ABIGAIL ADAMS NATIONAL BANCORP INC, SB-2/A, 1996-07-05

ABIGAIL ADAMS NATIONAL BANCORP INC
SB-2/A, 1996-07-05
STATE COMMERCIAL BANKS

Previous: RYANS FAMILY STEAKHOUSES INC, 4, 1996-07-05

Next: FIRST BANKING CO OF SOUTHEAST GEORGIA, S-4/A, 1996-07-05

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 5, 1996

REGISTRATION NO. 333-05073
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

ABIGAIL ADAMS NATIONAL BANCORP, INC.
(Name of Small Business Issuer in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 6712 52-1508198
(State or other jurisdiction (Primary Standard Industrial (I.R.S. employer
of Classification Code Number) identification
incorporation or organization) no.)
</TABLE>

1627 K STREET, N.W., WASHINGTON, D.C. 20006; (202) 466-4090
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

BARBARA DAVIS BLUM
PRESIDENT, ABIGAIL ADAMS NATIONAL BANCORP, INC.
1627 K STREET, N.W., WASHINGTON, D.C. 20006; (202) 466-4090
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------

WITH COPIES TO:

<TABLE>
<S> <C>
Melissa Allison Warren, Esq. Linda M. Iannone, Esq.
Shapiro and Olander Manatt, Phelps & Phillips, LLP
36 S. Charles Street 1501 M Street, N.W.
20th Floor Suite 700
Baltimore, Maryland 21201 Washington, D.C. 20005
(410) 385-4265 (202) 463-4375
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------

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 THAT 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 COMMISSIONER, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
ITEM NO. DESIGNATION IN FORM SB-2 IN PROSPECTUS
- ------------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
1. Front of the Registration Statement and Outside
Front Cover of Prospectus......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover and Outside Back Cover Pages;
Additional Information
3. Summary Information and Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................... Risk Factors; Use of Proceeds
5. Determination of Offering Price.................... Price Range of Common Stock and Dividend Policy;
Underwriting
6. Dilution........................................... *
7. Selling Security Holders........................... *
8. Plan of Distribution............................... Underwriting
9. Legal Proceedings.................................. Business
10. Directors, Executive Officers, Promoters and
Control Persons................................... Management; Beneficial Ownership of Shares
11. Security Ownership of Certain Beneficial Owners and
Management........................................ Management; Beneficial Ownership of Shares
12. Description of Securities.......................... Prospectus Summary; Description of Capital Stock
13. Interest of Named Experts and Counsel.............. Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... *
15. Organization Within Last Five Years................ *
16. Description of Business............................ Prospectus Summary; Summary Consolidated Financial
Data; Risk Factors; Use of Proceeds; Price Range
of Common Stock and Dividend Policy;
Capitalization; Selected Consolidated Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Relationships and
Related Transactions; Supervision and Regulation;
Description of Capital Stock; Financial Statements
17. Management's Discussion and Analysis or Plan of
Operation......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESIGNATION IN FORM SB-2 IN PROSPECTUS
- ------------- --------------------------------------------------- ---------------------------------------------------
18. Description of Property............................ Prospectus Summary; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business
<C> <S> <C>
19. Certain Relationships and Related Transactions..... Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder
Matters........................................... Outside Front Cover Page; Price Range of Common
Stock and Dividend Policy; Description of
Securities
21. Executive Compensation............................. Management
22. Financial Statements............................... Index to Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... *
</TABLE>

- ------------------------
* Text is omitted because response is negative or item is inapplicable.
<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

SUBJECT TO COMPLETION, DATED JULY 5, 1996

670,000 SHARES

[LOGO]

COMMON STOCK

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

Abigail Adams National Bancorp, Inc. (the "Company") is offering 670,000
shares of its Common
Stock, $.01 par value ("Common Stock"). Prior to this Offering, the Company
expects to issue a three-for-one stock split in the form of a stock dividend.
Unless otherwise indicated, all information in this Prospectus gives effect to
such transaction. On June 28, 1996, the closing bid and asked prices for the
Common Stock, as reported by the National Quotation Bureau, were $8.33 and
$9.33, respectively. The trading market for the Common Stock is limited and
sporadic. See "Price Range of Common Stock and Dividend Policy." The Common
Stock has been approved for quotation on the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ/NMS") under the
symbol "AANB." Notwithstanding such approval, there can be no assurance that an
active trading market will develop or be sustained.

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH ON PAGE 8
UNDER "RISK FACTORS." THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR
DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO THE
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the offering estimated at $ payable by
the Company. See "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to 100,500 additional shares of
Common Stock at the Price to Public per share, solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If the Underwriters exercise such option in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, delivery to and acceptance by the Underwriters and certain other
conditions. It is expected that delivery of the certificates for the shares of
Common Stock will be made at the offices of Ferris, Baker Watts, Incorporated,
1720 Eye Street, N.W., Washington, D.C. or through the facilities of The
Depository Trust Company on or about , 1996.
FERRIS, BAKER WATTS
INCORPORATED

The date of this Prospectus is , 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SHARES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at
the Commission's Regional Offices located on the 13th Floor, 7 World Trade
Center, New York, New York 10048 and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.

