equally all of the expenses of printing and mailing the Joint
Proxy Statement.

Each director and executive officer of BSS with
the exception of L. A. Brantley has declared his or her support for the
Agreement and Reorganization and has agreed to use his or her best efforts to
obtain approval of the Agreement and Reorganization by the shareholders at the
Annual Meeting. The directors shall not be obligated to use their best efforts
to obtain such approval if advised in writing by legal counsel that to continue
to use such best efforts would reasonably be likely to constitute a violation of
applicable law or a breach of the directors' fiduciary duty to shareholders.

<PAGE>

THE REORGANIZATION

The following is a summary description of the
material terms of the Reorganization and is qualified in its entirety by
reference to the Agreement which is attached as Appendix A hereto. All holders
of BOF Common Stock and BSS Common Stock are urged to read the Agreement in its
entirety.

Background of and Reasons for the Reorganization

In the summer of 1995, Mr. Pearce consulted with
and obtained approval from the Executive Committee of BOF to approach BSS
regarding a possible affiliation in a holding company format. Mr. Pearce
subsequently called Mr. Brittle, the President of BSS, and inquired if there was
any interest in meeting to discuss the benefits of affiliating in a merger of
equals transaction. Mr. Brittle indicated that BSS would be interested in
preliminary discussions regarding a possible affiliation, and he and Mr. Pearce
met on September 21, 1995. At this meeting the desires of both bank's boards to
retain the maximum amount of autonomy and authority and the benefits in terms of
capital, future market expansion and movement by other financial intermediaries
were generally discussed. It was agreed that there were synergies between the
two institutions and that further discussions should, assuming Board approval,
be held. Mr. Brittle offered that, should the transaction come to fruition, Mr.
Pearce serve as Chief Executive Officer and, accordingly, that the home office
of the entity be located in Franklin.

Messrs. Pearce and Brittle reported to their
respective Boards. Both Boards felt that discussions should be further pursued
and that confidentiality agreements be entered into. Representatives from each
bank were named to a negotiating committee. The members of the BOF committee
were Mr. Pearce, Hunter Darden, Harvey Pope and Bruce Stewart. The members of
the BSS committee were Mr. Brittle, Phil Bain, Gregory Huber and Russell West.

A meeting of the negotiating committees was held
on September 26, 1995. The objectives and critical issues for each of the banks
in forming a holding company was presented and discussed. It was agreed that all
discussions be held in the strictest confidence. Messrs. Pearce and Brittle were
authorized to hold discussions with financial advisors and attorneys who might
be engaged for the transaction. A Confidentiality Agreement was agreed to and
approved by the BOF board on September 27, 1995 and by BSS board on October 3,
1995.

Preliminary discussions were held with several
investment bankers and attorneys and proposals were requested. Messrs. Pearce
and Brittle met on October 6, 1995 to review discussions they each had with law
firms and investment bankers and agree on a recommendation to the negotiating
committees. The exchange of information relative to due diligence was discussed
and it was agreed to begin exchanging certain information.

The boards of BOF and BSS appointed members to
their respective negotiating committees to pursue affiliation as a holding
company. Representatives were authorized to engage attorneys and investment
bankers. Meetings of the negotiating committees were held on September 26, 1995,
December 8, 1995, and January 11, 1996.

BOF directors met with representatives of Scott &
Stringfellow whom they selected to represent BOF in the transaction. BSS
directors met with representatives of Davenport & Co. of Virginia whom they
selected as investment advisor. Independently, the boards of BOF and BSS met
with attorneys from Mays & Valentine who were selected as attorneys for the
transaction.

Messrs. Pearce and Brittle and their operations
officers met on November 1, 1995 to discuss hardware and software capacity of
their respective operating systems.

Based on the advice of their respective
investment advisers, the negotiating committees established an exchange ratio
and a definitive agreement was approved by both Boards on January 24, 1996.

As a further reflection of the affiliation or
"merger of equals" approach, the Agreement provides for the participation of BOF
and BSS directors and officers in the management of the combined company, with
Mr. Pearce serving as the President and Chief Executive Officer of the Holding
Company and Mr. Brittle serving as the Executive Vice President and Chief
Operating Officer of the Holding Company. The Board of Directors of the Holding
Company will consist of Messrs. Pearce and Brittle, and four other BOF directors
and four other BSS directors. See "The Reorganization."

The Boards of both BOF and BSS relied upon the
advice of qualified investment advisors in analyzing the Reorganization and
recommending it to BOF's and BSS's respective shareholders. BOF relied on the
advice of Scott & Stringfellow, Inc., an investment banking firm headquartered
in Richmond, Virginia. Scott & Stringfellow determined that the Reorganization
is in the best interest of BOF shareholders, from a financial point of view. BSS
relied on the advice of Davenport & Company of Virginia, Inc., an investment
banking firm headquartered in Richmond, Virginia. Davenport & Company determined
that the Reorganization is in the best interest of BSS shareholders, from a
financial point of view. A more detailed analysis of the Reorganization, from
the point of view of BOF's and BSS's financial advisors, follows.

- 19 -

<PAGE>

BOF - Opinion of Financial Advisor

BOF retained the investment banking firm of Scott
& Stringfellow to evaluate the terms of the Merger Agreement, and Scott &
Stringfellow has rendered its opinion to the Board of Directors of BOF that the
Exchange Ratio is fair to the BOF shareholders from a financial point of view.
In developing its opinion, Scott & Stringfellow reviewed and analyzed: (1) the
Merger Agreement; (2) this Joint Proxy Statement; (3) BOF's financial statements
for the four years ended December 31, 1995; and (4) information regarding the
trading market for the Common Stock of BOF and the price range within which the
stock has traded. Scott & Stringfellow has discussed with members of BOF's
management the background of the Merger, the reasons and basis for the Merger,
and the business and future prospects of BOF individually and with BSS as a
combined entity. No instructions or limitations were given or imposed by BOF in
connection with the scope of or the examination or investigation made by Scott &
Stringfellow in arriving at its findings. Finally, Scott & Stringfellow has
conducted such other studies, analysis and investigations, particularly of the
banking industry, and considered such other information as it deemed
appropriate, the material portion of which is described below. A copy of that
opinion, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Appendix C hereto and
should be read in its entirety.

Scott & Stringfellow used the information
gathered to evaluate the financial terms of the transaction using standard
valuation methods, including the following methods:

Discounted Cash Flow Analysis. Scott &
Stringfellow performed a discounted cash flow analysis under various projections
to estimate the fair market value of BOF's Common Stock. Among other things,
Scott & Stringfellow considered a range of asset and earnings growth of between
5% and 10% and a required equity capital level of 8.0% of assets. A range of
discount rates from 10.5% to 12.5% was applied to cash flows resulting from the
projections during the first five years and the residual values. The residual
values were estimated by capitalizing the projected final year earnings by the
discount rates, less the projected long-term growth rate of BOF's earnings. The
discount rates, growth rates and capital levels were chosen based on what Scott
& Stringfellow, in its judgment, considered to be appropriate taking into
account, among other things, BOF's past and current financial performance and
conditions, the general level of inflation, rates of return for fixed income and
equity securities in the marketplace generally and particularly in the banking
industry. Based upon these analyses, Scott & Stringfellow developed, for
purposes of its opinion, a reference range for the value of BOF Common Stock of
$57.08 to $72.34 per share.

Using similar assumptions, Scott & Stringfellow
performed a discounted cash flow analysis of BOF and BSS as a combined entity,
including projected pretax expense savings of $100,000. The discounted cash flow
analysis showed a range of present values that would imply (based on the
Exchange Ratio) a range of present values for holders of BOF Common Stock of
$61.38 to $75.65 per share. Scott & Stringfellow utilized the discounted cash
flow analysis because it is a widely used valuation methodology, but noted that
it relies on numerous assumptions regarding future performance.

Price to Earnings Ratio - Market Comparables.
Using publicly available information, Scott & Stringfellow calculated multiples
of earnings used to value certain other Virginia bank and bank holding companies
which, in Scott & Stringfellow's judgment, were comparable to BOF for the
purpose of this analysis. The Virginia financial institutions included in this
analysis, all of which have publicly-traded securities, were Central Fidelity
Banks, Inc., Crestar Financial Corp., F&M National Corporation, First Virginia
Banks, Inc., Jefferson Bankshares, Inc., MainStreet BankGroup, Inc., Premier
Bankshares, Inc., James River Bankshares, Central Virginia Bankshares, and
Signet Banking Corp. The ratio of market price to earnings of the above group of
institutions ranged from 9.12x to 14.08x earnings, with 12.67x earnings being
the average market price to earnings ratio. Applying this average price to
earnings ratio, the value derived from this analysis was $62.57 per share for
BOF Common Stock. This presents an increase of 39.0% over the last trade in BOF
Common Stock, which occurred at $45.00 per share.

Using the same ten market comparable companies,
Scott & Stringfellow applied the average price to earnings ratio to the earnings
of BOF and BSS as a combined entity, including projected pretax cost savings of
$100,000. The value derived from this analysis (based on the Exchange Ratio) to
holders of BOF Common stock was $59.30 per share.

Price to Book Value Ratio - Market Comparables.
Using publicly available information, Scott & Stringfellow calculated multiples
of book values used to value certain other Virginia bank and bank holding
companies which, in Scott & Stringfellow's judgment, were comparable to BOF for
the purpose of this analysis. The same group of ten institutions identified
above were used for this analysis. Applying the average market price to book
value ratio of 1.56x book value, the value derived from this analysis was $66.85
for BOF Common Stock. This represents an increase of 48.6% over the last trade
in BOF Common Stock, which occurred at $45.00 per share.

<PAGE>

Using the same ten market comparable companies,
Scott & Stringfellow applied the average price to book value ratio to the book
value of BOF and BSS as a combined entity. The value derived from this analysis
(based on the Exchange Ratio) to holders of BOF Common Stock was $72.78 per
share.

Contribution Analysis. Scott & Stringfellow
analyzed certain historical balance sheet and income statement data for BOF and
BSS for four fiscal years ended December 31, 1995 in addition to certain
projected net income data prepared by management of BOF and BSS. The analysis
showed, among other things, that for the year ended 1995 BOF would have
contributed approximately 54.78% of pro forma combined net income, 56.40% of pro
forma total assets and 45.92% of pro forma total stockholders' equity. At the
Exchange Ratio, the holders of BOF Common Stock will own approximately 50% of
the Holding Company.

Dilution Analysis. Based upon publicly available
financial information on BOF and BSS, Scott & Stringfellow considered the effect
of the transaction on the book value, earnings, and market value of BOF and BSS.
The immediate effect on BOF - assuming minimal cost savings of $100,000 -- was
to decrease earnings by $.26 per share or 5.24%, and increase book value by
$3.79 or 8.86%. The effect on BSS under the same assumption is to increase
earnings by $.38 per share or 15.03%, and to decrease book value by $2.37 per
share or 7.54%. This dilution analysis does not take into account the longer
term benefits for the combined companies resulting from the combination. Scott &
Stringfellow concluded from this analysis that the transaction would have a
significant positive effect on BOF shareholders.

The summary set forth above includes all material
factors considered, but does not purport to be a complete description of the
presentation by Scott & Stringfellow to the Board of Directors of BOF of the
analyses performed by Scott & Stringfellow. The preparation of a fairness
opinion is not susceptible to partial analysis or summary description. Scott &
Stringfellow believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
process underlying the preparation of its opinion. The analyses performed by
Scott & Stringfellow are not necessarily indicative of actual values, which may
be significantly more or less favorable than suggested by such analyses.
Additionally, the analyses do not purport to be appraisals or to reflect the
prices at which a company actually may be sold or the prices at which any
securities may trade at the present time or at any time in the future.

Scott & Stringfellow is a full service investment
banking and brokerage firm headquartered in Richmond, Virginia, that provides a
broad array of services to corporations, financial institutions and state and
local governments. The Financial Institutions Group of Scott & Stringfellow
actively works with community banks in Virginia, North Carolina, and West
Virginia on these and other matters. As part of its investment banking business,
it is continually engaged in the valuation of banks and bank holding companies
and their securities in connection with mergers and acquisitions, negotiated
underwriting, and secondary distribution of listed and unlisted securities.
Scott & Stringfellow was selected by the Board of Directors of BOF based upon
its expertise and reputation in providing valuation and merger and acquisition
advisory services to banks and bank holding companies.

BOF has agreed to pay Scott & Stringfellow a fee
of $15,000 for due diligence and financial advisory services which is not
contingent upon a successful completion of the Reorganization.

BSS - Opinion of Financial Advisor

The Bank of Sussex and Surry ("BSS") retained
Davenport of Virginia, Inc. ("Davenport") to act as BSS's financial advisor in
connection with the Agreement and related matters. Davenport was selected to act
as BSS's financial advisor based upon its qualifications, expertise and
reputation. Davenport, as a part of its investment banking and general
securities business, regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions and for other purposes
and regularly publishes research reports regarding the banking industry and
companies in that industry.

Davenport has rendered its opinion to the Board
of Directors of BSS that the terms of the Agreement are fair to the shareholders
of BSS from a financial point of view. The full text of the Opinion, which sets
forth assumptions made, matters considered and limits on the review undertaken,
is attached hereto as Appendix __ to this Proxy Statement/Prospectus and is
incorporated herein by reference. The holders of BSS Common Stock are urged to
read the opinion in its entirety. The following summary of the Opinion is
qualified in its entirety by reference to the full text of the Opinion.
Davenport's Opinion is directed only to fairness, from a financial point of
view, and does not constitute a recommendation to any shareholder of BSS or BOF
as to how such shareholder should vote with respect to the Reorganization.

- 21 -

<PAGE>

In rendering its opinion, Davenport (i) reviewed
the Agreement, certain publicly available business and financial information
concerning BSS and BOF, and certain internal financial analyses and forecasts
for BSS and BOF prepared by their respective managements; (ii) held discussions
with members of the senior management of BSS and BOF regarding the past and
current business operations, financial condition and future prospects of their
respective companies; (iii) reviewed information regarding the trading markets
for the common shares of BSS and BOF and the price ranges within which the
respective stocks have traded; (iv) compared certain financial and stock market
information for BSS and BOF with similar information for certain other companies
the securities of which are publicly traded; (v) reviewed the financial terms of
certain recent business combinations which Davenport deemed to be comparable in
whole or in part; and (vi) performed such other studies and analyses as
Davenport considered appropriate. No instructions or limitations were given or
imposed in connection with the scope of or the examination or investigations
made by Davenport in arriving at its findings.

Davenport relied without independent verification
upon the accuracy, completeness and fairness of all the financial and other
information reviewed by and discussed with it for purposes of the Opinion. With
respect to information relating to the prospects of BSS and BOF, Davenport
assumed that such information reflected the best currently available estimates
and judgments as to their likely future financial performance. Davenport did not
make an independent evaluation or appraisal of the assets or liabilities of BSS
or BOF, nor was it furnished with any such evaluation or appraisal. In addition,
Davenport assumed that the Reorganization would be recorded as a pooling of
interests under generally accepted accounting principles and would qualify and
be treated as a tax-free transaction for the holders of BSS Common Stock.

The summary set forth below does not purport to
be a complete description of the analyses performed by Davenport in this regard.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Accordingly, notwithstanding
the separate factors discussed below, Davenport believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all the analyses and factors,
could create an incomplete view of the evaluation process underlying its
Opinion. No one of the analyses performed by Davenport was assigned a greater
significance than any other. In performing its analyses, Davenport made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of BSS or
BOF. The analyses performed by Davenport are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.

Discounted Dividend Analysis. Using discounted
dividend analysis, Davenport estimated the present value of the future stream of
dividends that BSS could generate through 1999, under various circumstances,
assuming BSS performed in accordance with the earnings forecasts of BSS's
management. Davenport then estimated the terminal value for BSS Common Stock by
applying price to earnings multiples ranging from 10x to 12x to BSS's projected
1999 earnings. The dividend stream and terminal value were then discounted to a
present value using discount rates ranging from 10% to 14%, such rates being
chosen to reflect different assumptions regarding the required rates of return
to holders or prospective buyers of BSS Common Stock. This discounted dividend
analysis showed a range of present values per share of BSS Common Stock from
$20.63 to $34.11.

Using similar assumptions, Davenport also
estimated the present value of the future streams of dividends that BSS and BOF
could generate through 1999 as a combined entity, under various circumstances,
including projected expense savings. This discounted dividend analysis showed a
range of present values that (based on the Exchange Ratio) would imply a range
of present values per share for holders of BSS Common Stock of $24.51 to $41.12.
This analysis did not purport to be indicative of actual values or expected
values of the shares of BSS or BOF before or after the Reorganization. Davenport
noted that the discounted cash flow analysis was included because it is a widely
used valuation methodology, but noted that it relies on numerous assumptions,
including earnings growth rates, dividend payout rates, terminal values and
discount rates.

Pro Forma Analysis. Davenport analyzed certain
historical balance sheet and income statement data, as well as certain projected
data prepared by management of BSS and BOF, for BSS and BOF and for the
companies on a pro forma combined basis at and for the year ended December 31,
1995 and projected for the years 1996 through 1999. The analysis showed, among
other things, that the pro forma combined company's 1995 and projected 1996
earnings per share would increase 11% and 17%, respectively, over BSS's
stand-alone projected earnings per share for the same periods. This analysis
further showed that the Reorganization would result in a decrease of 8% to BSS's
stand-alone book value per share at December 31, 1995.

Contribution Analysis. Davenport analyzed
certain historical balance sheet and income statement data for BSS and BOF for
1992 through 1995 as well as certain projected net income data prepared by
management of BSS and BOF for 1996. The analysis showed, among other things,
that for the year ended 1995, BSS would have contributed approximately 45% of
pro forma combined net income; for 1996, BSS was projected to contribute, based
on BSS and BOF management projections, 43% of pro forma combined projected net
income; at December 31, 1995, BSS would have contributed 44% of pro forma total
assets and 54% of pro forma total stockholders' equity. At the Exchange Ratio,
the holders of BSS Common Stock will own approximately 50% of the Holding
Company.

<PAGE>

Analysis of Selected Merger of Equals
Transactions. Davenport performed an analysis of selected mergers of equals
transactions in the Virginia market. This analysis was based on financial
information that was publicly available as of the date of the announcement of
the transaction. The percentage of ownership of BSS's shareholders of the
Holding Company relative to the percentage contribution of BSS to total assets,
deposits, book value and latest fiscal year's reported net income was compared
to the percentage ownership of shareholders of the other merged entities
relative to the percentage contribution of the respective merger partners to
total assets, deposits, book value and latest fiscal year's reported net income
in the selected transactions. The selected mergers of equals transactions were:
Union Bancorp, Inc./Northern Neck Bankshares Corporation, Community Bankshares,
Inc./Commerce Bank of Virginia and Bank of Suffolk/Bank of Waverly.

The analysis yielded a range of ratios (i) of
percentage ownership of the combining merger partners to percentage contribution
of total assets of .87 to 1.10 (as compared to 1.15 for BSS), (ii) of percentage
ownership of the combining merger partners to percentage contribution of
deposits of .86 to 1.12 (as compared to 1.18 for BSS), (iii) of percentage
ownership of the combining merger partners to percentage contribution of book
value of .80 to 1.20 (as compared to .92 for BSS) and (iv) of percentage
ownership of the combining merger partners to percentage contribution of latest
fiscal year's reported net income of .85 to 1.40 (as compared to 1.11 for BSS).

Davenport and BSS have entered into a letter
agreement, dated November 3, 1995, relating to the services to be provided by
Davenport in connection with the Reorganization. BSS has agreed to pay Davenport
fees a cash fee of $15,000 which is not contingent upon the successful
completion of the Reorganization. In addition, BSS has agreed to reimburse
Davenport for its reasonable and necessary out-of-pocket expenses and to
indemnify Davenport against certain liabilities, including liabilities under
federal securities laws.

The Boards of Directors of BOF and BSS believe
that the Reorganization is in the best interests of the respective organizations
and their respective shareholders. The BOF and BSS directors recommend that BOF
and BSS shareholders, respectively, vote FOR the approval of the Agreement and
Plan of Reorganization.

- 23 -

<PAGE>

Terms of the Reorganization

Terms for BOF Shareholders

At the Effective Date, each outstanding share of
BOF Common Stock (other than shares held by shareholders who exercise their
dissenters' rights) will be exchanged for 4.806 shares of Holding Company Common
Stock. BOF shareholders will thereby become shareholders of the Holding
Company. See "Comparative Stock Prices and Dividends."

Shareholders of BOF are entitled to exercise
their dissenters' rights with respect to the Reorganization. See "The
Reorganization."

Terms for BSS Shareholders

At the Effective Date, each outstanding share of
BSS Common Stock will be converted into and exchanged for 3.0 shares of Holding
Company Common Stock. BSS shareholders will thereby become shareholders of the
Holding Company. See "Comparative Stock Prices and Dividends."

Shareholders of BSS are entitled to exercise
their dissenters' rights with respect to the Reorganization. See "The
Reorganization."

Fractional Shares

If any BOF or BSS shareholder should warrant a
fractional share of Holding Company Common Stock as a result of the
Reorganization, the Agreement provides that cash, equal to the fraction of a
share of Holding Company Common Stock to which such shareholder would otherwise
be entitled multiplied by the Holding Company Common Stock's estimated value per
share on the Effective Date, will be paid in lieu of issuing fractional shares.

Effective Date

If the Reorganization is approved by the
requisite vote of the shareholders of BOF and BSS and by the Federal Reserve,
the FDIC and the SCC (See "The Reorganization - Regulatory Approvals") and other
conditions to the Reorganization are satisfied (or waived to the extent
permitted by the Agreement and applicable law), the Reorganization will be
consummated and effected at the time of the last to occur of the following
events: (i) a certificate of share exchange merger is issued by the SCC with
respect to the BOF Share Exchange pursuant to the Plan of Share Exchange; (ii) a
certificate of share exchange is issued by the SCC with respect to the BSS Share
Exchange pursuant to the Plan of Share Exchange; (iii) a certificate of
incorporation for the Holding Company is issued by the SCC; and (iv) regulatory
approval is issued by the Federal Reserve with respect to the Holding Company.
See "The Reorganization - Regulatory Approvals."

It is anticipated that the Effective Date of the
Reorganization will be on or about July __, 1996, but there can be no assurance
as to whether or when the Reorganization will occur.

Management and Operations After the Reorganization

On the Effective Date, BOF and BSS will become
wholly-owned subsidiary banks of the Holding Company, and the Holding Company's
stock will be exchanged for the outstanding shares of BOF and BSS in accordance
with their respective Exchange Ratios.

Pursuant to the Agreement, the Board of Directors
of the Holding Company, as of the Effective Date of the Reorganization and until
the next annual shareholders' meeting of the Holding Company, will be comprised
of ten members. Five of such members shall be designated by BOF, and five shall
be designated by BSS. BOF and BSS each shall include its president as a nominee
to the Holding Company Board. Accordingly, the Boards of Directors of BOF and
BSS, respectively, have designated the following persons to serve as directors
of the Holding Company following consummation of the Reorganization:

BOF Designees BSS Designees

Hunter Darden, Jr. J. P. Bain
Harvey Pope J. Philip Bain, Jr.
J. D. Spivey G. O. Huber
F. Bruce Stewart J. Russell West
Wenifred O. Pearce D. Eugene Brittle

Approval of the Agreement by the shareholders of
BOF and BSS will be deemed to constitute the election of the ten BOF and BSS
designees as directors of the Holding Company at the Effective Date. If at any
time prior to the Effective Date any of the foregoing nominees becomes unable or
declines to serve, the party which designated such nominee shall be entitled to
name his successor. If at any time during three years following the Effective
Date, a BOF or BSS nominee to the Holding Company Board becomes unable or
declines to serve, or a vacancy otherwise occurs in respect of a position
previously held by a BOF or BSS nominee, the remaining BOF or BSS nominees, as
the case may be, on the Holding Company Board shall be entitled to designate a
qualified candidate then serving as a director of BOF or BSS, as the case may
be, for such vacancy, and that designated candidate shall be recommended to the
Holding Company Board for appointment for any interim period.

<PAGE>

The Holding Company Board shall be divided into
three classes, and directors will be elected to serve three-year, staggered
terms. The directors in Class I, Class II and Class III will serve,
respectively, until the 1997, 1998 and 1999 Annual Meetings of Shareholders of
the Holding Company. The classes into which the directors will be divided and
year in which their terms expire are as follows:

<TABLE>
<CAPTION>
Class I - 1997 Class II - 1998 Class III - 1999
<S> <C> <C>
G. O. Huber J. P. Bain Wenifred O. Pearce
Hunter Darden, Jr. J. Philip Bain, Jr. D. Eugene Brittle
F. Bruce Stewart Harvey Pope J. Russell West
J. D. Spivey
</TABLE>
The principal executive officers of the Holding
Company will be Wenifred O. Pearce, President and Chief Executive Officer; and
D. Eugene Brittle, Executive Vice President and Chief Operating Officer. The BSS
Board has recommended and nominated J. Russell West to serve as Chairman of the
Board of the Holding Company, and the BOF Board has recommended and nominated
Harvey Pope to serve as Vice Chairman of the Board of the Holding Company.

Except as otherwise provided above, the Board of
Directors, officers and employees of BOF and BSS will not change as a result of
the Reorganization.

Following the Reorganization, BOF and BSS will
keep their existing names and office locations and will continue to carry on
their respective banking businesses in the same manner as carried on prior to
the Reorganization.

Surrender of Stock Certificates

Promptly after the Effective Date, BOF, as the exchange agent,
will mail to the holders of BOF and BSS Common Stock immediately prior to the
Effective Date a letter of transmittal and instructions relating to the exchange
of their certificates for certificates representing the number of shares of
Holding Company Common Stock for which their BOF or BSS Common Stock, as the
case may be, have been exchanged as a result of the Reorganization.

BOF AND BSS SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE SUCH INSTRUCTIONS.

Promptly after surrender of one or more
certificates for BOF or BSS Common Stock and the return of a properly completed
letter of transmittal with respect thereto, the holder of such certificate(s)
will receive a certificate or certificates representing the number of shares of
Holding Company Common Stock to which he is entitled. Lost, stolen, mutilated or
destroyed certificates will be treated in accordance with the existing
procedures of BOF or BSS, as the case may be.

All Holding Company Common Stock issued as a
result of the conversion of BOF and BSS Common Stock pursuant to the
Reorganization will be deemed issued as of the Effective Date. After the
Effective Date, BOF and BSS shareholders will be entitled to vote the number of
shares of Holding Company Common Stock into which their BOF or BSS Common Stock,
as the case may be, has been converted, regardless of whether they have
surrendered their certificates. The Agreement provides, however, that no
dividend or distribution payable to the holders of record of Holding Company
Common Stock at or as of any time after the Effective Date will be paid to the
holder of any BOF or BSS certificate until such holder physically surrenders
such certificate, promptly after which time all such dividends or distributions
will be paid (without interest).

- 25 -

<PAGE>

Representations and Warranties; Conditions to the Reorganization

The Agreement contains representations and
warranties by BOF and BSS regarding, among other things, their respective
organizations, authorizations to enter into the Agreement, capitalization,
financial statements and pending and threatened litigation. These
representations and warranties (except as otherwise provided in the Agreement)
will not survive the Effective Date.

The obligations of BOF and BSS to consummate the
Reorganization are subject to the following conditions, among others: approval
and adoption of the Agreement by the requisite shareholder votes of both BOF and
BSS; receipt of all regulatory approvals necessary to consummate the
Reorganization, none of which shall be conditioned or restricted in a manner
that, in the reasonable opinion of the Board of Directors of either BOF or BSS,
would so materially adversely affect the economic or business benefits of the
Reorganization as to render inadvisable consummation thereof; the absence of
certain proceedings before a court or other governmental body which enjoins or
prohibits the Reorganization; the receipt of an opinion of counsel as to certain
Federal income tax consequences of the Reorganization; and the receipt of an
opinion from an independent public accountant, in form and substance
satisfactory to each of BOF and BSS, that the Reorganization will qualify for
pooling-of-interests accounting treatment.

In addition, each party's obligation to effect
the Reorganization, unless waived, is subject to performance by the other party
of its obligations under the Agreement; the accuracy, in all material respects,
of the representations and warranties of the other party contained therein; and
the receipt of certain opinions and certificates from the other party.

Employment Agreements

The Agreement provides that Wenifred O. Pearce
shall remain as President and CEO of BOF and shall become President and CEO of
the Holding Company, and D. Eugene Brittle shall remain as President and Chief
Executive Officer of BSS and become Executive Vice President and COO of The
Holding Company. Each shall receive a three-year contract of employment
commencing on the Effective Date. Each such employment contract will provide for
payment of an annual salary not less than such officer's base salary as of
January 1, 1996.

Regulatory Approvals

The Reorganization is subject, among other
things, to approval by the Federal Reserve under the BHC Act, which requires
that the Federal Reserve take into consideration the financial and managerial
resources and future prospects of the existing and proposed institutions and the
convenience and needs of the communities to be served. The BHC Act prohibits the
Federal Reserve from approving the Reorganization if it would result in a
monopoly or if it would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect may be substantially to lessen competition
or to tend to create a monopoly, or if it would be in any other manner a
restraint of trade, unless the Federal Reserve finds that the anti-competitive
effects of the Reorganization are clearly outweighed in the public interest by
the probable effect of the transaction in meeting the convenience and needs of
the communities to be served. The Reorganization may not be consummated until
the expiration of 15 days after such approval, pursuant to federal laws, in
order to provide a period during which the Reorganization may be challenged
under the federal antitrust laws.

The BHC Act further provides for the publication
of notice and the opportunity for administrative hearings relating to the
application, and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could substantially delay the regulatory approvals required
for consummation of the Reorganization.

The Reorganization is further subject to the
approval of the FDIC and of the Bureau of Financial Institutions of the SCC, in
the case of the BOF and BSS Share Exchanges. In order to grant such approvals,
the FDIC and the SCC each must conclude, among other things, that the respective
share exchanges will not affect detrimentally the safety or soundness of the
banks involved.

Applications for approval of the BOF Merger, the
BSS Merger, and the creation of the Holding Company have been filed with the
FDIC, the SCC and the Federal Reserve, respectively.

BOF and BSS are not aware of any other
governmental approvals or actions that are required for consummation of the
Reorganization, except as described above. Should any such approval or action be
required, it is currently contemplated that such approval or action would be
sought. There can be no assurance that any such approval or action, if needed,
could be obtained.

Business Pending the Reorganization

Until consummation of the Reorganization (or
termination of the Agreement), each of BOF and BSS is obligated to operate its
respective business substantially as presently operated and only in the ordinary
course, and to use its best efforts to preserve intact relationships with
persons having business dealings with it. In addition, until consummation of the
Reorganization (or termination of the Agreement) neither BOF nor BSS, without
the consent of the other, may, among other things: (a) enter into any agreement
to dispose of any of its assets, except in the ordinary course of business and
for adequate value; (b) make any change in its authorized capital stock, nor
purchase, redeem or otherwise acquire its capital stock; (c) make any changes in
its officers, directors or other key management personnel, or change their
compensation or titles other than as permitted by its employee policies in the
ordinary course of business; (d) enter into any benefit plan or employment or
consulting agreement; or (e) declare or pay any dividend in respect of its
Common Stock, except that BOF shall be permitted, prior to the Effective Date,
to pay one dividend to its shareholders totalling no more than $209,000 in
aggregate, and BSS shall be permitted, prior to the Effective Date, to pay one
dividend to its shareholders totalling no more than $107,000 in aggregate.

- 27 -

<PAGE>

Waiver, Amendment and Termination

At any time on or prior to the Effective Date,
any term or condition of the Agreement may be waived in writing by the party
which is entitled to the benefits thereof, without shareholder approval, to the
extent permitted under applicable law. The Agreement may be amended at any time
prior to the Effective Date by agreement of the parties, whether before or after
the Shareholder Meetings (except that the Exchange Ratios shall not be changed
after approval of the Agreement by the shareholders). Any material change in the
Agreement after this Joint Proxy Statement is mailed to shareholders of BOF and
BSS would require a resolicitation of BOF and BSS shareholders.

The Agreement may be terminated by BOF or BSS,
whether before or after the approval of the Agreement by the shareholders: (a)
if the Boards of Directors of BOF and BSS mutually consent thereto; (b) if the
terms and conditions of either party's or both parties' obligations to effect
the Reorganization as set out in the Agreement shall not have been met; (c) if
the Reorganization is not consummated by October 31, 1996; or (d) if the FDIC,
the Federal Reserve, or the SCC has denied approval of any part of the
Reorganization. In the event of termination, the Agreement shall become null and
void, except that certain provisions thereof relating to expenses and the return
and confidentiality of information exchanged between the parties shall survive
any such termination.

Officer and Director Indemnification; Effect on Employee Benefits

The Agreement provides that for six years after
the Effective Date, the Holding Company shall indemnify and hold harmless
present and former directors, officers, employees and agents of BOF and BSS
against all losses, expenses, claims, damages or liabilities arising out of
actions or omissions prior to the Effective Date to the full extent then
permitted under federal or Virginia law and by the articles and bylaws of BOF
and BSS in effect on the date of the Agreement. If the Holding Company or any
successor shall consolidate or merge with, or transfer substantially all its
assets to, another entity, proper provisions shall be made so that such entity
shall assume this hold harmless and indemnification obligation.

After the Effective Date, both BOF and BSS will
continue their respective pension plans that provide to officers and employees
those retirement benefits vested or accrued by such officers and employees prior
to the Effective Date. At some point in the future, BOF and BSS intend to
combine their respective pension plans, but the specifics of that combination
have not yet been determined.

Resales of Holding Company Common Stock

All shares of Holding Company Common Stock
received by BOF and BSS shareholders in connection with the Reorganization will
be freely transferable, except that Holding Company Common Stock received by
persons who are deemed to be "affiliates" (as such term is defined in Rule 144
under the Securities Act) of BOF or BSS may be resold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act. For purposes of Rule 144 as applied to BOF and BSS, the directors and
executive officers of BOF and BSS and the beneficial holders of five percent or
more of the outstanding capital stock of each bank are the affiliates who will
be subject to the resale limitations.

Accounting Treatment

It is anticipated that the Reorganization will be
accounted for as a pooling of interests for accounting and financial reporting
purposes. Under this method of accounting, recorded assets and liabilities of
BOF and BSS are carried forward at their previously recorded amounts; income of
the Holding Company will include income of BOF and BSS for the entire fiscal
year in which the Reorganization occurs; and the reported income of the separate
entities for prior periods will be combined and restated. No recognition of
goodwill in the combination is required of any party to the Reorganization.

For the Reorganization to qualify as a pooling of
interests, it must satisfy certain conditions, including the condition that the
total cash paid by the Holding Company, pursuant to the Agreement for fractional
shares and all the BOF and BSS Common Stock held by dissenting shareholders, may
not exceed 10% of the value of the Holding Company Common Stock at the Effective
Date. In addition, affiliates of BOF and BSS must agree that, among other
things, they will not sell any BOF Common Stock or BSS Common Stock within 30
days prior to the Effective Date, nor sell any Holding Company Common Stock
until such time as the Holding Company has published financial results covering
at least 30 days of combined operations of BOF and BSS after the Reorganization.
See "The Reorganization."

Certain Federal Income Tax Matters

Set forth below is a discussion of the material
federal income tax consequences under the Internal Revenue Code of 1986, as
amended (the "Code") to BOF and BSS shareholders who receive Holding Company
Common Stock solely in exchange for BOF or BSS Common Stock as a result of the
Reorganization, and to BOF and BSS shareholders who receive cash for their
shares in lieu of fractional shares or upon exercise of dissenters' rights. The
discussion does not deal with all aspects of federal taxation that may be
relevant to particular BOF or BSS shareholders. In view of the individual nature
of tax consequences, BOF and BSS shareholders are urged to consult their own tax
advisors as to the specific tax consequences to them of the Reorganization,
including the applicability of federal state, local and foreign tax laws.

<PAGE>

Neither BOF nor BSS has requested a ruling from the
Internal Revenue Service ("IRS") in connection with the Reorganization. To meet
a condition to consummation of the Reorganization, BOF and BSS will receive from
Mays & Valentine, counsel to the Holding Company, an opinion as to certain of
the federal income tax consequences of the Reorganization. Such opinion is
neither binding on the IRS nor does it preclude the IRS from adopting a contrary
position. In the opinion of counsel, the Reorganization will constitute a
tax-free reorganization under Section 368 of the Code if consummated in the
manner set forth in the Agreement. Accordingly, among other things, in the
opinion of such counsel:

1. The Reorganization will be a
reorganization within the meaning of Section 368
of the Code;

2. No gain or loss will be recognized by
BOF or BSS as a result of the Reorganization;

3. No gain or loss will be recognized by
the BOF or BSS shareholders who receive shares of
Holding Company Common Stock pursuant to the
Reorganization;

4. The aggregate tax basis of the Holding
Company Common Stock received by each BOF or BSS
shareholder will equal the aggregate tax basis of
the stock surrendered in exchange therefor
(reduced by any amount allocable to fractional
share interests for which a shareholder receives
cash); and

5. The holding period for the Holding
Company Common Stock received by each BOF or BSS
shareholder in exchange for BOF or BSS Common
Stock will include the period for which such
shareholder held the common stock exchanged
therefor, provided such Common Stock is a capital
asset in the hands of such holder at the
Effective Date.

Any cash received by shareholders as a result of
the exercise of their dissenters' rights or in lieu of fractional shares could
result in taxable income to the shareholders. The receipt of such cash generally
will be treated as a sale or exchange of the stock, resulting in capital gain or
loss measured by the difference between the cash received and an allocable
portion of the basis of the stock relinquished. In certain limited
circumstances, however, the receipt of such cash may be treated as a dividend
and taxed as ordinary income. Shareholders should consult their own tax advisors
concerning proper treatment of such cash amounts.

Rights of Dissenting Shareholders

A shareholder of BOF or BSS Common Stock who
objects to the Share Exchange (a "Dissenting Shareholder") and who complies with
provisions of Article 15 of Title 13.1 of the Virginia SCA ("Article 15") may
demand the right to receive a cash payment, if the Share Exchange is
consummated, for the fair value of his or her stock immediately before the Share
Exchange Effective Date, exclusive of any appreciation or depreciation in
anticipation of the Share Exchange unless such exclusion would be inequitable.
In order to receive payment, a Dissenting Shareholder must deliver to BOF or
BSS, as the case may be, prior to the Annual Meeting a written notice of intent
to demand payment for his or her shares if the Share Exchange is consummated (an
"Intent to Demand Payment") and must not vote his or her shares in favor of the
Share Exchange. The Intent to Demand Payment should be addressed as follows: in
the case of BOF, to Wenifred O. Pearce, President, The Bank of Franklin, 100
East 4th Avenue, Franklin, Virginia 23851; and in the case of BSS, to D. Eugene
Brittle, President, The Bank of Sussex and Surry, 205 Railroad Avenue,
Wakefield, Virginia 23888. A VOTE AGAINST THE SHARE EXCHANGE WILL NOT ITSELF
CONSTITUTE SUCH WRITTEN NOTICE AND A FAILURE TO VOTE WILL NOT CONSTITUTE A
TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.

A shareholder of record of BOF or BSS Common
Stock may assert dissenters' rights as to fewer than all the shares registered
in his or her name only if the shareholder dissents with respect to all shares
beneficially owned by any one person and notifies BOF or BSS, as the case may
be, in writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of such a partial dissenter are determined as if
the shares to which he dissents and his other shares were registered in the
names of different shareholders. A beneficial shareholder of BOF or BSS Common
Stock may assert dissenters' rights as to shares held on his behalf by a
shareholder of record only if (i) he submits to BOF or BSS, as the case may be,
the record shareholder's written consent to the dissent not later than the time
when the beneficial shareholder asserts dissenters' rights, and (ii) he dissents
with respect to all shares of which he is the beneficial shareholder or over
which he has power to direct the vote.

Within 10 days after the Effective Date, BOF and
BSS are required to deliver a notice in writing (a "Dissenter's Notice") to each
Dissenting Shareholder who has filed an Intent to Demand Payment and who has not
voted such shares in favor of the Share Exchange. The Dissenter's Notice shall
(i) state where the demand for payment (the "Payment Demand") shall be sent and
where and when stock certificates shall be deposited; (ii) supply a form for
demanding payment; (iii) set a date by which BOF or BSS, as the case may be,
must receive the Payment Demand; and (iv) be accompanied by a copy of Article
15. A Dissenting Shareholder who is sent a Dissenter's Notice must submit the
Payment Demand and deposit his or her stock certificates in accordance with the
terms of, and within the time frames set forth in, the Dissenter's Notice. As a
part of the Payment Demand, the Dissenting Shareholder must certify whether he
or she acquired beneficial ownership of the shares before or after the date of
the first public announcement of the terms of the proposed Share Exchange (the
"Announcement Date"), which was January 25, 1996. BOF and BSS will specify the
Announcement Date in the Dissenter's Notice.

- 29 -

<PAGE>

Except with respect to shares acquired after the
Announcement Date, BOF or BSS, as the case may be, shall pay a Dissenting
Shareholder the amount BOF or BSS estimates to be the fair value of his or her
shares, plus accrued interest. Such payment shall be made within 30 days of
receipt of the Dissenting Shareholder's Payment Demand. As to shares acquired
after the Announcement Date, BOF and BSS are only obligated to estimate the fair
value of the shares, plus accrued interest, and to offer to pay this amount to
the Dissenting Shareholder conditioned upon the Dissenting Shareholder's
agreement to accept it in full satisfaction of his or her claim.

If a Dissenting Shareholder believes that the
amount paid or offered by BOF or BSS, as the case may be, is less than the fair
value of his or her shares, or that the interest due is incorrectly calculated,
that Dissenting Shareholder may notify BOF or BSS, as the case may be, of his or
her own estimate of the fair value of his shares and amount of interest due and
demand payment of such estimate (less any amount already received by the
Dissenting Shareholder) (the "Estimate and Demand"). The Dissenting Shareholder
must notify BOF or BSS, as the case may be, of the Estimate and Demand within 30
days after the date the bank makes or offers to make payment to the Dissenting
Shareholder.

Within 60 days after receiving the Estimate and
Demand, BOF or BSS, as the case may be, must either commence a proceeding in the
appropriate circuit court to determine the fair value of the Dissenting
Shareholder's shares and accrued interest, or BOF or BSS must pay each
Dissenting Shareholder whose demand remains unsettled the amount demanded. If a
proceeding is commenced, the court must determine all costs of the proceeding
and must assess those costs against BOF or BSS, except that the court may assess
costs against all or some of the Dissenting Shareholders to the extent the court
finds that the Dissenting Shareholders did not act in good faith in demanding
payment of the Dissenting Shareholder's Estimates.

The foregoing discussion is a summary of the
material provisions of Article 15. Shareholders are strongly encouraged to
review carefully the full text of Article 15, which is included as Appendix B to
this Joint Proxy Statement. The provisions of Article 15 are technical and
complex, and a shareholder failing to comply strictly with them may forfeit his
Dissenting Shareholder's rights. Any shareholder who intends to dissent from the
Share Exchange should review the text of those provisions carefully and also
should consult with his attorney. No further notice of the events giving rise to
dissenters' rights or any steps associated therewith will be furnished to BOF
and BSS shareholders, except as indicated above or otherwise required by law.

Any Dissenting Shareholder who perfects his right
to be paid the fair value of his shares will recognize gain or loss, if any, for
federal income tax purposes upon the receipt of cash for his shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Share Exchange-Certain Federal Income Tax Consequences."

Certain Differences in Rights of Shareholders

BOF and BSS are state-chartered banks subject to
the supervision and regulations of the FDIC and provisions of the Virginia SCA
and the Virginia Banking Act. The two banks will continue after consummation of
the Reorganization to operate in substantially the same manner as before the
Reorganization and will remain subject to those same statutes and regulations.
The Holding Company, however, as a federal bank holding company and a Virginia
financial institutions holding company, will be subject to the BHC Act, the
Virginia SCA, and the Virginia Financial Institutions Holding Companies Act.

Shareholders of BOF and BSS, whose rights are
governed by the Articles of Incorporation and Bylaws of BOF or BSS,
respectively, will, upon consummation of the Reorganization, become shareholders
of the Holding Company. The rights of the former BOF and BSS shareholders will
then be governed by the Articles of Incorporation and Bylaws of the Holding
Company.

There are no material differences between (i) the
rights of a BOF shareholder under the relevant statutes and regulations and the
BOF Articles of Incorporation and Bylaws; (ii) the rights of a BSS shareholder
under the relevant statutes and regulations and the Articles of Incorporation
and Bylaws of BSS; and (iii) the relevant statutes and regulations and Holding
Company Articles of Incorporation and Bylaws, except as disclosed in the section
"Comparative Rights of Shareholders."

<PAGE>

COMPARATIVE STOCK PRICES AND DIVIDENDS

Stock Information

Neither BOF nor BSS Common Stock is registered on
any exchange, traded in the over-the-counter market or quoted by NASDAQ.
Sporadic sales of each stock occur from time to time on a local basis.
Accordingly, there is no established public market for either stock and the
volume of trading has been insufficient to establish a meaningful market price.

The following table shows the predominant
quarterly prices of which BOF and BSS have knowledge and dividend information
for 1994 and 1995 and portions of the first quarters of 1996:

- 31 -

<PAGE>

<TABLE>
<CAPTION>
BOF BSS

Market Price Dividends Market Price Dividends
High Low High Low
<S> <C> <C> <C> <C> <C> <C>

1994:
First Quarter $30.30 $27.50 $1.00 $32.50 $32.50 $.65
Second Quarter 31.00 30.50 - 33.00 35.25 -
Third Quarter 32.00 31.00 - - - -
Fourth Quarter 32.00 32.00 - - - -

1995:
First Quarter 33.00 32.00 1.10 - - -
Second Quarter 41.00 35.00 - - - -
Third Quarter 41.00 40.00 - 31.00 31.00 -

1996: (1)(2)

First Quarter 45.00 45.00 1.10 - - $.35(3)

</TABLE>
- ------------------

(1) To the best knowledge of BOF, 12 trades have occurred since the beginning
of the year involving a total of 2,368 shares. The sales price for all
such trades was $45.00 per share.

(2) To the best knowledge of BSS, one trade has occurred since the beginning
of the year - on or about April 19, 1996, 100 shares were traded at
$30.00 share.

(3) It is anticipated that BSS will pay a dividend of no more than $107,000
in May, 1996.

At the close of business on March 31, 1996, there
were 801 shareholders of record of BOF Common Stock and 231 shareholders of
record of BSS Common Stock.

Dividend Policy

BOF pays dividends in February of each year,
whereas BSS pays dividends in November of each year. It is anticipated that the
Holding Company will pay semi-annual dividends in February and August of each
year. The amount of dividends paid following consummation of the Reorganization
will be adjusted for the BOF Exchange Ratio of 4.806 shares of Holding Company
Common Stock for each share of BOF Common Stock, and the BSS Exchange Ratio of
3.0 shares of Holding Company Common Stock for each share of BSS Common Stock.

The proforma equivalent annual basis of the
dividend paid by the respective banks in 1995 is $0.23 per share. If the
Reorganization had been effected in 1995, no shareholder of BOF or BSS would
have received less in dividends as a Holding Company shareholder than they
actually received as a shareholder of BOF or BSS. By the Effective Date, both
BOF and BSS will have paid at least one half of their projected 1996 annual
dividends to shareholders. Accordingly, the Holding Company is expected to pay a
dividend not less than the $0.12 per share in the second half of this year, an
amount that will ensure that Holding Company shareholders receive no less in
1996 dividend payments than they would have received as shareholders of BOF or
BSS. In fact, the Holding Company hopes to increase its semi-annual dividend
later this year or next year, possibly by as much as 30%, depending on financial
projections, amounts available, and advice from independent financial advisors.
The Holding Company plans to continue paying its dividend semi-annually in 1997
and for the foreseeable future. See "Comparative Stock Prices and Dividends" for
a discussion of the Holding Company's anticipated dividend policy subsequent to
the Reorganization.

The final determination of the timing, amount and
payment of dividends by the Holding Company after the Reorganization is at the
discretion of the Holding Company Board of Directors and will depend primarily
on the earnings of BOF and BSS, their financial condition and other factors,
including general economic conditions and applicable government regulations and
policies. See "Description of Holding Company Capital Stock."

- 33 -

<PAGE>

ELECTION OF DIRECTORS OF THE BANK OF FRANKLIN

There are eleven directors of BOF, divided into
three classes, Class A, Class B and Class C, to be elected on a staggered basis
for three year terms. Occasionally due to death or resignation of a director,
directors must be elected to serve for less than a full three year term. Class A
contains three directors, two of whom were elected by the vote of a majority of
a quorum of the stockholders entitled to vote at the 1993 annual meeting of
shareholders to serve until the annual meeting of stockholders in 1996 and until
their successors are elected and one of whom was elected by the vote of a
majority of a quorum of the stockholders entitled to vote at the 1994 annual
meeting of shareholders to serve until the annual meeting of stockholders in
1996 and until his successor is elected. Class B contains four directors who
were elected to serve until the annual meeting of stockholders in 1997 and until
their successors are elected. Class C contains four directors who were elected
to serve until the annual meeting of stockholders in 1998 and until their
successors are elected. The three Class A directors have been nominated for
election by the vote of a majority of a quorum of the shareholders entitled to
vote at this 1996 Annual Meeting to serve until the annual meeting of
stockholders in 1999 and until their successors are elected. All of the nominees
are presently directors of BOF.