A registration statement on Form SB-2 relating to the Common Stock offered
hereby has been filed by the Company with the Commission (the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. Further information with respect to the Company and the
Common Stock offered hereby is included or incorporated by reference in the
Registration Statement and exhibits. A copy of the Registration Statement may be
inspected by anyone without charge and may be obtained at rates prescribed by
the Commission at the Public Reference Section of the Commission located at 450
Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located
at 7 World Trade Center, New York, New York 10048, and the Chicago Regional
Office located at 500 West Madison Street, Chicago, Illinois 60661.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this Prospectus or
in any other subsequently filed document which is also incorporated by reference
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 Prospectus. The Company will provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or oral request of
such person, a copy of any or all of the documents incorporated by reference
herein other than exhibits to such documents. Requests should be directed to
Abigail Adams National Bancorp, Inc., at its principal executive office, located
at 1627 K Street, N.W., Washington, D.C. 20006, Attention: Kimberly J. Levine,
Senior Vice President and Chief Financial Officer (telephone number (202)
466-4090).

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS
PROSPECTUS. EACH INVESTOR IS ENCOURAGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED, AND GIVES EFFECT TO
(I) AN INCREASE IN THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK OF THE
COMPANY FROM 800,000 TO 5,000,000 AND A REDUCTION OF PAR VALUE TO $.01 PER
SHARE, AND (II) THE ISSUANCE BY THE COMPANY OF A THREE-FOR-ONE STOCK SPLIT IN
THE FORM OF A STOCK DIVIDEND OF TWO SHARES OF COMMON STOCK FOR EACH SHARE OF
COMMON STOCK ISSUED AND OUTSTANDING. THESE TRANSACTIONS ARE EXPECTED TO OCCUR
PRIOR TO THE DATE OF THE OFFERING. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."

THE COMPANY

Abigail Adams National Bancorp, Inc. (the "Company") is a bank holding
company which conducts business through its wholly-owned bank subsidiary, The
Adams National Bank (the "Bank"). The Bank serves the nation's capital through
three full-service offices located in Washington, D.C., with a fourth branch
expected to open in August 1996. At March 31, 1996, the Company had consolidated
assets of $88,889,000, deposits of $78,812,000 and stockholders' equity of
$6,789,000 and reported net income of $238,000 for the three months then ended.
The Company reported record net income of $959,000 for the year ended December
31, 1995. The Bank exceeds all regulatory capital requirements. See "Supervision
and Regulation."

Founded in 1977, the Bank was the first federally-chartered bank in the
United States to be owned and managed by women. Originally named The Women's
National Bank, the Bank changed its name in 1986 to alter the perception that
the Bank existed exclusively to serve the needs of women. Based on assets and
deposits, the Bank is the largest women-controlled bank in the United States.

The Bank's customers include 26 Fortune 100 corporations which maintain
active relationships with the Bank, high net worth individuals, small to
medium-sized businesses, and nonprofit organizations. While providing financial
services to a wide ranging customer base, the Bank has established a profitable
niche assisting women, small businesses, minority-owned businesses and nonprofit
organizations. For the quarter ended March 31, 1996, the Company had a return on
average assets of 1.09%, following an annual return on average assets for 1995
of 1.17%. In its marketing efforts, the Bank actively targets its desired
customer base through various outreach programs, and by officers' and directors'
leadership in business and civic organizations.

Management believes that a large segment of its identified market has been
traditionally underserved by the banking community, and that above average risk
adjusted returns can be generated by those institutions with experience lending
to customers in this market. Commercial and real estate loans to small
businesses, professional corporations, and nonprofit organizations, which
account for approximately 52% of the Bank's total loan portfolio, produced an
average yield of 9.95% as of March 31, 1996, compared to 9.40% for the remainder
of the portfolio. In recognition of the Bank's continuing efforts to serve its
customer base, the Office of the Comptroller of the Currency ("OCC") awarded the
Bank a rating of "Outstanding" under the Community Reinvestment Act ("CRA").

The Company's strategy is to

- continue to increase profitability in its core banking franchise which has
steadily improved since 1992 as a result of continued emphasis on secured
commercial lending and an improvement in overall loan quality,

- target expansion opportunities in neighboring markets in Maryland and
Virginia either through opening new branches or acquiring branches, banks
or loan portfolios, and

- continue to utilize state of the art technologies, such as the Internet,
PC banking for businesses and individuals, and telephone banking, to
improve access to targeted markets and to better serve existing customers.

4
<PAGE>
The Bank offers a full range of banking services to its customers from
checking and savings deposits to individualized cash management accounts. The
Bank's consumer and commercial products and services include the following:
demand, savings and time deposits; individual retirement and Keogh accounts;
collateralized repurchase agreements; commercial, industrial, consumer, real
estate and small business lending including installment loans, credit card
services, lines of credit and overdraft checking; safe deposit operations; and a
variety of additional services tailored to the needs of individual customers,
such as the acquisition of U.S. Treasury notes and bonds, the sale of travelers'
checks, money orders, cashiers' checks, direct deposit, custodial, cash
management and other special services.

The Company was incorporated in Delaware on July 22, 1981. The Company's
principal executive office is located at 1627 K Street, N.W., Washington, D.C.
20006, and its telephone number is (202) 466-4090.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered................ 670,000 shares
Common Stock Outstanding After the
Offering.......................... 1,549,532 shares (1)
Dividends on Shares of Common
Stock............................. Since October 1995, the Company has paid three
quarterly dividends on its Common Stock. Future
declarations of dividends by the Board of Directors
will depend upon a number of factors. The dividend
for the first quarter of 1996 was $.083 per share.
For the second quarter of 1996, the Company has
declared a dividend of $.083 per share to
stockholders of record as of July 8, 1996. Investors
in this Offering will not be entitled to receive the
second quarter dividend. See "Price Range of Common
Stock and Dividend Policy."
Proposed Use of Proceeds............ The Company intends to use the net proceeds of this
Offering for future expansion and acquisitions, a
loan to The Adams National Bank Employee Stock
Ownership Plan with 401(k) Provisions ("ESOP") for
the purchase of up to 25,000 shares of Common Stock,
loan originations (which will reflect an increase in
the Bank's legal lending limit as a result of the
Offering), working capital and general corporate
purposes. See "Use of Proceeds."
NASDAQ/NMS Symbol................... AANB
Risk Factors........................ Prospective investors should carefully consider the
factors set forth on page 8 under "Risk Factors --
Regional Economic Conditions," "-- Risk of Loan
Losses," "-- Control of the Company," "-- Legal
Lending Limits; Lending Risks," "-- Impact of Change
of Ownership Status," "-- Use of Proceeds," "--
Limited Trading Market," "-- Offering Price Not Based
Solely on Market Prices," "-- Competition," "--
Dividend Restrictions," "-- Dependence on Key
Personnel," "-- Anti-Takeover and Change in Control
Provisions," "-- Regulation," and "-- Monetary Policy
and General Economic Conditions."
</TABLE>

- ------------------------
(1) Including 25,000 shares to be issued by the Company and purchased by the
ESOP upon closing of the Offering.

5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

THE SUMMARY CONSOLIDATED FINANCIAL DATA SET FORTH BELOW GIVE EFFECT TO A
THREE-FOR-ONE STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND, WHICH WILL TAKE PLACE
PRIOR TO THE DATE OF THE OFFERING, AND SHOULD BE READ IN CONJUNCTION WITH, AND
ARE QUALIFIED BY REFERENCE TO, THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY AND THE NOTES THERETO, AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" INCLUDED ELSEWHERE IN THIS
PROSPECTUS.

PER SHARE DATA: (3)
Net income (loss) (2).................... $ 0.28 $ 0.22 $ 1.12 $ (0.22) $ 0.72 $ 0.70
Weighted average number of common shares
and common share equivalents........... 860,940 854,532 854,532 854,532 854,532 854,532
Book value (4)........................... $ 7.95 $ 6.98 $ 7.75 $ 6.74 $ 7.05 $ 6.34
Dividends................................ 0.083 -- 0.167 -- -- --

SELECTED PERFORMANCE RATIOS: (5)(6)
Return on average assets................. 1.09% 0.92% 1.17% (0.22)% 0.84% 0.83%
Return on average stockholders' equity... 14.23 12.71 15.53 (3.15) 10.83 11.90
Net interest margin (7).................. 5.35 5.39 5.39 5.42 5.89 5.33
Dividend payout ratio.................... 29.92 -- 14.85 -- -- --

CONSOLIDATED CAPITAL RATIOS:
Tier 1 risk-based........................ 10.16% 9.79% 9.77% 9.40% 10.32% 11.61%
Total risk-based......................... 11.46 11.15 11.06 10.76 11.78 13.25
Leverage (8)............................. 7.78 7.41 8.09 7.13 8.26 7.51
</TABLE>

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

(1) Noninterest expense - Other consists of legal and related expenses not
incurred in connection with core banking operations. These costs were
incurred in 1995 and 1994 in connection with the issue of the ownership of
certain shares of the Company's Common Stock; in 1994, 1993 and 1992, in
the defense and settlement of employment related lawsuits; and in the
expensing in 1994 of previously deferred professional fees related to the
Company's proposed 1994 securities offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Other
Expense."