Each of the nominated directors has agreed to
serve and, so far as management is aware, will serve if elected. If any of the
nominated directors is unable to serve, the proxies will be voted at the
discretion of those named therein for a substitute selected by the Board of
Directors.

Certain information concerning the nominees for
election at the annual meeting as Class A directors is set forth below, as well
as certain information about Class B and Class C directors, who will continue in
office after the annual meeting until consummation of the Reorganization or, if
the Reorganization is not consummated, the 1997 and 1998 annual meeting of
shareholders, respectively.

<PAGE>

Amount and Nature of
Served as Principal Beneficial Ownership
Name Director Occupation During as of March 31, 1996
and Age Since Past Five Years (Percent of Class) (1)
<S> <C> <C> <C>

CLASS A DIRECTORS NOMINEES
To Serve Until 1999, if Elected

Hunter Darden , Jr. (73) 1971 Retired, 1,066(2)
Farmer *

Wenifred O. Pearce (54) 1994 President and 546
Chief Executive Officer *
of The Bank of Franklin;
formerly, Regional President,
Hampton Roads Region - First
American Bank of Virginia

J. D. Spivey (69) 1991 Retired, Vice 1,066(3)
President of Southampton *
Tractor, Co., Inc.

</TABLE>

Amount and Nature of
Served as Principal Beneficial Ownership
Name Director Occupation During as of March 31, 1996
and Age Since Past Five Years (Percent of Class) (1)
<S> <C> <C> <C>

CLASS B DIRECTORS
To Serve Until 1998

Charles F. Kingery (71) 1971 Retired, 2,283
Pharmacist (1.20%)

James H. Lee, III (49) 1992 President, 18181(4)
John H. Lee & 9.55%
Son, Inc., highway
contractor

John A. Murray (75) 1971 Retired, 2775(5)
Physician 1.46%

Harvey G. Pope (76) 1988 Consultant, 1,848(6)
Hancock Peanut Co. *
(former President)

CLASS C DIRECTORS
To Serve Until 1999

Durwood V. Scott (51) 1992 President, 1,070(7)
Scott & Associates, *
realtors

Marion G. Smith (57) 1971 Consultant, 1,050
Whitley Peanut Factory, Inc. *

F.Bruce Stewart (56) 1988 Attorney, 2,450(8)
Stewart & Stewart, 1.29%
attorneys at law

Wesley F. Wills (69) 1971 Retired, 975(9)
Realtor and *
Insurance Agent

All Directors and all 35,106(10)
Officers as a Group 18.45%
</TABLE>

- -------------------
* Less than one percent.

(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange Act
of 1934 under which, in general, a person is deemed to be the beneficial
owner of a security if he has or shares the power to vote or direct the
voting of the security or the power to dispose of or direct the disposition
of the security, or if he has the right to acquire beneficial ownership of
the security within sixty days.

(2) Includes 66 shares owned by son, Hunter Darden, III.

(3) Includes 666 shares owned as joint tenants with spouse.

(4) Includes 15,500 shares owned John H. Lee & Son, Inc. of which he is
President, 83 shares owned by father, James H. Lee, Jr, and 524 shares each
owned by children, J. H. Lee, IV and Courtney Lee.

(5) Includes 820 shares owned by spouse, 100 shares owned by son, John A.
Murray, Jr., and 255 shares owned by son, Michael Murray.

- 35 -

<PAGE>

(6) Includes 66 shares owned by spouse.

(7) Includes 10 shares owned by son, S. Dane Scott, and 10 shares owned by son,
T. Dale Scott.

(8) Includes 30 shares each owned by children, Emily Stewart and Peter Stewart
and 1,350 shares owned by father, Fred C. Stewart.

(9) Includes 126 shares owned by spouse, 50 shares owned jointly with spouse,
130 shares owned by son, Ellis Wills, 10 shares owned by son, Allen Wills,
10 shares owned by granddaughter, Michelle Virginia Reed, and 10 shares
owned by granddaughter, Lauren A. Wills.

(10) Includes 200 shares owned jointly by Kathleen B. Perry, Vice-President and
her son; 66 shares owned by Wayne C. Carruthers, Senior Vice-President; and
1,530 shares owned by Jerry R. Bryant, former President.

<PAGE>

There are no directorships held by any director
in any company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934.

There have been no involvements in any legal
proceeding by any director or executive officer of BOF during the past five
years which are material to an evaluation of the ability or integrity of any
such director or executive officer.

Board Committees

BOF has nine standing committees, the Nominating
Committee, the Executive Committee, the Loan Committee, the Audit and Investment
Committee, the Personnel Committee, the Building and Grounds Committee, the
Public Relations Committee, the Strategic Planning Committee and the Business
Development Committee.

The Nominating Committee consists of all members
of the Board of Directors. This committee met once in 1995 and once in 1996 and
nominated the directors whose names are set forth on the notice of meeting,
proxy and this proxy statement. In order for other nominations to be made at an
annual meeting, a stockholder must notify management of the stockholder's
intention to make such nomination at least 60 days prior to such annual meeting
and comply with the procedures set forth in Article I Stockholders Section 10 of
the bylaws of BOF.

The Executive Committee consists of the Chief
Executive Officer and two or more members of the Board of Directors designated
by the Board of Directors to act thereon. Messrs. Murray, Pearce, Stewart and
Darden served on this committee from January 1, 1995 to May 8, 1995 and Messrs.
Pope, Pearce, Stewart and Darden served on this committee from May 8, 1995
through December 31, 1995 and to the present. This committee to the extent
permitted by law and delegated to it by the Board of Directors may exercise all
of the powers of the Board of Directors. The committee recommends changes in the
general policy of BOF to the Board of Directors. The committee also considers
and makes decisions on issues which arise between meetings of the Board of
Directors. This committee met two times per week in 1995. All the other
directors meet with this committee on a revolving basis.

The Loan Committee members are appointed by the
Board of Directors. The committee considers loan applications for loans
exceeding the lending authority of loan officers submitted to BOF by prospective
borrowers. The same directors served on the Loan Committee that have served on
the Executive Committee during 1995 and to the present. This committee met two
times per week in 1995. All the other directors meet with this committee on a
revolving basis.

- 37 -

The Personnel Committee members are appointed by the Board of Directors.
The committee considers personnel policies, salaries, bonuses, deferred
compensation plans, profit-sharing plans, insurance, etc. of officers, employees
and board members. Messrs. Darden, Wills, Scott, Spivey, Murray, Smith and
Pearce served on this committee from January 1, 1995 to May 8, 1995 and Messrs.
Darden, Wills, Scott, Spivey, Stewart and Pearce served on this committee from
May 8, 1995 through December 31, 1995 and to the present. This committee met
eight times in 1995.

The Audit and Investment Committee members are appointed by the Board of
Directors. The committee meets with independent accountants, reviews the annual
audit, financial reporting and accounting procedures, policies and controls and
makes recommendations pertaining thereto to the Board of Directors. It also
reviews bank investments and makes recommendations pertaining thereto to the
Board of Directors. Messrs. Kingery, Pope, Smith, Spivey, Lee, Pearce and Bryant
served on this committee from January l, 1995 to May 8, 1995 and Messrs. Smith,
Spivey, Kingery and Pearce served on this committee from May 8, 1995 through
December 31, 1995 and to the present. This committee met one time in 1995.

The Building and Grounds Committee members are appointed by the Board of
Directors. The committee makes periodic inspections of BOF's buildings and
grounds and furnishings and makes recommendations as to repair, replacement,
etc. to the Board of Directors. Messrs. Pearce, Wills, Bryant and Pope served on
this committee from January l, 1995 to May 8, 1995 and Messrs. Lee, Scott, Wills
and Pearce served on this committee from May 8, 1995 through December 31, 1995
and to the present. This committee met one time in 1995.

The Public Relations Committee members are appointed by the Board of
Directors. The committee handles public relations, stockholders relations and
advertising. It meets with representatives from newspaper, radio and television
in order to coordinate BOF's advertising campaign, and allocates budgeted funds
among the media. Messrs. Kingery, Scott, Spivey, Lee and Pearce served on this
committee from January l, 1995 to May 8, 1995 and Messrs. Kingery, Scott, Spivey
and Pearce served on this committee from May 8, 1995 through December 31, 1995
and to the present. This committee met one time in 1995.

The Strategic Planning Committee members are appointed by the Board of
Directors. The committee was formed in 1994 and engages in strategic and
long-range planning and makes recommendations to the Board of Directors on
expansion, acquisitions, mergers, etc., Messrs. Darden, Murray, Pope, Stewart
and Pearce served on this committee during 1995 and to the present. This
committee met one time in 1995.

The Business Development Committee members are appointed by the Board of
Directors. The committee develops plans and strategies for attracting new
business to BOF. Messrs. Scott, Lee and Kingery served on this committee in 1995
and to the present. The committee did not meet in 1995.

The Board of Directors meets monthly. There were twelve regular
scheduled meetings in 1995, an organizational meeting after the last annual
stockholders' meeting and two special meetings. Each director currently serving
on the Board of Directors attended 75% or more of the meetings of the Board of
Directors and committees on which he served in 1995.

Compensation of Directors and Attendance

Each director except the Chief Executive Officer is compensated for all
services rendered throughout the year in the amount of $200.00 per meeting plus
$40.00 per committee meeting attended which is one hour or more in duration. The
Chief Executive Officer is compensated for Board of Directors' meetings, but not
committee meetings. All incumbent directors attended at least 75% of the
aggregate number of meetings held by the board and meetings of committees on
which they served.

<PAGE>

THE BOARD OF DIRECTORS OF THE BANK OF FRANKLIN RECOMMENDS THE
SHAREHOLDERS VOTE FOR THE ELECTION OF THE NOMINEE DIRECTORS
ELECTION OF DIRECTORS OF THE BANK OF SUSSEX AND SURRY

The Bank of Sussex and Surry is divided into three classes (I, II, and
III). The term of office for Class II directors will expire at the annual
meeting. The three persons named immediately below, each of whom currently
serves as directors of BSS, will be nominated to serve as Class II directors. If
elected, the three nominees will serve until the merger is consummated or, if
the merger is not consummated, for terms of three years until the 1999 annual
meeting. See "The Reorganization-Management and Operations After the
Reorganization" for information concerning the composition of the board of
directors after consummation of the merger. The persons named in the proxy will
vote for the election of the nominees named below unless authority is withheld.
The BSS board believes that the nominees will be available and able to serve as
directors, but if any of these persons should not be available or able to serve
the proxies may exercise discretionary authority to vote for substitutes
proposed by the BSS board.

Certain information concerning the nominees for election at the annual
meeting as Class II directors is set forth below as of December 31, 1995, as
well as certain information about Class I and Class III directors, who will
continue in office after the annual meeting until consummation of the merger or,
if the merger is not consummated, the 1997 and 1998 annual meeting of
shareholders, respectively.

- 39 -

Amount and Nature of
Served as Principal Beneficial Ownership
Name Director Occupation During As of March 31, 1996
and Age Since Past Five Years (Percent of Class) (1)

CLASS II DIRECTORS NOMINEES
To Serve Until 1999, if Elected

<S> <C> <C> <C>
Gregor O. Huber, 76 1972 Retired CEO, 4,640 (2)
The Bank of 1.52%
Sussex and Surry

William B. Savedge, 47 1995 Vice President 1,840 (3)
- Manry Rawls *
Corporation

J. Russell West, 70 1970 Owner - Ivor 19,325 (4)
Furniture Company 6.34%
</TABLE>

Amount and Nature of
Beneficial Ownership
Served as Principal as of March 31, 1996
Name Director Occupation During as of March 31,
and Age Since Past Five Years (Percent of Class) (1)

CLASS I DIRECTORS
To Serve Until 1998
<S> <C> <C> <C>

Jack P. Bain, 72 1947 Chairman, The Bank 66,145 (5)
of Sussex and 21.69%
Surry,
1994 - Present;
Private Investor

L. Ashby Brantley, 86 1947 Vice Chairman, The 5,020 (6)
Bank of Sussex 1.65%
and Surry -
1993 - Present;
Farmer

D. Eugene Brittle, 46 1986 President and Chief 1,000 (7)
Executive Officer, *
The Bank of Sussex
and Surry, Chief
Executive Officer
since 1986 & President
1994 - Present

<CAPTION>
CLASS III DIRECTORS
To Serve Until 1997
<S> <C> <C>
J. Philip Bain, Jr., 32 1988 Stockbroker - 21,675
Davenport and 7.11%
Company

Jack Beale, 70 1983 Farmer 1,540 (8)
*

A. Meredith Felts, 69 1986 Farmer 1,490 (9)
*

All directors and 124,385
executive officers 40.79%
as a group
</TABLE>

* Represents less than 1% of total outstanding shares

(1) For purposes of this table, beneficial ownership
has been determined in accordance with the
provisions of Rule 13d-3 of the Securities
Exchange Act of 1934 under which, in general, a
person is deemed to be the beneficial owner of a
security if he has or shares the power to vote or
direct the voting of the security or the power to
dispose of or direct the disposition of the
security, or if he has the right to acquire
beneficial ownership of the security within sixty
days.

(2) Includes 200 shares held jointly with spouse.

(3) Includes 300 shares held jointly with niece.

(4) Includes 200 shares held jointly with spouse.

(5) Includes 33,332 shares held individually by
spouse, Hannah B. Bain, to which Mr. Bain
disclaims beneficial ownership; 6,000 shares held
in trust for the benefit of his daughter for
which Mr. Bain is trustee; and 7,960 shares held
by Mr. Bain as trustee under-the-will of Robert
F. Bain, Jr.

(6) Includes 200 shares held by L. A. Brantley, Inc.,
of which Mr. Brantley is a principal.

(7) Includes 200 shares held jointly with spouse.

(8) Includes 600 shares held jointly with spouse; and
140 held jointly with son.

(9) Includes 190 shares held jointly with spouse.

- 41 -

<PAGE>

Board Committees

The board of directors does not have a separate
nominating committee. The entire board acts in this capacity. The board
reviews, on an as needed basis, the qualifications of candidates for membership
to the board. Following appropriate review, the board ascertains the willingness
of selected individuals to serve and extends invitations to serve as board
members.

The board of directors has the following
committees:

Loan Committee. The loan committee meets
generally on a weekly basis and evaluates loan applications by borrowers and
acts upon same. In addition, the committee reviews policies and guidelines for
the lending function of BSS.

Pension Committee. The pension committee reviews
on a periodic basis the adequacy of BSS's retirement plans in keeping with the
board of directors' objectives with regard to providing for the retirement
benefits of BSS employees. This committee also reviews BSS's defined benefit
pension plan with regard to its funding status, benefit formulas, and asset
value and distribution.

Audit Committee. The audit committee met one
time during 1995 and consists of the following non-employee directors: Jack
Beale, A. M. Felts, and J. Philip Bain, Jr. The audit committee reviews
financial reports of BSS and each of its affiliates. The audit committee also
is charged with reporting to the board of directors the results of internal
audit activities and management's response to audit recommendations.

Personnel Committee. The personnel committee
meets on an as-needed basis to consider such personnel matters as may be deemed
appropriate. The committee considers management and employee performance on an
annual basis and recommends compensation to the board of directors after
considering various factors, primarily, bank performance, condition of the local
economy, response to the needs of BSS, past salary and salary paid to other
officers and employees of banks of similar size in the region.

Strategic Planning and Branch Research and
Development Committee. The strategic planning and branch research and
development committee is responsible for evaluating the performance of all
aspects of BSS and developing strategy, plans and goals to meet the overall
strategic objective of BSS in order to maximize return to its shareholders. Part
of the committee's function is to also evaluate and determine areas of future
growth and branch development.

Loan Review Committee. The loan review
committee's function is to review, on an annual basis, the bank's loan portfolio
with respect to credit quality and adequate documentation. The committee also
evaluates trends that may be present with regard to the bank's portfolio and
makes recommendations to the board of directors.

Building Committee. The building committee's
function is to determine and plan for capital improvements to the bank's
physical facilities as well as to facilitate new branch and office construction,
renovation or expansion.

Investment and Asset-Liability Committee. This
committee serves in the dual capacity of reviewing the bank's securities
activities and procedures as well as the bank's asset-liability management
function. The committee evaluates the bank's investment policy with respect to
its adequacy in establishing sound investment procedures to be followed by
management and is also charged with the responsibility of reviewing securities
activities, security firms with whom management is authorized to do business,
and limits on amounts and types of transactions involved in the bank's
securities activities. The committee approves and reviews periodically the
investment portfolio and accounting systems and market evaluations systems to be
used to generate monthly reports.

With regard to asset-liability management, the
committee is charged with the development of an asset-liability management
process and related procedures; the establishment of a monitoring and reporting
system; development of asset-liability strategies and tactics; submission of a
formal report to the board quarterly; overseeing the maintenance of a management
information system which supplies on a timely basis, the information and data
necessary for the committee to fulfill its role as a planner and asset-liability
manager.

Certain Relationships
J.P. Bain, a director of the BSS who owned
individually as of the date of this proxy statement 10.76% of the outstanding
shares of common stock of BSS, is married to Hannah B. Bain, who as of the same
date individually owned 10.93% of the outstanding shares. Together, they
beneficially own 66,145 shares, or 21.7% of the outstanding shares of BSS. See
"Description of Holding Company Capital Stock" for additional information
regarding their beneficial ownership currently, and following the
Reorganization.

Compensation of Directors and Attendance

The BSS directors' receive fees as follows:
Chairman - $600 monthly; members of the loan committee - $400 monthly; all other
members - $150 monthly. The board of directors held nineteen meetings during the
last fiscal year. All incumbent directors attended at least 75% of the aggregate
number of meetings held by the board and meetings of committees on which they
served with the exception of Mr. Savedge who joined the board in July, 1995.

- 43 -

<PAGE>

THE BOARD OF DIRECTORS OF THE BANK OF SUSSEX AND SURRY RECOMMENDS
THE SHAREHOLDERS VOTE FOR THE ELECTION OF THE NOMINEE DIRECTORS

INFORMATION CONCERNING THE BANK OF FRANKLIN

General

The Bank of Franklin was organized and chartered
under the laws of the Commonwealth of Virginia on July 8, 1970 and commenced
operations on February 4, 1971. BOF is a State nonmember bank. Its deposits are
FDIC insured, and the bank is subject to supervision, examination, and
regulation of the FDIC and the Virginia Bureau of Financial Institutions. BOF
provides a wide range of financial services, principally to individuals and to
small and medium-sized businesses, including individual and commercial demand,
savings, and time deposit accounts, commercial, agricultural and consumer loans,
credit cards, traveler checks, safe deposit facilities, ATM services, sales of
United States Savings Bonds, collection items and official checks.

BOF operates five full service banking offices,
two in the City of Franklin, one each in the City of Suffolk (Holland) and Towns
of Courtland and Newsoms. BOF also has an ATM facility located at the College
Drive Office, located on College Drive in the City of Franklin.

BOF's Main Office and College Drive branch, both
of which are located in the City of Franklin, compete with branches of regional
and super-regional banks, another community bank, and a large credit union.
BOF's Courtland branch, opened in June 1988, shares this market with a branch of
a community bank holding company. BOF's Newsoms Office in Newsoms and Holland
Office in the Holland area in the City of Suffolk are the only banking
facilities in these areas. The Bank's primary market area encompasses the City
of Franklin, Southampton County, Isle of Wight County, and environs. The economy
is predominantly rural in nature with agriculture, timber, small business and
local governments providing the majority of economic activity.

Properties and Employees

BOF's main office is located at 100 East Fourth
Avenue in Franklin, Virginia. The College Drive branch office is located at 201
North College Drive, Franklin, Virginia; the Courtland branch is located at
Shands Shopping Center, Courtland, Virginia; the Newsoms branch at 22334 General
Thomas Highway, Newsoms, Virginia; and the Holland branch at 6617 Holland Road,
Suffolk, Virginia. Other properties owned include three two-story houses located
at 403, 405 and 407 Middle Street, Franklin, Virginia. The houses are held for
rental purposes and possible further expansion. The properties are rented to
individuals for living quarters. The bank also owns a parcel of land and a
twocar garage located at 200 East Fourth Avenue, Franklin, Virginia. The bank
has retained this property for storage and employee parking and may use this
property for future expansion.

As of December 31, 1995, BOF had the equivalent
of 41 full-time employees. None of its employees are represented by any
collective bargaining unit. BOF considers relations with its employees to be
good.

Competition

The banking industry is competitive in BOF's
market area. There are approximately five banking institutions engaged in
business in the general area in which BOF operates, including one community
bank, one credit union, and four state-wide banking organizations. Also in this
general market area, is a Farm Credit Bank, which is highly competitive in the
agricultural loan market. BOF encounters competition for deposits and loans from
the aforementioned competitors in the area in which it operates as well as
credit unions and finance companies. In addition, BOF must compete for deposits
with Money Market mutual funds which are marketed nationally, insurance brokers
and local offices of stock brokerage firms.

BOF is not dependent upon an individual customer,
or segment of customers, the loss of which would have a material adverse impact
on its operations.

Securities Ownership of Certain Beneficial Owners

The following table sets forth, as of March 31,
1996, the number and percentage of shares of Common Stock of BOF held by persons
known by BOF to be the owners of more than five percent of the bank's issued and
outstanding Common Stock, and each of the executive officers of the company not
otherwise named in the beneficial ownership table related to the nominees and
incumbent directors of the bank.

<PAGE>

Name and Address Amount and Resulting
of Beneficial Nature of Percent of Ownership of Percent of
Owner(1)(2) Ownership Class (3) Holding Company Class (3)
<S> <C> <C> <C> <C>
J. H. Lee & Sons, Inc., 18,181(3) 9.6% 87,377 4.8%
a Virginia corporation
Courtland, Virginia

Wayne C. Carruthers 66 * 317 *
Chesapeake, Virginia

Katherine B. Perry 200(3) * 961 *
Franklin, Virginia
</TABLE>

* Constitutes less than 1% of the outstanding
common stock of BOF and Holding Company.

(1) For purposes of this table, beneficial ownership
has been determined in accordance with the
provisions of Rule 13d-3 of the Securities
Exchange Act of 1934 under which, in general, a
person is deemed to be the beneficial owner of a
security if he has or shares the power to vote or
direct the voting of the security or the power to
dispose of or direct the disposition of the
security, or if he has the right to acquire
beneficial ownership of the security within sixty
days.

(2) Other executive officers of BOF are Kyle R.
Purvis, Jr., James H. O'Berry, and G. Ronald
West, none of whom beneficially owns shares of
the bank.

(3) Includes 1,550 shares owned by J. H. Lee, III;
524 shares owned by J. H. Lee, IV; 524 shares
owned by Courtney Lee; and 83 shares owned by J.
H. Lee, Jr.

<PAGE>

Executive Officers

The following table sets forth certain information concerning
the executive officers of BOF.

<TABLE>

Name (and Age) Present Position
<S> <C>
W. O. Pearce (54) Chief Executive Officer of BOF since 1994.

Wayne C. Carruthers (49) Senior Vice President of BOF; Senior Vice President of Operations since
1995

Kyle R. Purvis, Jr. (49) Senior Vice President of BOF since 1987; Senior Loan Officer since 1995

James H. O'Berry (48) Vice President of BOF since 1995 and Manager of the
Courtland and Newsoms offices since 1995.

Katherine B. Perry (37) Vice President of BOF since 1978 and Internal Auditor since 1990.

G. Ronald West (47) Assistant Vice President of BOF since 1977 and
Compliance Officer since 1990.

</TABLE>

Executive Compensation. The following table sets
forth the compensation of BOF's President and Chief Executive Officer, Mr.
Pearce, for the fiscal years ended December 31, 1995 and 1994. No officer
received in excess of $100,000 for such year. Mr. Pearce received no stock
options or warrants in any of the reported years.

<TABLE>
<CAPTION>
Summary Compensation Table

Name and Principal All Other
Position Year(1) Salary Bonus Compensation(2)
<S> <C> <C> <C> <C>
Wenifred O. Pearce 1995 $82,475(3) $4,478 $8,594(4)
Chief Executive 1994 $80,850 $0 $8,292(4)
Officer and President

</TABLE>

(1) Mr. Pearce began his employment with the bank on
February 1, 1994.

(2) Amounts shown include $7,500 for each of 1995 and
1994 relating to contributions by the bank on
behalf of Mr. Pearce under the bank's deferred
compensation plan. See "Deferred Compensation
and Profit-Sharing Plans" below.

(3) Amount shown includes $2,375 of directors' fees.

(4) Amounts shown include premiums paid for group
life insurance policies as reported for federal
income tax purposes.

- 47 -

<PAGE>

Employment Contract

On January 19, 1994, BOF entered into an
employment agreement with Mr. Pearce pursuant to which Mr. Pearce serves as
Chief Executive Officer of BOF commencing on February 1, 1994 and renewing
annually, unless either party gives the other party at least 90 days' written
notice of the intention not to renew the agreement. The agreement provides that
Mr. Pearce was paid a base salary of $75,000 in 1995 and that in each subsequent
year he will receive not less than the previous year's base pay. In addition,
BOF provides Mr. Pearce health and similar plans made available from time to
time by BOF to its employees, and Mr. Pearce is entitled to participate in any
pension, profit sharing and employee stock ownership plans of BOF if and when
such plans, or any of them, are adopted by BOF for the benefit of employees of
BOF. The agreement also provides other typical provisions including an agreement
to enter into a deferred compensation arrangement with Mr. Pearce which provides
for $7,500 to be invested on his behalf by BOF on an annual basis.

The agreement provides that it may be terminated
by either party as of the end of any calendar month by the giving of at least 90
days' prior written notice. In the event that BOF terminates Mr. Pearce's
employment without cause, Mr. Pearce is entitled to one year's base salary at
the current year's rate from the date of termination. The agreement also
provides that it will terminate automatically upon Mr. Pearce's conviction of
certain crimes in which event he will not be entitled to any salary payments
after such termination. In the event of disability, Mr. Pearce shall continue to
receive his agreed salary for 90 days after which he shall have been deemed to
have terminated his employment and shall be entitled only to receive disability
benefits as provided under any contract of disability insurance as may be
provided by BOF.

The agreement provides that if BOF is sold or
merged, Mr. Pearce shall be entitled to a lump sum payment equal to twice his
most recent year's salary in the event that he is not retained by BOF or its
successor in a comparable position and salary for a minimum of 12 months. The
same provisions apply in the event that Mr. Pearce is dismissed by BOF and BOF
is sold or merged within six months of the dismissal. The consummation of the
Reorganization will not trigger the "sale or merger," commonly known as "change
of control," provisions of Mr. Pearce's agreement. However, in the event that
such provisions had been triggered, as of May 1, 1996, Mr. Pearce would have
been entitled to receive approximately $165,000.

Employee Benefit Plans

Deferred Compensation and Profit-Sharing Plans
BOF maintains deferred compensation and retirement arrangements with certain
officers. The Bank's current policy is to accrue the estimated amounts to be
paid under the contracts.

The Bank of Franklin has a profit-sharing plan
for all eligible officers and employees, Requirements for eligibility to
participate include reaching the age of 19 and one year of service. Vesting in
the plan begins the second year of participation and increases annually by 20%
until full vesting occurs after six years. Employer contributions are determined
annually and are calculated based on the participant's annual compensation. The
amounts contributed to the plan were $25,000 and $24,000 for 1995 and 1994,
respectively.

Community Reinvestment Act

The federal supervisory agencies share authority
to implement regulations under the Community Reinvestment Act of 1979, as
amended ("CRA"). The general purpose of the CRA is to encourage lenders, while
operating safely and soundly, to meet the credit needs of their communities. The
CRA specifically directs regulators, when examining a lender, to access the
lender's record of helping to meet the credit needs of the entire community,
including low and moderate-income neighborhoods. For example, the regulators
will evaluate and take into account a lender's record of meeting its community's
credit needs when evaluating a lender's application for creation of a new
branch. BOF has always had a "Satisfactory" rating with respect to its
compliance with CRA.

Legal Proceedings

In the course of its operations, BOF is not
aware of any material pending or threatened litigation, unasserted claims and/or
assessments for the year 1995 or subsequent thereto. The only litigation in
which BOF is involved is collection suits involving delinquent loan accounts.

Certain Transactions.

Some of BOF's officers and directors are
customers of BOF. As such customers they have had transactions in the ordinary
course of business with BOF, all of which were on substantially the same terms
as those prevailing at the time for comparable transactions with other persons
and did not involve more than normal risks of collectability or present any
other unfavorable features. The total direct and indirect indebtedness to BOF of
all the directors, principal officers and the shareholders of BOF holding more
than 5 percent of the outstanding voting securities as of December 31, 1995 was
$1,247,949, an amount equal to 15.30% of BOF's equity capital as of December 31,
1995. F. Bruce Stewart is retained by BOF as its general counsel. BOF does no
business with any of the directors or their affiliated companies in excess of
$60,000 per annum.

<PAGE>

Certain directors and officers of BOF and
corporations, partnerships and other entities with which such persons are
associated are customers of BOF. As such, these persons engaged in transactions
with BOF in the ordinary course of business during 1995, and will have
additional transactions with BOF in the future. All loans extended and
commitments to lend by BOF to such persons are made in the ordinary course of
business upon substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unaffiliated persons and do not involve more than the normal risk for
collectibility or present other unfavorable features. As of December 31, 1995,
the amount of loans, direct and indirect, from BOF to executive officers and
directors of BOF, and entities in which they have a significant interest, was
$1,247,949. Unadvanced lines of credit to executive officers and directors and
entities in which they are significantly interested were an additional $298,651.

Changes In Accountants

At its board meeting on March 15, 1995, the Board
of Directors of BOF engaged Goodman & Company, L.L.P. as its independent
accountants for the year ending December 31, 1995, subject to approval of
shareholders. As part of the Bank's evaluation process for selecting an auditor
for the year ending December 31, 1995, the Board determined to dismiss Frank
Edward Sheffer & Co., as the Bank's independent public accountant.

During the two most recent fiscal years and
interim period subsequent to December 31, 1994, there had been no disagreements
with Frank Edward Sheffer & Co., on any matter of accounting principles or
practices or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of the
former accountant, would have caused him to make reference to the subject matter
of the disagreements in connection with the report prepared by the accountant.

Frank Edward Sheffer & Co.'s report on the
financial statements for the two fiscal years ended December 31, 1994, contained
no adverse opinion or disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope or accounting principles.

- 49 -

<PAGE>

BOF'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS

The following discussion provides information
about the major components and the results of operations and financial
condition, liquidity and capital resources of BOF. This discussion and analysis
should be read in conjunction with BOF's Consolidated Financial Statements and
Notes thereto included in this Joint Proxy Statement.

Overview

BOF reported net income of $939,569 in 1995,
compared to $809,503 in 1994, representing an increase of 16.1%. Earnings per
share increased to $4.94 per share in 1995, compared to $4.25 per share in 1994.
The increased earnings during this period were primarily due to higher levels of
net interest income.

Return on average equity increased to 12.2% for
1995, up from 11.4% in 1994. Return on average assets also increased, during
1995, to 1.38% compared to 1.35% in 1994.

BOF's assets at year end 1995 were $80.8 million,
up by 28.0%, over year end 1994 of $63.1 million. Of this increase,
approximately $10.8 million was related to the acquisition of a branch in August
from a large bank holding company. Net loans outstanding at year end 1995 were
$37.3 million, up from the year end level for 1994 of $31.8 million, posting a
$5.5 million increase or 17.5%.

On a tax equivalent annualized basis, BOF's net
interest margin was 4.80% in 1995 compared to 4.81% in 1994.

BOF is not aware of any trends, future events or
uncertainties that will have a material adverse effect on the Bank. Obviously,
unforeseeable changes in the local economy, which the Bank is unable to predict,
may impact the overall community and ultimately the performance of the
institution. However, except as otherwise disclosed herein, the Company is not
aware of any such changes.

Net Interest Income

Net interest income represents the principal
source of earnings for BOF. Net interest income equals the amount by which
interest income exceeds interest expense. Changes in the volume and mix of
interest-earning assets and interest-bearing liabilities, as well as their
respective yields and rates, have a significant impact on the level of net
interest income.

Net interest income in 1995 increased to $2.9
million compared to $2.6 million in 1994. The increase was primarily
attributable to an increase in interest income resulting from: a) increased loan
volume, which on an average net loan basis was $36.0 million in 1995 up from an
average of $31.1 million in 1994; b) increases in investment securities which
averaged $24.7 million for 1995 and $21.5 million for 1994 and offset by; c)
decreased sales of federal funds. Increases in these areas were offset somewhat
by increased interest expense on deposits, as interest-bearing deposits grew to
an average of $50.8 million in 1995 from an average of $44.8 million in 1994.
The tax-equivalent yield on interest earning assets increased to 8.26% in 1995
compared to 7.83% in 1994; this was offset by an increase in funding costs on
interest-bearing deposits which increased from 3.75% in 1994 to 4.34% in 1995.
The net interest margin decreased slightly to 4.80% in 1995 from 4.81% in 1994.

The following table depicts interest income on
earning assets and related average yields, as well as interest expense on
interest-bearing liabilities and related average rates paid for the periods
indicated.

<PAGE>

Average Balances, Income and Expense,
Yields and Rates
(In Thousands)
<TABLE>
<CAPTION> Twelve Months December 31,
1995 1994
Average Income/ Yield Average Income/ Yield
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities:
Taxable $ 15,865 $ 1,071 6.75% $ 17,082 $ 1,036 6.06%
Tax-exempt (1) 8,875 568 6.40 4,391 317 7.22
Total securities(2) 24,740 1,639 6.62 21,473 1,353 6.30
Loans (net)(3) 35,975 3,456 9.61 31,121 2,880 9.25
Federal funds sold 3,098 173 5.58 3,131 128 4.09
Total earning assets 63,813 5,268 8.26 55,725 4,361 7.83
Less: allowance for
loan losses (635) (675)
Total nonearning assets 5,057 4,961
Total assets $68,235 $60,011

Liabilities and Shareholders' Equity:
Interest-bearing deposits:
Checking $8,672 $264 3.04% $7,582 227 2.99%
Regular savings &
club accounts 4,199 128 3.05 3,893 117 3.01
Money market savings 10,986 397 3.61 10,560 326 3.09
Certificate of deposit:
Over $100,000 3,825 209 5.46 3,125 152 4.86
$100,000 and under 23,144 1,207 5.22 19,591 856 4.37
Total interest-bearing
deposits 50,826 2,205 4.34 44,751 1,678 3.75
Short-term borrowings 55 2 3.64 - -
Total interest-bearing
liabilities 50,881 2,207 4.34 44,751 1,678 3.75

Noninterest-bearing liabilities:
Demand deposits 8,919 7,510
Other liabilities 709 671
Total liabilities 60,509 52,932

Shareholders' equity 7,726 7,079
Total liabilities &
shareholders' equity $ 68,235 $ 60,011
Net interest income $ 3,061 $ 2,683
Interest rate spread(4) 3.92 4.08
Net interest margin(5) 4.80 4.81
- --------------------
</TABLE>

(1) Income and yields are reported on a taxable equivalent basis assuming a
federal tax rate of 34%.

(2) The average balance for securities classified as available for sale
does not materially differ from amortized cost.

(3) For the purpose of these computations, nonaccruing loans are
included in the daily average loan amounts outstanding.

<PAGE>

(4) Represents the differences between the yield on total average earning
assets and the cost of total interest-bearing liabilities.

(5) Represents the ratio of net interest-earnings to the average balance of
interest-earning assets.

- 51 -

<PAGE>

The following table analyzes changes in net income attributable
to changes in the volume of interest-bearing assets and
liabilities compared to changes in interest rates. Nonaccruing loans are
included in average loans outstanding.

Volume and Rate Analysis
(In Thousands)

<TABLE>
<CAPTION>
1995 vs 1994 1994 vs 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:

Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities:
Taxable ($ 78) $ 113 $ 35 $ 53 ($ 125) ($ 72)
Tax-exempt 291 (40) 251 226 (4) 222
Loans (net) 461 115 576 496 (60) 436
Federal funds sold (1) 46 45 (12) 37 25
Total earning assets 673 234 907 763 (152) 611

Interest-bearing deposits:

Checking 33 4 37 107 1 108
Regular savings &
club accounts 9 2 11 35 0 35
Money market savings 13 58 71 29 (8) 20
Certificate of deposit:

Over $100,000 37 20 57 (4) (5) (9)
$100,000 and under 169 182 351 79 (105) (26)
Short-term borrowings 2 - 2 - - -
Total interest-bearing
liabilities 263 266 529 246 (117) 128

Net interest income $ 410 ($ 32) $ 378 $ 517 ($ 35) $483

</TABLE>

Interest Sensitivity

An important element of both earnings performance and the
maintenance of sufficient liquidity is management of the interest
sensitivity gap. The interest sensitivity gap is the difference between
interest sensitive assets and interest sensitive liabilities in a
specific time interval. The gap can be managed by repricing assets or
liabilities, affected by selling securities held for sale, by replacing
an asset or liability at maturity, or by adjusting the interest rate or
the life of an asset or liability. Matching of assets and liabilities
repricing in the same time interval help to hedge the risk and minimize
the impact on interest income in periods of rising and falling interest
rates.

BOF evaluates interest sensitivity risk in accordance with its
asset liability policy, and then formulates strategy regarding asset
originations, pricing, funding sources, and off-balance sheet
commitments in order to decrease sensitivity risk. These strategies are
based on management's outlook regarding future interest rate movements,
the state of the regional and national economy, and other financial and
business risk factors. BOF establishes prices for deposits and loans
based primarily on local market conditions.

At December 31, 1995, BOF had only $6,220,000 more in liabilities
than assets repricing within one year or less and was, therefore, in a
liability sensitive position for that period with a negative 8.42%
cumulative static gap.

-52-

<PAGE>

Generally, positive gaps affect net interest margins and earnings
negatively in periods of falling rates and, conversely, higher negative
gaps adversely impact net interest margin and earnings in periods of
rising rates as a higher volume of liabilities will reprice than assets
over the period for whichthe gap is computed. To reduce the potential
impact of changes in interest rates, $22.3 million of total loans, at
December 31, 1995, were either accruing at a variableinterest rate or
maturing within one year. In addition, at December 31, 1995, federal
funds sold, which are repriceable daily, were $4.7 million and
securities held inthe available-for-sale category maturing within a year
totaled $8.9 million , which could be sold quickly to meet special
funding needs or to adjust BOF's interest rate sensitivity position.

The following table presents BOF's interest sensitivity
position at December 31, 1995. This is a one day position
which is continually changing and is not necessarily indicative of BOF's
position at any other time.

Interest Sensitivity Analysis
(In Thousands)

<TABLE>
<CAPTION>
December 31, 1995(1)

Within 90-365 1 to 5 Over
90 days days Years 5 Years Total

<S> <C> <C> <C> <C> <C>
Earnings Assets:

Loans (net)(2) $ 13,332 $ 8,937 $ 15,247 $ 453 $ 37,969
Securities 4,327 4,528 10,248 12,093 31,196
Federal funds sold and other 4,682 - - - 4,682

Total earnings assets $22,341 $13,465 $25,495 $12,546 $73,847

Interest-Bearing Liabilities:

Interest checking $12,107 $ - $ - $ - $ 12,107
Regular savings(3) - - - 4,840 4,840
Christmas Club Savings - 56 - - 56
Money market savings 12,035 - - - 12,035
Certificates of deposit:

Over $100,000 2,014 925 1,100 - 4,039
$100,000 and under 5,388 9,501 13,388 - 28,277
Total interest-bearing
liabilities $31,544 $10,482 $14,488 $4,840 $61,354

Period gap ($9,203) $ 2,983 $ 11,007 $ 7,706 $ 12,493
Cumulative gap ($ 9,203) ($ 6,220) $ 4,787 $ 12,493
Ratio of cumulative gap
to total earning assets (12.46%) (8.42%) 6.48% 16.92%

</TABLE>

- --------------------
(1) The repricing dates may differ from maturity dates for certain assets due
to prepayment assumptions.
(2) Excludes nonaccrual loans.
(3) BOF has found that its regular savings historically represent core
deposits, and are not sensitive to changes in related market rates and,
therefore, have been placed in the over five year column.

- 53 -

<PAGE>

Noninterest Income
Noninterest income increased slightly to $482,905 for 1995, from $468,684 for
1994, up by 3.0%. Service charges, overdraft charges, andcustomer fees
increased by approximately $81,000 and were offset by decreases in nonrecurring
items of approximately $67,000 related to gains on sale of other real estate
owned and net securities gains.

BOF changed its policy with respect to reimbursement/refund of overdraft
and Non-Sufficient Funds (NSF) fees in 1994. Under the prior policy, bank
personnel were authorized to "waive" overdraft and NSF fees in certain
situations. Under the revised policy, overdraft and NSF fees can be "reimbursed"
which requires separate general ledger entries accompanied by written
justification for reimbursement. Like the previous "waver" policy ,
reimbursement of overdraft and NSF fees is not available to employees, officers
or directors (and their associates) of BOF. Our experience is that fewer fees
are reimbursed under the new procedure than were being waived under the former
policy. In 1995, the first full year under the new procedure, NSF fees increased
$63,000 over the previous year, accounting for most of the $67,000 increase in
service charge income in 1995.

Noninterest Income
(In Thousands)

Year Ended December 31,
1995 1994

Service charges on deposit accounts $136 $132
Overdraft charges on deposit accounts 245 183
Fees for other customer services 70 55
Other operating income 32 68

Securities gains, net -- 31

Total noninterest income $483 $469

Noninterest Expenses

Noninterest expense for 1995 was $2,093,048, up from $1,930,116 for
1994, representing an 8.4% increase. The net increase of approximately
$163,000 in noninterest expense came from increases of approximately
$39,000 in salaries and employee benefits, $23,000 in depreciation and
equipment maintenance, $34,000 in loss on disposal of other real estate
owned, and $17,000 in amortization of intangibles related to the
acquisition of the branch in August, combined with smaller increases in
advertising, occupancy, and postage. Offsetting decreases occurred in
FDIC Insurance of approximately $50,000 and in professional fees of
approximately $25,000 combined with other small decreases.

- 54 -

<PAGE>

The premium for FDIC insurance was reduced to a minimum of $500 per
quarter in 1995.

Noninterest Expenses
(In Thousands)

Year Ended December 31,
1995 1994

Salaries and employee benefits $1,101 $1,062
Occupancy expenses 170 172
Depreciation and equipment maintenance 139 116
Deposit Insurance 64 114
Postage 62 40
Professional fees 45 70
Other operating expenses 512 356
Total $2,093 $1,930

Income Taxes

Reported income tax expense in 1995 was $318,249 compared to
$303,076 in 1994. These amounts correspond to an effective tax rate
of 25.3% and 27.2%, respectively. The decrease in the 1995 effective
tax rate was attributable to increased investments in tax exempt
securities. The average balance of tax-exempt securities increased by
$4.5 million relative to 1994.

Note 8 to BOF's Financial Statement provides a reconciliation
between the amount of income tax expense computed using the federal
statutory income tax rate with BOF's reported tax expense. Also,
included in Note 8 is information regarding the principal items giving
rise to deferred taxes for the two years ended December 31, 1995 and
1994.

Loan Portfolio

Loans, net of unearned income and the allowance for loan losses,
were $37.3 million at December 31, 1995, an increase from $31.8
million at December 31, 1994. Loan demand increased during 1995, but
did not significantly change the mix of the loan portfolio.

Loans secured by real estate comprise 56.2% of the total loan
portfolio as of December 31, 1995, and includes a diverse portfolio of
which single family residential loans comprise 33.1% of the loan
portfolio. Loans secured by commercial real estate comprised 20.6%,
while traditional commercial loans comprised 15.8% of total loans.
The commercial loan category also includes loans secured by other
forms of collateral as well as some unsecured debt. Loans secured by
agricultural real estate and other loans to the agricultural sector
comprise 2.2% and 5.6%, respectively, of the loan portfolio as of
December 31, 1995. Other loans to the agricultural sector include
unsecured loans and loans secured by farm equipment, crops and other
collateral. BOF's consumer portfolio comprised 22.3% of total loans
as of December 31, 1995. Real estate construction loans accounted
for 4.3% of total loans outstanding as of December 31, 1995. BOF has
no loans outstanding to foreign countries.

During the normal course of business, BOF makes various
commitments and incurs certain contingent liabilities which are
disclosed but not reflected in its financial statements. These
commitments and contingent liabilities include commitments to extend
credit and financial standby letters of credit. At December 31, 1995,
commitments for standby letters of credit and guarantees written were
$703,943 and commitments to extend credit were $7,395,299. At
December 31, 1994, commitments for financial standby letters of credit
and guarantees written were $355,000 and commitments to extend credit
totaled $2,138,875.

-55-

<PAGE>

Interest income on installment, agricultural, commercial, and
real estate mortgage loans was computed on the principal balance
outstanding. Most variable rate loans carry an interest rate tied to
BOF's base lending rate, which is set by BOF, or to Money Center
Prime, as published in the Wall Street Journal.

-56-

<PAGE>

Loan Portfolio
(In Thousands)

December 31,
1995 1994

Commercial $6,023 $5,459
Agricultural 2,131 1,354
Real estate construction 1,651 813
Real estate mortgage:
Residential (1-4 family) 9,610 8,065
Home equity lines 1,319 821
Multifamily 84 99
Commercial 7,849 7,897
Agricultural 845 853
29,512 25,361

Loans to individuals:
Consumer 8,378 7,023
Credit cards 140 72
8,518 7,095

Total Loans 38,030 32,456

Less unearned income 42 54
Total Net Loans $37,988 $32,402

Maturity Schedule of Selected Loans
(In Thousands)

December 31, 1995
1 Year 1 to 5 After
or Less Years 5 Years Total

Commercial $ 5,497 $2,492 $165 $8,154
Real-estate mortgage 10,226 9,747 1,385 21,358
Installments and consumer 1,335 6,606 535 8,476

Total $17,058 $18,845 $2,085 $37,988

Loans maturing after one
year with predetermined
rates $ -- $18,121 $2,085

Loans maturing after one
year with variable
rates -- 724 --

Total $ -- $18,845 $2,085

-57-

<PAGE>

Asset Quality

Allowance For Loan Losses. Allowance for loan losses is an
estimate of an amount adequate to provide for potential losses in the
loan portfolio. BOF's loan losses are charged directly to the
allowance when they occur, while recoveries are credited to the
allowance when received. The allowance for loan losses is based upon
management's periodic evaluation of the portfolio with consideration
given to the overall loss experience in the portfolio, delinquency
data, financial condition of borrowers, an analysis of anticipated
economic conditions in the market area, assessment of problem loans,
and such other factors that, in management's judgment, warrant
recognition to provide for an adequate allowance. Because of the
uncertainty inherent in the evaluations, the amount of the allowance
is necessarily approximate and imprecise. In addition, input from
bank regulatory agencies that regularly review the loan portfolio, as
part of their examination process, and advice from BOF's independent
accountants are considered in reviewing and assessing the adequacy of
the allowance for loan losses.

In 1989, BOF experienced unusually high charge off of delinquent
loans due to improprieties by a lending officer. For the years ended
1988 and 1989, the provision for losses on loans amounted to a net
charge off of $4,202,718 and $220,000 respectively. Over the ensuing
years, substantial recoveries were recorded to the loan loss reserve
account negating the need to add to the reserve from current earnings.

BOF had charge-offs in 1995 of $69,436, compared to $132,370 in
1994. BOF's recoveries amounted to $100,036 and $190,186 for the years
1995 and 1994, respectively. As nonaccrual loans are insignificant at
December 31, 1995, and because recoveries have exceeded charge-offs in
1995 and 1994, no additional provision for loan losses was made.

-58-

<PAGE>
Allowance For Loan Losses
(In Thousands)

December 31,
1995 1994

Balance, beginning of period $623 $565

Loans charged off:
Commercial -- --
Real estate 7 22
Installment 63 110
Total loans charged off 70 132

Recoveries:
Commercial 12 79
Real estate 14 24
Installment 74 87
Total recoveries 100 190

Net recoveries (30) (58)
Provision for loan losses 0 0
Balance, end of period $653 $623

Ratio of allowance for loan losses
to total loans outstanding at
end of period 1.72% 1.92%

Ratio of recoveries, net
of charge-offs to average loans
outstanding during period (0.08%) (0.19%)

The breakdown of the allowance for loan losses is based primarily
upon those factors discussed above in computing the allowance for loan
losses as a whole. Because all of these factors are subject to
change, the breakdown is not necessarily indicative of the category
for determining future loan losses.