6
<PAGE>

(2) Excluding the effect of Noninterest expense - Other, and after giving
effect to available tax benefits, net income and net income per share would
have been as follows, for the respective periods indicated below. Dollars
are in thousands, except per share data.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992
------------- ------------- ------------- ----------- ----------- -------------
Historical net income (loss)........... $ 238 $ 184 $ 959 $ (184) $ 611 $ 602
Noninterest expense -- Other........... -- 23 102 1,046 534 137
Tax expense adjustment................. -- (40) (263) (334) -- --
----- ----- ------ ----------- ----------- -----
Net income, as adjusted................ $ 238 $ 167 $ 798 $ 528 $ 1,145 $ 739
----- ----- ------ ----------- ----------- -----
----- ----- ------ ----------- ----------- -----
Net income per share................... $ 0.28 $ 0.20 $ 0.93 $ 0.62 $ 1.34 $ 0.86
----- ----- ------ ----------- ----------- -----
----- ----- ------ ----------- ----------- -----
</TABLE>

(3) All Per Share Data reflects the three-for-one stock split, in the form of a
stock dividend, which will take place prior to the date of the Offering.

(4) All book value per share numbers are based on the number of shares
outstanding at period end.

(5) The Selected Performance Ratios for March 31, 1996 and 1995 are computed on
an annualized basis.

(6) Excluding the effect of Noninterest expense-Other, and after giving effect
to available tax benefits, Selected Performance Ratios would have been as
follows, for the respective periods indicated below:

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ----------- ---------- ----------
Return on average assets................... 1.09% 0.83% 0.97% 0.64% 1.57% 1.02%
Return on average stockholders' equity..... 14.23 11.53 12.92 9.04 20.29 14.61
Net interest margin........................ 5.35 5.39 5.39 5.42 5.89 5.33
Dividend payout ratio...................... 29.92 -- 17.85 -- -- --
</TABLE>

(7) No taxable equivalent adjustments are necessary because the Company had no
tax-exempt securities or loans.

(8) Based on annual average assets.

7
<PAGE>
RISK FACTORS

THE PURCHASE OF THE COMMON STOCK INVOLVES CERTAIN INVESTMENT RISKS. IN
DETERMINING WHETHER TO MAKE AN INVESTMENT IN THE COMMON STOCK, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH BELOW, AS WELL AS THE
OTHER INFORMATION CONTAINED HEREIN.

REGIONAL ECONOMIC CONDITIONS

The Company's lending customers are concentrated in the Washington
metropolitan region. At March 31, 1996, $25,224,000, or 42% of the loan
portfolio, consisted of commercial loans secured by real estate located in this
region. In the past, segments of the commercial real estate market in this
region have experienced deteriorating economic trends, including declining
occupancy, rental rates, and property values. In addition, a significant decline
in federal procurement during the last quarter of 1995, as a result of two
government shutdowns, has slowed job growth, home sales and retail purchases in
the Washington metropolitan region. At March 31, 1996, the Company's ratio of
nonperforming assets to total assets was 3.05% of which 91% is adequately
collateralized or guaranteed by the Small Business Administration ("SBA").

Future unfavorable economic conditions, including those resulting from
federal budget cutbacks, could result in provisions and writedowns, and
nonperforming assets, along with the cost of carrying such assets, could
increase. The scope of any provisions and writedowns cannot be estimated at this
time, due to the uncertainties associated with regional economic conditions, and
the extent to which provisions and write downs will be required will be
dependent upon actual future economic conditions and their effect on the
Company's borrowers.

RISK OF LOAN LOSSES

The risk of credit losses on loans varies with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the value and marketability of the collateral for the loan. Management maintains
an allowance for loan losses based upon, among other things, historical
experience, an evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality. Based upon such factors, Management
makes various assumptions and judgments about the ultimate collectibility of the
loan portfolio and provides an allowance for loan losses based upon a percentage
of the outstanding balances and for specific loans when their ultimate
collectibility is considered questionable. If Management's assumptions and
judgments prove to be incorrect and the allowance for loan losses is inadequate
to absorb future losses, or if the bank regulatory authorities require the Bank
to increase the allowance for loan losses, the Bank's earnings could be
significantly and adversely affected. Because certain lending activities involve
greater risks, the percentage applied to specific loan types may vary.
Commercial loans may involve greater risk than real estate mortgage loans. As of
March 31, 1996, the Bank had a total of $41,377,000 in commercial loans and a
total of $16,216,000 in real estate mortgages and construction loans. Of this
amount, $52,825,000 was either fully or partially secured and $4,768,000 was
unsecured.

As of March 31, 1996, the allowance for loan losses was $1,262,000, which
represented 2.10% of outstanding loans, net of unearned income. At such date,
the Company had nonaccrual loans totaling $1,463,000. The Bank actively manages
its nonperforming loans in an effort to minimize credit losses and monitors its
asset quality to maintain an adequate allowance for credit losses. Although
Management believes that its allowance for loan losses is adequate, there can be
no assurance that the allowance will prove sufficient to cover future loan
losses. Further, although Management uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ substantially from the
assumptions used or adverse developments arise with respect to the Bank's
nonperforming or performing loans. Material additions to the Bank's allowance
for loan losses would result in a decrease in the Bank's net income and its
capital, and could have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Asset Quality."

8
<PAGE>
CONTROL OF THE COMPANY

As of May 10, 1996, a group of eight stockholders (which includes three
directors of the Company) would own, directly or indirectly, approximately 37%
of the total outstanding shares of the Company's Common Stock, after giving
effect to the sale of 670,000 shares in this Offering and 25,000 shares to the
ESOP. Under banking regulations, this group controls the Company and has
significant influence over certain decisions, such as mergers and acquisitions,
and the election of the Board of Directors of the Company. See "Beneficial
Ownership of Shares."

LEGAL LENDING LIMITS; LENDING RISKS

At March 31, 1996, the legal lending limit of the Bank was approximately
$1,218,000 per customer. Accordingly, the size of the loans which the Bank can
offer to potential customers is less than the size of loans which many of the
Bank's larger competitors are able to offer, although the Bank is able to serve
customers' needs by participating loans with other financial institutions. There
is no assurance that the lending limit will increase in the future, although
increases are anticipated, or that the Bank will be successful in attracting or
maintaining larger volume customers. The risk of nonpayment (or deferred
payment) of loans is inherent to commercial banking. Moreover, the Bank's
marketing focus on individual customers and small to medium-sized businesses may
result in the assumption by the Bank of certain lending risks that are different
from those attendant to loans to larger companies. Management of the Bank
attempts to minimize the Bank's credit risk exposure through obtaining third
party or government guarantees, and through loan application evaluation,
approval, and monitoring procedures, but there can be no assurance that such
procedures will significantly reduce such lending risks.

IMPACT OF CHANGE OF OWNERSHIP STATUS

The Company qualifies for participation in federal and local government
programs that require funds to be deposited in minority or women-owned banks.
Some Fortune 500 companies also have banking relationships with the Company due
to corporate strategies that encourage business with such banks. As a result of
this Offering, less than 50% of the Common Stock may be held by women or
minorities and the Company's eligibility for participation in government and
corporate programs for minority and women-owned banks would be terminated.
Notwithstanding termination of these programs, the Company would continue to
maintain its commitment to the banking needs of women and minorities. At March
31, 1996, the Company had deposits of $5,400,000, or 7% of total deposits, and
loans of $2,453,000, or 4% of total loans, directly resulting from its
participation in such programs. If these deposits and loans were withdrawn or
repaid and replaced with deposits and loans having a market rate of interest,
net income at March 31, 1996 would have been reduced by a range of approximately
$8,000 (assuming deposits are replaced at approximately the same average cost
and loans are replaced at the same rate, or prime) to $20,000 (assuming Fortune
500 loans and deposits are not replaced and remaining deposits are replaced at
the same cost). The termination of the Company's eligibility for participation
in such programs also could constitute an event of default under the lease for
the Bank's branch in Union Station. Although, in Management's opinion, a
termination of the lease for the Union Station branch would not have a
significant financial impact upon the Company, a termination of leases for the
Bank's ATMs in Union Station could adversely affect the Company's results of
operations.

USE OF PROCEEDS

The use of proceeds of this Offering is subject to reallocation by the
Management of the Company. See "Use of Proceeds."

LIMITED TRADING MARKET

Currently, approximately 68% of the outstanding shares of Common Stock is
owned by eight investors who purchased their shares as a group in 1995 from a
single investor and, as a consequence, there has been a very limited trading
market for the Common Stock. While there can be no assurance

9
<PAGE>

that an active trading market will develop as a result of this Offering, the
Common Stock has been approved for quotation on the NASDAQ/NMS. See "Price Range
of Common Stock and Dividend Policy" and "Beneficial Ownership of Shares."

OFFERING PRICE NOT BASED SOLELY ON MARKET PRICES

The public offering price of the Common Stock has been determined by
negotiations between the Company and Representative of the several underwriters
based on certain factors including the current market for the Common Stock, an
evaluation of assets, earnings and other established criteria of value, as well
as the comparisons of the relationships between market prices and book values of
other financial institutions of a similar size and asset quality. Such decision
will not be solely based upon an actual trading market for the Common Stock;
accordingly, there can be no assurance that the Common Stock may be resold at or
above the offering price. See "Underwriting."