Allocation of the Allowance for Loan Losses
(In Thousands)

Year Ended Year Ended
December 31, 1995 December 31, 1994
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans

Commercial $140 21.46% $105 16.85%
Real estate-mortgage 325 49.65 325 52.10
Real estate-agriculture 15 2.22 16 2.63
Real estate-construction 28 4.35 16 2.51
Installment and consumer 146 22.31 161 25.91

$654 100.00% $623 100.00%

-59-

<PAGE>

Nonperforming Assets. Total nonperforming assets, which consist
of nonaccrual loans, and foreclosed properties, were $194,000 at
December 31, 1995, a decrease of $409,000 or 67.8% from December 31,
1994. Total nonperforming assets at December 31, 1994 were $603,000.
As of December 31, 1995, BOF's total nonperforming assets represented
.51% of period-end loans and foreclosed property as compared to 1.84%
of total loans as of December 31, 1994. Total nonperforming assets and
loans over 90 days past due and accruing interest were .80% of
period-end loans and foreclosed property as of December 31, 1995 as
compared to 2.07% at December 31, 1994.

-60-

<PAGE>
Nonperforming Assets
(In Thousands)
December 31,
1995 1994

Nonaccrual Loans $19 $234
Restructured Loans 0 0
Foreclosed Properties 175 369
Total nonperforming assets 194 603

Loans past due 90 days
accruing interest 111 74

Allowance for loan losses to
period-end loans 1.72% 1.92%
Allowance for loan losses to
nonaccrual loans 3442.11% 266.24%

Nonperforming assets to period-end
loans and foreclosed property 0.51% 1.84%
Net charge-offs to average loans
outstanding during the period. (0.09%) (0.19%)

-61-

<PAGE>

At December 31, 1995, in addition to loans on either
nonaccrual status or loans past due 90 days accruing interest, BOF had
approximately $979,000 of loans requiring more than normal attention.
These loans represent approximately 2.6% of BOF's total loans, and are
potential problem loans. BOF considered these loans in establishing
the level of the allowance for loan losses.

Loans are placed on nonaccrual status when collection of interest
and principal is doubtful, generally when loans become 90 days past
due, unless they are well secured and in the process of collection.
There are three negative implications for earnings when a loan is
placed on nonaccrual status. First, all interest accrued but unpaid
at the date of the loan is placed on nonaccrual status is either
deducted from interest income or written off as a loss. Second,
accruals of interest are discontinued until it becomes certain that
both principal and interest can be repaid. Third, there may be actual
losses which necessitate additional provisions for loan losses charged
against earnings.

Securities

The amortized cost of the securities portfolio was $31.1 million
at December 31, 1995, compared to $22.7 million at December 31, 1994.
The reason for the increased investment in the securities portfolio is
primarily related to the acquisition of a branch in 1995. In
addition, the mix of the portfolio has changed with an increased
emphasis in tax exempt securities.

Effective January 1, 1994, BOF adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115") and revised its accounting
policy for investments. This pronouncement requires that investments
in debt and equity securities with readily determinable fair values
shall be classified as either "held-to-maturity,"
"available-for-sale," or "trading." Management reviewed the
securities portfolio and classified securities as either
"held-to-maturity" or "available-for-sale." BOF does not have any
securities classified as "trading" securities. Securities classified
as "held-to-maturity" are accounted for at amortized cost and require
BOF to have both the positive intent and ability to hold these
securities to maturity. All other securities are classified as
"available-for-sale" and are carried at fair value with unrealized
gains and losses included in stockholders' equity on an after-tax
basis. Realized gains or losses on the sale of investments are
recognized at the time of sale using the amortized costs of the
specific security sold. On December 1, 1995, pursuant to a special
report issued by the FASB regarding the application of SFAS 115, BOF
reassessed its intent with respect to its securities portfolio. As a
result, held-to-maturity securities, with an amortized cost basis of
$17,415,150 and unrealized gains and losses of $195,311 and $297,105,
respectively, were transferred to the available-for-sale category at
fair value, with the resulting net unrealized loss of $67,184
reflected within the separate component of stockholders' equity.

This increase in the available for sale category was a result of
management's decision to increase its flexibility in managing the
investment portfolio as changing circumstances make it necessary or
desirable to sell specific securities at times which may not be
anticipated at the time of purchase.

As of December 31, 1995, the market value of the
"available-for-sale" portfolio was $31,196,096, which would have
created an after tax gain of approximately $62,604 if all of the
available for sale securities were sold on that date. As of December
31, 1994, the unrealized loss on the available for sale securities was
approximately $92,474 after taxes. The gain or loss is considered a
net unrealized gain and loss for reporting purposes only, and is not
reflected in income, although the after-tax effect is reflected as an
increase or decrease of capital for financial reporting purposes.
BOF's capital-to-asset ratio, not including the above described gains,
was 10.0% and 11.7%, based on assets of $80.8 million and $63.1
million, at December 31, 1995 and December 31, 1994, respectively.
With the unrealized gains and losses included, the capital to asset
ratio is 10.1% and 11.5% for the same periods.

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<PAGE>

Portfolio of Investment Securities
(In Thousands)

December 31,
1995 1994

Available for sale:
Fair value:
U.S. Government agencies $14,127 $4,905
State & local governments 12,729 --
Federal Home Loan Bank 189 --
Corporate debt securities 3,340 1,968
Mortgage-backed securities 811 --
$31,196 $6,873

Held to maturity:
Amortized cost
U.S. Government agencies $ -- $9,369
State & local governments -- 6,254
Corporate debt -- 249
$ -- $15,872

Maturities of Securities Held as of December 31, 1995:
(In thousands)

<TABLE>
<CAPTION>
Over 10
Years
1 Year 1 to 5 to & Equity Fair
or Less 5 Years 10 Years Sec. Total Value(1)
<S> <C> <C> <C> <C> <C>
US Agency Securities:
Amortized cost $2,450 $10,234 $1,540 $415 $14,639 $14,127
Weighted average yield 7.31% 5.54% 6.96% 6.89% 6.03%

State and Local-taxable
Amortized cost -- -- 1,083 150 1,233 1,255
Weighted average yield -- -- 6.35% 6.44% 6.41%

State and Local-tax exempt:(1):
Amortized cost -- 1,348 9,073 967 11,388 11,474
Weighted average yield -- 5.24% 4.85% 6.04% 5.00%

Other Securities:
Amortized cost 250 2,323 684 585 3,842 4,340
Weighted average yield 4.50% 6.55% 6.00% 6.38% 6.27%

Total Securities(1):
Amortized cost 2,700 13,905 12,380 2,117 31,102 31,196
Weighted average yield 7.05 5.68% 5.31% 6.33% 5.69%

</TABLE>
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<PAGE>

(1) Yields on tax-exempt securities are computed on a
taxable-equivalent basis.

Deposits

BOF has made an effort over the years to increase core deposits.
Deposits provide funding for BOF's investment in loans and securities,
and the interest paid for deposits must be managed carefully to control
the level of interest expense. Deposits at December 31, 1995 were $71.5
million, an increase of 29.8% over $55.1 million in 1994, of which $10.7
million were assumed through the acquisition of a branch from a large
bank holding company. Non-interest bearing deposits increased by 27.4%
to $10.5 million at year-end 1995 compared to $8.2 million in 1994.
Interest bearing money market and interest checking deposits remained
fairly stable, while savings deposits increased by 21.8% to $4.9 million
in 1995, from $4.0 million in 1994. Time deposits over $100,000
increased 33.3% to $4.0 million in 1995 compared to $3.0 million in
1994. Other time deposits increased 20.5% from $16.6 million
in 1994, to $28.3 million in 1995. In 1995, BOF began offering
overnight repurchase agreements to a commercial customer, which amounted
to at $336,202 at year end. The average balance of the overnight
repurchase agreement was approximately $50,000 for 1995.

Non-interest bearing accounts were 14.6% of total deposits at
December 31, 1995, compared to 14.9% for year end 1994.

BOF offers individuals and small-to-medium sized businesses a
variety of deposit accounts, including checking, savings, money market,
and certificates of deposits. Certificates of deposit, are obtained
primarily from the community that BOF serves. BOF also carries
interest-bearing deposits with state and local municipal governments,
which in recent years has been a stable source of funds.

Average Deposits and Rates Paid
(In Thousands)

For The Year Ended December 31,
1995 1994
Amount Rate Amount Rate
Noninterest-bearing accounts $8,919 - $7,510 -
Interest-bearing accounts:
Interest checking 8,672 3.07% 7,582 2.99%
Money market 10,986 3.61 10,560 3.09
Regular savings 4,199 3.01 3,893 3.01
Time deposits
Less than $100,000 23,144 5.22 19,591 4.37
$100,000 and over 3,825 5.46 3,125 4.86
Total interest bearing 50,826 4.34 44,751 3.75

Total $59,745 $52,261

Maturities of CD's of Over $100,000
(In Thousands)
<TABLE>
<CAPTION>
Within Three Over Percent
Three To Twelve Twelve Of Total
Months Months Months Total Deposits

<S> <C> <C> <C> <C> <C>
At December 31, 1995 $1,173 $924 $1,942 $4,039 5.62%

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</TABLE>

<PAGE>
Capital Resources

The adequacy of BOF's capital is reviewed by management on an
ongoing basis with reference to the size, composition, and quality of
BOF's resources and consistent with regulatory requirements and
industry standards. Management seeks to maintain a capital structure
that will assure an adequate level of capital to support anticipated
asset growth and absorb potential losses.

The Federal Reserve, along with the Comptroller of the Currency
and the Federal Deposit Insurance Corporation, have adopted new
capital guidelines to supplement the existing definitions of capital
for regulatory purposes and to establish minimum capital standards.
Specifically the guidelines categorize assets and off-balance sheet
items into four risk-weighted categories. At the end of December 31,
1995 and 1994 the required minimum ratio of qualifying total capital
to risk-weighted assets was 8% of which 4% must be tier-one capital.
Tier-one capital includes stockholders' equity, retained earnings and
a limited amount of perpetual preferred stock, less certain goodwill
items. BOF's leverage ratio was 9.40% and 12.25% at December
31, 1995 and 1994, respectively.

Analysis of Capital

December,
1995 1994

Tier 1 Capital:
Common stock. . . . . . . . . . . . . . . . $ 476 $ 476
Additional paid-in capital. . . . . . . . . 3,035 3,035
Retained earnings . . . . . . . . . . . . . 4,583 3,853
Less: disallowed intangibles . . . . . . . (770) -
Total Tier 1 capital. . . . . . . . . . . 7,324 7,364

Tier 2 Capital:
Allowance for loan losses . . . . . . . . . 598 444

Total risk-based capital. . . . . . . . . $ 7,922 $ 7,808

Risk-weighted assets . . . . . . . . . . . . $47,871 $35,516

Capital Ratios:
Tier 1 risk-based capital ratio. . . . . . . 15.32% 20.73%
Total risk-based capital ratio . . . . . . . 16.57 21.98
Tier I capital to average adjusted
total assets. . . . . . . . . . . . . . . . 9.40 12.25
Average equity to average assets . . . . . . 11.32 11.80

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<PAGE>

Short-Term Borrowings

BOF occasionally finds it necessary to purchase federal funds on
a short-term basis due to fluctuations in loan and deposit levels. BOF
has several arrangements whereby it may purchase funds. At the
current time, lines of credit for such funds are in place in the
amount of $11.5 million. BOF short-term borrowings are the purchase
of federal funds and overnight repurchase agreements. For 1995,
average daily federal funds purchased were $5,000 and average
overnight repurchase agreements were $50,000. BOF did not purchase
federal funds during the year 1994. BOF has been, and continues to
be, a net provider of funds in the market place.

Liquidity

Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of
existing assets or the acquisition of additional funds through
liability management. Liquid assets include interest-bearing deposits
with banks, federal funds sold, securities, and loans maturing within
one year. As a result of BOF's management of liquid assets and the
ability to generate liquidity through liability funding, management
believes that BOF maintains overall liquidity sufficient to satisfy
its depositors' requirements and meet its customers' credit needs.

BOF cash and cash equivalents totalled $9.1 million and $6.4
million for the years ended December 31, 1995 and December 31, 1994,
respectively. At December 31, 1995, BOF had overnight Federal Funds
Sold of $4.7 million to meet immediate liquidity needs.

During the year ended December 31, 1995, BOF had net positive
cash flows from both operating and financing activities, which
contributed to an increase in cash and cash equivalents during 1995.
In August of 1995, BOF acquired a branch of a large bank hoding
company which contributed $9.9 million to cash and cash equivalents in
investing activities. Most of these funds were emloyed in investment
securities and federal funds sold. Cash utitlized in investing
activities amounted to $4.0 million principally due to the purchase of
investment securities. Cash provided by financing activities amounted
to $5.7 million, of which %5.2 million was attibutable to a net
increase in certificates of deposits. For 1994, net cash was provided
from financing activities of $4.1 million and from operating
activities of $1.3 million which was used to fund $6.6 million in
investing activities. This contributed to the decrease in cash and
cash equivalents.

For the year ended December 31, 1995, cash, available-for-sale
securities, and federal funds sold were $40.3 million or 51.9% of
total earning assets. At December 31, 1994, cash, available-for-sale
securities, and federal funds sold were $13.3 million or 21.8% of
total earning assets. On December 31, 1995, and December 31, 1994,
securities classified as available-for-sale represented 100.0% and
30.2% respectively of total securities. Asset liquidity is also
provided by managing loan maturities. At December 31, 1995, $17.1
million or 44.9% of loans were maturing or repricing within a one year
period, and at December 31, 1994, $12.2 million or 38.3% of loans
would mature or be repriced within a one year period.

BOF has no long-term debt and no material commitments for capital
expenditures.

Impact of Inflation and Changing Prices in Seasonality

The financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and
operating results in terms of historical dollars, without considering
changes in the relative purchasing power of money over time due to
inflation.

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<PAGE>

effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the
price of goods and services, since such prices are affected by
inflation. BOF is located in a somewhat diversified employment area of
the City of Franklin, Southampton County, Isle of Wight County, and
the Holland area of the City of Suffolk and is heavily dependent on
agriculture and timber related industries. Its market is also
dependent, to a lesser degree, upon businesses and industries located
in the southeastern portions of Virginia known as the Greater Hampton
Roads area.

Because of the seasonality of the agricultural industry, the
volume of loans and deposits typically fluctuate during the year.
Loans typically are heaviest from April to December and deposits
remain fairly stable over the course of the year. At the end of each
year, and the beginning of the following year, loans decrease as a
result of the sale of the fall harvest.

New Accounting Pronouncements

Financial Accounting Standards Board Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed" was issued in March, 1995, and requires that
long-lived assets and certain identifiable intangibles held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This pronouncement is effective for fiscal years
beginning after December 15, 1995, and its adoption is not expected to
have a material effect on BOF's financial statements.

In May 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 122, "Accounting for Mortgage Servicing Rights"
(FASB No. 122). FASB No. 122 requires that the cost of loans
(including origination costs) be allocated between the cost of the
mortgage servicing rights and the loan based on relative fair values,
when loans are to be sold or securitized. The cost of mortgage
servicing rights would be recorded as an asset and amortized over the
estimated servicing period, with periodic evaluations and, if
necessary, write downs for impairment. The Statement must be
implemented prospectively for fiscal years beginning after December
15, 1995. As the Bank does not maintain a servicing portfolio of
residential-mortgage loans, FASB 122 is not expected to have a
material effect on the Bank's financial statements.

In October 1995, the FASB issued Statement No. 123, "Accounting
for Stock-Based Compensation." This Statement encourages all entities
to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant
date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over
the amount an employee must pay to acquire the stock. Entities
electing to remain with the accounting in Opinion No. 25 must make pro
forma disclosures of net income and earnings per share, as if the fair
value based method of accounting had been applied.

Generally, stock options issued under the Corporation's stock
option plan have no intrinsic value at the grant date, and under
Opinion No. 25 no compensation cost is recognized for them. The
accounting requirements of this Statement are generally effective for
transactions entered into in fiscal years that begin after December
15, 1995. The disclosure requirements of this Statement are generally
effective for financial statement for fiscal years beginning after
December 15, 1995. It is anticipated that the Corporation will
continue its current accounting treatment for stock options and make
the pro forma disclosures proscribed by this Statement.

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<PAGE>
INFORMATION CONCERNING THE BANK OF SUSSEX AND SURRY

Business

The Bank of Sussex and Surry ("BSS") was organized and chartered
under the laws of the Commonwealth of Virginia on April 12, 1902 and
commenced operations on July 31, 1902. BSS is a state non-member
bank. Its deposits are FDIC insured, and the bank is subject to
supervision, examination, and regulation of the FDIC and the Virginia
Bureau of Financial Institutions. BSS provides a wide range of
financial services, principally to individuals and to small and
medium-sized businesses, including individual and commercial demand,
savings, and time deposit accounts, commercial, agricultural and
consumer loans, credit cards, travelers checks, safe deposit
facilities, ATM services, sales of United States Savings Bonds,
collection items and official checks. BSS also offers a wide array of
real estate mortgage products including a long term fixed-rate
mortgage product which is sold in a secondary market. BSS is
authorized to provide trust services, but does not currently do so.

BSS operates three full service banking offices in the Towns of
Wakefield, Ivor, and Surry. BSS also has a ATM facility located on
Highway 460 in the Town of Wakefield.

BSS has one subsidiary, BSS Service Corporation, established in
1994. The sole activity of BSS Service Corporation, at the present
time, is ownership in a title insurance agency, Bankers Title, L.L.C.,
which is owned by other Virginia banks and savings institutions.

BSS's main office and a branch of another community bank are the
only banking offices in the Town of Wakefield. BSS's Ivor branch,
established in 1904, is the only banking office in the Town of Ivor,
and its Surry branch, opened in 1992, is one of two banking offices in
the Town of Surry, with the other banking office being a branch of a
State-wide banking institution. BSS primarily serves a majority of
Sussex County, all of Surry County and the northeastern portion of
Southampton County. The economy is predominantly rural in nature with
agriculture, timber, small business and local governments providing
the majority of economic activity. Based upon a survey of deposit
accounts by the McIntire School of Commerce, University of Virginia,
as of June 30, 1995, BSS held 25.2% of the bank deposits in Sussex
County, 16.8% of the deposits in Southampton County and 27% of the
deposits in Surry County.

Properties and Employees

BSS's main office is located at 205 Railroad Avenue in Wakefield,
Virginia. The Ivor branch office is located at 8314 Main Street,
Ivor, Virginia and the Surry branch office is located at 207 Colonial
Trail East, Surry, Virginia. BSS also owns property located on 535
County Drive (Highway 460) in the Town of Wakefield on which it has a
remote stand-alone ATM facility. This property is also owned for
possible future expansion purposes.

As of December 31, 1995, BSS had the equivalent of twenty-nine
full-time employees. None of its employees are represented by any
collective bargaining unit. BSS considers relations with its
employees to be good.

Competition

The banking industry is highly competitive in BSS market area.
There are approximately five banks engaged in business in the general
area in which BSS operates, including three community banks, and two
state-wide banking organizations. Also in this general market area,
is a Farm Credit Bank, which is highly competitive in the agricultural
loan market. BSS encounters competition for deposits and loans from
the aforementioned competitors in the area in which it operates as
well as credit unions and finance companies. In addition, BSS must
compete for deposits with the Money Market mutual funds which are
marketed nationally.

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<PAGE>

BSS is not dependant upon a single customer, or a few customers,
the loss of one or more of which would have a material adverse effect
on its operations.

Lending Activities

BSS's lending activities are primarily making loans to small
businesses, farmers and agricultural related industry and consumers in
its local market area. Business and consumer loans secured by real
estate represent the largest segment of the bank's loan portfolio. As
of December 31, 1995, 57.5% of the loan portfolio was secured by real
estate. BSS also provides a wide range of business and consumer loans
that are not secured by real estate. BSS's lending activities are
principally directed to its defined market area of portions of Sussex
and Southampton Counties, Surry County and adjacent areas. BSS does
make loans out of its defined market and has participation loans with
or through other Virginia - based community banks. Most lending
activity however, is within its defined primary market area.

Commercial Business Lending. BSS's commercial loans are
primarily made to local service and retail businesses, farmers, and
timber related businesses. These loans serve a variety of purposes,
including revolving lines of credit, working capital loans, equipment
loans, letters of credit, construction loans and the financing of
commercial real estate. Pricing on commercial loans is generally tied
to the depository relationship and/or the perceived risk involved in
the credit. Loans secured by commercial real estate are generally
financed over a fifteen or twenty year amortization period that
matures with a balloon payment on the second or third anniversary of
the loan.

BSS normally looks to the borrower's cash flow and/or earnings as
the source of repayment for commercial and agricultural business
loans, and most of these loans are both secured and personally
guaranteed by the principals of such businesses. As of December 31,
1995, loans secured by commercial real estate comprised 13.5% of total
loans and loans secured by agricultural real estate comprised 6.6% of
total loans. Other loans to commercial and industrial businesses and
to the agricultural sector comprised 15.5% and 11.8% of total loans,
respectively. These loans include loans secured by various forms of
collateral and also include some unsecured credits Loans secured by
non-residential real estate are generally limited to loan amounts
equal to 75% to 80% of the property's appraised value.

Real Estate Construction Lending. At December 31, 1995, real
estate construction loans comprised $620,000 or 2.1% of total loans.
The majority of these loans are for one - to - four family residences,
which are either contract homes or "owner - built" financing with
permanent financing prearranged with another lender or with BSS. In
general, BSS does not originate permanent mortgage loans or
construction loans on income producing properties such as apartments,
shopping centers, hotels and large office buildings. To minimize the
risk associated with construction lending, BSS normally limits loan
amounts to 80% of the project's appraised value. BSS also obtains a
first lien on a secured property as collateral for its construction
loans.

Residential Mortgage Lending. BSS attempts to reduce its
exposure to the risk of the local real estate market by making loans
secured by real estate primarily on owner-occupied properties. As of
December 31, 1995, approximately 35.3% of the loan portfolio was
comprised of loans secured by predominantly single family residential
properties. The residential mortgage portfolio consists primarily of
loans with fifteen to twenty year amortization schedules that mature
with a balloon payment on the third anniversary of the loan. BSS has
just recently become involved in selling long term fixed rate
mortgages in the secondary market through a correspondent relationship
with a large savings institution. These loans are originated by BSS
for a fee and are closed and funded by the correspondent.

Consumer Lending. BSS currently offers most types of consumer
and installment loans including automobile loans and home equity lines
of credit. BSS also extends consumer credit through its Visa credit card
program. As of December 31, 1995, BSS's consumer loan portfolio comprised

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<PAGE>

15.1% of total loans. The performance of the consumer loan portfolio
is directly tied and dependent upon the general economic conditions in
BSS's market area.

Credit Policies and Administration. BSS has adopted
comprehensive lending policies with detailed underwriting standards
for all types of loans and pricing guidelines. Although the bank's
Chief Executive Officer has loan authority of $100,000, most loans
receive approval prior to funding by the bank's loan committee which
is comprised of loan officers and four members of the Board of
Directors. BSS employs experienced loan officers, secures appropriate
collateral and carefully monitors the financial condition and
repayment ability of borrowers and the concentration of such loans in
the loan portfolio.

Certain Beneficial Owners of Securities

The following table sets forth, as of March 31, 1996, the number
and percentage of shares of Common Stock of BSS held by persons known
by BSS to be the owners of more than five percent of the bank's issued
and outstanding Common Stock, and each of the executive officers of
the bank not otherwise named in the beneficial ownership table related
to the nominees and incumbent directors of the bank.

Name and Address Amount and Resulting
of Beneficial Nature of Percent of Ownership of Percent of
Owner Ownership Class (1) Holding Company Class (1)

J. P. Bain 32,813(2)(3) 10.76% 98,439(3) 5.38%
Wakefield Virginia

J. Philip Bain, Jr. 21,675(2) 7.11% 65,025 3.55%
Chester Virginia

Hannah B. Bain 33,332(4) 10.93% 99,996(4) 5.47%
Wakefield, Virginia

Robin B. King 15,495 5.08% 46,485 2.54%
Ivor, Virginia

J. Russell West 19,325(2) 6.34% 57,975(2) 3.17%
Ivor, Virginia

John W. Baggett, Jr. 100(5 * 300 *
Suffolk, Virginia

Douglas A. Chesson 635(5) * 1,905 *
Zuni, Virginia

H. Massey Joyner 975(5) * 2,925 *
Ivor, Virginia

* Represents less than 1% of total outstanding shares.

(1) For purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 of
the Securities Exchange Act of 1934 under which, in general, a
person is deemed to be the beneficial owner of a security if he
has or shares the power to vote or direct the voting of the
security or the power to dispose of or direct the disposition
of the security, or if he has the right to acquire beneficial
ownership of the security within sixty days.

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<PAGE>

(2) Refer to the beneficial ownership table provided in
"Election of Directors of The Bank of Sussex and Surry" for
detailed descriptions of the nature of the beneficial ownership
for the listed individual.

(3) Amount does not include the 33,332 shares of BSS held by
Mr. Bain's spouse, Hannah B. Bain, or the 99,996 shares of the
Holding Company held by Mrs. Bain on a resulting ownership
basis, listed elsewhere in this table.

(4) Amount does not include the 32,813 shares of BSS held by
Mrs. Bain's spouse, J. P. Bain, or the 98,439 shares of the
Holding Company held by Mr. Bain on a resulting ownership
basis, listed elsewhere in this table. See also note 2 above
for additional information regarding Mr. Bain's beneficial
ownership.

(5) Includes shares held by spouse or jointly with spouses: Mr.
Baggett, 100 shares; Mr. Chesson, 635 shares; Mr. Joyner, 935
shares; Mr. West, 200 shares.

Executive Officers. The following table sets forth certain
information concerning executive officers of BSS.

<TABLE>
<CAPTION>
Name (and Age) Present Position
<S> <C>
D. Eugene Brittle (46) President and Chief Executive Officer of BSS, Chief Executive Officer
since 1986; President 1994-Present.

John W. Baggett, Jr. (64) Vice President of BSS since 1988; Manager of BSS's Surry Office since
1992.

Douglas A. Chesson (33) Vice President, Cashier and Secretary of BSS; Vice President since 1988;
Cashier since 1994; Secretary since 1994.

H. Massey Joyner (58) Vice President of BSS since 1988; Manager of BSS's Ivor office since
1983.

</TABLE>

Executive Compensation. The following table sets forth the
compensation of BSS's President and Chief Executive Officer, Mr.
Brittle, for the fiscal years ended December 31, 1995, 1994, and 1993.
No officer received in excess of $100,000 for such years. Mr. Brittle
received no stock options or warrants nor compensation of any kind
except as indicated below.

Summary Compensation Table
Annual Compensation

Name and Principal All Other
Position Year Salary Bonus Compensation(1)

D. Eugene Brittle 1995 $75,020 - $2,526
President and Chief 1994 $71,500 - $2,191
Executive Officer 1993 $68,200 - $1,956

(1) Consists of premiums paid for life insurance policies with death
benefits over $50,000, as reported for federal income tax
purposes, directors' fees, and value of automobile benefits as
reported for federal income tax purposes.

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<PAGE>

Employment Contract

BSS entered into a severance agreement with Mr. Brittle as of
April 1, 1996. The agreement was unanimously approved by the
independent members of the Board of Directors of BSS. The agreement
provides for certain benefits in the event of a change in control of
BSS followed by termination of Mr. Brittle's employment without cause,
or by Mr. Brittle for certain reasons, including substantial adverse
change in responsibilities, decrease in base pay, change in principal
work location, or substantial decrease in benefits. Cause shall mean
termination for dishonestly, conviction of a felony, or willful
unauthorized disclosure of confidential information of BSS.

The agreement provides for a three year term. The term will be
extended automatically for an additional calendar year unless, at
least 60 days prior to the end of that year, BSS gives notice to Mr.
Brittle that the agreement will not be renewed. The current agreement
is operative until December 31, 1998. The agreement automatically is
extended for 36 months if a change in control occurs.

If a change in control occurs and benefits are paid under the
agreement, the principal benefits are as follows: (i) a lump sum
severance payment in an amount equal to 2.99 times the average annual
compensation payable by BSS to Mr. Brittle for the taxable years
during the period consisting of the most recent three taxable years
ending before the date on which the change in control occurs reduced
by any amounts payable to Mr. Brittle upon termination of employment
pursuant to any termination allowance policy or other severance pay
plan covering BSS employees; (ii) if Mr. Brittle becomes entitled to a
severance payment and if any part or all of the severance payment will
be subject to excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, then the amount otherwise payable to
Mr. Brittle shall be reduced as necessary so that no part of such
payment will be subject to the excise tax; and (iii) BSS has agreed to
pay all legal fees and expenses if any incurred by Mr. Brittle in
connection with obtaining these benefits. The consummation of the
Reorganization will not trigger the "change of control" provisions of
Mr. Brittle's agreement. However, in the event that such provisions
had been triggered, as of May 1, 1996, Mr. Brittle would have been
entitled to receive approximately $214,000.

Employee Benefit Plans

Retirement Plan. BSS has a non-contributory defined benefit
pension plan ("BSS Retirement Plan") which covers all employees who
are at least twenty and a half years old, who have at least six months
of service, and who worked at least 1000 hours during the year. The
benefits are based on years of service and employees compensation
during the last three years of employment. BSS's funding policy has
been to contribute annually the maximum amount that can be deducted
for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to services to date but also
for those expected to be earned in the future. Cash benefits under
the plan generally commence upon retirement, death, or other
termination of employment and are payable in various forms, generally
at the election of the participant. A participant's benefits under
the plan generally become fully vested only after a participant has
completed five years of service. Based on current compensation and
assuming retirement at the normal retirement age of 65, it is
estimated that the annual retirement benefit for Mr. Brittle would be
$27,208.

BSS's retirement plan expense was $62,986 and $59,336 in 1995 and
1994, respectively.

BSS's includes a pre-retirement benefit provision to pay a 50%
joint and survivor annuity to any surviving spouse in the event a
terminated vested or an active participant died before eligibility for
early retirement. The annuity is payable from the date the
participant would have been eligible for retirement under the plan.

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<PAGE>

Legal Proceedings

In the course of its operations, BSS is party to various legal
proceedings. BSS does not believe that the outcome of these formal
proceedings, individually or in aggregate, will have a material
adverse effect on BSS's business, financial position, or results of
operations.

Certain Transactions.

Some of the directors and officers of BSS and their families are
at present, as in the past, customers of BSS, and have had and expect
to have transactions with BSS in the ordinary course of business. In
addition, some of the directors and officers of BSS are at present, as
in the past, also directors and officers of corporations which are
customers of BSS and which have had or expect to have transactions
with BSS in the ordinary course of business. Such transactions were
made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, and did not
involve more than normal risk of collectibility or present other
unfavorable features.

Certain directors and officers of BSS, members of their immediate
families, and corporations, partnerships and other entities with which
such persons are associated are customers of BSS. As such, these
persons engaged in transactions with BSS in the ordinary course of
business during 1995, and will have additional transactions with BSS
in the future. All loans extended and commitments to lend by BSS to
such persons are made in the ordinary course of business upon
substantially the same terms, including interest rates and collateral
as those prevailing at the time for comparable transactions with
unaffiliated persons and do not involve more than the normal risk for
collectibility or present other unfavorable features. As of December
31, 1995, the amount of loans, direct and indirect, from BSS to
executive officers, directors of BSS, shareholders holding more than
5% of the outstanding voting securities and entities in which they own
significant interest, was $677,445. Unadvanced lines of credit to
executive officers and directors and entities in which they are
significantly interested were an additional $702,858.

Community Reinvestment Act

The federal supervisory agencies share authority to implement
regulations under the Community Reinvestment Act of 1979, as amended
("CRA"). The general purpose of the CRA is to encourage lenders,
while operating safely and soundly, to meet the credit needs of their
communities. The CRA specifically directs regulators, when examining
a lender, to access the lender's record of helping to meet the credit
needs of the entire community, including low and moderate-income
neighborhoods. For example, the regulators will evaluate and take
into account a lender's record of meeting its community's credit needs
when evaluating a lender's application for creation of a new branch.
BSS has always had a "Satisfactory" rating with respect to its
compliance with CRA.

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<PAGE>

BSS'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULT OF OPERATIONS

The following discussion provides information about the major
components and the results of operations and financial condition,
liquidity and capital resources of BSS. This discussion and analysis
should be read in conjunction with BSS's Consolidated Financial
Statements and Notes thereto included in this Joint Proxy Statement.

Overview

BSS reported net income of $775,807 in 1995, compared to $606,557
in 1994, representing an increase of 27.9%. Earnings per share
increased to $2.54 per share in 1995 compared to $1.99 per share in
1994. The increased earnings during this period were primarily due to
higher levels of net interest income, a slight reduction in provision
for loan losses, increased other income and a reduction in other
expenses, primarily attributable to a refund and reduction of deposit
insurance premiums.

Return on average equity increased 20.0% to 8.4% in 1995 from
7.0% in 1994. Return on average assets also increased during 1995, to
1.29% compared to 1.05% in 1994.

BSS assets at year-end 1995 were $62.5 million, up 7.0% over
$58.4 million at year end in 1994. Loan growth during 1995 was flat
as net loans at 1995 year end decreased slightly to $28.8 million
compared to $29 million at year end 1994.

On a tax equivalent annualized basis, BSS's net interest margin
was 4.54% in 1995 compared to 4.60% in 1994.

BSS is not aware of any trends, future events or uncertainties
that will have a material adverse effect on the Bank. Obviously,
unforeseeable changes in the local economy, which the Bank is unable
to predict, may impact the overall community and ultimately the
performance of the institution. However, except as otherwise
disclosed herein, the Bank is not aware of any such changes.

Net Interest Income

Net interest income represents the principal source of earnings
for BSS. Net interest income equals the amount by which income
exceeds interest expense. Changes in the volume and mix of
interest-earning assets and interest-bearing liabilities, as well as
their respective yields and rates, have a significant impact on the
level of net interest income.

Net interest income in 1995 increased to $2,430,934 compared to
$2,323,348 in 1994. The increase was primarily attributable to an
increase in interest income resulting from: a) increased loan volume,
which on an average net loan basis was $29.9 million in 1995 up from
an average of $29.1 million in 1994; b) increases in investment
securities and c) increased sales of federal funds. Increases in
these areas were offset somewhat by increased interest expense on
deposits as interest-bearing deposits grew to $46.2 million after
falling in 1994 from the year-end 1993 level of $44.7 million to $43.0
million. Also contributing to net interest income was interest
received on loans in nonaccrual status during 1995 of $92,050 compared
to $40,544 received on these loans in 1994. While the tax-equivalent
yield on interest earning assets increased to 7.95% in 1995 compared
to 7.57% in 1994, this was more than offset by an increase in funding
costs on interest bearing deposits which increased from 3.78% in 1994
to 4.40% in 1995. Nevertheless the net interest margin only fell
slightly to 4.54 % in 1995 from 4.60% in 1994 due to a larger increase
in earning assets compared to increases in interest-bearing
liabilities and the aforementioned recovery of interest on nonaccrual
loans.

The following table depicts interest income on earning assets and
related average yields as well as interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated.

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<PAGE>

Average Balances, Income and Expenses, Yields and Rates

<TABLE>
<CAPTION>
Twelve Months Ended December 31,
1995 1994
Average Income/ Yield Average Income/ Yield
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets:
Securities:
Taxable $17,232 $ 992 5.76% $16,341 $ 906 5.54%
Tax-exempt (1) 6,446 506 7.85 6,704 542 8.08
Total securities 23,678 1,498 6.33 23,045 1,448 6.28
Loans (net):
Taxable 30,468 2,870 9.42 29,480 2,598 8.81
Tax-exempt (1) - - - 126 12 9.52
Total loans net (2) 30,468 2,870 9.42 29,606 2,610 8.82
Federal funds sold and
repurchase agreements 3,204 189 5.90 1,941 76 3.92
Interest-bearing
deposits in other
banks - - -
Total earning assets 57,350 $4,557 7.95 54,592 $4,134 7.57
Less: allowance for
loan losses (580) (477)
Total nonearning assets 3,426 3,439
Total assets $60,196 $57,554

Liabilities and Shareholders' Equity:
Interest-bearing deposits:
Checking $4,367 $ 121 2.77% $ 4,825 $ 128 2.65%
Regular savings & 6,819 221 3.24 7,136 229 3.21
club accounts
Money market savings 8,249 296 3.59 8,655 278 3.21
Certificate of deposit:
$100,000 and over 6,170 298 4.83 4,548 190 4.18
Under $100,000 18,822 1,019 5.41 17,745 797 4.49
Total interest-bearing
deposits 44,427 1,955 4.40 42,909 1,622 3.78
Short-term borrowings - - - 48 2 4.17
Total interest-bearing
liabilities 44,427 1,955 4.40 42,957 1,624 3.79
Noninterest-bearing
liabilities:
Demand deposits 6,131 5,592
Other liabilities 389 320
Total liabilities 50,947 48,869
Shareholders' equity 9,249 8,685
Total liabilities &
shareholders' equity $60,196 $57,554
Net interest income $ 2,602 $ 2,570
Interest rate spread 3.55% 3.78%
Interest expense as a percent 3.41% 2.97%
of average earning assets
Net interest margin 4.54% 4.60%
____________________

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<PAGE>

(1) Income and yields are reported on a taxable equivalent basis
assuming a federal tax rate of 34%

(2) Nonaccruing loans are included in their respective categories.

(3) The change in interest, due to both rate and volume, has been
allocated to change due to volume and change due to rate, in
proportion to the relationship of the absolute dollar amounts of
the change in each.

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<PAGE>

The following table analyzes changes in net income attributable
to changes in the volume of interest-bearing assets and liabilities
compared to changes in interest rates.

Bank of Sussex & Surry
Volume and Rate Analysis

1995 vs 1994 1994 vs 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
Volume Rate Total Volume Rate Total
Assets:
Securities:
Taxable $51 $35 $86 $64 ($24) $40
Tax-exempt (1) (21) (15) (36) 11 (39) (28)
Total securities 30 20 50 75 (63) 12
Loans (net):
Taxable 89 183 272 155 (84) 71
Tax-exempt (1) (6) (6) (12) 1 2 3
Total loan 83 177 260 156 (82) 74
Federal funds sold and
repurchase agreements 64 49 113 (80) 32 (48)
Interest-bearing deposits
in other banks - - - - - -
Total earning
assets $177 $246 $423 $151 ($113) $38
Interest-bearing deposits:
Checking ($13) $6 ($7) $1 ($17) ($16)
Regular savings & (10) 2 (8) 5 (22) (17)
club accounts
Money mkt. savings (13) 31 18 (7) (12) (19)
Certificate of deposit:
$100,000 and over 75 33 108 24 (10) 14
Under $100,000 51 171 222 (20) (26) (46)
Total interest-bearing
deposits 90 243 333 3 (87) (84)
Short-term borrowings (1) (1) (2) 0 2 2
Total interest-bearing
liabilities $89 $242 $331 $3 ($85) ($82)

Change in net interest
income $88 $4 $92 $148 ($28) $120

Interest Sensitivity

An important element of both earnings performance and the
maintenance of sufficient liquidity is management of the interest
sensitivity gap. The interest sensitivity gap is the difference
between interest sensitive assets and interest sensitive liabilities
in a specific time interval. The gap can be managed by repricing
assets or liabilities, effected by selling securities available for
sale, by replacing an asset or liability at maturity or by adjusting
the interest rate on the life of an asset or liability. Matching the
amounts of assets and liabilities repricing in the same time interval,
helps to hedge the risk and minimize the impact on interest income in
periods of rising and falling interest rates by the Bank.

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<PAGE>

BSS evaluates interest sensitivity risk in accordance with its
asset liability policy, and then formulates strategy regarding asset
originations and pricing and funding sources and pricing, and
off-balance sheet commitments in order to decrease sensitivity risk.
These strategies are based on management's outlook regarding future
interest rate movements, the state of the regional and national
economy and other financial and business risk factors. BSS
establishes prices for deposits and loans based primarily on local
market conditions.

At December 31, 1995, BSS had only $28,000 more in liabilities
than assets repricing within one year or less, and was, therefore in a
neutral position as regards to interest rate sensitivity for that
period with a negative .1% cumulative gap.

Generally, positive gaps affect net interest margins and earnings
negatively in periods of falling rates and conversely, higher negative
gaps adversely impact net interest margin and earnings in periods of
rising rates as a higher volume of liabilities will reprice than
assets over the period for which the gap is computed. To reduce the
impact of shifting interest rates, $14.5 million of total loans at
December 31, 1995 were either on a variable interest rate or maturing
within one year at which time they could be repriced. In addition, at
December 31, 1995 federal funds sold, which are repriceable daily were
$3.1 million and securities held in the available for sale category
totaled $16.2 million which could be sold quickly to meet special
funding needs or to adjust the bank's interest rate sensitivity
position.

The following table presents BSS's interest sensitivity position
at December 31, 1995. This is a one day position which is continually
changing and is not necessarily indicative of BSS's position at any
other time.

Interest Sensitivity Analysis

December 31, 1995(1)
Within 90-365 1 to 5 Over
90 days days Years 5 Years Total
(In thousands)
Earnings Assets:
Loans (net) (2) $7,793 $6,671 $14,555 $169 $29,188
Securities (3) 3,681 4,312 15,271 3,659 26,923
Federal funds sold 3,058 3,058
Total earning assets $14,532 $10,983 $29,826 $3,828 $59,169

Interest-bearing Liabilities:
Interest checking (4) $ $ $ $4,466 $ 4,466
Regular savings (4) 6,799 6,799
Money market savings 8,921 8,921
Certificates of deposit:
$100,000 and over 1,503 3,167 1,788 6,458
Under $100,000 3,805 8,147 7,612 19,564
Total interest-
bearing liabilities $14,229 $11,314 $9,400 $11,265 $46,208

Period gap 303 (331) 20,426 (7,437)
Cumulative gap 303 (28) 20,398 12,961
Ratio of cumulative gap
to total earning assets 0.5% (0.1%) 34.5% 21.9%

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<PAGE>

____________________
(1) The repricing dates may differ from maturity dates for certain
prepayment assumptions.

(2) Excludes nonaccrual loans.

(3) Securities classified "available-for-sale" are carried at estimated
fair value. Securities classified "held to maturity" are carried
at amortized cost or book value.

(4) BSS has found that its interest-checking deposits and regular
savings historically represent core deposits and are not sensitive
to changes in related market rates and therefore have been placed
in the over five year column.

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<PAGE>

Other Income

Other income for 1995 increased by $34,648, or 15.39% from the
$225,158 reported in 1994. In part, increases in service charges on
deposit accounts contributed to the increase along with a gain on
other real estate owned in the amount of $52,500.

Other income in 1994 increased $6,165 to $225,158 from $218,993
in 1993. In 1994 the bank reported losses on sales of securities of
$4,536 compared to a gain on securities in 1993 of $41,202, when
management made the decision to sell certain mortgage-backed
securities during a period of declining rates and rapid pre-payments
on this category of securities. Also contributing in 1994 to other
income was $49,358 in attorney's fees previously expended and
recovered in the course of the collection of a nonperforming loan.

Other Income

Year Ended December 31,
1995 1994
(In thousands)
Service charges on deposit accounts $163 $136
Fees for other customer services 40 36
Other operating income 6 58
Gain on sale of other real estate 53
Other income 262 230
Securities losses, net (2) (5)

Total other income $260 $225

Other Expenses

During 1995, other expenses decreased by $42,594 or 2.8% over
1994. This decrease was primarily due to a $53,105 or a 48.7%
decrease in deposit insurance premiums. Other factors contributing to
decreases in other expenses were decreases in legal fees, franchise
tax, and $14,535 in IRS interest expense paid in 1994 in settlement of
an IRS tax audit. These decreases more than offset the 5.2% increase
in salary expense from $584,090 in 1994 to $626,440 in 1995. Expenses
associated with employee benefits, occupancy and equipment remained
relatively flat during 1995.

Other expenses increased $99,482 or 7.00% in 1994 increasing to
$1,528,459. The 1994 increase was primarily attributable to a $20,343
or 3.61% increase in salaries, a $13,009 increase in pension expense,
a $10,888 increase in state franchise tax and a $14,535 IRS interest
expense associated with the aforementioned IRS tax audit. Smaller
increases in legal expenses, deposit insurance premiums, accounting
and consulting fees, and bank examination fees also contributed to the
increase in other expenses in 1994.

The premium for FDIC insurance was reduced to a minimum of $500 per
quarter in 1995.

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<PAGE>

Other Expenses

Year Ended December 31,
1995 1994
(In Thousands)

Salaries and employee benefits $808 $766
Net occupancy expense or premises 89 88
Furniture and equipment expense 82 80
FDIC Assessment 56 109
Other operating expenses 451 485
Total $1,486 $1,528

Income Taxes

Reported income tax expense in 1995 was $246,539, compared to
$195,682 in 1994. These amounts correspond to an effective tax rate
of 24.1% and 24.4% respectively. The increase in 1995 income tax
expense was attributable to higher earnings from an increased net
interest margin, a lower provision for loan losses, higher service
charge income from deposit accounts and lower deposit insurance
premiums.

The decrease in income tax expense in 1994 was attributable to
lower earnings which were primarily a result of a higher provision for
loan losses.

Note 6 to BSS Financial Statement provides a reconciliation
between the amount of income tax expense computed using the federal
statutory income tax rate with BSS's reported tax expense. Also
included in Note 6 is information regarding the principal items giving
rise to deferred taxes for the three years ended December 31, 1995.

Loan Portfolio

Loans, net of unearned income, deferred loan fees, and the
allowance for loan losses, were $28.8 million at December 31, 1995, a
slight decrease from the $29.0 million at December 31, 1994. During
1995, loan demand was flat and the loan mix remained relatively
unchanged.

Loans secured by real estate comprise 57.5% of the total loan
portfolio as of December 31, 1995 and includes a diverse portfolio of
predominately single family residential loans, which comprise 35.3% of
the loan portfolio. Loans secured by commercial real estate comprised
13.5% and commercial and industrial comprised 15.5% of total loans.
The commercial and industrial loan category also includes loans
secured by real estate and other forms of collateral as well as some
unsecured debt. Loans secured by agricultural real estate and other
loans to the agricultural sector comprise 6.6% and 11.8% respectively
of the loan portfolio as of December 31, 1995 with the latter category
including loans also secured by real estate as well as other forms of
collateral, principally farm equipment and also includes some
unsecured credits. BSS's consumer portfolio comprised 15.1% of total
loans as of December 31, 1995. BSS attempts to reduce its exposure to
the risk of the local real estate market by making loans secured by
real estate primarily on owner occupied properties. BSS historically
has engaged in limited mortgage lending on multi-family properties.
Real estate construction loans accounted for 2.1% of total loans
outstanding as of December 31, 1995. BSS has no loans outstanding
from foreign countries.

During the normal course of business, BSS makes various
commitments and incurs certain contingent liabilities which are
disclosed but not reflected in its financial statements. These
commitments and contingent liabilities include commitments to extend
credit and financial standby

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<PAGE>

letters of credit. At December 31, 1995 commitments for standby
letters of credit were $86,000 and commitments to extend credit were
$4.7 million. At December 31, 1994, commitments for financial standby
letters of credit totaled $101,065 and commitments to extend credit
also totaled $4.7 million.

Interest income on installment, agricultural, commercial, and
real estate mortgage loans was computed on the principal balance
outstanding. Most variable rate loans carry an interest rate tied to
BSS's base lending rate, which is set by BSS, or to Money Center
Prime, as published in the Wall Street Journal.

Loan Portfolio

December 31,
1995 1994
(In Thousands)
Commercial $4,623 $4,582
Agricultural 3,463 3,162
Real estate construction 620 560
Real Estate Mortgage:
Residential (1-4 family) 9,982 10,439
Home equity lines 427 315
Multifamily 0 0
Commercial 3,968 4,438
Agricultural 1,946 1,825
Real estate subtotal 16,943 17,577

Loans to Individuals
Consumer 4,302 4,072
Credit card & related plans 139 140
Loans to individuals subtotal 4,441 4,212

Total loans 29,470 29,533

Less unearned income 26 27
Total net loans $29,445 $29,506

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<PAGE>

Maturity Schedule of Selected Loans (1)
December 31, 1995
(in thousands)

1 Year 1 to 5 After 5
or Less Years Years
Loans maturity with:
Fixed Interest Rate $ 7,517 $15,211 $ 169
Variable Interest Rate 6,114 459

Total $13,631 $15,670 $ 169

Loans maturing after one $15,380
year with predetermined
rates

Loans maturing after one $ 427
year with variable
rates

_____________________
(1) Includes loans in nonaccrual status.

Asset Quality

Allowance For Loan Losses. Allowance for loan losses is an
estimate of an amount adequate to provide for potential losses in the
loan portfolio of BSS. Loan losses are charged directly to the
allowance when they occur, while recoveries are credited to the
allowance. The allowance for loan losses is based upon management's
periodic evaluation of the portfolio with consideration given to the
overall loss experience in the portfolio, delinquency data, financial
condition of borrowers, an analysis of anticipated economic conditions
in the market area, assessment of problem loans, and such other
factors that, in management's judgement, warrant recognition to
provide for an adequate allowance. Because of the uncertainty inherent
in the evaluations, the amount of the allowance is necessarily
approximate and imprecise. In addition, input from bank regulatory
agencies that regularly review the loan portfolio as part of their
examination process is considered in reviewing and assessing the
adequacy of the allowance for loan losses.