COMPETITION

The Company faces substantial competition for deposits and loans throughout
its market area. Competition for deposits comes primarily from other commercial
banks, savings associations, credit unions, money market and mutual funds and
other investment alternatives. Competition for loans comes primarily from other
commercial banks, savings associations, mortgage banking firms, credit unions
and other financial intermediaries. The Company faces competition for deposits
and loans throughout its market areas not only from local institutions but also
from out-of-state financial intermediaries which have opened loan production
offices or which solicit deposits in its market areas. Many of the financial
intermediaries operating in the Company's market area offer certain services,
such as trust, investment and international banking services, which the Company
does not offer. Additionally, banks with a larger capitalization and financial
intermediaries not subject to bank regulatory restrictions have larger lending
limits and are thereby able to serve the needs of larger customers. See
"Business -- Competition."

DIVIDEND RESTRICTIONS

The Company's ability to pay cash dividends is limited by the provisions of
Delaware law which permit the payment of dividends from either surplus or
retained earnings. In addition, the ability of the Company to pay a cash
dividend depends upon the Bank's ability to pay a cash dividend to the Company.
The National Bank Act imposes limitations on the amount of dividends that a
national bank, such as the Bank, may pay without regulatory approval. Although
the Company intends to retain a portion of the net proceeds of the Offering for
working capital and possible future dividends, there can be no assurance that
the future operations of the Company or the Bank will result in sufficient
retained earnings to permit the payment of dividends. See "Use of Proceeds" and
"Price Range of Common Stock and Dividend Policy."

DEPENDENCE ON KEY PERSONNEL

The Company's future success depends on the continued contributions of
certain key management personnel, including Barbara Davis Blum, Chairwoman of
the Board of Directors, President and Chief Executive Officer. The Company has
entered into a two-year renewable employment agreement with Ms. Blum effective
February 20, 1996. The Company's continued growth and profitability depend upon
its ability to attract and retain skilled managerial, marketing and technical
personnel. Competition for qualified personnel in the banking industry is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. See "Management" and "Business --
Competition" and "-- Employees."

ANTI-TAKEOVER AND CHANGE IN CONTROL PROVISIONS

Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors has the authority to issue shares of stock without any further vote
or action by the stockholders, subject to certain provisions of rules governing
companies whose stock is quoted on NASDAQ/NMS. The issuance of stock under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company. In addition, the Company has adopted a Rights
Agreement which entitles

10
<PAGE>
each stockholder to purchase from the Company one share of Common Stock at a
price of $20.11 per share, subject to adjustment, upon certain events involving
a potential significant change in ownership of the Company's Common Stock. The
Rights Agreement also provides for the issuance to the Company's stockholders of
certain shares of common stock of an acquiring company in the event that the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold. The Rights
Agreement also may have the effect of delaying or preventing a change in control
of the Company. Finally, the Delaware General Corporation Law establishes
special requirements with respect to "business combinations" between a Delaware
corporation and an "interested stockholder." These provisions of the Delaware
General Corporation Law could have the effect of delaying or preventing a change
in control of the Company. See "Description of Capital Stock -- Common Stock,"
"-- Common Stock Purchase Rights," and "-- Delaware Business Combination Law."

REGULATION

The operations of the Company and the Bank are and will be affected by
current and future legislation and by the policies established from time to time
by various federal and state regulatory authorities. The Bank is subject to
supervision and periodic examination by the Federal Deposit Insurance
Corporation ("FDIC"), the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), and the OCC. The Company is subject to supervision by
the Federal Reserve Board. Banking regulations, designed primarily for the
safety of depositors, may limit a financial institution's growth and the return
to its investors by restricting such activities as the payment of dividends,
mergers with or acquisitions by other institutions, investments, loans and
interest rates, interest rates paid on deposits, expansion of branch offices,
and providing securities or trust services. The Bank also is subject to
capitalization guidelines set forth in federal legislation, and could be subject
to enforcement actions to the extent that the Bank is found by regulatory
examiners to be undercapitalized. It is not possible to predict what changes, if
any, will be made to existing federal and state legislation and regulations or
the effect that such changes may have on the future business and earnings
prospects of the Company and the Bank. The cost of compliance with regulatory
requirements may adversely affect the Company's ability to operate profitably.
See "Supervision and Regulation."

MONETARY POLICY AND GENERAL ECONOMIC CONDITIONS

The operating and net income of the Bank and any banks acquired by the
Company in the future will depend to a great extent on "rate differentials,"
i.e., the difference between the income a bank receives from earning assets such
as loans, investment securities, and other assets, and the interest paid on
interest-bearing liabilities such as deposits. These rates are highly sensitive
to many factors that are beyond the control of the Company and the Bank,
including general economic conditions and the policies of various governmental
and regulatory authorities, in particular the Federal Reserve Board.