The provision for loan losses in 1995 increased to $597,000 as
compared to $547,000 in 1994.

BSS had net charge offs in 1995 of $132,529, compared to $144,808
in 1994. The charge offs in 1994 and 1995 were in large part
attributable to one problem credit which continues to be a difficult
collection process and which represents all of the $257,000 in
nonaccrual loans at year-end 1995.

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<PAGE>

Allowance For Loan Losses

December 31,
1995 1994
(In Thousands)
Balance, beginning of period $547 $474

Loans charged off:
Commercial 166 33
Real estate construction 0 0
Real estate mortgage 0 99
Loans to individuals 11 23
Total loans charged off 177 155

Recoveries:
Commercial 3 4
Real estate construction 0 0
Real estate mortgage 35 1
Loans to individuals 6 5
Total recoveries 44 10

Net loans charged-off 133 145
Provision for loan losses 183 218
Balance, end of period $597 $547

Ratio of allowance for loan losses
to total loans outstanding at
end of period 2.03% 1.85%

Ratio of net charge-offs to
average loans outstanding
during period 0.44% 0.49%

The allocation for commercial loans, 73.2% of the total allowance
at December 31, 1995 and 68.0% of the total allowance at December 31,
1994, reflects the risks associated with one problem credit, the final
resolution of which has been uncertain, and possible unknown risks
associated with agricultural borrowers.

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<PAGE>

Allocation of Allowance For Loan Losses

Year Ended Year Ended
December 31, 1995 December 31, 1994
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans

Commercial $437 27.3% $372 26.2%
Real estate 97 57.6 127 59.6
Consumer 63 15.1 48 14.2

$597 100.00% $547 100.00%

Nonperforming Assets. Total nonperforming assets, which consist of
nonaccrual loans, restructured loans, and foreclosed properties, were
$270,000 at December 31, 1995, a decrease of $162,000 or 20.1% from
December 31, 1994. Total nonperforming assets at December 31, 1994
were $432,000. As of December 31, 1995, BSS's total nonperforming
assets represented .92% of period-end loans and foreclosed property
compared to 1.4% of total loans as of December 31, 1994. Total
nonperforming loans and loans over 90 days past due and accruing
interest were 1.2% of period-end loans and foreclosed property as of
December 31, 1995 compared to 1.6% at December 31, 1994.

Nonperforming Assets

December 31,
1995 1994
(In Thousands)
Nonaccrual loans $257 $419
Restructured loans 0 0
Foreclosed properties 13 13
Total nonperforming assets 270 432
Loans past due 90 days
accruing interest 75 43

Allowance for loan losses to
period end loans 2.03% 1.85%
Allowance for loan losses to
nonaccrual loans 232% 131%
Nonperforming assets to period-end
loans and foreclosed property 0.92% 1.46%
Net charge-offs to average loans 0.44% 0.49%
outstanding during the period.

Loans are placed on nonaccrual status when collection of interest
and principal is doubtful, generally when loans become 90 days past
due unless they are well secured and in the process of collection.
There are three negative implications for earnings when a loan is
placed on nonaccrual status. First, all interest accrued but unpaid
at the date of the loan is placed on nonaccrual status is either
deducted from interest income or written off as a loss. Second,
accruals of interest are discontinued until it becomes certain that
both principal and interest can be repaid. Third, there may be actual
losses which necessitate additional provisions for loan losses charged
against earnings.

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<PAGE>

During 1995, $27,625 in additional interest income would have
been recorded if BSS's nonaccrual loans had been current and in
accordance with their original terms. During 1995, BSS was repaid
$92,050 in interest income on loans on nonaccrual status. During
1994, $40,544 was repaid in interest income on loans in nonaccrual
status.

As of December 31, 1995, all loans 30 days or more delinquent
totaled $604,000, representing 2.05% of total loans, which included
$257,000 in nonaccrual status and $75,000 in other over 90 days past
due, still accruing interest, with the majority being secured and in
the process of collection. At December 31, 1995, in addition to loans
on either non-accrual status or loan past due 90 days or more and
still accruing, BSS had approximately $80,000 of loans that had been
internally classified. These loans require more than normal attention
and are potential problem loans. BSS considered these loans in
establishing the level of the allowance for loan losses.

The loans in nonaccrual status are the subject of litigation to
determine BSS's lien position with regard to the real estate
collateral securing the loan. BSS has placed the title company
insuring its first deed of trust position on the collateral on notice
of a possible claim, pending the outcome of the litigation.

Also included in loans past due over 30 days are loans that have
possible credit problems and cause management to have concerns about
the borrowers' abilities to comply with existing repayment terms.

Securities

The book value of the securities portfolio was $26.3 million at
December 31, 1995 compared to $23.2 million at December 31, 1994. Book
value of investments in U.S. Government agencies increased $4.8
million in 1995 to 62.2% of the portfolio from 49.8% at the end of
1994. Increases in U.S. Government agencies, and the securities
portfolio as a whole in 1995, were primarily a result of management
seeking to increase yield by decreasing liquidity during a period when
deposit growth was experienced while loan demand remained relatively
flat. Conversely, smaller increases in 1994 were a result of stronger
loan demand while deposit growth was flat. Securities did increase to
a small degree in 1994 as management sought to increase yield by
decreasing its Fed funds sold position.

Included in the other securities category are equity securities
having book value and market value at December 31, 1995 of $60,006 and
$442,987 respectively. These equities include investments in Virginia
Bankers Bank, Federal Agricultural Mortgage Corporation (Farmer Mac),
AT&T, the Baby Bells, American Brands, Air Touch Communications,
NationsBank, SBC Communications, The Travelers, Inc., and Transport
Holdings.

Effective January 1, 1994, the bank adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115") and revised
its accounting policy for investments. This pronouncement requires
that investments in debt and equity securities with readily
determinable fair values shall be classified as either
"held-to-maturity", "available-for-sale", or "trading". Management
reviewed the securities portfolio and classified securities as either
"held-to-maturity" or "available-for-sale". The bank does not have
any securities classified as "trading" securities. Securities
classified as "held-to-maturity" are accounted for at amortized cost
and require the bank to have both the positive intent and ability to
hold these securities to maturity. All other securities are
classified as "available-for-sale" and are carried at fair value with
unrealized gains and losses included in shareholders' equity on an
after-tax basis. Realized gains or losses on the sale of investments
are recognized at the time of sale using the amortized cost of the
specific security sold. In accordance with a permissible, one time
reclassification of securities, the bank reassessed its liquidity
needs and investment strategy and on December 22, 1995 transferred
securities with an amortized cost of $7,795,266 from held to maturity
to available for sale at fair value resulting in a net unrealized gain
of $35,737 or $23,586 on an after-tax basis, which was reflected
within a separate

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<PAGE>

component of shareholders' equity. This increase in the
available-for-sale category was a result of management's decision to
increase its flexibility in managing the investment portfolio as
changing circumstances make it necessary or desirable to sell specific
securities at times which may not be anticipated at the time of
purchase.

As of December 31, 1995 the estimated market value of the
"Available-For-Sale" portfolio was $16.2 million, which would have
created an after tax gain of approximately $409,414 if all of the
available-for-sale were sold on that date. As of December 31, 1994,
the estimated market value of the "Available-For-Sale" portfolio was
$5.4 million and the unrealized gain on the available-for-sale
securities was approximately $111,327, after taxes. The gain is
considered a net unrealized gain for reporting purposes only and is
not reflected in income although the after-tax effect is reflected as
an increase of capital for financial reporting purposes only. BSS's
capital-to-asset ratio, not including the above described gains, was
14.7% and 14.8% based on assets of $62.5 million and $58.4 million, at
December 31, 1995 and December 31, 1994 respectively. With the gains
included, the capital to asset ratio is 15.4% and 15.0% for the same
periods.

The market value of BSS's investment portfolio was 102% and 96.8%
of amortized costs, respectively, at year end 1995 and 1994.

Portfolio of Investment Securities

December 31,
1995 1994
(In Thousands)
Available for sale:
Estimated Fair Value:
US Treasury Securities $1,346 $ 246
US Government agencies 10,572 4,063
State and political subdivisions 3,052 708
Corporate bonds 751 -
Equity Securities 503 373
16,224 5,390

Held to Maturity:
US Treasury Securities $ - $ 2,362
US Government agencies 5,897 7,319
State and political subdivisions 4,602 6,670
Corporate bonds 200 1,300
Collateralized mortgage obligation,
private issuer 300
$10,699 $17,951

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<PAGE>

Maturities of Securities Held as of December 31, 1995:

Over 10
Years
1 Year 1 to 5 to & Equity
or Less 5 Years 10 Years Sec. Total
(In Thousands)
US Agency securities:
Book ....................... $4,560 $10,808 $ 748 $ 250 $16,365
Market...................... 4,520 10,891 755 250 16,417
Weighted average yield(1)... 5.33% 5.98% 6.36% 7.27% 5.81%

US Treasury Securities:
Book........................ $ 551 $ 801 $ 0 $ 0 $1,352
Market...................... 550 797 0 0 1,347
Weighted average yield(1)... 4.43% 5.13% 0.00% 0.00% 4.84%

State and Political Subdivisions
Book........................ $1,083 $2,913 $3,583 $ 0 $7,578
Market...................... 1,090 2,963 3,570 0 7,623
Weighted average yield(1)... 7.76% 7.81% 7.48% 0.00% 7.63%

Other Securities:
Book........................ $ 200 $ 746 $ 0 $ 60 $1,006
Market...................... 198 750 0 503 1,451
Weighted average yield(1)... 5.41% 6.00% 0.00% 2.83% 5.69%

Total Securities:
Book........................ $ 6,393 $ 15,269 $ 4,330 $ 310 $ 26,302
Market...................... 6,358 15,400 4,326 753 26,837
Weighted average yield(1)... 5.65% 6.29% 7.29% 5.65% 6.24%

(1) Yields on tax-exempt securities have been computed on a
tax-equivalent basis.

See Note 2 to BSS's Financial Statements for an analysis of gross
unrealized gains and losses in the securities portfolio.

Deposits

BSS has made an effort over the years to increase core deposits.
Deposits provide funding for BSS's investment in loans and securities,
and the interest paid for deposits must be managed carefully to
control the level of interest expense. Deposits at December 31, 1995
were $52.5 million, an increase of 6.3% over $49.4 million in 1994.
Non-interest demand deposits were flat declining 1.6% to $6.3 million
at year-end 1995 compared to $6.4 million in 1994. Interest bearing
demand deposits remained fairly stable while money market accounts
increased and savings accounts decreased slightly. Time deposits over
$100,000 increased 22.6% to $6.5 million in 1995 compared to $5.3
million in 1994. Other time deposits increased 7.1% from $18.3
million in 1994 to $19.6 million.

Deposits for 1994 fell slightly by 2.1% from $50.5 million in
1993 to $49.4 million in 1994. While non-interest bearing deposits
grew 10.9% during 1994, interest bearing deposit accounts declined.
This decline is attributable to low market interest rates paid on
deposits during the majority of 1994.

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Non-interest bearing checking accounts were 12% of total deposits
at December 31, 1995 compared to 12.8% for the same period one year
earlier. BSS has no brokered deposits.

BSS offers individuals and small-to-medium sized businesses a
variety of deposit accounts, including checking, savings, money
market, and certificates of deposits. Certificates of deposit, are
obtained primarily from the community that BSS serves. BSS also
carries interest-bearing deposits with local municipal governments,
which in recent years has been a stable source of funds.

Average Deposits and Rates Paid

For The Year Ended December 31,
1995 1994
Amount Rate Amount Rate
Noninterest-bearing accounts $6,131 0.00% $5,592 0.00%
Interest-bearing accounts
Interest checking 4,367 2.77 4,825 2.65
Money market 8,249 3.59 8,655 3.21
Regular savings 6,819 3.24 7,136 3.21
Time deposits
Less than $100,000 18,882 5.41 17,745 4.49
$100,000 and over 6,170 4.83 4,548 4.18
Total interest bearing 44,487 4.40 42,909 3.78

Total $50,618 $48,501

Maturities of CD's of $100,000 and Over

Within Three Six To Over
Three To Six Twelve Twelve
Months Months Months Months Total Deposits
(In Thousands)
At December 31, 1995 $1,329 $456 $2,506 $2,167 $6,458

Capital Resources

The adequacy of BSS's capital is reviewed by management on an
ongoing basis with reference to the size, composition, and quality of
BSS's resources and consistent with regulatory requirements and
industry standards. Management seeks to maintain a capital structure
that will assure an adequate level of capital to support anticipated
asset growth and absorb potential losses.

The Federal Reserve, along with the Comptroller of the Currency
and the Federal Deposit Insurance Corporation, have adopted new
capital guidelines to supplement the existing definitions of capital
for regulatory purposes and to establish minimum capital standards,
specifically the guidelines categorize assets and off-balance sheet
items into four risk-weighted categories. At the end of December 31,
1995 and 1994 the minimum ratio of qualifying total capital to
risk-weighted assets was 8% of which 4% must be tier-one capital,
which is, equity, retained earnings and a limited amount of perpetual
preferred stock, less certain goodwill items. BSS had a ratio of
risk-weighted to total capital of 28.15% on December 31, 1995 and a
ratio of risk-weighted assets to tier-one capital of 26.65%. Both of
these significantly exceed the fully phased-in capital requirements
adopted by the Federal Reserve Bank regulatory agencies.

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Analysis of Capital

December 31,
1995 1994

Tier I Capital $ 381,175 $ 381,175
Common stock 1,000,000 1,000,000
Additional paid-in capital 7,815,354 7,253,005
Retained earnings - -
Less: disallowed intangibles 9,196,529 8,634,180
Total Tier I capital

Tier 2 Capital
Allowable allowance for loan losses 517,588 522,381
Allowable long-term debt - -
Total Tier 2 capital 517,588 522,381

Total risk-based capital $9,714,117 $9,156,561

Risk-weighted assets $34,505,883 $34,825,403

Capital Ratios:
Tier 1 risk-based capital ratio 26.65% 24.79%
Total risk-based capital ratio 28.15 26.29
Tier I capital to average adjusted
total assets 15.38 15.03
Average equity to average assets 15.36 15.09

Short Term Borrowings

BSS occasionally finds it necessary to purchase federal funds on
a short term basis due to fluctuations in loan and deposit levels. BSS
has several arrangements whereby it may purchase funds. At the
current time, lines of credit for such funds are in place in the
amount of $5.75 million. The only borrowings BSS is involved in are
the purchase and sale of federal funds. For 1995, average daily
federal funds sold were $3.2 million and there were no purchases of
federal funds. During 1994, average daily federal funds sold were
$1.9 million and average daily fed funds purchased were $48,425. BSS
has been and continues to be a net provider of funds in the market
place.

Liquidity

Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of
existing assets or the acquisition of additional funds through
liability management. Asset liquidity is generally provided by
interest bearing deposits with other banks, federal funds sold,
securities available for sale and loan maturity management. Liability
liquidity is primarily measured by BSS's ability to obtain deposits.
Both the coordination of asset and liability, maturities and effective
liability management are important to the maintenance of liquidity.

At December 31, 1995, BSS had cash and cash equivalents of $4.9
million. For 1995, cash and cash equivalents increased $.7 million.
Cash provided by operations was $1.0 for this time period

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resulting mainly from net interest income from increased loan volume,
increased investment securities and increased sales of federal funds.
Cash used by investing activities amounted to $3.2 million for this
time period principally due to purchases of securities available for
sale or held to maturity. Cash provided by financing activities
amount to $2.9 million due primarily to increases in non-interest and
interest bearing deposits.

For the year ended December 31, 1995, cash, available for sale
securities, and federal funds sold were $21.2 million or 36% of total
earning assets compared to $9.6 million or 17.5%, respectively, as of
December 31, 1994. At December 31, 1995 and 1994, securities available
for sale as a percentage of total securities were 60.3% and 23.1%,
respectively. At December 31, 1995, $14.5 million or 49.1% of loans
were maturing or repricing within one year and at December 31, 1994,
$14.3 million or 48.5% of loans would mature or be repriced within
one year.

At December 31, 1995, BSS had no long-term debt and no materials
commitments for capital expenditures. In addition, BSS has lines of
credit for purchase of federal funds in the amount of $5.8 million.

Impact of Inflation and Changing Prices in Seasonality

Virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have
a more significant impact on a financial institution's performance
than the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the
price of goods and services, since such prices are affected by
inflation. BSS is located in a somewhat diversified employment area
of Sussex, Southampton and Surry counties, which is heavily dependent
on agriculture and timber related industries. Its market is also
dependent, in a lesser degree, upon businesses and industries located
in the Newport News, Norfolk area and the Colonial Heights, Hopewell
and Petersburg area.

Because of the seasonality of the agricultural industry, the
volume of loans and deposits typically fluctuate during the year.
Loans typically are heaviest from April to November and deposits are
usually their lowest during the same period. At the end of each year,
loans decrease and deposits increase as loans are repaid and deposits
increase as a result of the sale of the fall harvest.

New Accounting Pronouncements

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December 15, 1995, and its adoption is not expected to have a material
effect on BSS's financial statements.

UNITED COMMUNITY BANKSHARES, INC.

Organization and Business

United Community Bankshares, Inc. is a Virginia Corporation
organized as a multi-bank holding company under the Virginia SCA to
serve as the parent company of BOF and BSS. Applications have been
filed with the Federal Reserve under the BHC Act and with the SCC
under the Virginia SCA for authorization to serve in such capacity.
See "The Reorganization - Terms of the Reorganization" and "The
Reorganization - Regulatory Approvals." If the Reorganization is
approved by the requisite vote of the shareholders of BOF and BSS, and
by the Federal Reserve, the FDIC and the SCC, and if other conditions
of the Reorganization are satisfied (or waived to the extent permitted
by the Agreement and applicable law), the Reorganization will be
consummated and effected at the time of the last to occur of the
following events: (i) a certificate of share exchange is issued by the
SCC with respect to the BOF Share Exchange pursuant to the Plan of
Share Exchange; (ii) a certificate of share exchange is issued by the
SCC with respect to the BSS Share Exchange pursuant to the Plan of
Share Exchange; (iii) a certificate of incorporation is issued by the
SCC for the Holding Company; and (iv) regulatory approval is issued by
the Federal Reserve and the SCC with respect to the Holding Company.
Thereafter, the Holding Company will serve as the parent company of
BOF and BSS and will transact any material business through these bank
subsidiaries and such other subsidiaries as may be

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established from time to time. Federal law requires that it also
serve as a source of financial and managerial strength to its
subsidiary banks and that it conduct its operations in a safe and
sound manner.

In addition to its banking activities, the Holding Company may
engage in any activity that the Federal Reserve determines to be "so
closely related to banking ... as to be a proper incident thereto."
Its activities will be governed by a Board of Directors comprised of
ten members, five of whom will be designated by each of BOF and BSS.
Its principal executive officers will be Wenifred O. Pearce, President
and Chief Executive Officer, and D. Eugene Brittle, Executive Vice
President and Chief Operations Officer. The BOF Board of Directors
has recommended and nominated J. Russell West to serve as Chairman of
the Board of the Holding Company and Harvey Pope to serve as Vice
Chairman. See "The Reorganization."

The principal office of the Holding Company will be located at
100 East 4th Avenue, Franklin, Virginia 23851.

The Market

The Holding Company will be comprised of BOF and BSS, which are
situated in the City of Franklin and Town of Wakefield, and the
counties of Southampton, Sussex and Surry. The market area lies
between the James River to the north, the North Carolina line to the
south, Isle of Wight to the East, and the communities on the I-95
corridor to the west. The economy of the primary market area is
diverse and driven by manufacturing, timber, and agricultural
business, and supplemented by closely held retail and service
businesses. Some of the better known companies are Union Camp
Corporation, Georgia-Pacific, and Smithfield Foods, Inc. The area
also has Paul D. Camp Community College which supplements the work
force and adds to the technical base. Construction is underway for a
maximum security state prison in northeastern Sussex County. This is
expected to bring additional employment to the area as well as much
needed expanded sewer facilities.

BOF operates five full service banking offices, including its
main office in Franklin, two in the City of Franklin, one each in the
City of Suffolk (Holland) and Towns of Courtland and Newsoms. It
estimates that it serves approximately 13,900 households in this area.
BSS operates one branch in Ivor, one in Surry, and the main office in
Wakefield, serving an estimated 5,500 households in the aforementioned
towns and surrounding area.

Competition

BOF and BSS face competition for loans from commercial banks,
savings and loan associations and savings banks, mortgage banking
subsidiaries of regional commercial banks, subsidiaries of national
mortgage bankers, insurance companies, farm credit banks, credit
unions, and other institutional lenders. The most direct competition
for deposits has historically come from savings and loan associations
and savings banks, farm credit banks, commercial banks, credit unions
and other financial institutions. Based upon total assets at March
31, 1996, BOF was the largest community-based bank or thrift
institution headquartered in Franklin, Virginia or Southampton County.
As of the same date, BSS was the largest community-based bank or
thrift institution headquartered in Sussex County. Both banks may
face an increase in competition as a result of the continuing
reduction in the restrictions on interstate operations of financial
institutions. They also face competition for deposits from short-term
money market mutual funds and other corporate and government
securities funds.

Net Interest Income

Net interest income, the primary source of both banks' earnings,
will also be the primary source of earnings for the Holding Company.
Net interest income represents the difference between income on
interest-earning assets (primarily loans and investments) and expense
on interest-bearing liabilities (primarily deposits and borrowings).
Net interest income is affected by both the interest rate spread (the

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difference between the rate of interest earned on interest-earning
assets and the rate of interest paid on interest-bearing liabilities)
and by each bank's net interest position (the difference between the
average amount of interest-earning assets and the average amount of
interest-bearing liabilities). Changes in the volume and mix of
interest-earning assets and interest-bearing liabilities, the market
interest rates, the volume of noninterest-earning assets and the
volume of noninterest-bearing liabilities available to support
interest-earning assets all affect net interest income.

Management

The following table sets forth the individuals who will serve as
directors of The Holding Company if the Reorganization is consummated.
The directors are divided into three classes, with Class I directors
serving until the 1997 annual meeting, Class II directors serving
until the 1998 annual meeting, and Class III directors serving until
the 1999 Annual Meeting.

</TABLE>
<TABLE>
<CAPTION>
Number and Percent of Holding
Company Common Stock to be
Principal Occupation Present Owned, Based on Bank Stock
Name and Age Last 5 Years Affiliation Owned As of March 31, 1996 (1)

<S> <C> <C> <C>
Class I
(Serving until 1997 Annual Meeting)

G. O. Huber (76) Retired, CEO of BSS BSS 13,925
*

Hunter Darden, Jr. (73) Retired, Farmer BOF 5,123
*

F. Bruce Stewart (56) Attorney, BOF 11,774
Stewart & Stewart *

Class II
(Serving until 1998 Annual Meeting)

J. P. Bain (72) Chairman BSS, BSS 198,435
Private Investor (10.8%)

J. Philip Bain, Jr. (32) Stockbroker, BSS 65,025
Davenport & Company (3.6%)
of Virginia, Inc.

Harvey Pope (76) Consultant, BOF 8,881
Hancock Peanut Company *
(former President)

Class III
(Serving until 1999 Annual Meeting)

Wenifred O. Pearce (54) President and CEO, BOF 2,624
BOF *

D. Eugene Brittle (46) President and CEO, BSS 3,000
BSS *

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J. Russell West (70) Owner, BSS 57,975
Ivor Furniture (3.2%)
Company

J. D. Spivey (69) Retired, BOF 4,834
Vice President of *
Southampton Tractor Co., Inc.

_________________

* Represents less than 1% of total stock outstanding on a proforma
combined basis.

(1) These estimates based are based on 1,829,584 shares of Holding
Company Common Stock outstanding on the Effective Date of the
Reorganization as calculated based on the respective Exchange
Ratios of BOF (4.806) and BSS (3.0) and the individuals'
ownership of BOF and BSS Common Stock as of March 31, 1996.
Includes shares that may be deemed beneficially owned due to
joint ownership, voting power or investment power. For
additional information related to the beneficial ownership of
the individuals listed, refer to the beneficial ownership
tables above under "Election of Directors of The Bank of
Franklin" and "Election of Directors of The Bank of Sussex and
Surry", beginning on pages 37 and 41, respectively.

DESCRIPTION OF HOLDING COMPANY CAPITAL STOCK

Authorized and Outstanding Capital Stock

The Holding Company is authorized to issue up to 6,000,000 shares
of its common stock, par value $1.00 per share, and up to 1,000,000
shares of serial preferred stock, par value $1.00 per share. As of
March 31, 1996, BOF had 190,338 shares of Common Stock outstanding
held by 801 shareholders of record. No shares of preferred stock were
issued or authorized by BOF. As of the same date, BSS had 304,940
shares of common stock outstanding held by 231 shareholders of record.
No shares of preferred stock were issued or authorized . The
following summary description of the capital stock of the Holding
Company is qualified in its entirety by reference to the Articles of
Incorporation of the Holding Company (the "Holding Company's
Articles") and the Holding Company's Bylaws, copies of which are
available for inspection as exhibits to the registration statement
filed with the SEC in conjunction with this Joint Proxy Statement.

Common Stock

The holders of Holding Company Common Stock are entitled to one
vote per share on all matters submitted to a vote of shareholders.
Subject to certain limitations on the payment of dividends, holders of
Holding Company Common Stock are entitled to receive dividends when
declared by the Holding Company's Board of Directors for which funds
are legally available. The possible issuance of serial preferred
stock with a preference over common stock as to dividends would impact
the dividend rights of holders of Holding Company Common Stock.

All shares of Holding Company Common Stock to be issued in the
Reorganization are fully paid (or will be fully paid) and
nonassessible. Holders of common stock will not be entitled to
cumulative voting rights. Therefore, the holders of a majority of the
shares voted in the election of directors can elect all of the
directors then standing for election subject to the rights of holders
of preferred stock, if and when issued. Holders of common stock have
no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with
respect to the common stock.

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Preferred Stock

The Board of Directors of the Holding Company is authorized,
without further action of the Holding Company shareholders, to issue
up to 1,000,000 shares of preferred stock in classes or series and to
fix the designation, powers, preferences or rights of the shares of
each such class or series in any qualifications, limitations and
restrictions thereof. Such preferred stock may have a preference over
Holding Company Common Stock with respect to dividend rights,
liquidation preferences or both, may have full or limited voting
rights, and may be convertible into shares of Holding Company Common
Stock. The rights of the holders of common stock will be subject to,
and may be adversely affected by, any preferred stock that may be
issued in the future.

The purpose of authorizing the Board of Directors to issue the
preferred stock is, in part, to eliminate delays associated with a
stockholder vote in specific instances. The issuance of preferred
stock, for example in connection with a shareholder rights plan, could
be directed by the Board so as to make it more difficult for a third
party to acquire, or to discourage a third party from acquiring, a
majority of the outstanding common stock of the Holding Company. The
Holding Company has no present plan to issue any shares of the
preferred stock.

Securities Ownership of Certain Beneficial Owners

The following table sets forth certain information about those
persons believed by the managements of BOF and BSS to be beneficial
owners of more than 5% of the shares of common stock of BOF or BSS, as
the case may be, outstanding on March 31, 1996. The Table also
indicates the projected ownership in the Holding Company for those
persons. Persons and groups owning in excess of 5% of such common
stock are required to file certain reports regarding such ownership
with each bank and with the FDIC in accordance with regulations issued
pursuant to the Exchange Act. Other than those persons listed below,
the banks are not aware of any person or group that owned more than 5%
of either bank's common stock as of March 31, 1996.

Name and Amount and Resulting
Address of Nature of Ownership
Beneficial Beneficial Percent of of Holding Percent of
Owner Ownership Class(1) Company Class(1)

J. H. Lee & Sons, Inc., 18,181(2) 9.6% 87,377 4.80%
a Virginia corporation
Courtland, Virginia

J. P. Bain 32,813(3)(4) 10.76% 98,439(4) 5.38%
Wakefield, Virginia

J. Philip Bain, Jr. 21,675(3) 7.11% 65,025(3) 3.55%
Chester, Virginia

Hannah B. Bain 33,332(5) 10.93% 99,996(5) 5.47%
Wakefield, Virginia

Robin B. King 15,495 5.08% 46,485 2.54%
Ivor, Virginia

J. Russell West 19,325(3) 6.34% 57,975 3.17%
Ivor, Virginia

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________________________
(1) For purposes of this table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 of
the Securities Exchange Act of 1934 under which, in general, a
person is deemed to be the beneficial owner of a security if he
has or shares the power to vote or direct the voting of the
security or the power to dispose of or direct the disposition
of the security, or if he has the right to acquire beneficial
ownership of the security within sixty days.

(2) Refer to the beneficial ownership table provided in "Information
Concerning The Bank of Franklin - Securities Ownership of
Certain Beneficial Owners" for a detailed description of the
nature of the beneficial ownership for the listed entity.

(3) Refer to the beneficial ownership table provided in "Election of
Directors of The Bank of Sussex and Surry" for detailed
descriptions of the nature of the beneficial ownership for the
listed individual.

(4) Amount does not include the 33,332 shares of BSS held by Mr.
Bain's spouse, Hannah B. Bain, or the 99,996 shares of the
Holding Company held by Mrs. Bain on a resulting ownership
basis, listed elsewhere in this table.

(5) Amount does not include the 32,813 shares of BSS held by Mrs.
Bain's spouse, J. P. Bain, or the 98,439 shares of the Holding
Company held by Mr. Bain on a resulting ownership basis, listed
elsewhere in this table. See also note 3 above for additional
information regarding Mr. Bain's beneficial ownership.

COMPARATIVE RIGHTS OF SHAREHOLDERS

General

BOF and BSS are both state banks organized as Virginia
corporations and, therefore, subject to the provisions of the Virginia
SCA. Shareholders of both BOF and BSS, whose rights are governed
respectively by the BOF Articles of Incorporation and Bylaws and the
BSS Articles of Incorporation and Bylaws, will become shareholders of
the Holding Company upon consummation of the Reorganization. Upon
consummation of the Reorganization, the rights of shareholders of the
Holding Company will be governed by the Holding Company's Articles and
Bylaws and by the Virginia SCA.

Except as set forth below, there are no material differences
between the rights of BOF shareholders, the rights of BSS
shareholders, and the rights of shareholders receiving Holding Company
Common Stock in the Reorganization. This summary is qualified in its
entirety by reference to the Articles of Incorporation and Bylaws of
BOF, BSS and the Holding Company, and the Virginia SCA.

Authorized Capital

BOF. BOF's Articles of Association (the "BOF Articles")
authorize the issuance of up to 500,000 shares of BOF Common Stock,
par value $2.50 per share, of which 190,338 shares were issued and
outstanding as of December 31, 1995. BOF is not authorized to issue
shares of preferred stock.

BSS. BSS's Articles of Incorporation (the "BSS Articles")
authorize the issuance of up to 500,000 shares of BSS Common Stock,
par value $1.25 per share, of which 304,940 shares were issued and
outstanding as of December 31, 1995. BSS is not authorized to issue
shares of preferred stock.

Holding Company. The Holding Company's Articles will authorize
the issuance of up to 6,000,000 shares of Holding Company Common
Stock, par value $1.00 per share, of which no shares were issued and
outstanding as of March 31, 1996, and up to 1,000,000 shares of
Holding Company Preferred Stock, par value $1.00 per share, of which
no shares were issued and outstanding as of March 31, 1996.

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The authorization of a greater number of authorized common stock
is necessary to provide for the combined outstanding shares that will
be issued pursuant to consummation of the Reorganization. In addition
a greater number of authorized shares provides flexibility in the
consideration of future stock dividends or stock splits, adoption of
employee benefit plans, sale of capital stock to fund branch expansion
and to enhance capital and liquidity, possible future acquisitions,
and other corporate purposes.

A potential effect of an increase in the authorized Common Stock
is dilution of stockholders' interest in the Holding Company if the
Holding Company subsequently issues a substantial number of the newly
authorized shares. In addition, any issuance of additional shares of
Common Stock could have the effect of diluting the earnings per share
and book value per share of then outstanding existing shares of Common
Stock.

In certain instances the issuance of authorized but unissued
shares of Common Stock may have an anti-takeover effect. Such shares
could be used to dilute the stock ownership of persons seeking to
obtain control of the Holding Company. In addition, the sale of a
substantial number of shares of Common Stock to any persons who may
have an understanding with the Holding Company concerning the voting
of such shares, or the distribution or dividend of shares of Common
Stock (or the right to receive Common Stock) to the stockholders of
the Holding Company, may have the effect of discouraging or increasing
the cost of unsolicited attempts to acquire control of the Holding
Company. The issuance of preferred stock under certain circumstances
may have the effect of discouraging an attempt by a third party to
acquire control of the Holding Company by, for example, authorizing
the issuance of a series of preferred stock with rights and
preferences designed to impede the proposed transactions.

Size and Classification of Board of Directors

BOF. BOF's Articles provide for a board of directors consisting
of 11 individuals except as otherwise amended by the Bylaws. The
board is divided into three classes and elected to serve for
three-year staggered terms.

BSS. BSS's Articles provide that its board of directors shall
consist of not less than 9 nor more than 15 individuals. The board is
divided into three classes and elected for three-year staggered terms.

The Holding Company. The Holding Company's Bylaws provide that
the board will be not less than 5 nor more than 15 individuals,
divided into three classes as nearly equal as possible, to be elected
to consecutive three-year terms. The initial board of directors will
consist of five persons designated by BOF and five persons designated
by BSS. Directors of a class whose term expires will be elected at
each annual meeting of shareholders.

Removal of Directors

The Virginia SCA provides that any vacancy on the board of
directors, including a vacancy resulting from an increase in the
number of directors, may be filled by a vote of the shareholders, by a
vote of the board of directors, or, if the directors remaining in
office constitute fewer than a quorum of the board, by a majority of
the directors remaining in office. The term of a director elected by
the board of directors expires at the next shareholders' meeting at
which directors are elected, unless the articles of incorporation
provide for staggered terms, in which case the term may expire in the
class year of the director whose vacancy is filled. The Virginia SCA
provides that shareholders may remove a director with or without cause
if the number of votes cast to remove him constitutes a majority of
the outstanding shares of the voting group that elected him.

BOF. BOF's Bylaws provide that members of the board of directors
may be removed with or without cause only by the vote of a majority of
the outstanding shares at a meeting called for that

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purpose. BOF's Bylaws also provide that any vacancy on the board of
directors may be filled by an election by the active board members,
including a vacancy resulting from an increase in the number of board
members of not more than two directors. The retirement age for BOF
directors is 75, except that the directors may extend this period by 3
years.

BSS. BSS's Bylaws provide that any vacancy on the board of
directors may be filled by an election by the active board members,
including a vacancy resulting from an increase in the number of
directors on the board. BSS's Bylaws provide that directors may be
removed by shareholders of the bank only for cause and with the
affirmative vote of more than two-thirds of the outstanding shares
entitled to vote. These provisions, thus may make it more difficult
to remove BSS directors compared to directors of BOF. No director
shall be eligible for election as a director who has attained the age
of 75 prior to such election except that this restriction does not
apply to directors sitting as of March 12, 1992 and reelected
thereafter.

The Holding Company. The Holding Company's Articles and Bylaws
provide that vacancies on the board of directors may be filled by a
majority vote of the remaining directors, including a vacancy
resulting from an increase in the board. The Holding Company's
Articles provide that a director may be removed only for cause and
with the affirmative vote of at least two-thirds of the outstanding
shares entitled to vote. Paragraph 1.3 of the Agreement provides that
for three years following the Effective Date, any vacancy of a
director designated by BOF or BSS, respectively, will be filled by the
remaining BOF or BSS designees recommending a replacement for the full
board to approve. The initial 10 directors of the Holding Company
board and any member of either of the Holding Company's subsidiaries
(BOF and BSS) who were servicing at the time of formation of the
Holding Company (March 28, 1996) are eligible to serve until age 80.
Otherwise, directors are required to retire upon reaching the age of
65.

Director Liability and Indemnification

The Virginia SCA provides that in any proceeding brought by or in
the right of a corporation or brought by or on behalf of shareholders
of a corporation, the damages assessed against an officer or director
arising out of a single transaction, occurrence or course of conduct
may not exceed the lesser of (i) the monetary amount, including the
elimination of liability, specified in the articles of incorporation
or, if approved by the shareholders, in the bylaws as a limitation on
or elimination of the liability of the officer or director; or (ii)
the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the
twelve months immediately preceding the act or omission for which
liability was imposed. The liability of an officer or director is not
limited under the Virginia SCA or a corporation's articles of
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any
federal or state securities law.

BOF. BOF's Bylaws provide for indemnification of each former,
present and future a director or officer made a party to a proceeding
by reason of his being, or having been, a director of officer of the
bank. However, the bank shall not indemnify a director or officer in
connection with a proceeding by or in the right of BOF if, in the
opinion of the board of directors, the individual is guilty of willful
misconduct, gross negligence, or acted in bad faith in the performance
of his duties as a director or officer.

BSS. BSS's Articles provide that directors shall be indemnified
to the fullest extent permitted under the Virginia SCA except in
matters as to which he is finally adjudged liable by reason of willful
misconduct or a knowing violation of criminal law in the performance
of such director's duties. The damages assessed against any director
or officer are limited to $1.00 per transaction, unless the director
or officer is adjudged liable due to willful misconduct or a knowing
violation of criminal laws.

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The Holding Company. The Holding Company Articles provide that
to the full extent permitted by the Virginia SCA each director and
officer shall be indemnified against liabilities, penalties and claims
imposed by reason of that person serving as a director or officer of
the Holding Company, except as to matters for which he is finally
adjudged liable due to willful misconduct or knowing violation of
criminal law. The Holding Company Articles also provide that
liability of each director and officer shall be limited to the full
extent permitted by the Virginia SCA in any proceeding brought by a
shareholder in the right of the Holding Company or brought by or on
behalf of shareholders of the Holding Company, except that liability
shall not be limited in the case of willful misconduct or a knowing
violation of criminal or securities laws on the part of the director
or officer. For further clarification of rights of indemnification
and limitation of liability, see the explanation of the relevant
Virginia SCA provisions above.

Shareholders' Meetings

BOF. BOF's Bylaws provide that special meetings of the
shareholders may be called by the Chief Executive Officer, a majority
of the directors or by the holders of 10% of outstanding capital
stock.

BSS. BSS's Bylaws provide that meetings of shareholders may be
held on the call of the Chairman of the Board, the President, a
majority of the board of directors or by shareholders holding at least
50% of the capital stock.

The Holding Company. The Holding Company's Bylaws provide that
special meetings of the shareholders may be called by a majority of
the board of directors, the Chairman or Vice Chairman of the Board or
the President. This provision could tend to delay a potential
acquisition of the Holding Company without the cooperation or
favorable recommendation of the management of the corporation.

Nominations by Shareholders

BOF. Any shareholder entitled to vote at the annual meeting may
nominate one or more directors provided a proper nomination notice is
received by the Secretary of the bank not less than 60 days in advance
of the annual meeting date, the second Tuesday in May. The nomination
notice must specify certain information set forth in the Bylaws
regarding the shareholder who is making the nomination, as well as
information regarding the nominee, such as name, age, business
address, principal occupation, number of shares held of record and
beneficially, any understandings between the nominee and the
shareholder making the nomination, such additional information as is
required under the proxy rules of the Securities and Exchange
Commission, and the written consent of the individual to serve if
elected. Other attempts to nominate individuals not in accordance with
these bylaw provisions may be ruled out of order by the presiding
officer.

BSS. BSS's Articles and Bylaws prescribe similar procedures for
director nominations. The Bylaws specifically set forth the
information that must be provided by the shareholder making the
nomination, which is similar to BOF's requirements. However, the
written notice of such shareholder's intent to make such nomination or
nominations must be given, either by personal delivery or by United
States mail, postage prepaid, to the President of the bank not less
than 14 days nor more than 50 days in advance of such meeting. The
Chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.

The Holding Company. The Holding Company's Bylaws also provide
that nominations may be made by any stockholder. The nomination
notice must be delivered to the Secretary of the Holding Company not
less than thirty (30) days prior to the first anniversary date of the
initial notice given to shareholders of record on the record date for
the previous annual meeting by or at the direction of the Board of
Directors; provided, however, that such notice shall not be required
to be given more than ninety (90) days prior to the annual meeting of
shareholders. The presiding officer at any meeting may
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refuse to acknowledge the nomination of any person not made in compliance
with the foregoing sentence.

Shareholder Proposals

BOF. BOF's Bylaws provide requirements relating to the timing
and content of shareholder proposals for shareholder vote. Proposals
must be received 60 days prior to the annual meeting; and provide
information regarding the shareholder making the proposal, including
name, address, and a representation that the holder is entitled to
vote and intends to do so either in person or by proxy at the meeting,
and the number of shares held of record and beneficially. Also the
holder making the proposal must provide a description of the business
to be brought before the meeting, including the text of the resolution
and reasons in support.

BSS. BSS's Articles and Bylaws do not contain any requirements
relating to the timing or content of shareholder proposals for
shareholder vote.

The Holding Company. The Holding Company's Bylaws contain
provisions substantially similar to those referenced immediately above
for BOF.

Supermajority Voting Provisions

The Virginia SCA provides that, unless a corporation's articles
of incorporation provide for a higher or lower vote, certain
significant corporate actions must be approved by the affirmative vote
of the holders of more than two-thirds of the votes entitled to be
cast on the matter. Corporate actions requiring a two-thirds vote
include amendments to a corporation's articles of incorporation,
adoption of plans of merger or exchange, sales of all or substantially
all of a corporation's assets other than in the ordinary course of
business and adoption of plans of dissolution ("Fundamental Actions").
The Virginia SCA provides that a corporation's articles may either
increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes
entitled to be cast.

BOF. BOF's Articles provide that a Fundamental Action, if
approved by the board of directors, must be submitted and approved by
the holders of more than four-fifths of the shares entitled to vote.

BSS. BSS's Articles provide that a Fundamental Action shall be
approved by a vote of a majority of all votes entitled to be cast on
such transactions by each voting group entitled to vote on the
transaction, provided that the transaction has been approved and
recommended by at least two-thirds of the directors in office at the
time of such approval and recommendation. If the transaction is not
so approved and recommended, then the transaction shall be approved by
the vote of 80% or more of all votes entitled to be cast on such
transactions by each voting group entitled to vote on the transaction.

Holding Company. The Holding Company Articles contain provisions
relating to a supermajority vote for Fundamental Actions substantially
similar to that referenced immediately above for BSS.

Each of the applicable supermajority provisions for the
respective corporations could tend to make the acquisition of the
corporations more difficult to accomplish without the cooperation or
favorable recommendation of the Board.

State Anti-Takeover Statutes

The Virginia SCA restricts transactions between a corporation and
its affiliates and potential acquirors. The summary below is
necessarily general and is not intended to be a complete description
of all the features and consequences of those provisions, and is
qualified in its entirety by reference to

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the statutory provisions contained in the Virginia SCA. The Virginia
SCA applies to BSS and will apply to the Holding Company upon
organization.

Affiliated Transactions. The Virginia SCA contains provisions
governing "Affiliated Transactions," found at Sections 13.1-725 -
727.1 of the Virginia SCA. Affiliated Transactions include certain
mergers and share exchanges, certain material dispositions of
corporate assets not in the ordinary course of business, any
dissolution of a corporation proposed by or on behalf of an Interested
Shareholder (as defined below), and reclassifications, including
reverse stock splits, recapitalizations or mergers of a corporation
with its subsidiaries, or distributions or other transactions which
have the effect of increasing the percentage of voting shares
beneficially owned by an Interested Shareholder by more than 5%. For
purposes of the Virginia SCA, an Interested Shareholder is defined as
any beneficial owner of more than 10% of any class of the voting
securities of a Virginia corporation.

Subject to certain exceptions discussed below, the provisions
governing Affiliated Transactions require that, for three years
following the date upon which any shareholder becomes an Interested
Shareholder, any Affiliated Transaction must be approved by the
affirmative vote of holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than the shares beneficially
owned by the Interested Shareholder, and by a majority (but not less
than two) of the Disinterested Directors (as defined below). A
Disinterested Director is defined in the Virginia SCA as a member of a
corporation's board of directors who (i) was a member before the later
of January 1, 1988 or the date on which an Interested Shareholder
became an Interested Shareholder and (ii) was recommended for election
by, or was elected to fill a vacancy and received the affirmative vote
of, a majority of the Disinterested Directors then on the
corporation's board of directors. At the expiration of the three year
period after a shareholder becomes an Interested Shareholder, these
provisions require approval of the Affiliated Transaction by the
affirmative vote of the holders of two-thirds of the outstanding
shares of the corporation entitled to vote, other than those
beneficially owned by the Interested Shareholder.

The principal exceptions to the special voting requirement apply
to Affiliated Transactions occurring after the three year period has
expired and require either that the transaction be approved by a
majority of the corporation's Disinterested Directors or that the
transaction satisfy certain fair price requirements of the statute.
In general, the fair price requirements provide that the shareholders
must receive the higher of: the highest per share price for their
shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price
requirements also require that, during the three years preceding the
announcement of the proposed Affiliated Transaction, all required
dividends have been paid and no special financial accommodations have
been accorded the interested Shareholder, unless approved by a
majority of the Disinterested Directors.

None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been
an Interested Shareholder continuously since the effective date of the
statute (January 26, 1988) or who became an Interested Shareholder by
gift or inheritance from such a person or whose acquisition of shares
making such person an Interested Shareholder was approved by a
majority of the Disinterested Directors of the corporation.

These provisions were designed to deter certain takeovers of
Virginia corporations. In addition, the Virginia SCA provides that,
by affirmative vote of a majority of the voting shares other than
shares owned by any Interested Shareholder, a corporation may adopt,
by meeting certain voting requirements, an amendment to its articles
of incorporation or bylaws providing that the Affiliated Transactions
provisions shall not apply to the corporation. BSS has not adopted
such an amendment. Currently, the following individuals own or
control 10% or more of BSS Common Stock: J. P. Bain, Chairman, 10.76%;
and Hannah B. Bain, 10.93%. Since his ownership has been continuous
since the effective date of the statute, Mr. Bain would not be
considered Interested Shareholders as defined by the Virginia SCA;
however Hannah B. Bain would be considered such Interested
Shareholders.

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Control Share Acquisitions. The Virginia Control Share
Acquisitions statute, found at Sections 13.1-728 - 728.8 of the
Virginia SCA, also is designed to afford shareholders of a public
company incorporated in Virginia protection against certain types of
non-negotiated acquisitions in which a person, entity or group
("Acquiring Person") seeks to gain voting control of that corporation.
With certain enumerated exceptions, the statute applies to
acquisitions of shares of a corporation which would result in an
Acquiring Persons ownership of the corporation's shares entitled to
vote in the election of directors falling within any one of the
following ranges: 20% to 33-1/3%, 33-1/3% to 50% or 50% or more (a
"Control Share Acquisition"). Shares that are the subject of a
Control Share Acquisition ("Control Shares") will not be entitled to
voting rights unless the holders of a majority of the "Disinterested
Shares" vote at an annual or special meeting of shareholders of the
corporation to accord the Control Shares with voting rights.
Disinterested Shares do not include shares owned by the Acquiring
Person or by officers and inside directors of the target company.
Under certain circumstances, the statute permits an Acquiring Person
to call a special shareholders' meeting for the purpose of considering
granting voting rights to the holders of the Control Shares. As a
condition to having this matter considered at either an annual or
special meeting, the Acquiring Person must provide shareholders with
detailed disclosures about his identity, the method and financing of
the Control Share Acquisition and any plans to engage in certain
transactions with, or to make fundamental changes to, the corporation,
its management or business. Under certain circumstances, the statute
grants dissenters' rights to shareholders who vote against granting
voting rights to the Control Shares. The Virginia Control Share
Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may
opt-out of the statute, which BSS has not done, by so providing in its
articles of incorporation or bylaws. Among the acquisitions
specifically excluded from the statute are acquisitions which are a
part of certain negotiated transactions to which the corporation is a
party and which, in the case of mergers or share exchanges, have been
approved by the corporation's shareholders under other provisions of
the Virginia SCA.

Dissenters' Rights

For a description of the respective rights for dissenting
shareholders of BSS and BOF, see "The Reorganization - Appraisal
Rights for Dissenting Shareholders." Shareholders of the Holding
Company will have substantially the same dissenters' rights as the
shareholders of BSS, except that the Holding Company will not be
subject to (Section Mark) 6.1-43, and therefore shareholders of the
Holding Company will also have dissenters' rights in the case of a merger.

SUPERVISION AND REGULATION

The Holding Company

Bank Holding Companies

As a result of the Reorganization, BOF and BSS will become
subsidiaries of the Holding Company, and the Holding Company must
register as a bank holding company under the BHC Act and become
subject to regulation by the Federal Reserve. The Federal Reserve has
jurisdiction under the BHC Act to approve any bank or nonbank
acquisition, merger or consolidation proposed by a bank holding
company. The BHC Act generally limits the activities of a bank
holding company and its subsidiaries to that of banking, managing or
controlling banks, or any other activity which is so closely related
to banking, or to managing or controlling banks, as to be a proper
incident thereto.

The BHC Act currently prohibits the Federal Reserve from
approving an application from a bank holding company to acquire shares
of a bank located outside the state in which the operations of the
holding company's principal bank subsidiary is principally located,
unless such an acquisition is expressly authorized by statute of the
state where the bank whose shares are to be acquired is located.
However, under recently enacted federal legislation, the restriction
on interstate acquisitions has been

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abolished effective September 1995, and, bank holding companies from
any state will be able to acquire banks and bank holding companies
located in any other state, subject to certain conditions, including
nationwide and state imposed concentration limits. Banks also will be
able to branch across state lines by acquisition, merger or de novo,
effective June 1, 1997 (unless state law permits such interstate
branching at an earlier date), provided certain conditions are met,
including that applicable state law must expressly permit such
interstate branching. Virginia and North Carolina are two such states
that have "opted in" under the federal statute and currently permit
interstate branching, subject to the restriction that the home state
of the bank desiring to branch interstate provide a reciprocal right
to banks branching into such home state.

There are a number of obligations and restrictions imposed on
bank holding companies and their depository institution subsidiaries
that are designed to reduce potential loss exposure to the depositors
of the depository institutions and to the FDIC insurance fund. For
example, under a policy of the Federal Reserve with respect to bank
holding company operations, a bank holding company is required to
serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. In
addition, the "cross-guarantee" provisions of federal law require
insured depository institutions under common control to reimburse the
FDIC for any loss suffered or reasonably anticipated by either the
Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF") as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a
commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee
provisions if it determines that a waiver is in the best interest of
the BIF or the SAIF or both. The FDIC's claim for damages is superior
to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured
creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institutions.

Banking laws also provide that amounts received from the
liquidation or other dissolution of any insured de- pository
institution by any receiver must be distributed (after payment of
secured claims) to pay the deposit liabilities of the institution
prior to payment of any other general or unsecured senior liability,
subordinated liability, general creditor or stockholder. This
provision would give depositors a preference over general and
subordinated creditors and stockholders in the event a receiver is
appointed to distribute the assets of any bank or bank subsidiary.

The Holding Company also will be required to register in Virginia
with the SCC under the financial institution holding company laws of
Virginia. Accordingly, the Holding Company, BSS, and to a limited
extent BOF, will be subject to regulation and supervision by the SCC.

Regulatory Capital Requirements

All financial institutions are required to maintain minimum
levels of regulatory capital. The FDIC has established substantially
similar risk-based and leveraged capital standards for financial
institutions they regulate. The FDIC also may impose capital
requirements in excess of these standards on a case-by-case basis for
various reasons, including financial condition or actual or
anticipated growth. Under the risk-based capital requirements of
these regulatory agencies, BOF and BSS are required to maintain a
minimum ratio of total risk-based capital to risk-weighted assets of
at least 8%. At least half of the total capital is required to be
"Tier l capital", which consists principally of common and certain
qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder, "Tier 2 capital", consists of a
limited amount of subordinated and other qualifying debt (including
certain hybrid capital instruments) and a limited amount of the
general loan loss reserve. The Tier 1 and total risk-based capital to
risk-weighted assets ratios of the Holding Company on a pro forma
combined basis as of December 31, 1995 are 21.86% and 23.22%,
respectively, exceeding the minimums required. Based upon the
applicable FDIC regulations, at

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December 31, 1995, the Holding Company would be considered "well
capitalized". (See, the "Capital Ratios" table in this section below.)

In addition, the federal regulatory agencies have established a
minimum leveraged capital ratio (Tier 1 capital to tangible assets).
These guidelines provide for a minimum leveraged capital ratio of 3%
for banks and their respective holding companies that meet certain
specified criteria, including that they have the highest regulatory
examination rating and are not contemplating significant growth or
expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above that minimum. The
guidelines also provide that banking organizations experiencing
internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory
levels, without significant reliance on intangible assets. The pro
forma leverage ratio of the Holding Company as of December 31, 1995,
was 12.87%.

On December 15, 1994, the Federal Reserve Board, the Office of
Thrift Supervision, the Office of the Controller of the Currency
("OCC"), and the FDIC (collectively the "agencies") issued a final
rule entitled, Risk-Based Capital Standards: Concentration of Credit
Risk and Risks of Nontraditional Activities. The final rule amends
the risk-based capital standards by explicitly identifying
concentrations of credit risk and certain risks arising from
nontraditional activities, as well as an institution's ability to
manage these risks, as important factors in assessing an institution's
overall capital adequacy. While no quantitative measure of such risk
is included in the final rule, to the extent appropriate, the agencies
will issue examination guidelines on new developments in
nontraditional activities or concentrations of credit to ensure that
adequate account is taken of the risks of these activities. Moreover,
the agencies also believe that institutions identified though the
examination process as having significant exposure to concentration of
credit risk or as not adequately managing concentration risks should
hold capital in excess of the regulatory minimums. Therefore, due to
the subjective nature of this final rule, the Bank is unable to
determine what effect, if any, this rule may have on regulatory
capital requirements.

On August 2, 1995, the OCC, the Federal Reserve Board, and the
FDIC (collectively the "banking agencies") issued a final rule
entitled, Risk-Based Capital Standard: Interest Rate Risk. The final
rule implements minimum capital standards for interest rate risk
exposures in a two-step process. The final rule implements the first
step of that process by revising the capital standards of the banking
agencies to explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a
factor that the banking agencies will consider in evaluating a bank's
capital adequacy. It is important to note that the banking agencies
intend to implement this rule on a case-by-case basis during the
examination process. The second step of the banking agencies' process
will be to issue a proposed rule that would establish an explicit
minimum capital charge for interest rate risk, based on the level of
the bank's measured interest rate risk exposure. Due to the
subjective nature of the first phase of this final rule, the Bank is
unable to determine what effect, if any, this rule may have on its
regulatory capital requirements.

On November 16, 1995, the Federal Reserve Board issued guidelines
entitled, Federal Reserve Guidelines for Rating Risk Management at
State Member Banks and Bank Holding Companies (the "Guidelines"). The
Guidelines specify that principles of sound management should apply to
the entire spectrum of risks facing a banking institution including,
but not limited to, credit, market, liquidity, operational, legal, and
reputational risk and that, for state member banks, a single numerical
rating for risk management should be provided as part of the
examination process. The Guidelines also specify that examination
reports should make reference to the types and nature of corrective
actions that need to be taken by institutions to address noted risk
management and internal control deficiencies. Where appropriate,
institutions should also be advised that the Federal Reserve Board
will initiate supervisory actions if the failure to separate critical
operational duties creates the potential for serious losses or if
material deficiencies or situations that threaten the safe and sound
conduct of their activities are not adequately addressed in a timely
manner. Due to the subjective nature of the risk-management

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evaluation, the Holding Company is not able to determine what effect,
if any, this rule may have on its operations.

The following table summarizes the minimum regulatory and capital
ratios for the Holding Company, on a consolidated basis, and BOF and
BSS, individually, at December 31, 1995, and also the pro forma
combined capital ratios as of December 31, 1995.

Capital Ratios

Regulatory Pro Forma
Minimum BOF BSS Combined (3)
Risk-based capital (1)
Tier 1.. . . . . . . 4.00% 15.32% 26.65% 19.89%
Total. . . . . . . . 8.00 16.57 28.15 21.24
Leverage (2) . . . . . . 3.00 9.40 15.38 11.89
Total shareholders' equity
to total assets . . . . .. N/A 10.09% 15.38 12.29

(1) The pro forma risk-based capital ratios have been computed using
pro forma combined historical data for BOF and BSS at December
31, 1995.

(2) Leverage ratio is calculated by Tier 1 capital as a percentage of
average annual assets.

(3) Calculated in accordance with the FDIC's capital rules, with
adjustment for net unrealized appreciation/depreciation on
securities available for sale, and is adjusted by $150,000 for
estimated merger expenses.

Limits on Dividends and Other Payments

Certain state law restrictions are imposed on distributions of
dividends to shareholders of the Holding Company. The Holding
Company's shareholders are entitled to receive dividends as declared
by the Holding Company's Board of Directors in accordance with Section
13.1-653 of the Code of Virginia. Generally, distributions are made
out of surplus, or if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding
fiscal year. Dividend payments therefore may be limited in accordance
with the provisions of the Virginia SCA and of the Holding Company's
Articles.

Banks likewise have limitations imposed under federal regulations
upon all dividends, including cash dividends, payments to repurchase
or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger, and other distributions charged
against capital. Dividends typically may only be paid out of net
profits and then only when the bank's surplus equals or exceeds its
capital, except under limited circumstances. Neither of BOF or BSS
expects that these federal limitations will have an effect on the
level of dividends paid in the near term.

Similarly, BOF and BSS are subject to legal limitations on
capital distributions including the payment of dividends, if, after
making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). For all
state non-member banks seeking to pay dividends, the prior approval of
the FDIC is required if the total of all dividends declared in any
calendar year will exceed the sum of the bank's net profits for that
year and its retained net profits for the preceding two calendar
years. Federal law also generally prohibits a depository institution
from making any capital distribution (including payment of a dividend
or payment of a management fee to its holding company) if the
depository institution would thereafter fail to maintain capital above
regulatory minimums. The FDIC is also authorized to limit the payment
of dividends by any state member bank if

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such payment may be deemed to constitute an unsafe or unsound
practice. In addition, under Virginia law no dividend may be declared
or paid that would impair a Virginia chartered bank's paid-in capital.
The SCC has general authority to prohibit payment of dividends by a
Virginia chartered bank if it determines that the limitation is in the
public interest and is necessary to ensure the bank's financial
soundness.

Following the consummation of the Reorganization, the Holding
Company's ability to pay dividends to its shareholders will depend on
dividends paid to it by BOF and BSS. Based on BOF's and BSS's current
financial conditions, the Holding Company expects that the
above-described provisions will have no impact on the Holding
Company's ability to obtain dividends from BOF or BSS or on the
Holding Company's ability to pay dividends to its shareholders.

The Subsidiary Banks

In addition to the regulatory provisions regarding holding
companies addressed above, BOF and BSS are subject to extensive
regulation as well. The following discussion addresses certain
primary regulatory considerations affecting BOF and BSS. Also,
certain primary regulatory provisions are applicable to both BOF and
BSS, and these provisions are therefore discussed in the last section.

BOF and BSS. BOF and BSS are regulated under both federal and
state law. BOF and BSS each is organized as a Virginia banking
corporation and is regulated and supervised by the SCC. BOF and BSS
also are regulated and supervised by the FDIC Regional Office in
Atlanta. The SCC and the FDIC conduct regular examinations of BOF and
BSS, reviewing such matters as the adequacy of loan loss reserves,
quality of loans and investments, management practices, compliance
with laws, and other aspects of BOF's and BSS's operations. In
addition to these regular examinations, BOF and BSS must furnish the
SCC and the FDIC with periodic reports containing a full and accurate
statement of their respective affairs. Supervision, regulation and
examination of banks by these agencies are intended primarily for the
protection of depositors rather than shareholders. The FDIC also has
authority to impose enforcement action on insured banks and all
"institution-affiliated parties," including directors, officers,
controlling stockholders or other persons or entities participating in
the affairs of the bank, as well as attorneys, appraisers and
accountants who knowingly or recklessly participate in wrongful action
likely to harm an insured institution.

Insurance of Accounts, Assessments and Regulation by the FDIC

BOF's and BSS's deposits are insured up to $100,000 per insured
depositor (as defined by law and regulation) through the BIF. The BIF
is administered and managed by the FDIC. As insurer, the FDIC is
authorized to conduct examinations of and to require reporting by BIF
institutions. The actual assessment to be paid by each BIF member is
based on the institution's assessment risk classification and whether
the institution is considered by its supervisory agency to be
financially sound or to have supervisory concerns.

As BIF institutions, BOF and BSS's BIF assessment rate falls
within a range of 0.00% (minimum assessment of $2,000 per annum) to
.23% of insured deposits depending upon, among other things, the
institution's regulatory capital levels and other factors which relate
to the institution's perceived risk to the insurance funds
administered by the FDIC. Both banks are currently classified as
"well-capitalized" institutions and therefore pay the minimum rate in
the range, $2,000. Based upon current regulations in effect, BOF and
BSS anticipate that their semiannual assessments will remain at this
rate. BOF and BSS do not expect that the current BIF risk-based
assessment schedule will have a materially adverse effect on earnings
following the Reorganization.

The FDIC is authorized to prohibit any BIF-insured institution
from engaging in any activity that the FDIC determines by regulation
or order to pose a serious threat to the insurance fund. Also, the
FDIC may initiate enforcement actions against banks after first giving
the institution's primary

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<PAGE>

regulatory authority an opportunity to take such action. The FDIC may
terminate the deposit insurance of any depository institution,
including BOF or BSS, if it determines, after a hearing, that the
institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition
imposed in writing by the FDIC. It also may suspend deposit insurance
temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If deposit
insurance is terminated, the deposits at the institution at the time
of termination, less subsequent withdrawals, shall continue to be
insured for a period from six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances that could
result in termination of BOF's or BSS's deposit insurance.

Other Safety and Soundness Regulations

The federal banking agencies have broad powers under current
federal law to take prompt corrective action to resolve problems of
insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized," as such terms are
defined under uniform regulations defining such capital levels issued
by each of the federal banking agencies.

Each of the federal banking agencies also must develop
regulations addressing certain safety and soundness standards for
insured depository institutions and depository institution holding
companies, including compensation standards, operational and
managerial standards, asset quality, earnings and stock valuation.
The federal banking agencies have issued a joint notice of proposed
rulemaking, which requested comment on the implementation of these
standards. The proposed rule sets forth general operational and
managerial standards in the areas of internal controls, information
systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation,
fees and benefits. The proposal contemplates that each federal agency
would determine compliance with these standards through the
examination process, and if necessary to correct weaknesses, require
an institution to file a written safety and soundness compliance plan.
The Holding Company has not yet determined the effect that the
proposed rule would have on its operations and the operations of its
depository institution subsidiaries if it is enacted substantially as
proposed.

Community Reinvestment

The requirements of the Community Reinvestment Act ("CRA") affect
both BOF and BSS. The CRA imposes on financial institutions an
affirmative obligation to help meet the credit needs of their local
communities, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of those institutions.
Each financial institution's efforts in helping meet community credit
needs currently is evaluated as part of the examination process
pursuant to a new regulation recently adopted by the banking
regulatory agencies. Under the new regulation a financial
institution's efforts in helping meet its community's credit needs are
evaluated according to a three-pronged test (lending, investment and
service) which replaces the twelve assessment factors used previously.
The grade received by a bank is considered in evaluating mergers,
acquisitions and applications to open a branch or facility. To the
best knowledge of BOF and BSS, each is meeting its obligations under
the CRA.

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<PAGE>

PRO FORMA CONDENSED FINANCIAL INFORMATION
(Unaudited)

The following pro forma condensed financial information presents
a consolidated balance sheet and statements of income giving effect to
the Reorganization using the pooling of interests method of
accounting. All pro forma financial data relating to the
Reorganization have been calculated using the Exchange Ratios whereby
the Holding Company will issue 4.806 shares of Holding Company Stock
for each share of BOF Common Stock and 3.0 shares for each share of
BSS Common Stock.

The pro forma condensed balance sheet gives effect to the
Reorganization as if it had been consummated on December 31, 1995, and
the pro forma condensed statement of income assumes that the
Reorganization was consummated at the beginning of each period
presented, in accordance with the pooling of interests method of
accounting.

The pro forma information should be read in conjunction with the
historical financial statements of BOF and BSS and the related notes
thereto included in documents incorporated herein by reference. See
"Documents Delivered and Incorporated by Reference." The pro forma
information is not necessarily indicative of the results of operations
or combined financial position that would have resulted had the
Reorganization been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the results of
operations of future periods or future combined financial position.

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<PAGE>

BOF AND BSS
PRO FORMA CONDENSED BALANCE SHEET
(Unaudited)

At December 31, 1995
Historical Historical Pro Forma Pro Forma
BOF BSS Adjustments Combined
Assets:
Cash and due from banks $4,425,614 $1,896,440 $ $6,322,054
Federal funds sold 4,682,462 3,058,000 7,740,462
Securities available for sale 31,196,096 16,224,120 47,420,216
Securities held to maturity - 10,698,480 10,698,480
Loans, net 37,333,774 28,847,540 66,181,314
Interest receivable 871,271 747,333 1,618,604
Property and equipment, net 1,122,792 931,296 2,054,088
Intangibles, net 769,863 - 769,863
Other assets 412,314 73,731 486,045
$80,814,186 $62,476,940 $ $143,291,126

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
Noninterest-bearing $10,454,496 $6,273,881 $ - $ 16,728,377
Interest-bearing 61,353,871 46,208,839 - 107,562,710
71,808,367 52,482,720 - 124,291,087
Accrued interest 202,309 180,905 - 383,214
Deferred compensation 146,229 - - 146,229
Other liabilities 500,715 207,372 150,000(b) 858,087
Total liabilities 72,657,620 52,870,997 150,000 125,678,617

Stockholders' Equity:
Common stock 475,845 381,175 972,564(d) 1,829,584
Additional paid-in capital 3,034,769 1,000,000(972,564)(d) 3,062,205
Retained earnings 4,583,348 7,815,354(150,000)(b) 12,248,702
Net unrealized gain on securities
available for sale (net of
income taxes) 62,604 409,414 472,018
Total stockholders' equity 8,156,566 9,605,943(150,000) 17,612,509
$80,814,186 $62,476,940 $ - $143,291,126

See Notes to Pro Forma Condensed Financial Information.

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<PAGE>

BOF AND BSS
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited)

</TABLE>
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
BOF BSS Adjustments Combined
<S> <C> <C> <C> <C>
Interest and fees on loans . . . $3,455,466 $2,871,662 $ -- 6,327,128
Interest on investment securities:
Taxable. . . . . . . . . . . . 1,071,165 948,172 -- 2,019,337
Nontaxable . . . . . . . . . . 375,164 377,619 -- 752,783
Interest on federal funds sold . 173,025 187,992 -- 361,017
Total interest income. . . . . 5,074,820 4,385,445 -- 9,460,265
Interest on deposits . . . . . . 2,206,859 1,954,511 -- 4,161,370
Net interest income. . . . . . 2,867,961 2,430,934 -- 5,298,895
Provision for loan losses. . . . -- 182,529 -- 182,529
Net interest income after provision
for loans losses . . . . . . . 2,867,961 2,248,405 -- 5,116,366
Noninterest income:
Loss on sale of securities . . - (2,285) (2,285)
Service charges. . . . . . . . 450,695 162,700 613,395
Other . . . 32,210 99,391 131,601
Total other income . . . . . 482,905 259,806 -- 742,711
Noninterest expenses:
Salaries and employee benefits . 1,100,983 808,472 -- 1,909,455
Equipment. . . . . . . . . . . 138,813 82,034 -- 220,847
FDIC Insurance . . . . . . . . 63,935 55,958 -- 119,893
Occupancy. . . . . . . . . . . 169,701 88,578 -- 258,279
Professional fees. . . . . . . 45,143 44,174 -- 89,317
Postage. . . . . . . . . . . . 62,214 36,122 -- 98,336
Other . . . . . . . . . . . . 512,259 370,527 -- 882,786
Total other expenses . . . . 2,093,048 1,485,865 -- 3,578,913

Income before income taxes . . . 1,257,818 1,022,346 -- 2,280,164

Provision for income taxes . . . 318,249 246,539 -- 564,788

Net income . . . . . . . . . . 939,569 775,807 1,715,376

Net income per common share. . $ 4.94(c) $ 2.54(c) $ .94(e)

Dividends per common share . . $ 1.10(c) $ .70(c) $ .23(e)

Average common shares outstanding 190,338 304,940 1,334,306(d) 1,829,584(e)

</TABLE>
-111-

<PAGE>

See Notes to Pro Forma Condensed Financial Information.

-112-

<PAGE>

BOF AND BSS
PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)

<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
BOF BSS Adjustments Combined
<S> <C> <C> <C> <C>
Interest and fees on loans . . . $2,879,723 $ 2,606,179 $ $5,485,902
Interest on investment securities:
Taxable. . . . . . . . . . . . 1,035,816 904,565 1,940,381
Nontaxable . . . . . . . . . . 209,067 358,611 567,678
Interest on federal funds sold . 127,755 76,401 204,156
Total interest income. . . . . 4,252,361 3,945,756 -- 8,198,117
Interest on deposits . . . . . . 1,678,350 1,622,408 -- 3,300,758
Net interest income. . . . . . 2,574,011 2,323,348 4,897,359
Provision for loan losses. . . . -- 217,808 217,808
Net interest income after provision
for loans losses . . . . . . 2,574,011 2,105,540 -- 4,679,551
Noninterest income:
Gain (loss) on sale of securities. .30,623 (4,536) 26,087
Service charges. . . . . . . . 370,154 135,805 505,959
Other . . . 67,907 93,889 161,796
Total other income . . . . . 468,684 225,158 -- 693,842
Noninterest expenses:
Salaries and employee benefits . 1,062,212 766,205 1,828,417
Equipment. . . . . . . . . . . 115,770 79,551 195,321
FDIC Insurance . . . . . . . . 113,612 109,063 222,675
Occupancy. . . . . . . . . . . 172,327 87,620 259,947
Professional fees. . . . . . . 69,945 64,781 134,726
Postage. . . . . . . . . . . . 39,856 33,290 73,146
Other . . . . . . . . . . . . 356,394 387,949 744,343
Total other expenses . . . . 1,930,116 1,528,459 -- 3,458,575

Income before income taxes . . . 1,112,579 802,239 -- 1,914,818

Provision for income taxes . . . 303,076 195,682 -- 498,758

Net income . . . . . . . . . . 809,503 606,557 -- 1,416,060

Net income per common share. . $ 4.25(c) $ 1.99(c) $ .77(e)

Dividends per common share . . $ 1.00(c) $ .65(c) $ .21(e)

Average common shares outstanding. .190,338 304,940 1,334,306(d) 1,829,584(e)

See Notes to Pro Forma Condensed Financial Information.

-113-

<PAGE>

Notes to Pro Forma Condensed Financial Information
(Unaudited)

(a) The pro forma information presented is not necessarily indicative
of the results of operations or the financial position that
would have resulted had the Share Exchange been consummated at
the beginning of the periods indicated, nor is it necessarily
indicative of the results of operations in future periods or
the future financial position of the combined entities.

(b) The pro forma information presented includes the total estimated
costs associated with the pooling of interests transaction of
$150,000, as if the transaction was consummated on December 31,
1995.

(c) Per share data for BOF and BSS has been computed based on the
historical net income applicable to common shareholders of BOF
and BSS, using their respective weighted average shares
outstanding.

(d) Information was appropriately adjusted to reflect the Share
Exchange for (i) the issuance of 1,829,584 shares of Holding
Company stock and (ii) the elimination of $972,564 of
additional paid-in capital to reflect this issuance of Holding
Company common stock with a $1 par value.

(e) It is assumed that the Share Exchange will be accounted for on a
pooling of interests accounting basis and, accordingly, the
related pro forma per share and average common shares
outstanding have been calculated using the exchange ratio,
whereby the Holding Company will issue 4.806 and 3.00 shares
for BOF and BSS shares, respectively.

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<PAGE>

COST AND MEANS OF PROXY SOLICITATION

The cost of the solicitation of proxies will be borne by BOF and
BSS, respectively. In addition to solicitation by use of the mail,
some officers and employees of BOF and BSS (who will not be
compensated in addition to their regular salaries) may solicit proxies
from their respective shareholders personally or by telephone.

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
FOR THE BANK OF FRANKLIN

Goodman & Company, L.L.P. has been selected as independent
accountants for BOF for the fiscal year ending December 31, 1996,
subject to ratification by the shareholders.

If not otherwise specified, proxies will be voted in favor of
ratification of the appointment. Representatives of Goodman &
Company, L.L.P. are expected to be present at the BOF annual meeting,
will have an opportunity to make a statement if they so desire, and
are expected to be available to respond to appropriate questions.

OTHER MATTERS

As of the date of this Joint Proxy Statement, management of BOF
and BSS have no knowledge of any matters to be presented for
consideration at the respective special meetings other than those
referred to above. If any other matter properly comes before the BOF
Meeting or the BSS Meeting, the persons named in the accompanying
proxy intend to vote such proxy, to the extent entitled, in accordance
with their best judgment.

FINANCIAL STATEMENTS

A copy of the audited financial statements of BOF for the year
ended December 31, 1995, accompany this Joint Proxy Statement ("BOF
Financial Statements"). Additional copies may be obtained, upon
request from the Secretary of BOF. The BOF Financial Statements may
be read in conjunction with, but are not a part of, the proxy
solicitation material provided herein.

A copy of the audited financial statements of BSS for the year
ended December 31, 1995, accompany this Joint Proxy Statement ("BSS
Financial Statements"). Additional copies may be obtained, upon
request from the Secretary of BSS. The BSS Financial Statements may
be read in conjunction with, but are not a part of, the proxy
solicitation material provided herein.

EXPERTS

The audited financial statements of BOF as of and for the year
ended December 31, 1995, which have been incorporated in this Joint
Proxy Statement as an appendix, have been so incorporated in reliance
on the report of Goodman & Company, L.L.P., independent certified
public accountants, given on the authority of said firm as experts in
auditing and accounting.

The audited financial statements of BOF as of and for the year ended
December 31, 1994, which have been incorporated in this Joint Proxy Statement
as an appendix, have been so incorporated in reliance on the report of Frank
Edward Sheffer & Co., independent certified public accountants, given on the
authority of said firm as experts in accounting and auditing. See
"Information Concerning The Bank of Franklin - "Change In Accountants" with
regard to the dismissal of Frank Edward Sheffer & Co. in 1995.

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<PAGE>

The consolidated financial statements of BSS as of December 31,
1995 and 1994 and for the two years ended December 31, 1995 included
in this Joint Proxy Statement have been audited by Deloitte & Touche
LLP, independent certified public accountants, as stated in their
report appearing elsewhere herein and herewith and are included in
reliance upon the report of such firm given their authority as experts
in accounting and auditing.

LEGAL OPINIONS

The validity of the shares of Holding Company Common Stock to be
issued to the shareholders of BOF and to the shareholders of BSS
pursuant to the Reorganization will be passed on by Mays & Valentine,
Richmond, Virginia.

SHAREHOLDER PROPOSALS

In the event that a shareholder wishes to submit a proposal for
consideration by the shareholders of the Holding Company at the 1997
Annual Meeting of Shareholders (the "1997 Annual Meeting"), then in
order for the proposal to be includable in the proxy statement for the
1997 Annual Meeting, such proposal must be received by the Secretary
of the Holding Company no later than November 30, 1996. It is
presently anticipated, that, assuming the Reorganization is
consummated, the 1997 Holding Company Annual Meeting will be held on
or around May 14, 1997, although this date may be changed at the
discretion of the Holding Company's Board of Directors.

-116-

APPENDIX A

AGREEMENT AND PLAN OF REORGANIZATION

between

THE BANK OF FRANKLIN

and

THE BANK OF SUSSEX AND SURRY

January 25, 1996

<PAGE>

TABLE OF CONTENTS

Page
ARTICLE 1
The Affiliation and Related Matters

1.1 The Reorganization 1
1.2 Name and Continuing Operations 1
1.3 Directors, Officers and Employees 1
1.4 The Holding Company Articles of Incorporation 2
1.5 The Closing and Effective Date 2
1.6 Definitions 2

ARTICLE 2

Representations and Warranties

2.1 Representations and Warranties of BSS 3
(a) Organization, Standing and Power 3
(b) Authority 3
(c) Capital Structure 4
(d) Financial Statements 4
(e) Absence of Undisclosed Liabilities 4
(f) Legal Proceedings; Compliance with
Laws 4
(g) Regulatory Approvals 4
(h) Tax Matters 4
(i) Property 5
(j) Reports 5
(k) Employee Benefit Plans 5
(l) Investment Securities 5
(m) Certain Contracts 5
(n) Insurance 6
(o) Absence of Certain Changes and Events 6
(p) Loans, OREO and Allowance for Loan
Losses 6
(q) Statements True and Correct 7
(r) Brokers and Finders 7
(s) Repurchase Agreements 7
(t) Administration of Trust Accounts 8
(u) Environmental Matters 8

2.2 Representations and Warranties of BOF 9
(a) Organization, Standing and Power 9
(b) Authority 9
(c) Capital Structure 10
(d) Financial Statements 10
(e) Absence of Undisclosed Liabilities 10
(f) Legal Proceedings; Compliance with
Laws 10
(g) Regulatory Approval 10
(h) Tax Matters 10
(i) Property 11
(j) Reports 11
(k) Employee Benefit Plans 11
(l) Investment Securities 11
(m) Certain Contracts 11
(n) Insurance 12
(o) Absence of Certain Changes and
Events 12
(p) Loans, OREO and Allowance for Loan
Losses 12
(q) Statements True and Correct 13
(r) Brokers and Finders 13
(s) Repurchase Agreements 13
(t) Administration of Trust Accounts 13
(u) Environmental Matters 14

ARTICLE 3

Conduct Transactions Prior to the Effective Date

3.1 Access to Records and Properties 14
3.2 Registration Statement, Proxy Statement,
Shareholder Approval 15
3.3 Operation of the Business of BSS and BOF 15
3.4 No Solicitation 16
3.5 Dividends 16
3.6 Regulatory Filings 16

3.7 Public Announcements 16
3.8 Notice of Breach 17

ARTICLE 4

Additional Agreements

4.1 Accounting Treatment 17
4.2 Indemnification 17
4.3 Confidentiality 17
4.4 Exchange Listing 17

ARTICLE 5

Conditions to the Reorganization

5.1 Conditions to Each Party's Obligations
to Effect the Reorganization 17
(a) Shareholder Approvals 18
(b) Regulatory Approvals 18
(c) Registration Statement 18
(d) Tax Opinion 18
(e) Accountant's Letter 18
(f) Opinions of Counsel 18
(g) Investment Banking Letter 18
(h) Legal Proceedings 18

5.2 Conditions to Obligations of BOF 18
(a) Representations and Warranties 18
(b) Performance of Obligations 18
(c) Affiliate Letters 19
(d) Management 19

5.3 Conditions to Obligations of BSS 19
(a) Representations and Warranties 19
(b) Performance of Obligations 19
(c) Affiliate Letters 19
(d) Management 19

ARTICLE 6

Termination

6.1 Termination 19
6.2 Effect of Termination 20
6.3 Non-Survival of Representations,
Warranties and Covenants 20
6.4 Expenses 20

ARTICLE 7

General Provisions

7.1 Entire Agreement 21
7.2 Waiver and Amendment 21
7.3 Descriptive Headings 21
7.4 Governing Law 21
7.5 Notices 21
7.6 Counterparts 22
7.7 Severability 22
7.8 Brokers and Finders 22
7.9 Subsidiaries 22

Exhibit A - Plan[s] of Share Exchange for
The Bank of Franklin / The Bank of Sussex and Surry
Exhibit B - Articles of Incorporation of the Holding Company

- iii -

<PAGE>

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of January 25, 1996, by and between THE BANK OF FRANKLIN, a
Virginia banking corporation with its principal office located in Franklin,
Virginia ("BOF"), and THE BANK OF SUSSEX AND SURRY, a Virginia banking
corporation with its principal office located in Wakefield, Virginia ("BSS").

WITNESSETH:

WHEREAS, BOF and BSS have agreed in principle to the affiliation of their
two companies through the creation of a holding company and a reorganization
which will result in both BOF and BSS being owned by the holding company, all
as more specifically provided in this Agreement and the Plan of Share Exchange
in the form attached hereto as Exhibit A (the "Plan of Share Exchange"); and

WHEREAS, the respective Boards of Directors of BOF and BSS have resolved
that the transactions described herein are in the best interests of the
parties and their respective shareholders and have authorized and approved
the execution and delivery of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereby agree as follows:

ARTICLE 1
The Affiliation and Related Matters

1.1 The Reorganization. Subject to the terms and conditions of this
Agreement, in order to effect the reorganization of the parties so that BOF and
BSS shall both become subsidiaries of United Community Bankshares, Inc. (the
"Holding Company"), a bank holding company formed for the sole purpose of
being the parent corporation to the parties (the "Reorganization"), at the
Effective Date as defined in Section 1.5 hereof, each share outstanding of
BOF Common Stock shall be exchanged for Holding Company Common Stock
pursuant to the Plan of Share Exchange, attached hereto as Exhibit A (the "BOF
Share Exchange"); and each share outstanding of BSS Common Stock shall be
exchanged for Holding Company Common Stock pursuant to the Plan of Share
Exchange attached hereto as Exhibit A (the "BSS Share Exchange").

1.2 Name and Continuing Operations. At the Effective Date, the
Holding Company will serve as the parent bank holding company for BOF and BSS.
The respective names and banking offices of BOF and BSS (collectively, the
"Banks") will not change as a result of the Reorganization.

1.3 Directors, Officers and Employees. (a) As of the Effective Date
and until the next annual shareholders meeting of the Holding Company, the
Board of Directors of the Holding Company (the "Holding Company Board") will
consist of ten persons, with five nominees designated by the Board of BOF and
five nominees designated by the Board of BSS, including the president of
BSS and the CEO of BOF. The BOF nominees are Messrs. Hunter Darden, Jr.,
Harvey Pope, J. D. Spivey, F. Bruce Stewart, and Wenifred O. Pearce; and the
BSS nominees are Messrs. J. P. Bain, J. Philip Bain, Jr., G. O. Huber, J. R.
West, and D. Eugene Brittle (collectively, the "Initial Directors"). The
Bylaws of the Holding Company shall provide that directors must retire at age
65, except for members of the Boards of Directors of BOF and BSS on the
Effective Date, who may serve on the Holding Company Board until age 80, at the
Board's discretion. If, at any time prior to the Effective Date, any of the
foregoing nominees is unable or declines to serve, the board of the party which
designated such nominee shall be entitled to name his successor. If, at any time
during three years following the Effective Date, any BOF or BSS nominee to the
Holding Company

<PAGE>

Board is unable or declines to serve, or a vacancy otherwise occurs in respect
of a position previously held by a BOF or BSS nominee, the remaining BOF or BSS
nominees, as the case may be, on the Holding Company Board shall be entitled to
designate a qualified candidate then serving as a director of BOF or BSS, as the
case may be, to fill such vacancy, and that designated candidate shall be
recommended to the Holding Company Board for appointment for any interim period.
If appointed by the Holding Company Board to fill the remaining term of the
vacant director, and if the appointee consents, the appointee may be recommended
to the shareholders for election at the next Annual Meeting of Shareholders.

(b) The Holding Company Board shall be divided into three classes, with
the terms of directors of Class I, Class II, and Class III expiring after
the annual meetings of shareholders of the Holding Company in 1997, 1998, and
1999, respectively. The three Classes shall consist of the following members:

Class I Class II Class III

G. O. Huber J. P. Bain Wenifred O. Pearce
Hunter Darden, Jr. J. Philip Bain, Jr. D. Eugene Brittle
F. Bruce Stewart Harvey Pope J. Russell West
J. D. Spivey

(c) The principal executive officers of the Holding Company upon the
Effective Date will be: Wenifred O. Pearce, President and Chief Executive
Officer; D. Eugene Brittle, Executive Vice President and Chief Operating
Officer; and Bruce Stewart, Secretary. The BSS Board shall recommend and
nominate the individual to serve as Chairman of the Board, and the BOF Board
shall recommend and nominate the individual to serve as Vice Chairman of the
Board.

(d) The directors, officers and employees of the Banks will not change
as a result of the Reorganization, however, except for plans to provide
contracts to Messrs. Pearce and Brittle, neither BOF nor BSS makes any
representation regarding the continued employment of any director, officer or
employee after the Effective Date.

1.4 The Holding Company Articles of Incorporation. BOF and BSS accept
and ratify the Holding Company Articles of Incorporation, attached hereto as
Exhibit B.

1.5 The Closing and Effective Date. The closing of the transactions
contemplated by this Agreement and the Plan of BOF Share Exchange and the Plan
of BSS Share Exchange shall take place at the offices of Mays & Valentine at
1111 East Main Street, Richmond, Virginia or at such other place as may be
mutually agreed upon by the parties. The BOF Share Exchange and the BSS Share
Exchange shall become effective on the date shown on the Certificate of BOF
Share Exchange and the Certificate of BSS Share Exchange issued by the State
Corporation Commission of Virginia, effecting the BOF Share Exchange and the BSS
Share Exchange, respectively (the "Effective Date"). Prior to the Effective
Date, BOF and BSS shall execute and deliver to the State Corporation
Commission of the Commonwealth of Virginia ("SCC") Articles of Share
Exchange containing a Plan of Share Exchange in substantially the form of
Exhibit A hereto.

1.6 Definitions. Any term defined anywhere in this Agreement shall
have the meaning ascribed to it for all purposes of this Agreement (unless
expressly noted to the contrary). In addition:

(a) the term "knowledge" when used with respect to a party shall mean
the knowledge, after due inquiry, of any "Executive Officer" of such party, as
such term is defined in Regulation O, (12 C.F.R. ss.215);

(b) the term "Material Adverse Effect", when applied to a party, shall
mean an event, occurrence or circumstance (including without limitation (i) the
making of any provisions for

<PAGE>

possible loan and lease losses, write-downs of other real estate and
taxes and (ii) any breach of a representation or warranty by such party)
which (a) has or is reasonably likely to have a material adverse effect on
the financial position, results of operations or business of the party and
its subsidiaries, taken as a whole, or (b) would materially impair the party's
ability to perform its obligations under this Agreement or the consummation
of the Share Exchange and the other transactions contemplated by this
Agreement; provided, however, that, solely for purposes of measuring whether
an event, occurrence or circumstance has a material adverse effect on such
party's results of operations, the term "results of operations" shall mean net
interest income plus non-interest income (less securities gains) less gross
expenses (excluding provisions for possible loan and lease losses,
write-downs of other real estate and taxes); and provided further, that
material adverse effect and material impairment shall not be deemed to
include the impact of (i) changes in banking and similar laws of general
applicability or interpretations thereof by courts or governmental
authorities, (ii) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and bank holding
companies generally, and (iii) the Share Exchange on the operating performance
of the parties to this Agreement; and

(c) the term "Previously Disclosed" by a party shall mean information
set forth in a written disclosure letter that is delivered by that party
to the other party prior to or contemporaneously with the execution of
this Agreement and specifically designated as information "Previously
Disclosed" pursuant to this Agreement.

ARTICLE 2
Representations and Warranties

2.1 Representations and Warranties of BSS. BSS represents and
warrants to BOF as follows:

(a) Organization, Standing and Power. BSS and BSS Service Corporation
(collectively, the BSS Companies") are corporations duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Virginia and each has all requisite corporate power and authority to carry on
its business in Virginia as now being conducted and to own and operate its
assets, properties and business; BSS has only one subsidiary, BSS Service
Corporation ; and BSS has the corporate power and authority to execute and
deliver this Agreement and perform the respective terms of this Agreement and
the Plan of BSS Share Exchange. BSS is an "insured bank" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder. All of
the shares of capital stock of BSS are validly issued, fully paid and
nonassessable.

(b) Authority. (1) The execution and delivery of this Agreement and
the consummation of the BSS Share Exchange have been duly and validly authorized
by all necessary corporate action on the part of BSS, except the approval of
shareholders. This Agreement represents the legal, valid and binding
obligations of BSS, enforceable against BSS in accordance with its terms
(except in all such cases as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding may be
brought).

(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by BSS
with any of the provisions hereof will: (i) conflict with or result in a
breach of any provision of BSS's Articles of Incorporation or Bylaws; (ii)
except as previously disclosed in writing to BOF, constitute or result in the
breach of any term, condition or provision of, or constitute a default
under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon, any property or assets of BSS pursuant to (A) any note, bond,
mortgage, indenture, or (B) any material license, agreement, lease, or other
instrument or obligation, to which any of the BSS Companies is a party or by
which it or any of them or their properties or assets may

<PAGE>

be bound, or (iii) subject to the receipt of the requisite approvals referred
to in Section 5.1, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the BSS Companies or any of their properties
or assets.

(c) Capital Structure. The authorized capital stock of BSS consists of
500,000 shares of common stock, par value $1.25 per share, of which
304,940 shares are issued, outstanding, fully paid and nonassessable and
not subject to shareholder preemptive rights. Except as previously
disclosed in writing to BOF, there are no outstanding options, warrants or
other rights to subscribe for or purchase from BSS any capital stock of BSS or
securities convertible into or exchangeable for capital stock of BSS.

(d) Financial Statements. BSS has previously furnished to BOF true and
complete copies of its audited balance sheets as of December 31, 1994, 1993 and
1992, together with the related audited statements of income, statements of
cash flows, and statements of stockholders' equity for the three year period
ended December 31, 1994. In addition, BSS has provided BOF with unaudited
balance sheets as of December 31, 1995 and September 30, 1995, and unaudited
statements of income for the year ended December 31, 1995 and the nine months
and three months ended September 30, 1995 and 1994 (together with all the
notes thereto, the "BSS Financial Statements"). The BSS Financial Statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods presented, and
present fairly the financial position of BSS as of the respective dates
thereof and the results of its operations for the three year period then
ended.

(e) Absence of Undisclosed Liabilities. Except as Previously
Disclosed, at December 31, 1995, none of the BSS Companies had an obligation or
liability (contingent or otherwise) of any nature which was not reflected in the
BSS Financial Statements, except for those which in the aggregate are
immaterial.

(f) Legal Proceedings; Compliance with Laws. Except as Previously
Disclosed, there are no actions, suits or proceedings instituted or pending
or, to the best knowledge of BSS's management, threatened against any of
the BSS Companies, or against any property, asset, interest or right of
any of them, that are reasonably expected to have, either individually or in
the aggregate, a material adverse effect on the financial condition of BSS or
that are reasonably expected to threaten or impede the consummation of the
Reorganization. None of the BSS Companies is a party to any agreement or
instrument or subject to any judgment, order, writ, injunction, decree or
rule that might reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), business or prospects of BSS. To the best
knowledge of BSS, the BSS Companies have complied in all material respects
with all laws, ordinances, requirements, regulations or orders applicable to
its business (including environmental laws, ordinances, requirements,
regulations or orders).

(g) Regulatory Approvals. BSS knows of no reason why the regulatory
approvals referred to in Section 5.1(b) should not be obtained without the
imposition of any condition of the type referred to in Section 5.1(b).

(h) Tax Matters. The BSS Companies have filed all federal, state and
local tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the BSS Financial Statements or are being contested in good faith and have
been previously disclosed in writing to BOF. Except to the extent that
liabilities therefor are specifically reflected in the BSS Financial
Statements, there are no federal, state or local tax liabilities of the BSS
Companies other than liabilities that have arisen since December 31, 1994,
all of which have been properly accrued or otherwise provided for on the books
and records of BSS. Except as previously disclosed in writing to BOF, no tax
return or report of the BSS Companies is under examination by any taxing
authority or the subject of any administrative or judicial proceeding, and
no unpaid tax deficiency has been asserted against any of the BSS Companies by
any taxing authority.

<PAGE>

(i) Property. Except as disclosed or reserved against in the BSS
Financial Statements, the BSS Companies have good and marketable title free and
clear of all material liens, encumbrances, charges, defaults or equities of
whatever character to all of the material properties and assets, tangible or
intangible, reflected in the BSS Financial Statements as being owned by
the BSS Companies as of the dates thereof. To the best knowledge of BSS,
all buildings, and all fixtures, equipment, and other property and assets
which are material to its business on a consolidated basis, held under leases or
subleases by the BSS Companies are held under valid instruments enforceable in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws. To the best knowledge of BSS, the
policies of fire, theft, liability, and other insurance maintained with respect
to the assets or business of the BSS Companies provide adequate coverage
against loss, and the fidelity bonds in effect as to which any of the BSS
Companies is a named insured are believed to be sufficient.

(j) Reports. Since January 1, 1990, the BSS Companies have filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with the SCC, the Federal
Deposit Insurance Corporation (the "FDIC") and any other governmental or
regulatory authority or agency having jurisdiction over their operations.

(k) Employee Benefit Plans. (1) BSS has delivered to BOF prior to the
execution of this Agreement true and complete copies of all material pension,
retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material
medical, dental or other health plans, all life insurance plans and all
other material employee benefit plans or fringe benefit plans, including,
without limitation, all "employee benefit plans" as that term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently adopted, maintained by, sponsored in whole or in part by,
or contributed to by any of the BSS Companies for the benefit of employees,
retirees or other beneficiaries are eligible to participate
(collectively, the "BSS Benefit Plans"). Any of the BSS Benefit Plans which
is an "employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as a "BSS ERISA Plan." No BSS Benefit
Plan is or has been a multiemployer plan within the meaning of Section 3(37)
of ERISA.

(2) All BSS Benefit Plans are in compliance with the applicable terms
of ERISA and the Internal Revenue Code of 1986, as amended (the "IRC") and
any other applicable laws, rules and regulations the breach of violation
of which could result in a material liability to BSS on a consolidated basis.

(3) No BSS ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A)
of ERISA, and the present fair market value of the assets of any such plan
exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan was terminated in accordance with all applicable legal
requirements.

(l) Investment Securities. Except as Previously Disclosed and except
for pledges to secure public and trust deposits and obligations under
agreements pursuant to which BSS has sold securities subject to an obligation
to repurchase, none of the investment securities reflected in the BSS
Financial Statements is subject to any restriction, contractual, statutory,
or otherwise, which would impair materially the ability of the holder of such
investment to dispose freely of any such investment at any time.

(m) Certain Contracts. (1) Except as Previously Disclosed, none of
the BSS Companies is a party to, or is bound by, (i) any material agreement,
arrangement or commitment, (ii) any agreement, indenture or other instrument
relating to the borrowing of money by the BSS Companies or the guarantee by
any of the BSS Companies of any such obligation, (iii) any agreement,
arrangement or commitment relating to the employment of a consultant or the
employment, election, retention in office or severance of any present or
former director or officer, (iv) any agreement to make loans or for the
provision, purchase or sale of goods, services or

<PAGE>

property between any of the BSS Companies and any director or officer of the BSS
Companies, or any member of the immediate family or affiliate of any of the
foregoing, or (v) any agreement between any of the BSS Companies and any 5% or
more shareholder of BSS; in each case other than agreements entered into in
the ordinary course of the business of any of the BSS Companies consistent with
past practice.

(2) None of the BSS Companies, nor to the knowledge of BSS, the other
party thereto, is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into
in the ordinary course of business or otherwise, nor has there occurred any
event that, with the lapse of time or giving of notice or both, would
constitute such a default, other than defaults of loan agreements by
borrowers from one of the BSS Companies in the ordinary course of its business.

(3) Since December 31, 1994, none of the BSS Companies has incurred or
paid any obligation or liability that would be material to BSS, except
obligations incurred or paid in connection with transactions in the ordinary
course of business consistent with past practice and except as Previously
Disclosed, from December 31, 1994 to the date hereof, and none of the BSS
Companies has taken any action that, if taken after the date hereof, would
breach any of the covenants contained in Section 3.4 hereof.

(n) Insurance. A complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of BSS has previously been furnished to BOF
and all such policies or binders are valid and enforceable in accordance
with their terms, are in full force and effect, and insure against risks and
liabilities to the extent and in the manner customary for the industry and are
deemed appropriate and sufficient by BSS. The BSS Companies are not in default
with respect to any provision contained in any such policy or binder and have
not failed to give any notice or present any claim under any such policy
or binder in due and timely fashion. BSS has not received notice of
cancellation or non-renewal of any such policy or binder. BSS has no knowledge
of any inaccuracy in any application for such policies or binders, any
failure to pay premiums when due or any similar state of facts or of the
occurrence of any event that is reasonably likely to form the basis for any
material claim against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders referred to above. BSS has not
received notice from any of its insurance carriers that any insurance premiums
will be increased materially in the future or that any such insurance coverage
will not be available in the future on substantially the same terms as now in
effect.