USE OF PROCEEDS

The proceeds to the Company from the sale of 670,000 shares of Common Stock
offered hereby will be approximately $5,577,750 ($6,414,413 if the Underwriters'
over-allotment option is exercised in full), based upon the sale of the shares
offered hereby at an estimated public offering price per share of $9.00. The
Company intends to loan approximately $225,000 to the ESOP for the purpose of
funding the ESOP's purchase of up to 25,000 shares of the Company's Common Stock
upon closing of the Offering. The balance of the net proceeds will be used for
future expansion and acquisitions, originating loans reflecting an increase in
the Bank's legal lending limit, working capital and general corporate purposes
including the payment of dividends.

With respect to future acquisitions, the Company is regularly reviewing
potential acquisitions, although it has no current agreements, understandings or
commitments with respect to any material transactions. The foregoing represents
the Company's estimate of the allocation of the net proceeds of

11
<PAGE>
this Offering based upon the current status of its business operations, its
current plans and current economic conditions. Future events, as well as changes
in competitive conditions affecting the Company's business, may make shifts in
the allocation of funds necessary or desirable. A change in the use of proceeds
or timing of such use will be at the Company's discretion. Pending longer-term
deployment of the net proceeds from this Offering, it is expected that the net
proceeds will be used to make short-term loans or invested in short-term,
investment-grade, interest bearing securities. See "Risk Factors -- Use of
Proceeds."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock has been traded in the over-the-counter market,
on the OTC Bulletin Board. Trading in the Company's Common Stock has been
limited and sporadic. Average monthly trading volume was 4,900 shares in 1994,
21,175 shares in 1995 and 7,550 shares for the period from January 1, 1996 to
June 28, 1996. The Common Stock has been approved for quotation on the
NASDAQ/NMS under the symbol "AANB." Although the Company believes that liquidity
in the Common Stock will increase after the Offering, no assurance can be given
that a more active trading market for the Common Stock will develop or that
shares can be resold, if at all, at a price in excess of the public offering
price.

The most recent trade of the Common Stock, as reported by Ferris, Baker
Watts, Incorporated, was at $8.83 per share on June 27, 1996 for 900 shares of
Common Stock. This price is not necessarily indicative of the current market
price of the Common Stock. Based upon information provided by the National
Quotation Bureau, the bid prices for the Common Stock ranged from $3.83 to $5.00
during 1994, from $5.00 to $8.17 during 1995, and from $7.83 to $8.33 for the
period from January 1, 1996 through June 28, 1996. On June 28, 1996, the closing
bid and asked prices for the Common Stock, as reported by the National Quotation
Bureau, were $8.33 and $9.33, respectively.

The foregoing price and volume information has been adjusted to give effect
to the issuance by the Company of a three-for-one stock split in the form of a
stock dividend of two shares of Common Stock for each share issued and
outstanding. These prices reflect inter-dealer prices and do not include retail
mark-ups, mark-downs or commissions and may not have represented actual
transactions or the actual fair market value of the Common Stock at the time of
such transaction due to the infrequency of trades and the limited market for the
Common Stock.

During 1995, the Company declared two $.083 cash dividends on the Common
Stock for a total of $142,422. For the first quarter of 1996, the Company
declared a $.083 cash dividend, paid in April 1996. For the second quarter of
1996, the Company declared a $.083 cash dividend, which will be paid to
stockholders of record as of July 8, 1996. Investors in this Offering will not
be entitled to receive the second quarter dividend. The Board of Directors has
adopted a policy pursuant to which the Board will consider the payment of a
dividend each quarter, giving due regard to numerous factors, including, but not
limited to, sufficiency of regulatory capital, applicable laws, investment
opportunities and general economic conditions. The Board is not obligated to
declare a dividend of any minimum amount or to declare a dividend at all. The
Company's ability to pay cash dividends is limited by the provisions of Delaware
law, which permit the payment of dividends from either surplus or retained
earnings. In addition, the ability of the Company to pay a cash dividend depends
on the Bank's ability to pay a cash dividend to the Company. The National Bank
Act imposes limitations on the amount of dividends that a national bank, such as
the Bank, may pay without prior regulatory approval. Generally, the amount is
limited to the Bank's current year's net earnings plus the retained net earnings
for the two preceding years. Notwithstanding these limitations, the Company
intends to retain a portion of the net proceeds of the Offering for working
capital and possible future dividends.

As of May 10, 1996, 854,532 shares of Common Stock were outstanding, held by
578 stockholders of record.