(o) Absence of Certain Changes and Events. Since December 31, 1994,
there has not been any material adverse change in the condition (financial or
otherwise), aggregate assets or liabilities, cash flow, earnings or
business of BSS, and BSS has conducted its business only in the ordinary
course consistent with past practice.

(p) Loans, OREO and Allowance for Loan Losses. (1) Except as
Previously Disclosed, and except for matters which individually or in the
aggregate do not materially adversely affect the Reorganization or the
financial condition of BSS, to the best knowledge of BSS, each loan
reflected as an asset in the BSS Financial Statements (i) is evidenced
by notes, agreements, or other evidences of indebtedness which are true,
genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
All loans and extensions of credit which are subject to regulation by the FDIC
which have been made by any of the BSS Companies comply with applicable
regulations.

(2) The classification on the books and records of each of the BSS
Companies that is a banking institution of loans and/or non-performing assets as
nonaccrual, troubled debt

<PAGE>

restructuring, OREO or other similar classification, complies in all material
respects with generally accepted accounting principles and applicable
regulatory accounting principles.

(3) Except for liens, security interests, claims, charges, or such
other encumbrances as have been appropriately reserved for in the BSS Financial
Statements or are not material, title to the OREO is good and marketable, and
there are no adverse claims or encumbrances on the OREO. All title, hazard
and other insurance claims and mortgage guaranty claims with respect to the
OREO have been timely filed and none of the BSS Companies has received any
notice of denial of any such claim.

(4) Each of the BSS Companies is in possession of all of the OREO or, if
any of the OREO remains occupied by the mortgagor, eviction or summary
proceedings have been commenced or rental arrangements providing for market
rental rates have been agreed upon and each of the BSS Companies is diligently
pursuing such eviction or summary proceedings or such rental arrangements.
Except as Previously Disclosed, no legal proceeding or quasi-legal
proceeding is pending or, to the knowledge of BSS, threatened concerning any
OREO or any servicing activity or omission to provide a servicing activity with
respect to any of the OREO.

(5) Except for one-to-four family mortgage loans and except as
Previously Disclosed, all loans made by BSS to facilitate the disposition of
OREO are performing in accordance with their terms.

(6) The allowance for possible loan losses shown on the BSS Financial
Statements was, and the allowance for possible loan losses shown on the interim
financial statements of BSS as of dates subsequent to the execution of this
Agreement will be, in each case as of the dates thereof adequate in all
material respects to provide for possible losses, net of recoveries relating
to loans previously charged off, on loans outstanding (including accrued
interest receivable) of BSS and other extensions of credit (including letters
of credit and commitments to make loans or extend credit) by BSS.

(q) Statements True and Correct. None of the information supplied or
to be supplied by BSS for inclusion in the Registration Statement on Form S-4
(the "Registration Statement") to be filed with the Securities and Exchange
Commission (the "SEC"), the Joint Proxy Statement (as defined in Section 3.2)
to be mailed to every BSS shareholder or any other document to be filed with the
SEC, the SCC, the Federal Reserve, the FDIC, or any other regulatory
authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and, in the case of the
Registration Statement, when it becomes effective and with respect to the
Joint Proxy Statement, when first mailed to BSS shareholders, be false or
misleading with respect to any material fact or omit to state any material
fact necessary in order to make the statements therein not misleading, or,
in the case of the Joint Proxy Statement or any supplement thereto, at the
time of the BSS Shareholders' Meeting (as defined in Section 3.2), be false or
misleading with respect to any material fact or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of any proxy for the BSS Shareholders' Meeting.

(r) Brokers and Finders. None of the BSS Companies, nor any of their
respective officers, directors or employees, has employed any broker, finder or
financial advisor or incurred any liability for any fees or commissions in
connection with the transactions contemplated herein or the BSS Plan of Share
Exchange, except for Davenport & Company of Virginia, Inc.

(s) Repurchase Agreements. With respect to all agreements pursuant to
which any of the BSS Companies has purchased securities subject to an
agreement to resell, if any, that company has a valid, perfected first lien
or security interest in the government securities or other collateral securing
the repurchase agreement, and the value of such collateral equals or exceeds
the amount of the debt secured thereby.

<PAGE>

(t) Administration of Trust Accounts. The BSS Companies have properly
administered, in all respects material and which could reasonably be expected
to be material to the business, operations or financial condition of BSS,
taken as a whole, all accounts for which they act as fiduciaries including but
not limited to accounts for which they serve as trustees, agents, custodians,
personal representatives, guardians, conservators or investment advisors, in
accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law. None of the BSS Companies, nor any
director, officer or employee of the BSS Companies has committed any breach
of trust with respect to any such fiduciary account which is material to or
could reasonably be expected to be material to the business, operations or
financial condition of BSS, taken as a whole, and the accountings for each such
fiduciary account are true and correct in all material respects and
accurately reflect the assets of such fiduciary account in all material
respects.

(u) Environmental Matters. (1) Except as Previously Disclosed, to the
best of BSS's knowledge, none of the BSS Companies owns or leases any
properties affected by toxic waste, radon gas or other hazardous conditions
or constructed in part with the use of asbestos. Each of the BSS Companies is
in substantial compliance with all Environmental Laws applicable to real or
personal properties in which it has a direct fee ownership or, with respect to
a direct interest as lessee, applicable to the leasehold premises or, to the
best knowledge of BSS, the premises on which the leasehold is situated.
None of the BSS Companies has received any Communication alleging that it
is not in such compliance and, to the best knowledge of BSS, there are no
present circumstances (including Environmental Laws that have been adopted
but are not yet effective) that would prevent or interfere with the
continuation of such compliance.

(2) There are no legal, administrative, arbitral or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on any of the BSS Companies
of any liability arising under any Environmental Laws pending or, to the best
knowledge of BSS, threatened against (A) any of the BSS Companies, (B) any
person or entity whose liability for any Environmental Claim any of the BSS
Companies has or may have retained or assumed either contractually or by
operation of law, or (C) any real or personal property which any of the BSS
Companies owns or leases, or has been or is judged to have managed or to have
supervised or participated in the management of, which liability might have
a material adverse effect on the business, financial condition or results of
operations of BSS. None of the BSS Companies are subject to any agreement,
order, judgment, decree or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any such liability.

(3) To the best knowledge of BSS, there are no legal, administrative,
arbitral or other proceedings, or Environmental Claims or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on any of the BSS Companies of
any liability arising under any Environmental Laws pending or threatened
against any real or personal property in which any of the BSS Companies
holds a security interest in connection with a loan or a loan
participation which liability might have a material adverse effect on the
business, financial condition or results of operations of BSS. The BSS
Companies are not subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.

(4) With respect to all real and personal property owned or leased by
any of the BSS Companies, other than OREO, BSS has made available to BOF
copies of any environmental audits, analyses and surveys that have been
prepared relating to such properties. With respect to all OREO held by any
of the BSS Companies and all real or personal property which any of the BSS
Companies has been or is judged to have managed or to have supervised or
participated in the management of, BSS has made available to BOF the
information relating to such OREO available to BSS. The BSS Companies are in
compliance in all material respects with all recommendations contained in
any environmental audits, analyses and surveys relating to any of the
properties, real or personal, described in this subsection (4).

<PAGE>

(5) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any Materials of Environmental Concern,
that could reasonably form the basis of any Environmental Claim or other claim
or action or governmental investigation that could result in the imposition of
any liability arising under any Environmental Laws currently in effect or
adopted but not yet effective against any of the BSS Companies or against any
person or entity whose liability for any Environmental Claim any of the BSS
Companies has or may have retained or assumed either contractually or by
operation of law.

(6) For the purpose of this Agreement, the following terms shall have
the following meanings:

(i) "Communication" means a communication which is of a substantive
nature and which is made (A) in writing to any of the BSS Companies on the one
hand or to BOF (as defined below) on the other hand, or (B) orally to a senior
officer of any of the BSS Companies or BOF, whether from a governmental
authority or a third party.

(ii) "Environmental Claim" means any Communication from any
governmental authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from the presence, or release into the environment, of any
Material of Environmental Concern.

(iii) "Environmental Laws" means all applicable federal, state and
local laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, that relate to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata).
This definition includes, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.

(iv) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other materials regulated under Environmental Laws.

2.2 Representations and Warranties of BOF. BOF represents and
warrants to BSS as follows:

(a) Organization, Standing and Power. BOF is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has all requisite corporate power and authority
to carry on its business in Virginia as now being conducted and to own and
operate its assets, properties and business; BOF has no subsidiaries; and BOF
has the corporate power and authority to execute and deliver this
Agreement and perform the respective terms of this Agreement and the Plan
of BOF Share Exchange. BOF is an "insured bank" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder. All
of the shares of capital stock of BOF are validly issued, fully paid and
nonassessable.

(b) Authority. (1) The execution and delivery of this Agreement and
the consummation of the BOF Share Exchange have been duly and validly authorized
by all necessary corporate action on the part of BOF, except the approval of
shareholders. This Agreement represents the legal, valid and binding
obligations of BOF, enforceable against BOF in accordance with its terms
(except in all such cases as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or

<PAGE>

injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).

(2) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor the compliance by BOF
with any of the provisions hereof will (i) conflict with or result in a breach
of any provision of the Articles of Association or Bylaws of BOF, (ii) except as
previously disclosed in writing to BSS, constitute or result in the breach of
any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with
respect to, or result in the creation of any lien, charge or encumbrance upon,
any property or assets of BOF pursuant to (A) any note, bond, mortgage,
indenture, or (B) any material license, agreement, lease or other instrument
or obligation, to which BOF is a party or by which it or its properties or
assets may be bound, or (iii) subject to the receipt of the requisite approvals
referred to in Section 5.1, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to BOF or its properties or assets.

(c) Capital Structure. The authorized capital stock of BOF consists
of: 500,000 shares of common stock, par value $2.50 per share, of which
190,338 shares are issued and outstanding, fully paid and nonassessable
and not subject to shareholder preemptive rights. There are no outstanding
options, warrants or other rights to subscribe for or purchase from BOF any
capital stock of BOF or securities convertible into or exchangeable for
capital stock of BOF.

(d) Financial Statements. BOF has previously furnished to BSS true and
complete copies of its audited balance sheets as of December 31, 1994, 1993 and
1992, together with the related audited statements of income, statements of
cash flows, and statements of stockholders' equity for the three year period
ended December 31, 1994. In addition, BOF has provided BSS with unaudited
balance sheets as of December 31, 1995 and September 30, 1995, and unaudited
statements of income for the year ended December 31, 1995 and the nine months
and three months ended September 30, 1995 and 1994 (together with all the
notes thereto, the "BOF Financial Statements"). The BOF Financial Statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods presented, and
present fairly the financial position of BOF as of the respective dates
thereof and the results of its operations for the three year period then
ended.

(e) Absence of Undisclosed Liabilities. At December 31, 1995, BOF had
no obligation or liability (contingent or otherwise) of any nature which was
not reflected in the BOF Financial Statements, except for those which in the
aggregate are immaterial.

(f) Legal Proceedings; Compliance with Laws. Except as Previously
Disclosed, there are no actions, suits or proceedings instituted or pending
or, to the best knowledge of BOF, threatened or probable of assertion against
BOF, or against any property, asset, interest or right of it, that are
reasonably expected to have, either individually or in the aggregate, a
material adverse effect on the financial condition of BOF or that are
reasonably expected to threaten or impede the consummation of the
Reorganization. BOF is not a party to any agreement or instrument or subject
to any judgment, order, writ, injunction, decree or rule that, individually
or in the aggregate, might reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), business or prospects of
BOF. To the best knowledge of BOF, it has complied in all material respects
with all laws, ordinances, requirements, regulations or orders
applicable to their business (including environmental laws, ordinances,
requirements, regulations or orders).

(g) Regulatory Approvals. BOF knows of no reason why the regulatory
approvals referred to in Section 5.1(b) should not be obtained without the
imposition of any condition of the type referred to in Section 5.1(b).

(h) Tax Matters. BOF has filed all federal and local tax returns and
reports required to be filed, and all taxes shown by such returns to be due and
payable have been paid or are reflected as a liability in the BOF Financial
Statements or are being contested in good faith and

<PAGE>

have been previously disclosed in writing to BSS. Except to the extent that
liabilities therefor are specifically reflected in the BOF Financial Statements,
there are no federal, state or local tax liabilities of BOF other than
liabilities that have arisen since December 31, 1994, all of which have been
properly accrued or otherwise provided for on the books and records of BOF.
Except as previously disclosed in writing to BSS, no tax return or report of
BOF is under examination by any taxing authority or the subject of any
administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against BOF by any taxing authority.

(i) Property. Except as disclosed or reserved against in the BOF
Financial Statements, BOF has good and marketable title free and clear of all
material liens, encumbrances, charges, defaults or equities of whatever
character to all of the material properties and assets, tangible or
intangible, reflected in the BOF Financial Statements as being owned by BOF as
of the dates thereof. To the best knowledge of BOF, all buildings, and all
fixtures, equipment, and other property and assets which are material to its
business on a consolidated basis, held under leases or subleases by BOF are
held under valid instruments enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws. To the best knowledge of BOF, the policies of
fire, theft, liability, and other insurance maintained with respect to the
assets or business of BOF provide adequate coverage against loss, and the
fidelity bonds in effect as to which BOF is a named insured are believed to be
sufficient.

(j) Reports. Since January 1, 1990, BOF has filed all reports and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed with the SCC, the FDIC, the Federal
Reserve Board ("Federal Reserve"), the SEC, and any other governmental or
regulatory authority or agency having jurisdiction over its operations.

(k) Employee Benefit Plans. (1) BOF has delivered to BSS prior to the
execution of this Agreement true and complete copies of all material pension,
retirement, profit-sharing, deferred compensation, stock option, bonus,
vacation or other material incentive plans or agreements, all material
medical, dental or other health plans, all life insurance plans and all
other material employee benefit plans or fringe benefit plans, including,
without limitation, all "employee benefit plans" as that term is defined in
Section 3(3) of ERISA, currently adopted, maintained by, sponsored in whole or
in part by, or contributed to by BOF for the benefit of employees, retirees
or other beneficiaries are eligible to participate (collectively, the
"BOF Benefit Plans"). Any of the BOF Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "BOF ERISA Plan." No BOF Benefit Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.

(2) All BOF Benefit Plans are in compliance with the applicable terms
of ERISA and the IRC and any other applicable laws, rules and regulations the
breach of violation of which could result in a material liability to BOF on a
consolidated basis.

(3) No BOF ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability," as that term is defined in Section 302(d)(8)(A)
of ERISA, and the present fair market value of the assets of any such plan
exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan was terminated in accordance with all applicable legal
requirements.

(l) Investment Securities. Except as Previously Disclosed and except
for pledges to secure public and trust deposits and obligations under
agreements pursuant to which BOF has sold securities subject to an obligation
to repurchase, none of the investment securities reflected in the BOF
Financial Statements is subject to any restriction, contractual, statutory,
or otherwise, which would impair materially the ability of the holder of such
investment to dispose freely of any such investment at any time.

(m) Certain Contracts. (1) Except as Previously Disclosed, BOF is not
a party to, nor is bound by, (i) any material agreement, arrangement or
commitment, (ii) any agreement, indenture

<PAGE>

or other instrument relating to the borrowing of money by BOF or the guarantee
by BOF of any such obligation, (iii) any agreement, arrangement or commitment
relating to the employment of a consultant or the employment, election,
retention in office or severance of any present or former director or officer,
(iv) any agreement to make loans or for the provision, purchase or sale of
goods, services or property between BOF and any director or officer of BOF,
or any member of the immediate family or affiliate of any of the foregoing,
or (v) any agreement between BOF and any 5% or more shareholder of BOF; in
each case other than agreements entered into in the ordinary course of the
banking business of BOF consistent with past practice.

(2) Neither BOF, nor to the knowledge of BOF, the other party thereto,
is in default under any material agreement, commitment, arrangement, lease,
insurance policy or other instrument whether entered into in the ordinary course
of business or otherwise, nor has there occurred any event that, with the
lapse of time or giving of notice or both, would constitute such a default,
other than defaults of loan agreements by borrowers from BOF in the ordinary
course of its business.

(3) Since December 31, 1994, BOF has not incurred or paid any
obligation or liability that would be material to BOF, except obligations
incurred or paid in connection with transactions in the ordinary course of
business consistent with past practice and except as Previously Disclosed,
from December 31, 1994 to the date hereof, BOF has not taken any action that, if
taken after the date hereof, would breach any of the covenants contained in
Section 3.4 hereof.

(n) Insurance. A complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of BOF has previously been furnished to BSS
and all such policies or binders are valid and enforceable in accordance
with their terms, are in full force and effect, and insure against risks and
liabilities to the extent and in the manner customary for the industry and are
deemed appropriate and sufficient by BOF. BOF is not in default with respect to
any provision contained in any such policy or binder and have not failed to
give any notice or present any claim under any such policy or binder in due
and timely fashion. BOF has not received notice of cancellation or non-renewal
of any such policy or binder. BOF has no knowledge of any inaccuracy in any
application for such policies or binders, any failure to pay premiums when due
or any similar state of facts or of the occurrence of any event that is
reasonably likely to form the basis for any material claim against it not
fully covered (except to the extent of any applicable deductible) by the
policies or binders referred to above. BOF has not received notice from any of
its insurance carriers that any insurance premiums will be increased
materially in the future or that any such insurance coverage will not be
available in the future on substantially the same terms as now in effect.

(o) Absence of Certain Changes and Events. Since December 31, 1994,
there has not been any material adverse change in the condition (financial or
otherwise), aggregate assets or liabilities, cash flow, earnings or
business of BOF, and BOF has conducted its business only in the ordinary
course consistent with past practice.

(p) Loans, OREO and Allowance for Loan Losses. (1) Except as
Previously Disclosed, and except for matters which individually or in the
aggregate do not materially adversely affect the Reorganization or the
financial condition of BOF, to the best knowledge of BOF, each loan
reflected as an asset in the BOF Financial Statements (i) is evidenced
by notes, agreements, or other evidences of indebtedness which are true,
genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
All loans and extensions of credit which are subject to regulation by the
Federal Reserve which have been made by BOF comply with applicable
regulations.

<PAGE>

(2) The classification on the books and records of BOF of loans and/or
non-performing assets as nonaccrual, troubled debt restructuring, OREO or
other similar classification, complies in all material respects with generally
accepted accounting principles and applicable regulatory accounting principles.

(3) Except for liens, security interests, claims, charges, or such
other encumbrances as have been appropriately reserved for in the BOF Financial
Statements or are not material, title to the OREO is good and marketable, and
there are no adverse claims or encumbrances on the OREO. All title, hazard
and other insurance claims and mortgage guaranty claims with respect to the
OREO have been timely filed and BOF has not received any notice of denial of any
such claim.

(4) BOF is in possession of all of the OREO or, if any of the OREO
remains occupied by the mortgagor, eviction or summary proceedings have
been commenced or rental arrangements providing for market rental rates have
been agreed upon and BOF is diligently pursuing such eviction or summary
proceedings or such rental arrangements. Except as Previously Disclosed, no
legal proceeding or quasi-legal proceeding is pending or, to the knowledge of
BOF, threatened concerning any OREO or any servicing activity or omission to
provide a servicing activity with respect to any of the OREO.

(5) Except for one-to-four family mortgage loans and except as
Previously Disclosed, all loans made by BOF to facilitate the disposition of
OREO are performing in accordance with their terms.

(6) The allowance for possible loan losses shown on the BOF Financial
Statements was, and the allowance for possible loan losses shown on the interim
financial statements of BOF as of dates subsequent to the execution of this
Agreement will be, in each case as of the dates thereof adequate in all
material respects to provide for possible losses, net of recoveries relating
to loans previously charged off, on loans outstanding (including accrued
interest receivable) of BOF and other extensions of credit (including letters
of credit and commitments to make loans or extend credit) by BOF.

(q) Statements True and Correct. None of the information supplied or
to be supplied by BOF for inclusion in the Registration Statement on Form
S-4 (the "Registration Statement") to be filed with the SEC, the Joint Proxy
Statement (as defined in Section 3.2) to be mailed to every BOF shareholder or
any other document to be filed with the SEC, the SCC, the Federal Reserve,
the FDIC, or any other regulatory authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and, in the case of the Registration Statement, when it becomes
effective and with respect to the Joint Proxy Statement, when first mailed to
BOF shareholders, be false or misleading with respect to any material fact or
omit to state any material fact necessary in order to make the statements
therein not misleading, or, in the case of the Joint Proxy Statement or any
supplement thereto, at the time of the BOF Shareholders' Meeting (as
defined in Section 3.2), be false or misleading with respect to any material
fact or omit to state any material fact necessary to correct any statement
in any earlier communication with respect to the solicitation of any
proxy for the BOF Shareholders' Meeting.

(r) Brokers and Finders. Neither BOF nor any of its respective
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection
with the transactions contemplated herein or the BOF Plan of Share Exchange,
except for Scott & Stringfellow, Inc.

(s) Repurchase Agreements. With respect to all agreements pursuant to
which BOF has purchased securities subject to an agreement to resell, if any,
BOF has a valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the
value of such collateral equals or exceeds the amount of the debt secured
thereby.

<PAGE>

(t) Administration of Trust Accounts. BOF neither has nor exercises
any trust powers.

(u) Environmental Matters. (1) Except as Previously Disclosed, to
the best of BOF's knowledge, BOF does not own or lease any properties affected
by toxic waste, radon gas or other hazardous conditions or constructed in part
with the use of asbestos. BOF is in substantial compliance with all
Environmental Laws applicable to real or personal properties in which it has
a direct fee ownership or, with respect to a direct interest as lessee,
applicable to the leasehold premises or, to the best knowledge of BOF, the
premises on which the leasehold is situated. BOF has not received any
Communication alleging that BOF or such BOF Subsidiary is not in such
compliance and, to the best knowledge of BOF and the BOF Subsidiaries, there
are no present circumstances (including Environmental Laws that have been
adopted but are not yet effective) that would prevent or interfere with the
continuation of such compliance.

(2) There are no legal, administrative, arbitral or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on BOF of any liability
arising under any Environmental Laws pending or, to the best knowledge of BOF,
threatened against (A) BOF, (B) any person or entity whose liability for any
Environmental Claim BOF has or may have retained or assumed either
contractually or by operation of law, or (C) any real or personal property
which BOF owns or leases, or has been or is judged to have managed or to have
supervised or participated in the management of, which liability might
have a material adverse effect on the business, financial condition or
results of operations of BOF. BOF is not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any such liability.

(3) To the best knowledge of BOF, there are no legal, administrative,
arbitral or other proceedings, or Environmental Claims or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on BOF of any
liability arising under any Environmental Laws pending or threatened
against any real or personal property in which BOF holds a security interest
in connection with a loan or a loan participation which liability might
have a material adverse effect on the business, financial condition or
results of operations of BOF. BOF is not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.

(4) With respect to all real and personal property owned or leased by
BOF, other than OREO, BOF has made available to BSS copies of any environmental
audits, analyses and surveys that have been prepared relating to such
properties. With respect to all OREO held by BOF and all real or personal
property which BOF has been or is judged to have managed or to have supervised
or participated in the management of, BOF has made available to BSS the
information relating to such OREO available to BOF. BOF is in compliance in all
material respects with all recommendations contained in any environmental
audits, analyses and surveys relating to any of the properties, real or
personal, described in this subsection (4).

(5) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any Materials of Environmental Concern,
that could reasonably form the basis of any Environmental Claim or other claim
or action or governmental investigation that could result in the imposition of
any liability arising under any Environmental Laws currently in effect or
adopted but not yet effective against BOF or against any person or
entity whose liability for any Environmental Claim BOF has or may have
retained or assumed either contractually or by operation of law.

<PAGE>

ARTICLE 3
Conduct and Transactions Prior to
the Effective Date

3.1 Access to Records and Properties. BSS will keep BOF, and BOF will
keep BSS, advised of all material developments relevant to their respective
businesses prior to consummation of the Reorganization. Prior to the Effective
Date, BOF, on the one hand, and BSS, on the other, agree to give to the
other party and its authorized agents reasonable access to all the
premises and books and records (including tax returns filed and those in
preparation) of it and its subsidiaries and to cause its officers to furnish
the other with such financial and operating data and other information with
respect to the business and properties as the other shall from time to time
request for the purposes of verifying the warranties and representations
set forth herein; provided, however, that any such investigation shall be
conducted in such manner as not to interfere unreasonably with the operation
of the respective business of the other. In the event of termination of this
Agreement, BOF and BSS will each return to the other all documents, work papers
and other material (including all copies made thereof) obtained pursuant hereto
in connection with the transactions contemplated hereby and will use all
reasonable efforts to keep confidential any information obtained pursuant to
this Agreement unless such information is readily ascertainable from public or
published information or trade sources.

3.2 Registration Statement, Proxy Statement, Shareholder Approval.
The Boards of Directors of BSS and BOF will duly call and will hold a meeting of
their respective shareholders as soon as practicable for the purpose of
approving the Reorganization (the "BSS Shareholders Meeting" and the "BOF
Shareholders Meeting," respectively) and, in connection therewith (subject
to their respective fiduciary duty), will recommend to and use their
best efforts to ensure that their respective shareholders vote in favor
of the BSS Share Exchange or the BOF Share Exchange, respectively, and will
comply with the provisions in their respective Articles of Incorporation or
Articles of Association and Bylaws relating to the call and holding of a meeting
of shareholders for such purpose. Each member of the Board of Directors of BSS
and BOF, with the possible exception of one director at each bank, agrees to
vote all shares of BSS and BOF Common Stock under his control (and not held in
a fiduciary capacity) in favor of the Reorganization. BSS and BOF will prepare
jointly the proxy statement-prospectus to be used in connection with such
meetings (the "Joint Proxy Statement"), and BSS and BOF will prepare and file
with the SEC a Registration Statement on Form S-4 (the "Registration
Statement"), of which such Joint Proxy Statement shall be a part, and use their
best efforts to have the Registration Statement declared effective as promptly
as possible. In connection with the foregoing, BSS and BOF will comply with the
requirements of the Securities Act of 1933 (the "1933 Act") and the Securities
Exchange Act of 1934 (the "1934 Act") and the rules and regulations of the SEC
under such acts with respect to the offering and sale of Holding Company Common
Stock in connection with the Reorganization and with all applicable state
blue-sky and securities laws. BSS covenants that none of the information
supplied by BSS, and BOF covenants that none of the information supplied by BOF,
in the Joint Proxy Statement will, at the time of the mailing of the Joint Proxy
Statement to the shareholders of BOF and BSS, contain any untrue statement of a
material fact nor will any such information omit any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances in which they were made.

3.3 Operation of the Business of BSS and BOF. BSS and BOF each agree
that from the date hereof to the Effective Date it will operate its business
substantially as presently operated and only in the ordinary course, and,
consistent with such operation, it will use its best efforts to preserve
intact its relationships with persons having business dealings with it.
Without limiting the generality of the foregoing, BOF and BSS each agree that it
will not, without the prior written consent of the other with respect to
(a), (c) and (e) - (j) below, and without notice to the other with respect to
(b) and (d) below:

(a) Make any change in its authorized capital stock, or issue or sell
any additional shares of, securities convertible into or exchangeable for, or
options, warrants or rights to purchase,

<PAGE>

its capital stock, nor shall it purchase, redeem or otherwise acquire any of its
outstanding shares of capital stock;

(b) Voluntarily make any changes in the composition of its officers,
directors or other key management personnel;

(c) Make any change in the compensation or title of any officer,
director or key management employee or make any change in the compensation or
title of any other employee, other than permitted by current employment
policies or current practices in the ordinary course of business, any of which
changes shall be reported promptly to the other party;

(d) Enter into any bonus, incentive compensation, stock option,
deferred compensation, profit sharing, thrift, retirement, pension, group
insurance or other benefit plan or any employment or consulting agreement;

(e) Incur any obligation or liability (whether absolute or contingent,
excluding suits instituted against it), make any pledge, or encumber any of its
assets, nor dispose of any its assets in any other manner, except in the
ordinary course of its business and for adequate value, or as otherwise
specifically permitted in this Agreement;

(f) Issue or contract to issue any shares of common stock, options for
shares of common stock, or securities exchangeable for or convertible into
common stock;

(g) Waive any right to substantial value;

(h) Enter into material transactions otherwise than in the ordinary
course of its business;

(i) Alter, amend or repeal any of its Bylaws or its Articles of
Incorporation or Articles of Association, except each may alter its date for the
annual meeting of shareholders; or

(j) Propose or take any other action which would make any
representation or warranty in Sections 2.1 or 2.2 hereof untrue.

3.4 No Solicitation. Unless and until this Agreement shall have been
terminated pursuant to its terms, neither BSS nor BOF, nor any of their
respective officers, directors, representatives, agents or affiliates shall,
directly or indirectly, encourage, solicit or initiate discussions or
negotiations (with any person other than the other party to this transaction)
concerning any merger, sale of substantial assets, tender offer, sale of
shares of stock or similar transaction involving BSS or BOF, or enter into any
agreement with any third party providing for a business combination
transaction, equity investment or sale of a significant amount of assets nor
furnish any information to any other person relating to or in support of such
transaction. BSS will promptly communicate to BOF, and BOF will promptly
communicate to BSS, the terms of any proposal which it may receive in respect to
any of the foregoing transactions.

3.5 Dividends. BOF and BSS agree to consult and receive the approval
of the other during the term of this Agreement concerning the declaration
and payment of any dividends in respect of BOF Common Stock and BSS Common
Stock and the record dates and payment dates relating thereto.
Notwithstanding the foregoing, during the calendar year 1996, BOF shall be
permitted to pay prior to the Effective Date one dividend to its shareholders
totalling no more than $209,000 in aggregate; and BSS shall be permitted to
pay prior to the Effective Date to its shareholders a dividend totalling
no more than $107,000 in aggregate.

3.6 Regulatory Filings. BOF and BSS shall jointly prepare all
regulatory filings required to consummate the transactions contemplated by the
Agreement and submit the filings for approval

<PAGE>

with Federal Reserve Board, the FDIC, and the SCC, as required, as soon as
practicable after the date hereof. BOF and BSS shall use their best efforts to
obtain approvals of such filings.

3.7 Public Announcements. Each party will consult with the other
before issuing any press release or otherwise making any public statements with
respect to the Reorganization and shall not issue any press release or make
any such public statement prior to such consultations except as may be
required by law.

3.8 Notice of Breach. BOF and BSS will promptly give written notice
to the other upon becoming aware of the impending or threatened occurrence
of any event which would cause or constitute a breach of any of the
representations, warranties or covenants made to the other party in this
Agreement and will use its best efforts to prevent or promptly remedy the same.

ARTICLE 4
Additional Agreements

4.1 Accounting Treatment. BOF and BSS shall each use their best
efforts to ensure that the BOF Share Exchange and the BSS Share Exchange qualify
for pooling-of-interests accounting treatment.

4.2 Indemnification. (a) For six years after the Effective Date, the
Holding Company shall indemnify, defend and hold harmless present and former
officers, directors, employees and agents of BSS and BOF (each, an
"Indemnified Party") after the Effective Date against all losses, expenses,
claims, damages or liabilities arising out of actions or omissions occurring
on or prior to the Effective Date (including, without limitation, the
transactions contemplated by this Agreement) to the full extent then permitted
under federal and Virginia law and by the articles of incorporation or
articles of association and bylaws of BSS and BOF as in effect on the date
hereof, including provisions relating to advances of expenses incurred in
the defense of any action or suit.

(b) If the Holding Company or any of its successors or assigns shall
consolidate with or merge into any other corporation or entity or shall
transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Holding
Company shall assume the obligation set forth in this Section 4.2.

4.3 Confidentiality. Between the date of this Agreement and the
Effective Date, BOF and BSS each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party
in connection with this Agreement or the transactions contemplated
hereby unless such information is already known to such party or to others not
bound by a duty of confidentiality or unless such information becomes
publicly available through no fault of such party, unless use of such
information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the
transactions contemplated hereby or unless the furnishing or use of such
information is required by or necessary or appropriate in connection with legal
proceedings. If the Reorganization is not consummated, each party will return or
destroy as much of such written information as may reasonably be requested.

4.4 Exchange Listing. As soon as practicable after the Effective
Date, BOF and BSS agree to use their best efforts to list the Holding Company
Common Stock on the small capital market bulletin board of the National
Association of Securities Dealers Automated Quotation System or such other
bulletin board or exchange that the parties mutually agree will provide
the best benefits in terms of stock liquidity, sales volume and service for
Holding Company shareholders.

<PAGE>

ARTICLE 5
Conditions to the Reorganization

5.1 Conditions to Each Party's Obligations to Effect the
Reorganization. The respective obligations of each of BOF and BSS to effect
the Reorganization and the other transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver at or prior to the
Effective Date of the following conditions:

(a) Shareholder Approvals. Shareholders of each of BOF and BSS shall
have approved all matters relating to this Agreement and the Reorganization
required to be approved by such shareholders in accordance with Virginia law.

(b) Regulatory Approvals. This Agreement and the Reorganization shall
have been approved by the Federal Reserve Board, the FDIC, the SCC and any
other regulatory authority whose approval is required for consummation of
the transactions contemplated hereby, and such approvals shall not have
imposed any condition or requirement which would so materially adversely impact
the economic or business benefits of the transactions contemplated by this
Agreement as to render inadvisable in the reasonable opinion of the Board of
Directors of either BOF or BSS the consummation of the Reorganization.

(c) Registration Statement. The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any threatened
stop order.

(d) Tax Opinion. BOF and BSS shall have received an opinion of Mays &
Valentine, or other counsel reasonably satisfactory to BOF and BSS, to the
effect that the Reorganization will constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code and that no gain or
loss will be recognized by the shareholders of BSS and BOF to the extent
they receive Holding Company Common Stock solely in exchange for their BSS
Common Stock or BOF Common Stock in the Reorganization.

(e) Accountant's Letter. BOF and BSS shall have received letters,
dated as of the Effective Date, from Goodman & Company, LLP, satisfactory in
form and substance to each of BOF and BSS, that the Reorganization will
qualify for pooling-of-interests accounting treatment.

(f) Opinions of Counsel. BSS shall have delivered to BOF and BOF shall
have delivered to BSS, opinions of counsel dated as of the Effective Date as
to such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement.

(g) Investment Banking Letter. BSS shall receive a letter from
Davenport & Company of Virginia, Inc., and BOF shall receive a letter from Scott
& Stringfellow, Inc., dated no later than the date the Joint Proxy Statement
is sent to shareholders, to the effect that in the opinion of such firm
the Exchange Ratio is fair to the shareholders of BSS or BOF, respectively,
from a financial point of view. At its option BOF or BSS may require that such
fairness opinion be updated as of the Effective Date and, in such event, it
shall also be a condition to that party's obligation to consummate the
Reorganization that the party receive such updated fairness opinion.

(h) Legal Proceedings. Neither BOF nor BSS shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Reorganization.

5.2 Conditions to Obligations of BOF. The obligations of BOF to
effect the BOF Share Exchange shall be subject to the fulfillment or waiver at
or prior to the Effective Date of the following additional conditions:

(a) Representations and Warranties. The representations and warranties
of BSS set forth in Section 2.1 hereof shall be true and correct in all material
respects as of the date of this

<PAGE>

Agreement and as of the Effective Date (as though made on and as of the
Effective Date except to the extent such representations and warranties are by
their express provisions made as of a specified date), and BOF shall have
received a certificate signed by the Chief Executive Officer and Secretary of
BSS to that effect.

(b) Performance of Obligations. BSS shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and BOF shall have received a certificate
signed by the Chief Executive Officer of BSS to that effect.

(c) Affiliate Letters. Each shareholder of BSS who may be deemed by
counsel for BOF to be an "affiliate" of BSS within the meaning of Rule 145
under the 1933 Act shall have executed and delivered a commitment and
undertaking to the effect that (1) such shareholder will dispose of the shares
of Holding Company Common Stock received by him in connection with the BSS
Share Exchange only in accordance with the provisions of paragraph (d) of
Rule 145 and in a manner that would not prevent the BSS Share Exchange from
qualifying for pooling-of-interests accounting treatment; (2) such
shareholders will not dispose of any such shares until BOF has received an
opinion of counsel acceptable to it that such proposed disposition will
not violate the provisions of any applicable securities laws; and (3) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions.

(d) Management. Wenifred O. Pearce shall remain as Chief Executive
Officer of BOF and the Holding Company and shall receive a contract of
employment commencing with the Effective Date for an annual salary not less
than Mr. Pearce's base salary on January 1, 1996.

5.3 Conditions to Obligations of BSS. The obligations of BSS to
effect the BSS Share Exchange shall be subject to the fulfillment or waiver at
or prior to the Effective Date of the following additional conditions:

(a) Representations and Warranties. The representations and warranties
of BOF set forth in Section 2.2 shall be true and correct in material
respects as of the date of this Agreement and as of the Effective Date
(as though made on and as of the Effective Date except to the extent such
representations and warranties are by their express provisions made as of a
specified date) and BSS shall have received a certificate signed by the
Chief Executive Officer and Secretary of BOF to that effect.

(b) Performance of Obligations. BOF shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and BSS shall have received a certificate
signed by Chief Executive Officer of BOF to that effect.

(c) Affiliate Letters. Each shareholder of BOF who may be deemed by
counsel for BSS to be an "affiliate" of BOF within the meaning of Rule 145
under the 1933 Act shall have executed and delivered a commitment and
undertaking to the effect that (1) such shareholder will dispose of the shares
of Holding Company Common Stock received by him in connection with the BOF
Share Exchange only in accordance with the provisions of paragraph (d) of
Rule 145 and in a manner that would not prevent the BOF Share Exchange from
qualifying for pooling-of-interests accounting treatment; (2) such
shareholders will not dispose of any such shares until BSS has received an
opinion of counsel acceptable to it that such proposed disposition will
not violate the provisions of any applicable securities laws; and (3) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions.

(d) Management. D. Eugene Brittle shall remain as President and Chief
Executive Officer of BSS and Executive Vice President and Chief Operating
Officer of the Holding Company and shall have received a contract of employment
commencing with the Effective Date for an annual salary not less than Mr.
Brittle's base salary on January 1, 1996.

<PAGE>

ARTICLE 6
Termination

6.1 Termination. Notwithstanding any other provision of this Agreement, and
notwithstanding the approval of this Agreement and the Plan of BOF Share
Exchange and Plan of BSS Share Exchange by the shareholders of BOF and BSS,
this Agreement may be terminated and the Reorganization abandoned at any
time prior to the Effective Date:

(a) By the mutual consent of the Boards of Directors of each of BOF and BSS;

(b) By the respective Boards of Directors of BOF or BSS if the conditions
set forth in Section 5.1 have not been met or waived by BOF and BSS;

(d) By the Board of Directors of BSS if the conditions set forth in Section
5.3 have not been met or waived by BSS;

(e) By the respective Boards of Directors BOF or BSS if the
Reorganization is not consummated by October 31, 1996.

(f) By the Board of Directors of BOF in writing at any time prior to
February 26, 1996 if BOF determines in its sole good faith judgment that
the financial condition, business or prospects of BSS are materially
adversely different from what was reasonably expected by BOF after the
performance of its due diligence and review of Previously Disclosed material
prior to the execution of this Agreement; provided that BOF shall inform BSS
upon such termination of the reasons for BOF's decision and, if possible,
provide BSS an opportunity to cure, and provided further that this
section 6.1(f) shall not limit in any way the due diligence investigation of
BSS which BOF may perform or otherwise affect any other rights which BOF has
after the date hereof or after February 26, 1996 under the terms of this
Agreement.

(g) By the Board of Directors of BSS in writing at any time prior to
February 26, 1996 if BSS determines in its sole good faith judgment that
the financial condition, business or prospects of BOF are materially
adversely different from what was reasonably expected by BSS after the
performance of its due diligence and review of Previously Disclosed material
prior to the execution of this Agreement; provided that BSS shall inform BOF
upon such termination of the reasons for BSS's decision and, if possible,
provide BOF an opportunity to cure, and provided further that this
section 6.1(g) shall not limit in any way the due diligence investigation of
BOF which BSS may perform or otherwise affect any other rights which BSS has
after the date hereof or after February 26, 1996 under the terms of this
Agreement.

6.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement and the Reorganization pursuant to Section 6.1,
this Agreement shall become void and have no effect, except that (i) the
last sentence in Section 3.1 and all of Sections 3.7 and 6.4 shall survive
any such termination and abandonment and (ii) no party shall be relieved or
released from any liability arising out of an intentional breach of any
provision of this Agreement.

6.3 Non-Survival of Representations, Warranties and Covenants. Except for
Sections 1.1, 1.2, 1.3, 4.1, 4.2, 4.3, 4.4 and 6.4 of this Agreement and the
Plan of BOF Share Exchange and Plan of BSS Share Exchange, none of the
respective representations and warranties, obligations, covenants and
agreements of the parties shall survive the Effective Date, provided that
no such representations, warranties, obligations, covenants and
agreements shall be deemed to be terminated or extinguished so as to
deprive BOF or BSS (or any director, officer, or controlling person
thereof) of any defense in law or equity which otherwise would be available
against the claims of any person, including without limitation any
shareholder or former shareholder of either BOF or BSS.

<PAGE>

6.4 Expenses. (a) Unless otherwise agreed by the parties in writing,
each party shall bear and pay its own expenses incident to preparing,
entering into and carrying out this Agreement and to consummating the
Reorganization, and BOF and BSS shall divide evenly all printing expenses,
legal fees paid to Mays & Valentine and filing fees with the SEC and SCC
incurred in connection with this Agreement, the Registration Statement and
the Joint Proxy Statement.

(b) Notwithstanding the foregoing, if this Agreement is terminated by
BOF or BSS pursuant to Sections 6.1(c) or (d) of this Agreement because of
the willful breach by the other of any representation, warranty, covenant,
undertaking, or restriction contained herein, if the terminating party shall
not have been in breach (in any material respect) of any representation,
warranty, covenant, undertaking, or restriction contained herein, then the
breaching party shall pay damages in the amount of $100,000 plus all costs and
expenses specified in the exception to Section 6.4(a) of this Agreement,
plus costs of counsel, investment bankers, regulatory approvals, and
accountants of the terminating party. Such payment shall be deemed to
constitute liquidated damages for the willful breach by a party of the terms
of this Agreement and shall otherwise limit the rights of the nonbreaching
party.

ARTICLE 7
General Provisions

7.1 Entire Agreement. This Agreement contains the entire agreement among
BOF and BSS with respect to the Reorganization and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.

7.2 Waiver and Amendment. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof, and this Agreement may be
amended or supplemented by written instructions duly executed by the parties
hereto at any time, whether before or after the meetings of BSS or BOF
shareholders referred to in Section 3.2 hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.

7.3 Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provisions of
this Agreement.

7.4 Governing Law. Except as required otherwise or otherwise indicated
herein, this Agreement shall be construed and enforced according to the laws of
the Commonwealth of Virginia.

7.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid,
addressed as follows:

If to BOF:

The Bank of Franklin
100 East 4th Avenue
P.O. Box 594
Franklin, Virginia 23851
Attn: Wenifred O. Pearce
(Tel. 804-562-5184)

<PAGE>

Copy to:

Bruce Stewart, Esquire
Stewart & Stewart
209 North College Drive
Franklin, Virginia 23851
(Tel. 804-562-4242)

If to BSS:

Bank of Sussex and Surry
205 Railroad Avenue
P.O. Box 10
Wakefield, Virginia 23288
attn: D. Eugene Brittle, President
(Tel. 804-899-2501)

If to the Holding Company:

Hugh B. Wellons
Mays & Valentine
P. O. Box 1122
Richmond, Virginia 23208-1122
(Tel. 804-697-1374)

7.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.

7.7 Severability. In the event any provisions of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or unenforceable only
in part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable. Further, the parties agree that a court of
competent jurisdiction may reform any provision of this Agreement held
invalid or unenforceable so as to reflect the intended agreement of the
parties hereto.

7.8 Brokers and Finders. In the event of a claim by any broker or finder
based upon his or its representing or being retained by or allegedly
representing or being retained by either BOF or BSS, BOF or BSS, as the case may
be, agrees to indemnify and hold the other party harmless of and from any such
claim.

7.9 Subsidiaries. All representations, warranties, and covenants herein,
where pertinent, include and shall apply to the wholly owned subsidiary
belonging to the party making such representations, warranties, and covenants.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the dates first written above.

THE BANK OF FRANKLIN
Franklin, Virginia

By: /s/ WENIFRED O. PEARCE
Wenifred O. Pearce
Chief Executive Officer
ATTEST:

/s/ KYLE R. PURVIS
Kyle R. Purvis
Senior Vice President

THE BANK OF SUSSEX AND SURRY
Wakefield, Virginia

By: /s/ D. EUGENE BRITTLE
D. Eugene Brittle
President
ATTEST:

/s/ DOUGLAS A. CHESSON
Douglas A. Chesson
Secretary

<PAGE>

THE BANK OF FRANKLIN
BOARD OF DIRECTORS

Each of the undersigned members of the Board of Directors of The Bank of
Franklin agrees to be bound by his personal obligations as provided in Section
3.2 and 3.4 of this Agreement and Plan of Reorganization.

/s/ HUNTER DARDEN, JR. /s/ CHARLES F. KINGERY

/s/ J. H. LEE, III /s/ W. O. PEARCE

/s/ HARVEY POPE /s/ DURWOOD V. SCOTT

/s/ MARION B. SMITH /s/ J. D. SPIVEY

/s/ F. BRUCE STEWART /s/ WESLEY F. WILLIS

<PAGE>

THE BANK OF SUSSEX AND SURRY
BOARD OF DIRECTORS

Each of the undersigned members of the Board of Directors of The Bank of
Sussex and Surry agrees to be bound by his personal obligations as provided
in Section 3.2 and 3.4 of this Agreement and Plan of Reorganization.

/s/ J. P. BAIN /s/ J. P. BAIN, JR.

/s/ JACK BEALE /s/ D. EUGENE BRITTLE

/s/ A. MEREDITH FELTS, SR. /s/ B. O. HUBER

/s/ WILLIAM B. SAVEDGE /s/ J. RUSSEL WEST

<PAGE>

EXHIBIT A
to the Agreement and
Plan of Reorganization

PLAN OF SHARE EXCHANGE
BETWEEN
[BANK OF FRANKLIN/BANK OF SUSSEX AND SURRY]
AND
UNITED COMMUNITY BANKSHARES, INC.

Pursuant to this Plan of Share Exchange ("Plan of Share Exchange"), [THE
BANK OF FRANKLIN/THE BANK OF SUSSEX AND SURRY], a Virginia corporation (the
"Bank"), shall become a wholly owned subsidiary of United Community
Bankshares, Inc. (the "Holding Company"), a Virginia corporation pursuant
to a share exchange under Section 13.1-717 of the Virginia Stock Corporation
Act.

ARTICLE 1
Terms and Conditions of the Share Exchange

1.1 The Share Exchange. Pursuant to the Agreement and Plan of
Reorganization made and entered into as of January 25, 1996 (the "Reorganization
Agreement"), at the Effective Date, the Bank shall become a wholly owned
subsidiary of the Holding Company through the exchange of each outstanding
share of common stock of the Bank for shares of the common stock of the Holding
Company in accordance with Section 2.1 of this Plan of Share Exchange and
pursuant to a share exchange under Section 13.1-717 of the Virginia Stock
Corporation Act (the "Share Exchange"). At the Effective Date, the Share
Exchange shall have the effect as provide in Section 1.31-721 of the Virginia
Stock Corporation Act.

1.2 Name. When the Share Exchange is effected, the name of the Bank as set
forth in the Bank's Articles of Incorporation shall not change.

1.3 Articles of Incorporation and Bylaws. The Articles of Incorporation
and Bylaws of the Bank in effect immediately prior to the consummation of the
Share Exchange shall remain in effect following the Effective Date until
otherwise amended or repealed. The Articles of Incorporation and Bylaws
of the Holding Company in effect immediately prior to the consummation
of the Share Exchange shall remain in effect following the Effective Date
until otherwise amended or repealed.

ARTICLE 2
Manner of Exchanging Shares

2.1 Exchange of Shares. Upon, and by reason of, the Share Exchange
becoming effective pursuant to the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission, no cash, except as set
forth in section 2.3 below, shall be allocated to the shareholders of the
Bank, and stock shall be issued and allocated as follows:

(a) Each share of common stock, par value [$2.50/$1.25] per share, of the Bank
("Bank Common Stock") issued and outstanding immediately prior to the
Effective Date shall be entitled to the exchange rights set forth in this
Section 2.1 or to their rights under Article 15 of the Virginia Stock
Corporation Act as set forth in Section 2.5 below. On the Effective Date,
each shareholder of the Bank immediately prior to the Effective Date shall be
entitled to exchange each such share of Bank Common Stock held for
[4.806/3.000] shares of Holding Company Common Stock (the "Exchange
Ratio"). Each holder of a certificate which immediately prior to the
Effective Date represented shares of Bank Common Stock, upon the surrender of
his Bank stock certificates

<PAGE>

to the Holding Company, duly endorsed for transfer in accordance with
Section 2.2 below, will be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of Holding
Company Common Stock that such Bank stock certificates shall entitle him to
pursuant to the Exchange Ratio. After the Effective Date, each such former
holder of Bank Common Stock shall have the right to receive (i) any dividend or
other distribution payable at or as of any time after the Effective Date to
holders of record of Holding Company Common Stock at or as of any time after the
Effective Date, and (ii) the consideration described in Sections 2.1 and 2.3
upon the surrender of such certificate in accordance with Section 2.2.

(b) Shares of Bank Common Stock issued and outstanding shall, by virtue of the
Share Exchange, continue to be issued and outstanding shares and shall be
denoted on the books and records of the Bank as held of record by the Holding
Company.

2.2 Manner of Exchange. As promptly as practicable after the Effective
Date, the Holding Company shall cause _________ _______, acting as the exchange
agent ("Exchange Agent") to send to each former shareholder of record of
the Bank immediately prior to the Effective Date transmittal materials for
use in exchanging such shareholder's certificates of Bank Common Stock (other
than shares held by shareholders who perfect their dissenters' rights as
provided under Section 2.5 hereof) for the consideration set forth in Section
2.1 above and Section 2.3 below. Any fractional share checks which a Bank
shareholder shall be entitled to receive in exchange for such shareholder's
shares of Bank Common Stock, and any dividends paid on any shares of Holding
Company Common Stock that such shareholder shall be entitled to receive
prior to the delivery to the Exchange Agent of such shareholder's
certificates representing all of such shareholder's shares of Bank Common Stock
will be delivered to such shareholder only upon delivery to the Exchange
Agent of the certificates representing all of such shares (or indemnity
satisfactory to the Holding Company and the Exchange Agent, in their judgment,
if any of such certificates are lost, stolen or destroyed). No interest will be
paid on any such fractional share checks or dividends to which the holder of
such shares shall be entitled to receive upon such delivery.

2.3 Fractional Shares. No fractional shares of Holding Company Common
Stock or scrip evidencing such fractional shares shall be issued, but in lieu
thereof, cash (without interest) in an amount equal to such fractional part of
a share of Holding Company Common Stock multiplied by market value of Bank
Common Stock as of the Effective Date will be paid by the Holding Company.

2.4 Voting and Dividends. Former shareholders of the Bank shall be
entitled to vote after the Effective Date at any meeting of Holding Company
shareholders the number of whole shares of Holding Company Common Stock for
which their shares of the Bank Common Stock are exchanged, regardless of
whether such holders have exchanged their certificates representing shares
of the Bank Common Stock. No dividend or other distribution payable to the
holders of record of Holding Company Common Stock at or as of any time after
the Effective Date shall be paid to the holder of any certificate
representing shares of the Bank Common Stock issued and outstanding at the
Effective Date until such holder physically surrenders such certificate for
exchange as provided in Section 2.2 hereof, promptly after which time all such
dividends or distributions shall be paid (without interest).

2.5 Rights of Dissenting Shareholders. Shareholders of the Bank who object
to the Share Exchange will be entitled to the dissenters' rights and
remedies set forth in sections 13.1-729 through 13.1-741 of the Virginia Stock
Corporation Act.

ARTICLE 3
Termination

This Plan of Share Exchange may be terminated at any time prior to the
Effective Date by the parties hereto as provided in Article 6 of the
Reorganization Agreement.

<PAGE>

EXHIBIT B
to the Agreement and
Plan of Reorganization

ARTICLES OF INCORPORATION

UNITED COMMUNITY BANKSHARES, INC.

ARTICLE I.

NAME

The name of the Corporation is:

United Community Bankshares, Inc.

ARTICLE II.

PURPOSE

The purpose for which the Corporation is organized is to act as a bank holding
company and to transact any and all lawful business, not required to be
specifically stated in the Articles of Incorporation, for which corporations
may be incorporated under the Virginia Stock Corporation Act.

ARTICLE III.

CAPITAL STOCK

The Corporation shall have authority to issue six million (6,000,000) shares of
Common Stock, par value $1.00 per share, and one million (1,000,000) shares of
Serial Preferred Stock, par value $1.00 per share.

A. Serial Preferred Stock

(a) Issuance in Series. Authority is hereby vested in the Board of
Directors to divide the Serial Preferred Stock into and cause the Serial
Preferred Stock to be issued in series, to designate each series so as to
distinguish the shares thereof from the shares of all other series or classes,
to fix the number of shares of each series, and to fix and determine the
variations in the relative rights and preferences of each series within the
limitations hereinafter set forth in this paragraph. All shares of Serial
Preferred Stock shall be identical except as to the following relative rights
and preferences, which may be fixed and determined by the Board of Directors
and as to which there may be variations between different series:

(a) the rate of dividend, if any, payable on shares of such series, the
time of payment and the dates from which dividends shall be cumulative
if such dividends shall be cumulative, and the extent of
participation rights, if any, of the shares of such series;

<PAGE>

(b) any right to vote with holders of shares of any other series or class
and any right to vote as a class, either generally or as a condition
to specified corporate action;

(d) the amount payable upon shares in the event of involuntary liquidation;

(e) the amount payable upon shares in the event of voluntary liquidation;

(f) any sinking fund provisions for the redemption or purchase of shares;
and

(g) the terms and conditions on which shares may be may be converted, if
the shares of any series are issued with the privilege of conversion.

2. Dividends. The holders of the Serial Preferred Stock of each
series as to which the Board of Directors shall have specified a rate of
dividend shall be entitled to receive, if and when declared payable by the
Board of Directors, dividends at the dividend rate for such series, and not
exceeding such rate except to the extent of any participation right. Such
dividends shall be payable on such dates as shall be specified for such series.
Dividends, if cumulative and in arrears, shall not bear interest.

No dividends shall be declared or paid upon or set apart for the Common
Stock or for stock of any other class hereafter created ranking junior to the
Serial Preferred Stock in respect to dividends or assets (hereinafter called
"Junior Stock"), or for any shares of Serial Preferred Stock which are entitled
to participate with the Common Stock, and no shares of Serial Preferred Stock,
Common Stock or Junior Stock shall be purchased, redeemed or otherwise
reacquired for a consideration, nor shall any funds be set aside for or paid to
any sinking fund therefor, unless and until (i) full dividends on the
outstanding Serial Preferred Stock at the dividend rate or rates therefor,
together with the full additional amount required by any participation right,
shall have been paid or declared and set apart for payment with respect to all
past dividend periods, to the extent that the holders of the Serial Preferred
Stock are entitled to dividends with respect to any past dividend period,
and the current dividend period, and (ii) all mandatory sinking fund payments
that shall have become due in respect of any series of the Serial Preferred
Stock shall have been made. Unless full dividends with respect to all past
dividend periods on the outstanding Serial Preferred Stock at the dividend rate
or rates therefor, to the extent that holders of the Serial Preferred Stock are
entitled to dividends with respect to any particular past dividend period,
together with the full additional amount required by any participation right,
shall have been paid or declared and set apart for payment and all mandatory
sinking fund payments that shall have become due in respect of any series of the
Serial Preferred Stock shall have been made, no distributions shall be made to
the holders of the Serial Preferred Stock of any series unless distributions are
made to the holders of the Serial Preferred Stock of all series then outstanding
in proportion to the aggregate amounts of the deficiencies in payments due to
the respective series, and all payments shall be applied first, to dividends
accrued and in arrears, next, to any amount required by any participation right,
and, finally, to mandatory sinking fund payments. The terms "current dividend
period" and "past dividend period" mean, if two or more series of Serial
Preferred Stock having different dividend periods are at the time outstanding,
the current dividend period or any past dividend period, as the case may be,
with respect to each such series.

3. Preference on Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, the holders of the Serial
Preferred Stock of each series shall be entitled to receive, for each share
thereof, the fixed liquidation price for such series, plus, in case such
liquidation, dissolution or winding up shall have been voluntary, the fixed
liquidation premium for such series, if any, together in all cases with a sum
equal to all dividends, if any, accrued or in arrears thereon and the full
additional amount required by any participation right, before any

<PAGE>

distribution of the assets shall be made to holders of the Common Stock or
Junior Stock; but the holders of the Serial Preferred Stock shall be
entitled to no further participation in such distribution. If, upon any
such liquidation, dissolution or winding up, the assets distributable among
the holders of the Serial Preferred Stock shall be insufficient to permit the
payment of the full preferential amounts aforesaid, then such assets shall be
distributed among the holders of the Serial Preferred Stock then outstanding,
ratably in proportion to the full preferential amounts to which they are
respectively entitled. A merger of the Corporation into any other
corporation, or merger of any other corporation into the Corporation, or
consolidation of the Corporation with any other corporation or a sale or
transfer of the property of the Corporation as or substantially as an
entirety shall not be deemed to be a liquidation, dissolution or winding
up of the Corporation.

B. Common Stock

1. Dividends. Subject to the provisions of law and the rights of
holders of shares at the time outstanding of all classes of stock having prior
rights as to dividends, the holders of Common Stock at the time outstanding
shall be entitled to receive such dividends at such times and in such amounts
as the Board of Directors may deem advisable.

2. Liquidation. In the event of any liquidation, dissolution or
winding up (whether voluntary or involuntary) of the Corporation, after
payment or provision for the payment of all the liabilities and obligations of
the Corporation and all preferential amounts to which the holders of shares
at the time outstanding of all classes of stock having prior rights thereto
shall be entitled, the remaining net assets of the Corporation shall be
distributed ratably among the holders of the shares at the time outstanding of
Common Stock.

3. Voting. Except to the extent to which the Board of Directors shall
have specified voting power with respect to any other class of stock and
except as otherwise provided by law, the exclusive voting power shall be
vested in the Common Stock, the holder thereof being entitled to one vote
for each share of Common Stock at all meetings of the shareholders of the
Corporation.

ARTICLE IV.

NO PREEMPTIVE RIGHTS

No holder of shares of the capital stock of the Corporation of any class shall
have any preemptive or preferential right to subscribe for or purchase (i) any
shares of capital stock of the Corporation, (ii) any securities convertible
into such shares or (iii) any options, warrants or rights to purchase
such shares or securities convertible into any such shares.

ARTICLE V.

DIRECTORS

The business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors consisting of such number of directors as
may be fixed from time to time in the bylaws or by resolution adopted by
the affirmative vote of a majority of the Directors then in office. The
Directors shall be divided into three classes, designated as Class I, Class
II, and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of Directors constituting the entire Board
of Directors, with one class to be originally elected for a term of one
year, another class to be originally elected for a term expiring in two
years, and another class to be originally elected for a term of three
years. At each succeeding annual meeting of shareholders beginning in
1997, successors to the class of Directors whose term expires at that

<PAGE>

annual meeting shall be elected for a three-year term. If the number of
Directors has changed, any increase or decrease shall be apportioned among
the classes so as to maintain the number of Directors in each class as nearly
equal as possible, but in no case will a decrease in the number of Directors
shorten the term of any incumbent Director. A Director shall hold office
until the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.

Notwithstanding the foregoing, whenever the holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect Directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such Directorships shall be governed by the
terms of these Articles of Incorporation applicable thereto, and such
Directors so elected shall not be divided into classes pursuant to this
Article V unless expressly provided by such terms.

If the office of any Director shall become vacant, the Directors then in
office, whether or not a quorum, may by majority vote choose a successor who
shall hold office until the next annual meeting of shareholders. In such
event, the successor elected by the Directors then in office shall hold
office for a term that shall coincide with the remaining term of the class of
Directors to which that person has been elected. Vacancies resulting from
the increase in the number of Directors shall be filled in the same manner.

Directors of the Corporation may be removed by shareholders of the Corporation
only for cause and with the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote.

Advance notice of shareholder nominations for the election of Directors shall
be given in the manner provided in the Bylaws of the Corporation.

ARTICLE VI.

INDEMNIFICATION AND LIMIT ON LIABILITY

(a) Mandatory Indemnification. To the full extent permitted by the
Virginia Stock Corporation Act, as it exists on the date hereof or may
hereafter be amended, each Director and officer shall be indemnified by the
Corporation against liabilities, fines, penalties and claims imposed upon or
asserted against him (including amounts paid in settlement) by reason of
having been such Director or officer, whether or not then continuing so to
be, and against all expenses (including counsel fees) reasonably incurred by
him in connection therewith, except in relation to matters as to which he shall
have been finally adjudged liable by reason of his willful misconduct or a
knowing violation of criminal law in the performance of his duty as such
Director or officer. The determination that the indemnification under this
subsection (a) is permissible shall be made as provided by law. The right of
indemnification hereby provided shall not be exclusive of any other rights to
which any Director or officer may be entitled.

(b) Limitation of Liability. To the full extent permitted by the
Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter
be amended, in any proceeding brought by a shareholder of the Corporation in
the right of the Corporation or brought by or on behalf of shareholders of the
Corporation, a director or officer of the Corporation shall not be liable in
any monetary amount for damages arising out of or resulting from a single
transaction, occurrence or course of conduct, provided that the elimination
of liability herein set forth shall not be applicable if the Director or
officer engaged in willful misconduct or a knowing violation of the criminal law
or of any federal or state securities law.

<PAGE>

(c) Agents and Employees. The Board of Directors is hereby empowered,
by a majority vote of a quorum of disinterested Directors, to indemnify or
contract in advance to indemnify any person not specified in subsection (a)
of this Article against liabilities, fines, penalties and claims imposed
upon or asserted against him (including amounts paid in settlement) by
reason of having been an employee, agent or consultant of the Corporation,
whether or not then continuing so to be, and against all expenses (including
counsel fees) reasonably incurred by him in connection therewith, to the same
extent as if such person were specified as one to whom indemnification is
granted in subsection (a) of this Article.

(d) References. Every reference in this Article to Director, officer,
employee, agent or consultant shall include (i) every Director, officer,
employee, agent or consultant of the Corporation or any corporation the
majority of the voting stock of which is owned directly or indirectly by the
Corporation, (ii) every former Director, officer, employee, agent or
consultant of the Corporation, (iii) every person who may have served at the
request of or on behalf of the Corporation as a Director, officer,
employee, agent, consultant or trustee of another corporation,
partnership, joint venture, trust or other entity, and (iv) in all of such
cases, his executors and administrators.

(e) Effective Date. The provisions of this Article VI shall be
applicable from and after its adoption even though some or all of the underlying
conduct or events relating to such a proceeding may have occurred before such
adoption. No amendment, modification or repeal of this Article VI shall
diminish the rights provided hereunder to any person arising from conduct
or events occurring before the adoption of such amendment, modification or
repeal.

(f) Change in Control. In the event there has been a change in the
composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancements of expenses with
respect to any claim for indemnification made pursuant to subsection (a) of
this Article VI shall be made by special legal counsel agreed upon by the
Board of Directors and the proposed indemnitee. If the Board of Directors and
the proposed indemnitee are unable to agree upon such special legal counsel,
the Board of Directors and the proposed indemnitee each shall select a
nominee, and the nominees shall select such special legal counsel.

ARTICLE VII.

SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS

An amendment of the Corporation's Articles of Incorporation, a plan of merger
or share exchange, a transaction involving the sale of all or substantially
all the Corporation's assets other than in the regular course of business and
a plan of dissolution shall be approved by the vote of a majority of all the
votes entitled to be cast on such transactions by each voting group entitled to
vote on the transaction at a meeting at which a quorum of the voting group is
present, provided that the transaction has been approved and recommended
by at least two-thirds of the Directors in office at the time of such
approval and recommendation. If the transaction is not so approved and
recommended by at least two-thirds of the Directors in office, then the
transaction shall be approved by the vote of eighty percent (80%) or more
of all the votes entitled to be cast on such transactions by each voting
group entitled to vote on the transaction.

ARTICLE VIII.

REGISTERED OFFICE AND REGISTERED AGENT

The post office address of the initial registered office is 1111 East Main
Street, 23rd Floor, Richmond, Virginia 23219. The name of the City in which the
initial registered office is located is

<PAGE>

Richmond. The name of the initial registered agent is Fred W. Palmore, III,
whose business office is the same as the registered office and who is a resident
of Virginia and a member of the Virginia State Bar.

<PAGE>

APPENDIX B

ARTICLE 15

OF THE

VIRGINIA STOCK CORPORATION ACT

RELATING TO

RIGHTS OF DISSENTING SHAREHOLDERS

<PAGE>

ARTICLE 15.
DISSENTERS' RIGHTS.

(S) 13.1-729. DEFINITIONS. -- In this article:

"Corporation" means the issuer of the shares held by a dissenter
before the corporate action, except that (i) with respect to a merger,
"corporation" means the surviving domestic or foreign corporation or limited
liability company by merger of that issuer, and (ii) with respect to a share
exchange, "corporation" means the acquiring corporation by share exchange,
rather than the issuer, if the plan of share exchange places the responsibility
for dissenters' rights on the acquiring corporation.

"Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 13.1-730 and who exercises that right when and in the
manner required by ss.ss. 13.1-732 through 13.1-739.

"Fair value" with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

"Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.

"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.

"Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.

"Shareholder" means the record shareholder or the beneficial
shareholder.

(S) 13.1-730. RIGHT TO DISSENT -- A. A shareholder is entitled
to dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:

1. Consummation of a plan of merger to which the corporation is
a party (i) if shareholder approval is required for the merger by 13.1.718 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under ss. 13.1-719;

2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;

3. Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation if the shareholder was entitled to vote
on the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that such
dissenter's rights shall not apply in the case of (i) a sale or exchange
pursuant to court order, or (ii) a sale for cash or pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;

4. Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

<PAGE>

B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.

C. Notwithstanding any other provision of this article, with
respect to a plan of merger or share ex change or a plan of merger or share
exchange or a sale or exchange of property there shall be no right of dissent in
favor of holders of shares of any class or series which, at the record date
fixed to determine the shareholders entitled to receive notice of and to vote at
the meeting at which the plan of merger or share exchange or the sale or
exchange of property is to be acted on, were (i) listed on a national securities
exchange or (ii) held by at least 2,000 record shareholders, unless in either
case:

1. The articles of incorporation of the corporation issuing
such shares provide otherwise;

2. In the case of a plan of merger or share exchange, the
holders of the class or series are required under the plan of merger or share
exchange to accept for such shares anything except:

a. Cash;

b. Shares or membership interests, or shares or membership
interests and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange or
held of record by at least 2,000 record shareholders or members; or

c. A combination of cash and shares or membership interests as
set forth in subdivisions 2 a and 2 b of this subsection; or

3. The transaction to be voted on is an "affiliated
transaction" and is not approved by a majority of "disinterested directors" as
such terms are defined in ss. 13.1-725.

D. The right of a dissenting shareholder to obtain payment of
the fair value of his shares shall terminate upon the occurrence of any one of
the following events:

1. The proposed corporate action is abandoned or rescinded;

2. A court having jurisdiction permanently enjoins or sets aside
the corporate action; or

3. His demand for payment is withdrawn with the written consent
of the Corporation.

(S) 13.1-731. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- A. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.

B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:

1. He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and

<PAGE>

2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.

(S) 13.1-733. NOTICE OF DISSENTERS' RIGHTS. -- A. If proposed
corporate action creating dissenters' rights under ss. 13.1-730 is submitted to
a vote at a shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and be accompanied by a copy of this article.

B. If corporate action creating dissenters' rights under ss.
13.1-730 is taken without a vote of shareholders, the corporation, during the
ten-day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in ss. 13.1-734.

(S) 13.1-733. NOTICE OF INTENT TO DEMAND PAYMENT. -- A. If
proposed corporate action creating dissenters' rights under ss. 13.1-730 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (i) shall deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (ii) shall not vote such shares in favor of
the proposed action.

B. A shareholder who does not satisfy the requirements of
subsection A of this section is not entitled to payment for his shares under
this article.

(S) 13.1-734. DISSENTERS' NOTICE. -- A. If proposed corporate
action creating dissenters' rights under ss. 13.1-730 is authorized at a
shareholders' meeting, the corporation, during the ten-day period after the
effectuation of such corporate action, shall deliver a dissenters' notice in
writing to all shareholders who satisfied the requirements of ss. 13.1-733.

B. The dissenters' notice shall:

1. State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;

2. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;

3. Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before or after that date;

4. Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date of delivery of the dissenters' notice; and

5. Be accompanied by a copy of this article.

(S) 13.1-735. DUTY TO DEMAND PAYMENT. -- A. A shareholder sent a
dissenters' notice described in ss. 13.1-734 shall demand payment, certify that
he acquired beneficial ownership of the shares before or after the date required
to be set forth in the dissenters' notice pursuant to subdivision 3 of
subsection B of ss. 13.1-734, and, in the case of certificated shares, deposit
his certificates in accordance with the terms of the notice.

B. The shareholder who deposits his shares pursuant to
subsection A of this section retains all other rights of a shareholder except to
the extent that these rights are canceled or modified by the taking of the
proposed corporate action.

<PAGE>

C. A shareholder who does not demand payment and deposits his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.

(S) 13.1-736. SHARE RESTRICTIONS. -- A. The corporation may
transfer of uncertificated shares from the date the demand for their payment is
received.

B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified for the taking of the pro
posed corporate action.

(S) 13.1-737. PAYMENT. -- A. Except as provided in ss. 13.1-738,
within thirty days after receipt of a payment demand made pursuant to ss.
13.1-735, the corporation shall pay the dissenter the amount the corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the corporation under this paragraph may be enforced (i) by the
circuit court in the city or county where the corporation's principal office is
located, or, if none in this Commonwealth, where its registered office is
located or (ii) at the election of any dissenter residing or having its
principal office in the Commonwealth, by the circuit court in the city or county
where the dissenter resides or has its principal office. The court shall dispose
of the complaint on an expedited basis.

B. The payment shall be accompanied by:

1. The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the effective date of the
corporate action creating dissenters' rights, an income statement for that year,
a statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;

2. An explanation of how the corporation estimated the fair
value of the shares and of how the interest was calculated;

3. A statement of the dissenters' right to demand payment under
ss. 13.1-739; and

4. A copy of this article.

(S) 13.1-738. AFTER-ACQUIRED SHARES. -- A. A corporation may
elect to withhold payment required by ss. 13.1-737 from a dissenter unless he
was the beneficial owner of the shares on the date of the first publication by
news media or the first announcement to shareholders generally, whichever is
earlier, of the terms of the proposed corporate action, as set forth in the
dissenters' notice.

B. To the extent the corporation elects to withhold payment
under subsection A of this section, after taking the proposed corporate action,
it shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under ss. 13.1-739.

(S) 13.1-739. THE PROCEDURE IF SHAREHOLDER DISSATISFIED WITH
PAYMENT OR OFFER. -- A. A dissenter may notify the corporation in writing of his
own estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate (less any payment under ss. 13.1-737), or reject
the corporation's offer under ss. 13.1-738 and demand payment of the fair value
of his shares and interest due, if the dissenter believes that the amount paid
under ss. 13.1-737 or offered under ss. 13. 1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.

B. A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection A of this section within 30 days after the corporation made

<PAGE>

or offered payment for his shares.

(S) 13.1-740. COURT ACTION. -- A. If a demand for payment under
ss. 13.1-739 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the circuit
court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.

B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this Commonwealth,
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this Commonwealth, it shall commence
the proceeding in the city or county in this Commonwealth where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.

C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.

D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.

E. The jurisdiction of the court in which the proceeding is
commenced under subsection B of this section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.

F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under ss. 13.1-738.

(S) 13.1.741. COURT COSTS AND COUNSEL FEES. -- A. The court in
an appraisal proceeding commenced under ss. 13.1-740 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under ss.
13.1-739.

B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts the
court finds equitable:

1. Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with the
requirements of ss.ss. 13.1-732 through 13.1-739; or

2. Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the rights
provided by this article.

C. If the court finds that the services of counsel for any
dissenter were of substantial benefit

<PAGE>

to other dissenters similarly situated, the court may award to these counsel
reasonable fees to be paid out of the amounts awarded the dissenters who were
benefited.

D. In a proceeding commenced under subsection A of ss. 13.1-737
the court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.

<PAGE>

APPENDIX C

[Scott & Stringfellow Letterhead]

Board of Directors
The Bank of Franklin
Franklin, Virginia

May 13, 1996

Gentlemen:

You have asked us to render our opinion relating to the fairness, from
a financial point of view, to the shareholders of The Bank of Franklin
("Franklin") of the terms of an Agreement and Plan of Reorganization dated
January 25, 1996, between Franklin and The Bank of Sussex and Surry ("BSS") and
related Plans of Share Exchange (collectively, the "Agreement"). The Agreement
provides for share exchange transactions between each of Franklin and BSS and
United Community Bankshares, Inc. (the "Holding Company") for the purpose of
establishing a holding company structure for the two existing banks (the
"Reorganization"). The Agreement further provides that each share of Franklin
common stock which is issued and outstanding immediately prior to the effective
date of the Reorganization shall be converted into and exchanged for 4.806
shares of Holding Company common stock, plus cash in lieu of fractional shares.

In developing our opinion, we have, among other things reviewed and
analyzed: (1) the Agreement; (2) the Form S-4 Registration Statement filed with
the Securities and Exchange Commission in connection with the Reorganization;
(3) Franklin's audited financial statements for the two years ended December 31,
1995; (4) internal information relating to Franklin prepared by Franklin's
management; (5) information regarding the trading market for the common stock of
Franklin and the price range within which the stock has traded; and (6) the
relationship of prices paid to relevant financial data such as net worth, loans,
deposits and earnings for certain bank and bank holding company mergers and
acquisitions in Virginia in recent years. We have discussed with members of
Franklin's management the background of the Reorganization, the reasons and
bases for the Reorganization and the business and future prospects of Franklin
individually and as combined with BSS. Finally, we have conducted such other
studies, analyses and investigations, particularly of the banking industry, and
considered such other information as we deemed appropriate.

In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of Franklin. We have not attempted independently to verify
such information, nor have we made any independent appraisal of the assets
Franklin. We have taken into account our assessment of general economic,
financial market and industry conditions as they exist and can be evaluated at
the date hereof, as well as our experience in business valuation in general.

On the basis of our analyses and reviews and in reliance on the
accuracy and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof the terms
of the Agreement are fair from a financial point of view to the shareholders of
Franklin.

We consent to the use of our opinion in the Registration Statement to
be filed with the Securities and Exchange Commission related to the proposed
transaction.

Very truly yours,

SCOTT & STRINGFELLOW, INC.

Gary S. Penrose
Managing Director
Financial Institutions Group

C-2

<PAGE>

APPENDIX D

THE BANK OF FRANKLIN

FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995 AND 1994

<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
of The Bank of Franklin

We have audited the accompanying statements of condition of The Bank of Franklin
as of December 31, 1994, and the related statements of income, changes in
stockholders' equity and cash flows for the year ended December 31, 1994. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Bank of Franklin as of
December 31, 1994, and the results of its operations, cash flows and changes in
stockholders' equity for the year ended December 31, 1994, all in conformity
with generally accepted accounting principles.

As discussed in Note 16 to the financial statements, the Bank adopted the
provisions of Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."

FRANK EDWARD SHEFFER & CO.

Certified Public Accountants

March 31, 1995 except for Note 9, which is as of April 5, 1996

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders
THE BANK OF FRANKLIN
Franklin, Virginia

We have audited the balance sheet of THE BANK OF FRANKLIN as of
December 31, 1995, and the related statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of THE BANK OF FRANKLIN as of December 31, 1994, were audited by
other auditors whose report dated March 31, 1995, expressed an unqualified
opinion on those statements.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the 1995 financial statements referred to above
present fairly, in all material respects, the financial position of THE BANK OF
FRANKLIN as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

As disclosed in Note 2 to the financial statements, the Bank
changed its method of accounting for certain investments in debt and equity
securities as of January 1, 1994.

/s/ GOODMAN & COMPANY, L.L.P.

One Commercial Place
Norfolk, Virginia
January 25, 1996

D - 1

<PAGE>

THE BANK OF FRANKLIN

BALANCE SHEETS

</TABLE>
<TABLE>
<CAPTION>

December 31, 1995 1994 (A)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS

Cash and due from banks $ 4,425,614 $ 4,280,827
Federal funds sold 4,682,462 2,117,766
Securities available for sale 31,196,096 6,873,067
Investment securities -- 15,871,757
Loans, net 37,333,774 31,778,863
Premises and equipment 1,122,792 1,026,452
Other assets 412,314 538,831
Accrued interest 871,271 652,965
Intangibles, net 769,863 --
------------ -------------

$80,814,186 $ 63,140,528
============ =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
Noninterest-bearing deposits $10,454,496 $ 8,204,704
Interest-bearing deposits 61,017,669 46,898,513
------------ ------------
71,472,165 55,103,217

Short-term borrowings 336,202 --
Deferred compensation 146,229 81,552
Other liabilities 500,715 562,157
Accrued interest 202,309 122,311
------------ ------------
72,657,620 55,869,237
------------ ------------

Stockholders' equity
Common stock, $2.50 par value - authorized
500,000 shares; issued and outstanding
190,338 in 1995 and 1994 475,845 475,845
Additional paid-in capital 3,034,769 3,034,769
Retained earnings 4,583,348 3,853,151
Net unrealized appreciation (depreciation) on securities
available for sale, net of income taxes of $32,251 in
1995; $47,638 in 1994 62,604 (92,474)
------------ ------------
8,156,566 7,271,291
------------ ------------

$80,814,186 $ 63,140,528
============ ============
</TABLE>

(A) As restated

The notes to the financial statements are an integral part of this statement.

D - 2

THE BANK OF FRANKLIN

STATEMENTS OF INCOME

Years Ended December 31, 1995 1994 (A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income
Interest and fees on loans $3,455,466 $2,879,723
------------ ------------
Interest on investment securities:
Taxable 1,071,165 1,035,816
Non-taxable 375,164 209,067
------------ ------------
1,446,329 1,244,883
Interest on federal funds sold 173,025 127,755
------------ ------------
Total interest income 5,074,820 4,252,361
------------ ------------
Interest expense
Interest on deposits 2,206,859 1,678,350
------------ ------------

Net interest income 2,867,961 2,574,011

Provision for loan losses -- --
------------ ------------

Net interest income after
provision for loan losses 2,867,961 2,574,011
------------ ------------

Noninterest income
Service charges 450,695 370,154
Gain on sale of available-for-sale securities -- 30,623
Other 32,210 67,907
------------ ------------
482,905 468,684
------------ ------------
Noninterest expenses
Salaries and employee benefits 1,100,983 1,062,212
Occupancy expenses 169,701 172,327
Depreciation and equipment maintenance 138,813 115,770
FDIC insurance 63,935 113,612
Professional fees 45,143 69,945
Postage 62,214 39,856
Other 512,259 356,394
------------ ------------
2,093,048 1,930,116
------------ ------------

Income before income taxes 1,257,818 1,112,579
Income tax expense 318,249 303,076
------------ ------------

Net income $ 939,569 $ 809,503
============ ============

Net income per common share $ 4.94 $ 4.25
============ ============

</TABLE>

(A) As restated

The notes to the financial statements are an integral part of this statement.

D - 3

THE BANK OF FRANKLIN

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------

Additional paid-in capital
Balance, beginning and end of year 3,034,769 3,034,769
---------- ----------

Unrealized appreciation (depreciation)
on securities available for sale
Balance, beginning of year (92,474) --
Adjustment of beginning balance
for change in accounting method -
net unrealized appreciation
on available-for-sale securities,
net of income taxes of $145,008 -- 281,485
Change in unrealized appreciation
(depreciation), net of income taxes
of $79,889, and $192,646 for the
years ended December 31, 1995
and 1994, respectively 155,078 (373,959)
---------- ----------

Balance, end of year 62,604 (92,474)
---------- ----------

Retained earnings
Balance, beginning of year as previously reported 3,934,703 3,299,303
Prior period adjustment (81,552) (65,317)
---------- ---------
Balance, beginning of year as restated 3,853,151 3,233,986
Net income for the year 939,569 809,503
Dividends (209,372) (190,338)
---------- ---------
Balance, end of year 4,583,348 3,853,151
---------- ---------

Total stockholders' equity $8,156,566 7,271,291
========== =========

</TABLE>

(A) As restated

The notes to the financial statements are an integral part of this statement.

D - 4

THE BANK OF FRANKLIN

STATEMENTS OF CASH FLOWS

- ---------------------------------------------------------------------------------------------------------------------

Years Ended December 31, 1995 1994 (A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income $ 939,569 $ 809,503
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 113,795 92,987
Amortization of investment security premiums,
net of discounts (21,624) --
Changes in:
Interest receivable (218,306) (65,867)
Interest payable 49,283 (4,721)
Other assets 104,047 219,469
Other liabilities (145,205) 227,435
Deferred compensation 64,677 16,235
------------ -----------
Net cash provided by operating activities 886,236 1,295,041
------------ -----------
Investing activities
Proceeds from maturities and principal
repayments of available-for-sale securities 2,526,347 --
Proceeds from sales of available-for-sale securities -- 5,147,908
Purchases of available-for-sale securities (9,199,359) (5,511,382)
Redemptions of held-to-maturity securities 19,460,375 475,000
Purchases of held-to-maturity securities (20,982,044) (1,792,775)
Loan originations, net of principal repayments (5,540,136) (4,815,250)
Net cash and cash equivalents received from
branch acquisition 9,876,744 --
Purchases of premises and equipment (93,466) (81,048)
------------- -----------
Net cash used by investing activities (3,951,539) (6,577,547)
------------- -----------

Financing activities
Cash dividends paid (209,372) (190,338)
Net increase in noninterest bearing deposits 791,994 864,130
Net increase in certificates of deposit 5,192,164 3,466,526
------------ -----------

Net cash provided by financing activities 5,774,786 4,140,318
----------- -----------

Increase (decrease) in cash and cash equivalents 2,709,483 (1,142,188)

Cash and cash equivalents at beginning of year 6,398,593 7,540,781
------------ -----------

Cash and cash equivalents at end of year $ 9,108,076 $ 6,398,593
============ ===========
Supplemental schedules and disclosures of cash flow information

Cash paid for:
Interest on deposits and other borrowings $ 2,126,861 $ 1,683,071
Income taxes $ 305,000 $ 260,000

Schedule of noncash investing activities:
Transfer of securities - held to maturity to
available for sale $ 17,415,050 $ --

</TABLE>

(A) As restated

The notes to the financial statements are an integral part of this statement.

D - 5

<PAGE>

THE BANK OF FRANKLIN

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND 1994

NOTE 1 - ORGANIZATION AND BUSINESS

The Bank is a state-chartered commercial bank with five offices in
Franklin, Courtland, Newsoms and Holland, Virginia. The Bank's primary market
area is within western Tidewater, Virginia.

The Bank's principal business consists of providing a broad range of
lending and deposit services to individual and commercial customers with an
emphasis on those services traditionally associated with independent community
banks. These services include checking and savings accounts, certificates of
deposit and charge cards. The Bank's lending activities include commercial and
personal loans, lines of credit, installment loans, agricultural loans, home
improvement loans, overdraft protection and construction loans.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, interest bearing deposits with banks and
federal funds sold. Generally, federal funds are sold for one-day periods.

SECURITIES

Investments in debt securities that management has the positive intent
and ability to hold to maturity are classified as "held to maturity" and
reflected at amortized cost. Investments that are purchased and held principally
for the purpose of selling them in the near term are classified as "trading
securities" and reflected at fair value, with unrealized gains and losses
included in earnings. The Bank does not maintain securities classified as
trading. Investments not classified as either of the above are classified as
"available for sale" and reflected at fair value, with unrealized gains and
losses excluded from operations and reported as a separate component of
stockholders' equity. On December 1, 1995, pursuant to a special report issued
by the Financial Accounting Standards Board ("FASB") regarding the application
of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, the Bank reassessed its intent with respect to its securities
portfolio. As a result, held-to-maturity securities, with an amortized cost
basis of $17,415,050 and unrealized gains and losses of $195,311 and $297,105,
respectively, were transferred to the available-for-sale category at fair
value with the resulting net unrealized loss of $67,184 reflected within the
separate component of stockholders' equity.

(Notes continued on next page)

D - 6

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

SECURITIES (continued)

Premiums and discounts are recognized in interest income using the
interest method over the period to maturity on held-to-maturity and
available-for-sale securities. Other-than-temporary declines in the fair value
of individual held-to-maturity and available-for-sale securities result in
write-downs of the individual securities to fair value. Gains and losses are
determined using the specific-identification method.

LOANS

Loans are reported at their principal outstanding balance net of
charge-offs, unearned income, and unamortized premiums or discounts, if any, on
purchased loans. Interest income is generally recognized when income is earned
using the interest method.

ALLOWANCE FOR LOAN LOSSES

The Bank adopted FASB Statement No. 114, Accounting by Creditors for
Impairment of a Loan, on January 1, 1995. Under the new standard, a loan is
considered impaired, based on current information and events, if it is probable
that the Bank will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. The adoption of FASB Statement No. 114 did not
result in an additional provision for loan losses.

The adequacy of the allowance for loan losses is periodically evaluated
by the Bank, in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Bank's historical loss experience, known
and inherent risks in the loan portfolio, including adverse circumstances that
may affect the ability of the borrower to repay interest and/or principal, the
estimated value of collateral, and an analysis of the levels and trends of
delinquencies, and charge-offs. Such factors as the level and trend of interest
rates and the condition of the national and local economies are also considered.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for losses on
loans. Such agencies may require the Bank to recognize additions to the
allowance based on their judgements of information available to them at the time
of their examination.

(Notes continued on next page)

D - 7

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ALLOWANCE FOR LOAN LOSSES (continued)

The allowance for loan losses is established through charges to
earnings in the form of a provision for loan losses. Increases and decreases in
the allowance due to changes in the measurement of impaired loans, if
applicable, are included in the provision for loan losses. Loans continue to be
classified as impaired unless they are brought fully current and the collection
of scheduled interest and principal is considered probable.

When a loan or portion of a loan is determined to be uncollectible, the
portion deemed uncollectible is charged against the allowance and subsequent
recoveries, if any, are credited to the allowance.

INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS

Loans, including impaired loans, are generally classified as nonaccrual
if they are past due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans are well-secured and in the
process of collection. If a loan or a portion of a loan is classified as
doubtful, or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less than 90
days may also be classified as nonaccrual, if repayment in full of principal
and/or interest is in doubt.

Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.

While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.

OTHER REAL ESTATE OWNED

Other real estate owned is comprised of real estate and other assets
acquired through foreclosure, acceptance of a deed in lieu of foreclosure, or
loans in which the Bank receives physical possession of the debtor's assets.
Other real estate owned is carried at the lower of the recorded investment in
the loan or the fair value less estimated costs to sell. Upon transfer of a loan
to foreclosed status, the fair value of the property is assessed and any excess
of the loan balance over the fair value less estimated costs to sell is charged
against the provision for loan losses. Revenues and expenses related to the
property, and subsequent adjustments to fair value less estimated costs to sell
are classified as an expense for other real estate owned.

(Notes continued on next page)

D - 8

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated
depreciation. For financial reporting purposes, assets are depreciated over
their estimated useful lives using the straight-line and accelerated methods.
For income tax purposes, the accelerated cost recovery system and the modified
accelerated cost recovery system are used.

INTANGIBLE ASSETS

Intangible assets relate to the purchase of a branch and are amortized
over fifteen years using the straight-line method.

INCOME TAXES

Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
available-for-sale securities, allowance for loan losses, and accumulated
depreciation, for financial and income tax reporting. The deferred tax assets
and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit, standby letters of credit, and financial guarantees written. Such
financial instruments are recorded in the financial statements when they become
payable.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management reassesses fair value
for significant properties. While management uses available information to
recognize losses on loans and foreclosed real estate, future additions to the
allowances may be necessary based on changes in local economic conditions and
other factors.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year financial
statements to conform them to the current year's presentation.

(Notes continued on next page)

D - 9

NOTE 3 - SECURITIES

Securities at December 31, 1995 and 1994 are as follows:

Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities available for sale-
December 31, 1995:
U.S. Government and
federal agencies $14,224,615 $ 89,700 $ 187,212 $14,127,103
State and local
governments 12,621,789 179,499 72,787 12,728,501
Federal Home Loan Bank 189,800 -- -- 189,800
Corporate debt
securities 3,259,403 83,835 3,719 3,339,519
Mortgage - backed
securities 806,090 5,933 850 811,173
----------- -------- ---------- -----------
$31,101,697 $358,967 $ 264,568 $31,196,096
=========== ======== ========== ===========

<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
Securities available for sale-
December 31, 1994:
U.S. Government and
federal agencies $ 4,988,630 $ 6,938 $ 90,109 $4,905,459
Corporate debt securities
2,024,549 23,901 80,842 1,967,608
----------- -------- ---------- ----------
$ 7,013,179 $ 30,839 $ 170,951 $6,873,067
=========== ======== ========== ==========

</TABLE>

Securities held-to-maturity consist of the following:

Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value

<S> <C> <C> <C> <C>
Securities held to maturity-
December 31, 1994:
U.S. Government and
federal agencies $ 9,368,645 $ 1,939 $ 673,282 $ 8,697,302
State and local
governments 6,254,320 1,248 442,939 5,812,629
Corporate debt securities 248,792 -- 4,216 244,576
----------- --------- ---------- -----------
$15,871,757 $ 3,187 $1,120,437 $14,754,507
=========== ========== ========== ===========
</TABLE>

(Notes continued on next page)

D - 10

<PAGE>

NOTE 3 - SECURITIES (Continued)

At December 31, 1995 and 1994, approximately $600,000 and $590,000,
respectively, of securities were pledged to secure deposits of the U.S.
Government or the Commonwealth of Virginia. In addition, as of December 31,
1995, approximately $1,000,000 of securities were pledged to secure two
repurchase agreements.

The amortized cost and fair value of securities by maturity date at
December 31, 1995 are as follows:

Amortized
Cost Fair Value

Due one year or less $ 2,699,991 $ 2,724,115
Due from one to five years 13,904,948 13,826,444
Due from five to ten years 12,380,219 12,498,741
Due after ten years 1,926,739 1,956,996
Federal Home Loan Bank stock 189,800 189,800
----------- -----------
$31,101,697 $31,196,096
=========== ===========

Gross realized gains and gross realized losses were:

December 31,
1995 1994
-------- --------
Gross realized gains:
U.S. government agencies $ -- $53,623
======== =======
Gross realized losses:
U.S. government agencies $ -- $23,000
======== =======

(Notes continued on next page)

D - 11

<PAGE>

NOTE 4 - LOANS

Loans consist of the following:

December 31,
-------------------------
1995 1994
--------- ---------
(Dollars in thousands)
Gross loans:
Commercial $ 8,154 $ 5,459
Real estate - construction 1,651 813
Real estate - agriculture 845 853
Commercial real estate 7,933 7,897
Residential real estate 10,929 8,985
Installment and consumer loans 8,476 8,395
Total gross loans 37,988 32,402
Less - allowance for loan losses 654 623
------- -------
Loans, net $37,334 $31,779
======= =======

A summary of the activity in the allowance for loan losses account is as
follows:

Year Ended December 31,
---------------------------
1995 1994
-------- --------
Balance, beginning of year $622,874 $565,058
Provision charged to operations -- --
Loans charged-off (69,436) (132,370)
Recoveries 100,036 190,186
--------- ---------
Balance, end of year $653,474 $622,874
========= =========

Loans on which the accrual of interest has been discontinued amount to
$19,524 and $233,742 at December 31, 1995 and 1994, respectively.

NOTE 5 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following:

December 31,
--------------------------
1995 1994
---------- ----------
Land $ 270,841 $ 238,229
Buildings 767,942 643,529
Leasehold improvements 100,515 100,515
Equipment, furniture and fixtures 839,450 803,281
---------- ----------
1,978,748 1,785,554
Less - accumulated depreciation 855,956 759,102
---------- ----------
$1,122,792 $1,026,452
========== ==========

(Notes continued on next page)

D - 12

<PAGE>

NOTE 5 - PREMISES AND EQUIPMENT (Continued)

Depreciation charged to operating expense for the years ended December
31, 1995 and 1994 was $96,853 and $92,987, respectively.

NOTE 6 - DEPOSITS

Interest bearing deposits consist of the following:

December 31,
---------------------------
1995 1994
----------- -----------
Money Market and interest checking account
deposits $23,805,847 $23,284,242
Savings deposits 4,896,638 4,021,569
Certificates of deposit $100,000 and over 4,039,396 3,006,213
Other time deposits 28,275,788 16,586,489
----------- -----------

$61,017,669 $46,898,513
=========== ===========

NOTE 7 - STOCKHOLDERS' EQUITY

Net income per common share is obtained by dividing net income by
the weighted average number of common shares outstanding. The weighted average
number of shares used in the computation of earnings per share was 190,338 for
1995 and 1994.

NOTE 8 - INCOME TAXES

The principal components of income tax expense are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
Federal income tax expense--current $ 315,979 $ 311,119
Deferred federal income tax expense (benefit) related
to temporary differences in reporting:
Premium amortization and
discount accretion 465 1,938
Depreciation 5,564 12,810
Deferred compensation (6,543) --
Other 2,784 (22,791)
--------- ---------
Income tax expense $ 318,249 $ 303,076
========= =========
</TABLE>

(Notes continued on next page)

D - 13

<PAGE>

NOTE 8 - INCOME TAXES (Continued)

Differences between income tax expense calculated at the statutory rate
and that shown in the statements of income are summarized as follows:

Year Ended December 31,
-------------------------
1995 1994
--------- ---------
Federal income tax expense at
statutory rate $ 427,658 $ 378,277
Tax effect of:
Tax exempt interest (121,171) (61,428)
Other 11,762 (13,773)
--------- ---------
Income tax expense
$ 318,249 $ 303,076
========= =========

The Bank has the following deferred tax assets and liabilities:

December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Net unrealized depreciation on available-
for-sale securities $ -- $ 47,638
Accrued employee benefits 3,039 3,039
Deferred compensation 49,718 43,176
-------- --------
Total deferred tax asset 52,757 93,853
-------- --------

Deferred tax liabilities:
Premises and equipment 21,612 16,048
Allowance for loan losses 247,828 247,828
Net unrealized appreciation on available-
for-sale securities 32,251 --
Discount accretion 14,806 14,341
Other 2,784 --
-------- --------
Total deferred tax liability 319,281 278,217
-------- --------

Net deferred tax liability $266,524 $184,364
======== ========
</TABLE>

NOTE 9 - RETIREMENT PLANS AND PRIOR PERIOD ADJUSTMENT

The Bank maintains deferred compensation and retirement arrangements
with certain officers. The Bank's current policy is to accrue the estimated
amounts to be paid under the contracts. However, in previous fiscal years, the
related expense was not recorded. As a result, net income for the year ended
December 31, 1994 was overstated by $16,235.

(Notes continued on next page)

D - 14

<PAGE>

NOTE 9 - RETIREMENT PLANS AND PRIOR PERIOD ADJUSTMENT (Continued)

The Bank has a profit-sharing plan for all eligible officers and
employees. Requirements for eligibility to participate include reaching the age
of 19 and one year of service. Vesting in the plan begins the second year of
participation and increases annually by 20% until full vesting occurs after six
years. Employer contributions are determined annually and are calculated based
on the participant's annual compensation. The amounts contributed to the plan
were $25,000 and $24,000 for 1995 and 1994, respectively.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

The Bank leases one of its branches with an operating lease. The lease
term is for one year and expires in February, 1996, with an option to extend the
lease for two twelve month periods. The minimum lease payments for 1996 are
$2,000. Total lease expense was $12,000 for 1995 and 1994.

The Bank is subject to claims and lawsuits which arise primarily in the
ordinary course of business. Based on information presently available and advice
received from legal counsel representing the Bank in connection with such claims
and lawsuits, it is the opinion of management that the disposition of such
claims and lawsuits will not have a material adverse effect on the financial
position of the Bank.

During 1995, the Bank became a member of the Federal Home Loan Bank
("FHLB") of Atlanta. As such, the Bank may borrow funds based on criteria
established by the FHLB. As of December 31, 1995, the Bank could borrow
approximately $6,500,000, if collateral acceptable to the FHLB was provided. In
addition, federal funds arrangements with other institutions provide an
additional $5,022,000 of short-term borrowing capacity. The Bank had not drawn
on these lines of credit at December 31, 1995.

NOTE 11 - RELATED PARTY TRANSACTIONS

The Bank has loan and deposit transactions with its officers and
directors, and with companies in which the officers and directors have a
financial interest. Related party deposits amounted to approximately $2,016,000
at December 31, 1995. A summary of related party loan activity during 1995 is as
follows:

Balance, December 31, 1994 $1,152,032
Originations - 1995 524,821
Repayments - 1995 (428,904)
----------
Balance, December 31, 1995 $1,247,949
==========

In the opinion of management, such loans are made in the ordinary course
of business at normal credit terms, including interest rate and collateral
requirements, and do not represent more than normal credit risk.

(Notes continued on next page)

D - 15

<PAGE>

NOTE 11 - RELATED PARTY TRANSACTIONS (Continued)

In the ordinary course of business, the Bank has engaged in certain
transactions with different directors' firms to provide legal and real estate
brokerage services.

Commitments to extend credit to related parties amounted to $298,651 at
December 31, 1995.

NOTE 12 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

The Bank has outstanding at any time a significant dollar amount of
commitments to extend credit. To accommodate major customers, the Bank also
provides standby letters of credit and guarantees to third parties. Those
arrangements are subject to strict credit control assessments. Guarantees and
standby letters of credit specify limits to the Bank's obligations. The amounts
of loan commitments, guarantees and standby letters of credit are set out in the
following table as of December 31, 1995. Because many commitments and almost all
standby letters of credit and guarantees expire without being funded in whole or
in part, the contract amounts are not estimates of future cash flows.

Loan Commitments $7,395,299

Standby letters of credit and guarantees written $ 703,943

These loan commitments, standby letters of credit, and guarantees
written include $1,785,818 with fixed interest rates ranging from 5.98% to
14.88%.

All of the guarantees written outstanding at December 31, 1995 expire
during 1996.

As of December 31, 1994, commitments to extend credit amounted to
$2,138,875, and standby letters of credit and guarantees written amounted to
$355,000.

Loan commitments, standby letters of credit and guarantees written have
off-balance-sheet credit risk because only origination fees and accruals for
probable losses, if any, are recognized in the statement of financial position,
until the commitments are fulfilled or the standby letters of credit or
guarantees expire. Credit risk represents the accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that, in accordance with the
requirements of FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, collateral or other security is of no value. The
Bank's policy is to require customers to provide collateral prior to the
disbursement of approved loans. For retail loans, the Bank usually retains a
security interest in the property or products financed, which provides
repossession rights in the event of default by the customer. For business loans
and financial guarantees, collateral is usually in the form of inventory or
marketable securities (held in trust) or property (notations on title).

(Notes continued on next page)

D - 16

<PAGE>

NOTE 12 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK (Continued)

Concentrations of credit risk (whether on or off balance sheet) arising
from financial instruments exist in relation to certain groups of customers. A
group concentration arises when a number of counterparties have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Bank
does not have significant exposure to any individual customer or counterparty.
The major concentrations of credit risk for the Bank arise by customer loan type
in relation to loans and credit commitments, as shown in the following table. A
geographic concentration arises because the Bank operates primarily in western
Tidewater, Virginia.

Installment
Residential Commercial Small and
Property Property Business Agricultural Consumer Total
----------- ---------- -------- ------------ ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans and
receivables $12,580 $ 7,933 $ 6,023 $2,976 $ 8,476 $37,988
Credit
commitments 793 576 4,426 1,839 465 8,099
------- ------- ------- ------ ------- -------

$13,373 $ 8,509 $10,449 $4,815 $ 8,941 $46,087
======= ======= ======= ====== ======= =======
</TABLE>

The credit risk amounts represent the maximum accounting loss that would
be recognized at the reporting date if counterparties failed completely to
perform as contracted and any collateral or security proved to be of no value.
The Bank has experienced little difficulty in accessing collateral when
required. The amounts of credit risk shown, therefore, greatly exceed expected
losses, which are included in the allowance for loan losses.

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB Statement No. 107, Disclosure about Fair Value of Financial
Instruments ("FASB 107"), requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to individual markets and, in many cases, could not be realized in
immediate settlement. FASB 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Bank.

(Notes continued on next page)

D - 17

<PAGE>

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The following methods and assumptions were used by the Bank in
estimating the fair value for its financial instruments as required by FASB 107:

CASH AND DUE FROM BANKS: The carrying amount approximates fair value.

FEDERAL FUNDS SOLD: For federal funds sold, the carrying amount
approximates fair value.

INVESTMENT SECURITIES: Fair values for securities are based on published
market prices, if available. For unquoted securities, the fair value is
estimated by the Bank on the basis of financial and other information.

LOANS: For loans with short-term and variable rate characteristics, the
total receivables outstanding approximate fair value. This amount
excludes any value related to account relationships. The fair value of
other types of loans is estimated by discounting future cash flows using
the contractual rates in effect for such loans at the reporting date and
adjusting for credit risk and operating costs.

INTEREST RECEIVABLE AND INTEREST PAYABLE: The carrying amount
approximates fair value.

NON-LNTEREST BEARING DEPOSITS: The fair value of these instruments is
the amount payable on demand at the reporting date.

INTEREST BEARING DEPOSITS: The fair value of demand deposits, saving
accounts and money market deposits with no defined maturity is the
amount payable on demand at the reporting date. The fair value of
certificates of deposit is estimated by discounting the future cash
flows using the current rates at which similar deposits would be made.
This amount excludes any value related to account relationships.

COMMITMENTS TO EXTEND CREDIT AND STANDBY AND COMMERCIAL LETTERS OF
CREDIT: It is not practicable to separately estimate the fair values for
off-balance-sheet credit commitments, including standby letters of
credit, and guarantees written, due to the excessive costs involved.

(Notes continued on next page)

D - 18

<PAGE>

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair values of the Bank's financial instruments required
to be disclosed under FASB 107 at December 31, 1995 are as follows:

Carrying Fair
Value Value
-------- ------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 4,426 $ 4,426
Federal funds sold 4,682 4,682
Investment securities 31,196 31,196
Loans 37,334 37,580
Interest receivable 871 871
------- -------
$78,509 $78,755
======= =======

LIABILITIES
Non-interest bearing deposits $10,454 $10,454
Interest bearing deposits 61,354 61,076
Interest payable 202 202
------- -------
$72,010 $71,732
======= =======

NOTE 14 - BRANCH ACQUISITION

On August 24, 1995, the Bank acquired certain assets and assumed certain
liabilities with respect to the branch of a regional bank situated in the
Holland area of Suffolk, Virginia. The approximate fair value of net assets
acquired and deposit liabilities assumed amounted to approximately $88,000 and
$10,752,000, respectively. In connection with the acquisition, intangible assets
of approximately $787,000 were capitalized, and include goodwill, an inseparable
component of core deposit intangible, and other costs incurred directly related
to the acquisition.

(Notes continued on next page)

D - 19

<PAGE>

NOTE 15 - SUBSEQUENT EVENT

On January 25, 1996, the Bank and the Bank of Sussex and Surry ("BSS")
entered into an agreement to affiliate the two companies through the creation of
a holding company. The reorganization, if completed, will result in both the
Bank and BSS becoming wholly-owned subsidiaries of the holding company, United
Community Bankshares, Inc. (the "Holding Company"). The respective names and
banking offices of the Bank and BSS will not change as a result of the
reorganization. In addition, the Bank and the BSS do not intend to change their
respective executive officers and boards of directors.

On the effective date, not yet determined, the Bank will become a
wholly-owned subsidiary of the Holding Company through the exchange of each
share of common stock of the Bank for (4.806) shares of Holding Company common
stock. BSS shareholders will receive three shares of Holding Company common
stock for each share outstanding. This will result in each shareholder group
owning approximately 50% of the Holding Company.

On January 15, 1996, the record date, the Board of Directors approved
the payment of a dividend of $1.10 per share, or approximately $209,000, which
is payable on February 15, 1996.

* * * * *

D - 20

<PAGE>
Appendix E
The Board of Directors

May 13, 1996
Page 2

May 13, 1996

The Board of Directors
The Bank of Sussex and Surry
205 Railroad Avenue
Wakefield, Virginia 23888

Members of the Board:

You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the common shareholders of The Bank
of Sussex and Surry ("BSS") of the exchange ratio for the exchange of shares of
BSS common stock (the "Exchange Ratio") in the proposed reorganization (the
"Reorganization") involving BSS and The Bank of Franklin ("BOF") , pursuant to
which BSS and BOF will become wholly owned subsidiaries of United Community
Bankshares, Inc., a newly organized Virginia corporation ("United"), and the
shares of the common stock of BSS and BOF will be exchanged for shares of the
capital stock of United. The terms of the Reorganization are set forth in the
Agreement and Plan of Reorganization, dated January 25, 1996 by and between BSS
and BOF (the "Agreement"). Under the terms of the Agreement, each outstanding
share of BSS common stock will be exchanged for 3.0 shares of United common
stock and each outstanding share of BOF common stock will be exchanged for 4.806
shares of United common stock.

Davenport & Co. of Virginia, Inc., as a customary part of its
investment banking and general securities business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, private placements and
valuations for estate, corporate and other purposes. Our fee in connection with
this engagement was not contingent upon consummation of the Merger, nor was it
contingent upon our findings.

In arriving at our opinion, we have, among other things: (i) reviewed
the Agreement, certain publicly available business and financial information
concerning BSS and BOF, and certain internal financial analyses and forecasts
for BSS and BOF prepared by their respective managements; (ii) held discussions
with members of the senior management of BSS and BOF regarding the past and
current business operations, financial condition and future prospects of their
respective companies; (iii) reviewed information regarding the trading markets
for the common shares of BSS and BOF and the price ranges within which the
respective stocks have traded; (iv) compared certain financial and stock market
information for BSS and BOF with similar information for certain other companies
the securities of which are publicly traded; (v) reviewed the financial terms of
certain recent business combinations which we considered comparable in whole or
in part; and (vi) performed such other studies and analyses as we considered
appropriate.

We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of BSS
and BOF, we have assumed that such information reflects the best currently
available estimates and judgments as to the likely future financial performance
of BSS and BOF. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities of BSS or BOF, nor have we been furnished
with any such evaluation or appraisal. We have also assumed that the
Reorganization will be recorded as a pooling of interests under generally
accepted accounting principles and will qualify and be treated as a tax-free
transaction for the holders of BSS and BOF common stock. Our opinion is based on
market, economic and other conditions as they exist and can be evaluated as of
the date of this letter. To the extent the contemplated Reorganization differs
in any material way from the information described above and our assumptions,
this opinion is not to be considered as applicable thereto.

Based upon and subject to the foregoing, it is our opinion as
investment bankers that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of BSS common stock.

Very truly yours,

DAVENPORT & CO. OF VIRGINIA, INC.

By:_________________________________

<PAGE>

Appendix F

THE BANK OF SUSSEX AND SURRY

Consolidated Financial Statements for the
Years Ended December 31, 1995 and 1994
and Independent Auditors' Report

<PAGE>

THE BANK OF SUSSEX AND SURRY

TABLE OF CONTENTS

- ------------------------------------------------------------------------------

Page

INDEPENDENT AUDITORS' REPORT F - 1

FINANCIAL STATEMENTS:

Consolidated Balance Sheets F - 2

Consolidated Statements of Income F - 3

Consolidated Statements of Stockholders' Equity F - 4

Consolidated Statements of Cash Flows F - 5-6

Notes to Consolidated Financial Statements F - 7-18

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of The Bank of Sussex and Surry

We have audited the accompanying consolidated balance sheets of The Bank of
Sussex and Surry and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Bank of Sussex and Surry and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

January 12, 1996
(January 25, 1996 as to Note 11)

<PAGE>

THE BANK OF SUSSEX AND SURRY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

ASSETS 1995 1994
<S> <C> <C>
Cash and cash equivalents:

Cash and due from banks $ 1,896,440 $ 1,509,270
Federal funds sold 3,058,000 2,751,000
----------- -----------

Total cash and cash equivalents 4,954,440 4,260,270
----------- -----------

Investment securities:

Available for sale at fair value, amortized
cost of $15,603,796 and $5,220,945, respectively 16,224,120 5,389,622
Held to maturity at amortized cost, fair value of
$10,613,031 and $17,044,302, respectively 10,698,480 17,951,393
Loans, net of allowance for loan losses of $597,000
and $547,000, respectively 28,847,540 28,958,523
Premises and equipment, net 931,296 924,963
Accrued interest receivable 747,333 647,338
Income taxes receivable -- 73,920
Other real estate 12,500 12,500
Other assets 61,231 172,048
----------- -----------
57,522,500 54,130,307
----------- -----------

Total assets $62,476,940 $58,390,577
=========== ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
<S> <C> <C>
LIABILITIES:
Deposits:
Non-interest bearing demand deposits $ 6,273,881 $ 6,373,624
Interest bearing deposits:
NOW 4,466,277 4,628,077
Money market 8,920,970 7,741,021
Savings 6,799,309 7,003,843
Time, $100,000 and over 6,458,136 5,345,345
Other time 19,564,147 18,320,944
----------- -----------
Total deposits 52,482,720 49,412,854
----------- -----------
Income taxes payable 61,958 --
Accrued interest payable 180,905 158,241
Deferred tax liability 67,353 --
Other liabilities 78,061 73,975
----------- -----------
Total liabilities 52,870,997 49,645,070
----------- -----------
Commitments and contingencies (Note 10)

STOCKHOLDERS' EQUITY:
Common stock, par value $1.25 per share - authorized,
500,000 shares; issued and outstanding, 304,940 shares 381,175 381,175
Additional paid-in capital 1,000,000 1,000,000
Retained earnings 7,815,354 7,253,005
Net unrealized gain on securities available for
sale, net of tax of $210,910 in 1995 and $57,350 in 1994 409,414 111,327
----------- -----------
Total stockholders' equity 9,605,943 8,745,507
----------- -----------
Total liabilities and stockholders' equity $62,476,940 $58,390,577
=========== ===========
</TABLE>

<PAGE>

THE BANK OF SUSSEX AND SURRY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

1995 1994
<S> <C> <C>
INTEREST INCOME:
Loans $ 2,871,662 $ 2,606,179
Investment securities:
U.S. Treasury 137,024 105,277
U.S. Government agencies 744,907 657,549
States and political subdivisions - tax exempt 334,058 358,611
States and political subdivisions - taxable 43,561 47,356
Other 66,241 94,383
Federal funds sold 187,992 76,401
----------- -----------
Total interest income 4,385,445 3,945,756
----------- -----------
INTEREST EXPENSE ON DEPOSITS 1,954,511 1,622,408
----------- -----------
NET INTEREST INCOME 2,430,934 2,323,348

PROVISION FOR LOAN LOSSES 182,529 217,808
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,248,405 2,105,540
----------- -----------
OTHER INCOME:
Service charges on deposit accounts 162,700 135,805
Loss on sale of securities (2,285) (4,536)
Other 99,391 93,889
----------- -----------
Total other income 259,806 225,158
----------- -----------
OTHER EXPENSES:
Salaries 626,440 584,090
Employee benefits 182,032 182,115
Professional fees 95,426 109,571
Franchise taxes 66,760 72,300
FDIC assessment 55,958 109,063
Occupancy 88,578 87,620
Equipment 82,034 79,551
Other 288,637 304,149
----------- -----------
Total other expenses 1,485,865 1,528,459
----------- -----------
INCOME BEFORE INCOME TAXES 1,022,346 802,239

INCOME TAX EXPENSE (Note 6) 246,539 195,682
----------- -----------
NET INCOME $ 775,807 $ 606,557
=========== ===========
EARNINGS PER SHARE $ 2.54 $ 1.99
=========== ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE BANK OF SUSSEX AND SURRY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Net Unrealized
Gain (Loss)
Additional on Securities
Common Paid-In Retained Available
Stock Capital Earnings for Sale Total
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1994 $ 381,175 $ 1,000,000 $ 6,844,659 $ -- $ 8,225,834
Net income -- -- 606,557 -- 606,557
Cash dividends ($ .65 per share) -- -- (198,211) -- (198,211)
Effect of adopting SFAS No. 115
at January 1, 1994, net of tax
of $150,876 -- -- -- 292,876 292,876
Change in unrealized gains and losses
on securities available for sale, net
of tax of $93,526 -- -- -- (181,549) (181,549)
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1994 381,175 1,000,000 7,253,005 111,327 8,745,507
Net income -- -- 775,807 -- 775,807
Cash dividends ($ .70 per share) -- -- (213,458) -- (213,458)
Change in unrealized gains and losses
on securities available for sale, net
of tax of $153,560 -- -- -- 298,087 298,087
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1995 $ 381,175 $ 1,000,000 $ 7,815,354 $ 409,414 $ 9,605,943
=========== =========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE BANK OF SUSSEX AND SURRY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

1995 1994

<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 775,807 $ 606,557
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 182,529 217,808
Deferred income taxes 41,421 (70,591)
Depreciation 83,995 77,608
Discount accretion on securities (67,731) (5,640)
Premium amortization on securities 14,045 22,700
Loss on sale of investments 2,285 4,536
Increase in accrued interest receivable (99,995) (57,022)
(Increase) decrease in income taxes receivable 73,920 (73,920)
(Increase) decrease in other assets (16,811) 7,269
Increase in accrued interest payable 22,664 5,613
Increase (decrease) in income tax payable 61,958 (107,535)
Increase in other liabilities 4,086 7,139
Gain on sale of other real estate (52,500) --
----------- -----------
Net cash provided by operating activities 1,025,673 634,522
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales and maturities of
securities available for sale 1,390,335 2,281,799
Proceeds from maturities of
securities held to maturity 3,242,000 2,527,748
Purchases of securities available for sale (3,982,900) (1,249,473)
Purchases of securities held to maturity (3,727,972) (4,314,544)
Net increase in loans (71,546) (2,659,497)
Property and equipment acquisitions (90,328) (47,877)
Purchase of other real estate (97,500) --
Proceeds from sale of other real estate 150,000 8,119
----------- -----------
Net cash used in investing activities (3,187,911) (3,453,725)
----------- -----------
</TABLE>

(Continued)

<PAGE>

THE BANK OF SUSSEX AND SURRY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995 AND 1994

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

1995 1994
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase (decrease) in:
Non-interest bearing demand deposits $ 713,872 $ 628,651
Interest bearing deposits 2,355,994 (1,677,882)
Dividends paid (213,458) (198,211)
----------- -----------
Net cash provided by (used in) financing
activities 2,856,408 (1,247,442)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 694,170 (4,066,645)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 4,260,270 8,326,915
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,954,440 $ 4,260,270
=========== ===========

SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest paid to depositors $ 1,931,847 $ 1,616,794
=========== ===========
Income taxes $ 142,740 $ 319,541
=========== ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

THE BANK OF SUSSEX AND SURRY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994

- -------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of The Bank of Sussex and Surry and
subsidiary (the "Bank") conform to generally accepted accounting
principles and general practices within the banking industry. The
following is a summary of the more significant of those policies:

a. Nature of Operations - The Bank operates under a state bank
charter and provides full banking services, including commercial
and consumer demand and time deposit accounts, commercial and
consumer loans, Visa and Mastercard revolving credit accounts,
drive-in banking services and automated teller machine
transactions. As a state bank, the Bank is subject to regulation
of the Virginia State Corporation Commission's Bureau of
Financial Affairs and the Federal Deposit Insurance Corporation.
The area served by the Bank is the southeastern region of
Virginia and services are provided at 3 branch offices.

b. Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of The Bank of Sussex
and Surry, and its wholly-owned subsidiary, BSS Service
Corporation, which was organized in 1994 to facilitate investment
in financial related services.

c. Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.

d. Investment Securities - Effective January 1, 1994, the Bank
adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") and revised its accounting policy for
investments. This pronouncement requires that investments in debt
and equity securities with readily determinable fair values shall
be classified as either held to maturity, available for sale or
trading. Management has reviewed the securities portfolio and
classified securities as either held to maturity or available for
sale. The Bank does not have any securities classified as trading
securities. Securities classified as held to maturity are
accounted for at amortized cost, and require the Bank to have
both the positive intent and ability to hold those securities to
maturity. All other securities are classified as available for
sale and carried at fair value with unrealized gains and losses
included in shareholders' equity on an after tax basis. Realized
gains or losses on the sale of investments are recognized at the
time of sale using the amortized cost of the specific security
sold. The adoption of SFAS 115, which has not been applied
retroactively to 1993's financial statements, resulted in an
increase in stockholders' equity of $292,876 for the unrealized
gain, net of income taxes of $150,876 on investments classified
as available for sale at January 1, 1994.

<PAGE>

In accordance with a permissible, one-time reclassification of
securities, the Bank reassessed its liquidity needs and on
December 22, 1995, transferred securities with an amortized cost
of $7,795,266 from held to maturity to available for sale at fair
value resulting in a net unrealized gain of $35,737 or $23,586
on an after-tax basis, which was reflected within a separate
component of shareholders' equity.

Prior to January 1, 1994, the Bank had the intent and ability to
hold all investments to maturity and carried all investments at
amortized costs.

e. Loans - The Bank grants agribusiness, commercial, consumer and
residential loans to customers, primarily located in the counties
of Sussex, Surry and Southampton, Virginia. Although the loan
portfolio is well diversified, a substantial portion of the
debtors' ability to honor their contracts is dependent upon the
agribusiness economic sector. Generally, loans are expected to be
repaid from the cash flow of the borrowers. The Bank's
requirements for collateral are based upon the purpose of the
borrowing and the financial condition of the borrower.

Loans are reported at their principal amount outstanding, net of
unearned discount, deferred loan fees, and the allowance for loan
losses. Interest income on loans not made on a discount basis is
credited to income based on loan principal amounts outstanding
and the appropriate interest rates. Unearned discount on loans
made on a discounted basis is credited to income on a basis which
approximates the level yield method.

Loans are generally placed on nonaccrual status when the
collection of principal or interest is 90 days or more past due,
or earlier if collection is uncertain based upon an evaluation of
the net realizable value of the collateral and the financial
strength of the borrower. Loans greater than 90 days past due may
remain on accrual status if management determines it has adequate
collateral to cover the principal and interest. For those loans
which are carried on nonaccrual status, interest is recognized on
the cash basis.

Loan fees and origination costs are deferred and the net amount
amortized as an adjustment of the related loan's yield using a
method that approximates the level yield method. The Bank is
amortizing these amounts over the contractual life of the related
loans.

f. Allowance for Loan Losses - An allowance is maintained to absorb
possible losses on loans. Loan losses, net of recoveries on loans
previously charged off, are charged to the allowance. The
allowance for loan losses is based upon management's periodic
evaluation of the portfolio with consideration given to the
overall loss experience, delinquency data, financial condition of
the borrowers, and such other factors that, in management's
judgment, warrant recognition in providing an adequate allowance.
Adjustments to the allowance are charged to current earnings in
the form of a provision for loan losses.

g. Impaired Loans - Effective January 1, 1995, the Bank adopted
Statement of Financial Accounting Standard No. 114, "Accounting
by Creditors for Impairment of a Loan" ("SFAS 114"), as amended
by SFAS 118. These pronouncements require that an impaired loan
be measured based on the present value of expected future cash
flows discounted at the effective interest rate of the loan, or
at fair value of the loan's collateral for "collateral dependent"
loans. The Bank considers a loan impaired when it is probable
that the Bank will be unable to collect all interest and
principle payments as scheduled in the loan agreement. A loan is
not considered

<PAGE>

impaired during a period of delay in payment if the ultimate
collectibility of all amounts due is expected. A valuation
allowance is required to the extent that the measure of the
impaired loan is less than the recorded investment. Consistent
with the Bank's method for nonaccrual loans, interest receipts
for impaired loans are recognized on the cash basis.

h. Premises and Equipment - Premises and equipment are stated at
cost, less accumulated depreciation. Depreciation is computed
over the estimated useful lives of the assets principally by the
straight-line method for building and improvements and by an
accelerated method for other assets. Depreciation for tax
purposes is computed based upon accelerated methods. The costs of
major renewals or improvements are capitalized while the costs of
ordinary maintenance and repairs are charged to expense as
incurred.

i. Other Real Estate - Property acquired through foreclosure is
stated at the lower of the recorded cost or the estimated fair
value of the property. At the time of foreclosure, any excess of
cost over estimated fair value is charged to the allowance for
loan losses. Subsequent declines in the fair value are recorded
in a valuation account and are reflected in operations in the
year in which the decline occurred.

j. Income Taxes - The Bank uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.

k. Cash Flows - For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and
federal funds sold with maturities of less than three months.
Cash flows from deposits and loans are reported net.

l. Earnings Per Share - Earnings per share are based on the weighted
average number of shares outstanding during the year. The
weighted average number of shares utilized in calculating
earnings per share was 304,940 in 1995 and 1994.

m. Reclassifications - Certain amounts in 1994 have been
reclassified to conform to the 1995 presentation.

<PAGE>

2. INVESTMENT SECURITIES

The following is a comparison of amortized cost and estimated fair values
of investment securities at December 31:

<TABLE>
<CAPTION>
1995

Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value

<S> <C> <C> <C> <C>
Available for Sale:

U.S. Treasury securities $ 1,352,322 $ -- $ (5,821) $ 1,346,501
U.S. Government agencies 9,738,752 130,489 (24,072) 9,845,169
Federal Home Loan
Mortgage Corp. (FHLMC) 549,708 -- (3,966) 545,742
Government National Mortgage
Assoc. (GNMA) 180,451 636 -- 181,087
States and political subdivisions 2,976,225 76,658 (1,040) 3,051,843
Corporate bonds 746,332 5,265 (812) 750,785
Equity securities 60,006 449,237 (6,250) 502,993
----------- ----------- ----------- -----------

Total 15,603,796 662,285 (41,961) 16,224,120
----------- ----------- ----------- -----------

Held to Maturity:

U.S. Government agencies 5,896,374 4,061 (55,788) 5,844,647
States and political subdivisions 4,601,965 19,688 (50,029) 4,571,624
Corporate bonds 200,141 -- (3,381) 196,760
----------- ----------- ----------- -----------

Total 10,698,480 23,749 (109,198) 10,613,031
----------- ----------- ----------- -----------

Total Investment Securities $26,302,276 $ 686,034 $ (151,159) $26,837,151
=========== =========== =========== ===========

</TABLE>

<PAGE>

1994

Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value

<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities $ 250,037 $ -- $ (4,178) $ 245,859
U.S. Government agencies 3,351,602 -- (104,752) 3,246,850
Federal Home Loan
Mortgage Corp. (FHLMC) 610,307 -- (41,360) 568,947
Federal National Mortgage
Assoc. (FNMA) 54,388 544 -- 54,932
Government National Mortgage
Assoc. (GNMA) 208,567 -- (17,198) 191,369
States and political subdivisions 686,038 22,092 -- 708,130
Equity securities 60,006 313,529 -- 373,535
----------- -------- ----------- -----------

Total 5,220,945 336,165 (167,488) 5,389,622
----------- -------- ----------- -----------

Held to Maturity:

U.S. Treasury securities 2,361,672 -- (89,749) 2,271,923
U.S. Government agencies 7,319,283 -- (530,862) 6,788,421
States and political subdivisions 6,670,391 43,246 (286,762) 6,426,875
Collateralized mortgage obligation,
private issuer 299,972 -- (7,112) 292,860
Corporate bonds 1,300,075 -- (35,852) 1,264,223
----------- -------- ----------- -----------

Total 17,951,393 43,246 (950,337) 17,044,302
----------- -------- ----------- -----------

Total Investment Securities $23,172,338 $379,411 $(1,117,825) $22,433,924
=========== ======== =========== ===========

</TABLE>

<PAGE>

The amortized cost and estimated fair value of debt securities at December
31, 1995 by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>

Available for Sale Held to Maturity Total
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $ 2,632,883 $ 2,644,219 $ 1,980,083 $ 1,974,058 $ 4,612,966 $ 4,618,277
Due after one year
through five years 11,476,478 11,614,748 5,392,455 5,344,624 16,868,933 16,959,372
Due after five years
through ten years 1,004,353 1,031,448 2,731,038 2,707,496 3,735,391 3,738,944
Due after ten years 430,076 430,712 594,904 586,853 1,024,980 1,017,565
----------- ----------- ----------- ----------- ----------- -----------
Equity securities 60,006 502,993 -- -- 60,006 502,993
----------- ----------- ----------- ----------- ----------- -----------
Total $15,603,796 $16,224,120 $10,698,480 $10,613,031 $26,302,276 $26,837,151
=========== =========== =========== =========== =========== ===========
</TABLE>

Proceeds from sales and maturities of investments in available for sale
securities were $1,390,335 and $2,281,799 during 1995 and 1994,
respectively. Gross gains of $271 and $11,325, respectively, were realized
on those sales. Gross losses of $2,556 and $18,619, respectively, were
realized on those sales.

Securities with an amortized cost of $2,026,071 and an estimated fair
value of $2,047,907 at December 31, 1995 were pledged to collateralize
public funds as required by law.

3. LOANS

The following is a summary of loans by type which were outstanding at
December 31:

1995 1994

Commercial $10,938,825 $10,065,984
Installment 3,228,594 3,043,725
Real estate 15,157,704 16,278,962
Credit cards 139,452 140,072
Other 5,529 4,122
----------- -----------

29,470,104 29,532,865

Unearned discount -- 33
Allowance for possible loan loss 597,000 547,000
Deferred loan fees 25,564 27,309
----------- -----------

Total net loans $28,847,540 $28,958,523
=========== ===========

<PAGE>

The balance of non-accrual loans was $257,060 and $418,398 at December 31,
1995 and 1994, respectively. If these loans had been accruing interest at
their contracted rates, related income for these loans would have been
$27,625 and $44,162 for the years ended December 31, 1995 and 1994,
respectively. At December 31, 1995, the balance of loans impaired and the
related specific valuation allowance of these loans was $257,060 and
$128,500, respectively. During the year, the Bank did not recognize any
interest income on impaired loans.

The following is a summary of loan transactions with directors and
executive officers of the Bank and to companies in which they have a
significant interest for the year ended December 31, 1995:

Balance at January 1, 1995 $ 783,777
Originations 231,487
Repayments (221,698)
Changes due to board composition, net (355,583)
------------

Balance at December 31, 1995 $ 437,983
============

4. ALLOWANCE FOR LOAN LOSSES

The following is a summary of the activity in the allowance for loan
losses:

1995 1994

Balance at beginning of year $ 547,000 $ 474,000
Provision charged against income 182,529 217,808
Loans charged off (176,803) (154,803)
Recoveries of loans charged off 44,274 9,995
------------ ------------

Balance at end of year $ 597,000 $ 547,000
============ ============

5. PREMISES AND EQUIPMENT

The following is a summary of bank premises and equipment:

1995 1994

Cost:

Land $ 122,397 $ 122,397
Buildings and improvements 1,163,786 1,118,149
Furniture, fixtures and equipment 1,083,190 1,027,045
Construction in progress - 11,455
------------- --------------

2,369,373 2,279,046
Less accumulated depreciation 1,438,077 1,354,083
------------- --------------

Premises and equipment, net $ 931,296 $ 924,963
============= ==============

<PAGE>

6. INCOME TAXES

The current and deferred income taxes are as follows:

1995 1994

Federal taxes:

Current $ 205,118 $ 208,923
Deferred 41,421 (13,241)
----------- -----------
$ 246,539 $ 195,682
=========== ===========

The following is a reconciliation of the expected tax expense with the
reported expense for the years ended December 31, 1995 and 1994:

1995 1994
----------------- -----------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income

Expected tax expense
at statutory rate $ 347,598 34.0% $ 272,866 34.0%
Tax exempt interest (113,080) (11.1) (129,079) (16.1)
Disallowed interest to carry
tax exempts 14,230 1.4 14,311 1.8
Other (2,209) (0.2) 37,584 4.7
--------- ------ --------- ------
TOTAL $ 246,539 24.1% $ 195,682 24.4%
========= ====== ========= ======

The components of the deferred income tax asset are as follows:

1995 1994

Deferred tax asset:
Allowance for loan losses $ 129,807 $ 159,016
Interest on non-accrual loans 28,601 37,741
Accrued pension 2,826 3,091
--------- ---------
Deferred tax asset 161,234 199,848
--------- ---------

Deferred tax liability:
Net unrealized gain on securities
available for sale (210,910) (57,350)
Depreciation (16,962) (16,492)
Deferred loan fees (715) 3,815
Other -- (2,193)
--------- ---------

Deferred tax liability (228,587) (72,220)
--------- ---------

Net deferred tax asset (liability) $ (67,353) $ 127,628
========= =========

<PAGE>

7. DEFINED BENEFIT PENSION PLAN

The Bank sponsors a non-contributory defined benefit pension plan for all
employees. Pension benefits vest after five years of service and are based
on years of service and average final salary. The Bank's funding policy is
to make the minimal annual contribution that is required by applicable
regulation, plus such amounts as the Bank may determine to be appropriate
from time to time.

The amount charged to expense for the Bank's pension plan totaled $62,986
and $59,336 for the years ended December 31, 1995 and 1994, respectively.
The components of the pension cost charged to expense consisted of the
following:

1995 1994

Service cost $ 46,872 $ 42,893
Interest cost on projected benefit obligation 35,468 31,163
Expected return on plan assets (23,093) (18,638)
Net amortization and deferral 3,739 3,918
-------- --------

$ 62,986 $ 59,336
======== ========

The following table sets forth the plan's funded status, as of the most
recent actuarial valuation date, October 1, 1995, and the amount
recognized in the Bank's consolidated financial statements as of December
31:

1995 1994

Actuarial present value of benefit obligations:

Vested benefits $ 353,592 $ 310,809
========= =========

Accumulated benefits $ 361,187 $ 315,780
========= =========

Projected benefit obligation $(548,960) $(506,679)
Plan assets at fair value 430,631 329,906
--------- ---------

Projected benefit obligation in excess
of plan assets (118,329) (176,773)

Unrecognized prior service costs (64,578) (68,166)
Unrecognized net loss 25,171 85,459
Remaining unrecognized net obligation from
the beginning of year 95,114 100,508
--------- ---------

Liability on balance sheet $ (62,622) $ (58,972)
========= =========

The weighted-average discount rate used in determining the actuarial
present value of the benefit obligations was 7.0% at December 31, 1995 and
1994. The expected long-term rate of return on plan assets was 7.0% at
December 31, 1995 and 1994. The rate of increase in future compensation
levels used in determining the actuarial present value of the benefit
obligations was 6.0% at December 31, 1995 and 1994.

<PAGE>

Plan assets at December 31, 1995 consist of an investment in a stock
mutual fund, and in money market, equity, fixed income and balanced funds
offered by the Virginia Bankers Associations Pension Investment Program.

8. REGULATORY REQUIREMENTS AND RESTRICTIONS

The Bank is subject to certain requirements imposed by state and federal
banking statutes and regulations. These requirements, among other things,
establish minimum levels for capital, restrict the amount of dividends
that may be distributed and require that the Bank maintain a minimum
reserve balance. At December 31, 1995, the Bank is required to have
minimum Tier 1 and total risk-based capital ratios of 4.0% and 8.0%,
respectively. The Bank's actual ratios at that date were 26.65% and
28.15%, respectively. The Bank's leverage ratio at December 31, 1995 was
15.38%.

9. DISCLOSURES CONCERNING THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS 107,
"Disclosures About Fair Value of Financial Instruments." The estimated
fair value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. Loan commitments are
conditional and subject to market pricing and therefore do not reflect a
gain or loss of market value. The fair value of standby letters of credit
is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date. However, considerable judgment
is required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.

Cash and Short-term Investments - The nature of these instruments and
their relatively short maturities provides for the reporting of fair value
equal to the historical cost.

Investment Securities - The fair value of investment securities is based
on quoted market prices.

Loans - The estimate of the fair value of the loan portfolio is estimated
based on present values using applicable spreads to the U.S. Treasury
curve.

<PAGE>

Deposits - The fair value of all demand accounts is the amount payable at
the report date. For all other deposits, the fair value is determined
using the discounted cash flow method. The discount rate was equal to the
rate currently offered on similar products.

December 31, 1995

Estimated
Carrying Fair
Amount Value
(000's) (000's)

Financial Assets:
Cash and short-term investments $ 4,954 $ 4,954
Investment securities 26,923 26,837
Net loans 28,848 28,843

Financial Liabilities:
Demand deposits 6,274 6,274
Time deposits 46,209 46,285

10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve elements
of credit and interest rate risk in excess of the amount recognized on the
consolidated balance sheet. The contract amounts of these instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit written is represented by the contractual
amount of these instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. Collateral is obtained based on management's
credit assessment of the customer.

The Bank had outstanding loan commitments totalling $4,707,303 at December
31, 1995. The total contract amount of standby letters of credit, whose
contract amounts represent credit risk, total $85,600 at December 31,
1995.

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being completely drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis.

Standby letters of credit written are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loans to customers.

<PAGE>

11. SUBSEQUENT EVENT

On January 25, 1996, the Bank and The Bank of Franklin jointly announced
that their respective Boards of Directors had approved a definitive
agreement to affiliate and form a holding company. Under the terms of the
agreement, the banks will form a holding company, United Community
Bankshares, Inc., which will be the sole shareholder of both banks. As a
result of the transaction, each bank's shareholders will own 50% of the
holding company's common stock.

The transaction is intended to qualify as a tax-free exchange and is to be
accounted for as a pooling of interest. Consummation of the transaction is
subject, among other conditions, to shareholder and regulatory approvals.

* * * * * *

<PAGE>

PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Article VI of the Registrant's Articles of Incorporation mandates
indemnification of the Registrant's directors and officers to the full extent
permitted by the Virginia Stock Corporation Act (the Virginia Act) as in effect
from time to time. As of the date hereof, the Virginia Act permits a
corporation, to the extent authorized by its articles of incorporation, to
indemnify its directors and officers against liability incurred in all
proceedings, including derivative proceedings, arising out of their service to
the corporation so long as they have not engaged in willful misconduct or a
knowing violation of the criminal law, and accordingly the Registrant is
required to indemnify its directors and officers in all such proceedings if they
have not violated this standard.

In addition, Article VI of the Registrant's Articles of Incorporation
limits the liability of the Registrant's directors and officers to the full
extent permitted by the Virginia Act. As of the date hereof, the Virginia Act
places a limit on the liability of a director or officer in derivative and
shareholder proceedings equal to the lesser of: (i) the monetary amount,
including the elimination of liability, specified in the corporation's articles
of incorporation or a shareholder-approved by-law; or (ii) the greater of (a)
$100,000 or (b) twelve months of cash compensation received by the officer or
director. The limit does not apply in the event the director or officer has
engaged in willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. The effect of the Registrant's Articles of
Incorporation, together with the Virginia Act, is to accordingly limit liability
of directors and officers for money damages in shareholder derivative
proceedings, so long as the required standard of conduct is met.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

An index of exhibits appears at Page II-6 hereof.

ITEM 22. UNDERTAKINGS

(a) (a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration

<PAGE>

statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(e) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver or to cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.

(g) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party which is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.

(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(h) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

<PAGE>

---------------------------

(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this amendment to its registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Franklin, Virginia, on May 13,
1996.

UNITED COMMUNITY BANKSHARES, INC.
Franklin, Virginia

By: /s/ Wenifred O. Pearce

Wenifred O. Pearce
President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement has been signed by the following persons in the
capacities on May 13, 1996.

NAME TITLE

President, Chief Executive
/s/ Wenifred O. Pearce Officer (Principal Executive
Wenifred O. Pearce Officer) and Director
Executive Vice President,

Chief Operating Officer
/s/ D. Eugene Brittle (Principal Financial
D. Eugene Brittle Officer) and Director

** /s/ J. P. Bain Director
J. P. Bain

** /s/ J. Philip Bain, Jr. Director
J. Philip Bain, Jr.

* /s/ Hunter Darden, Jr. Director
Hunter Darden, Jr.

** /s/ G. O. Huber Director
G. O. Huber

* /s/ Harvey Pope Director
Harvey Pope

* /s/ J. D. Spivey Director
J. D. Spivey

<PAGE>

* /s/ F. Bruce Stewart Director
F. Bruce Stewart

** /s/ J. Russell West Director
J. Russell West

* By /s/ Wenifred O. Pearce
Wenifred O. Pearce
(Attorney-in-Fact)

** /s/ D. Eugene Brittle
D. Eugene Brittle
(Attorney-in-Fact)

INDEX TO EXHIBITS

13.4 Frank Edward Sheffer & Co. Supplemental Letter

23.1 Currently dated consent of Frank Edward
Sheffer & Co., as accountants for BOF.

23.2 Currently dated consent of Goodman & Company,
L.L.P., as accountants for BOF.

23.3 Currently dated consent of Deloitte & Touche
LLP, as accountants for BSS.

FRANK EDWARD SHEFFER & CO.

[Letterhead]

April 18, 1995*

Federal Deposit Insurance Corporation
245 Peachtree Center Ave., N.E.
Suite 1200
Atlanta, GA 30303

Gentlemen:

We were previously principal accountants for the Bank of Franklin (the "Bank")
and on March 31, 1995, we reported on the financial statements of the Bank as of
and for the two years ended December 31, 1994. On March 15, 1995, we were
dismissed as principal accountants of the Bank for the year ending December 31,
1995. We have read the Bank's statements included under item 4 of its Form F-3
for March 15, 1995, *and the statements under the caption "Experts" and
regarding "Changes in Accountants" under the caption "Information Concerning the
Bank of Franklin" as contained in the amended Form S-4 Registration Statement
(No. 333-3296) of United Community Bankshares, Inc. as filed with the Securities
and Exchange Commission on or about May 13, 1996, and we agree with such
statements.

Very truly yours,

FRANK EDWARD SHEFFER & CO.

Certified Public Accountants

*As amended for purposes of the Form S-4 Registration Statement as filed by the
Bank with the Securities and Exchange Commission on May 13, 1996.

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation of our report dated March 31,
1995, except for Note 9, which is as of April 5, 1996, on the financial
statements of The Bank of Franklin as of December 31, 1994, and for the year
then ended, in the Amended Registration Statement on Form S-4 of United
Community Bankshares, Inc., filed with the Securities and Exchange Commission on
or about May 13, 1996, and to the use of our name under the caption "Experts"
and in the section "Changes in Accountants" under "Information Concerning the
Bank of Franklin in the Joint Proxy Statement.

FRANK EDWARD SHEFFER & CO.

/s/ FRANK EDWARD SHEFFER & CO.

Certified Public Accountants
Suffolk, Virginia

May 8, 1996

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation of our audit report, dated
January 25, 1996, on the financial statements of The Bank of Franklin as of
December 31, 1995, and for the year then ended, in the second Amendment to
the Registration Statement on Form S-4 of United Community Bankshares, Inc.,
filed with the Securities and Exchange Commission on or about May 13, 1996, and
to the use of our name under the caption "Experts" of the related Joint Proxy
Statement.

/s/ Goodman & Company, L.L.P

Goodman & Company, L.L.P

One Commercial Place
Norfolk, Virginia

May 13, 1996

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 2 to the Registration
Statement of United Community Bankshares, Inc. on Form S-4 of our report
dated January 12, 1996 (January 25, 1996 as to Note 11), relating to the
financial statements of The Bank of Sussex and Surry and Surry appearing
in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in
such Prospectus

DELOITTE & TOUCHE LLP

Richmond, Virginia
May 13, 1996

POWER OF ATTORNEY FOR BOF DESIGNEES

Exhibit 24

POWER OF ATTORNEY

I, Hunter Darden, Jr., hereby constitute and appoint, F. Bruce Stewart
and Wenifred O. Pearce, as my true and lawful attorneys-in-fact, any of whom
acting singly is hereby authorized for me and in my name and on my behalf as a
director and/or officer of United Community Bankshares, Inc. (the "Company), to
execute any and all instruments as such attorneys, or any of them, may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, as amended ("Act"), and any rules, regulations, policies or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Act. The authority granted hereby
includes specifically, but is not limited to, the authority to execute on my
behalf any Registration Statement on Form S-4 relating to the Company, and any
and all amendments to such Registration Statement, together with such other
supplements, statements, instruments and documents as such attorneys or attorney
deem necessary or appropriate.

I do hereby ratify and confirm all my said attorneys or attorney shall
do or cause to be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ Hunter Darden, Jr.
Hunter Darden, Jr.

<PAGE>

POWER OF ATTORNEY

I, Harvey Pope, hereby constitute and appoint, F. Bruce Stewart and
Wenifred O. Pearce, as my true and lawful attorneys-in-fact, any of whom acting
singly is hereby authorized for me and in my name and on my behalf as a director
and/or officer of United Community Bankshares, Inc. (the "Company"), to execute
any and all instruments as such attorneys, or any of them, may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended ("Act"), and any rules, regulations, policies or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
registration under the Act. The authority granted hereby includes specifically,
but is not limited to, the authority to execute on my behalf any Registration
Statement on Form S-4 relating to the Company, and any and all amendments to
such Registration Statement, together with such other supplements, statements,
instruments and documents as such attorneys or attorney deem necessary or
appropriate.

I do hereby ratify and confirm all my said attorneys or attorney shall
do or cause to be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ Harvey Pope
Harvey Pope

<PAGE>

POWER OF ATTORNEY

I, J. D. Spivey, hereby constitute and appoint, F. Bruce Stewart and
Wenifred O. Pearce, as my true and lawful attorneys-in-fact, any of whom acting
singly is hereby authorized for me and in my name and on my behalf as a director
and/or officer of United Community Bankshares, Inc. (the "Company"), to execute
any and all instruments as such attorneys, or any of them, may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, as
amended ("Act"), and any rules, regulations, policies or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
registration under the Act. The authority granted hereby includes specifically,
but is not limited to, the authority to execute on my behalf any Registration
Statement on Form S-4 relating to the Company, and any and all amendments to
such Registration Statement, together with such other supplements, statements,
instruments and documents as such attorneys or attorney deem necessary or
appropriate.

I do hereby ratify and confirm all my said attorneys or attorney shall
do or cause to be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ J. D. Spivey
J. D. Spivey

POWER OF ATTORNEY FOR BSS DESIGNEES

POWER OF ATTORNEY

I, J. P. Bain, hereby constitute and appoint, D. Eugene Brittle,
as my true and lawful attorney-in-fact, who is hereby authorized for me and in
my name and on my behalf as a director and/or officer of United Community
Bankshares, Inc. (the "Company"), to execute any and all instruments as such
attorney may deem necessary or advisable to enable the Company to comply with
the Securities Act of 1933, as amended ("Act"), and any rules, regulations,
policies or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the registration under the Act. The authority
granted hereby includes specifically, but is not limited to, the authority to
execute on my behalf any Registration Statement on Form S-4 relating to the
Company, and any and all amendments to such Registration Statement, together
with such other supplements, statements, instruments and documents as such
attorney deems necessary or appropriate.

I do hereby ratify and confirm all my said attorney shall do or cause to
be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ J. P. Bain
J. P. Bain

<PAGE>

POWER OF ATTORNEY

I, J. Philip Bain, Jr., hereby constitute and appoint, D. Eugene
Brittle, as my true and lawful attorney-in-fact, who is hereby authorized for me
and in my name and on my behalf as a director and/or officer of United Community
Bankshares, Inc. (the "Company"), to execute any and all instruments as such
attorney may deem necessary or advisable to enable the Company to comply with
the Securities Act of 1933, as amended ("Act"), and any rules, regulations,
policies or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the registration under the Act. The authority
granted hereby includes specifically, but is not limited to, the authority to
execute on my behalf any Registration Statement on Form S-4 relating to the
Company, and any and all amendments to such Registration Statement, together
with such other supplements, statements, instruments and documents as such
attorney deems necessary or appropriate.

I do hereby ratify and confirm all my said attorney shall do or cause to
be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ J. Philip Bain, Jr.
J. Philip Bain, Jr.

<PAGE>

POWER OF ATTORNEY

I, G. O. Huber, hereby constitute and appoint, D. Eugene Brittle, as my
true and lawful attorney-in-fact, who is hereby authorized for me and in my name
and on my behalf as a director and/or officer of United Community Bankshares,
Inc. (the "Company"), to execute any and all instruments as such attorney may
deem necessary or advisable to enable the Company to comply with the Securities
Act of 1933, as amended ("Act"), and any rules, regulations, policies or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration under the Act. The authority granted hereby
includes specifically, but is not limited to, the authority to execute on my
behalf any Registration Statement on Form S-4 relating to the Company, and any
and all amendments to such Registration Statement, together with such other
supplements, statements, instruments and documents as such attorney deems
necessary or appropriate.

I do hereby ratify and confirm all my said attorney shall do or cause to
be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ G. O. Huber
G. O. Huber

<PAGE>

POWER OF ATTORNEY

I, J. Russell West, hereby constitute and appoint, D. Eugene Brittle, as
my true and lawful attorney-in-fact, who is hereby authorized for me and in my
name and on my behalf as a director and/or officer of United Community
Bankshares, Inc. (the "Company"), to execute any and all instruments as such
attorney may deem necessary or advisable to enable the Company to comply with
the Securities Act of 1933, as amended ("Act"), and any rules, regulations,
policies or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the registration under the Act. The authority
granted hereby includes specifically, but is not limited to, the authority to
execute on my behalf any Registration Statement on Form S-4 relating to the
Company, and any and all amendments to such Registration Statement, together
with such other supplements, statements, instruments and documents as such
attorney deems necessary or appropriate.

I do hereby ratify and confirm all my said attorney shall do or cause to
be done by the virtue hereof.

WITNESS the execution hereof this 14th day of April, 1996.

/s/ J. Russell West
J. Russell West