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1996, and as adjusted to give effect to the receipt by the Company of
proceeds from the sale of the 670,000 shares of Common Stock offered hereby at
an estimated offering price of $9.00 per share and the sale by the Company of
25,000 shares to the ESOP at an estimated price of $9.00 per share. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996(1)
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------- --------------
Long-term portion of capital note (2).............................................. $ 167,625 $ 167,625
Stockholders' equity:
Common Stock, $.01 par value; 5,000,000 shares authorized; 859,212 shares issued;
854,532 shares outstanding; 1,554,212 shares issued as adjusted; 1,549,532
shares outstanding as adjusted (3).............................................. 8,592 15,542
Additional paid-in capital......................................................... 6,147,421 11,943,221
ESOP shares........................................................................ -- (225,000)
Retained earnings.................................................................. 698,652 698,652
Less: Treasury stock............................................................... (28,710) (28,710)
Less: Unrealized loss on securities, net of taxes.................................. (36,670) (36,670)
------------- --------------
Total stockholders' equity......................................................... 6,789,285 12,367,035
------------- --------------
Total capitalization............................................................... $ 6,956,910 $ 12,534,660
------------- --------------
------------- --------------
Book value per share............................................................... $ 7.95 $ 7.98
------------- --------------
------------- --------------
</TABLE>

- ------------------------
(1) Gives effect to (i) the proposed amendment of the Company's Certificate of
Incorporation to increase the authorized shares of Common Stock from 800,000
to 5,000,000 and reduce the par value of the Common Stock from $10.00 to
$.01 per share, and (ii) the issuance of a three-for-one stock split in the
form of a stock dividend. The information in this table assumes that these
corporate actions occurred as of March 31, 1996.

(2) The total outstanding principal amount of the capital note was repaid in
full on May 21, 1996.

(3) Does not include 91,416 shares issuable upon exercise of stock options
granted under the Company's stock option plans and a non-qualified stock
option agreement. See "Management -- Executive Compensation."

13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following Selected Consolidated Financial Data for, and as of the end
of, each of the years in the four year period ended December 31, 1995 are
derived from the audited consolidated financial statements of the Company. The
following selected interim consolidated data for, and as of the end of, the
three month periods ended March 31, 1996 and 1995 have been derived from
unaudited financial statements of the Company, which, in the opinion of
Management, have been prepared on the same basis as the audited Consolidated
Financial Statements included herein, and reflect all adjustments, which are of
a normal recurring nature, necessary for a fair presentation of such data. The
results of the interim periods are not necessarily indicative of the results of
a full year. The Selected Consolidated Financial Data set forth below give
effect to a three-for-one stock split in the form of a stock dividend, which
will take place prior to the Offering, and should be read in conjunction with,
and are qualified by reference to, the Consolidated Financial Statements of the
Company and the Notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

PER SHARE DATA: (3)
Income (loss) before extraordinary
item.................................... $ 0.28 $ 0.22 $ 1.12 $ (0.22) $ 0.72 $ 0.45
Extraordinary item....................... -- -- -- -- -- 0.25
---------- ---------- ---------- ----------- ---------- ----------
Net income (loss) (2).................... $ 0.28 $ 0.22 $ 1.12 $ (0.22) $ 0.72 $ 0.70
---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ----------
Weighted average number of common shares
and common share equivalents............ 860,940 854,532 854,532 854,532 854,532 854,532
Book value (4)........................... $ 7.95 $ 6.98 $ 7.75 $ 6.74 $ 7.05 $ 6.34
Dividends................................ 0.083 -- 0.167 -- -- --
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE THREE
MONTHS ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ----------- ---------- ----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks.................. $ 4,478 $ 4,073 $ 4,953 $ 4,349 $ 3,718 $ 5,109
Short-term investments................... 11,337 4,466 9,962 1,791 4,791 396
Securities available for sale............ 4,998 5,521 5,508 6,009 11,005 7,604
Investment securities.................... 7,564 8,911 8,193 9,081 5,006 10,992
Loans held for sale...................... -- -- -- -- 128 --
Loans.................................... 60,215 58,920 63,592 60,729 54,750 43,459
Allowance for loan losses................ (1,262) (1,290) (1,274) (1,289) (1,386) (1,320)
Bank premises and equipment.............. 287 343 278 369 339 435
Other real estate........................ -- -- -- -- 728 733
Other assets............................. 1,272 1,286 1,153 1,221 1,031 1,296
---------- ---------- ---------- ----------- ---------- ----------
Total assets........................... $ 88,889 $ 82,230 $ 92,365 $ 82,260 $ 80,110 $ 68,704
---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ----------
Noninterest-bearing deposits............. $ 20,572 $ 16,798 $ 23,444 $ 19,677 $ 17,193 $ 15,796
Interest-bearing deposits................ 58,240 58,118 59,619 55,616 55,263 45,051
---------- ---------- ---------- ----------- ---------- ----------
Total deposits........................... 78,812 74,916 83,063 75,293 72,456 60,847
Short-term borrowings.................... 2,233 548 1,786 361 195 1,595
Long-term debt -- capital note........... 168 261 186 261 317 355
Other liabilities........................ 887 542 711 583 1,115 491
---------- ---------- ---------- ----------- ---------- ----------
Total liabilities...................... 82,100 76,267 85,746 76,498 74,083 63,288
Stockholders'equity...................... 6,789 5,963 6,619 5,762 6,027 5,416
---------- ---------- ---------- ----------- ---------- ----------
Total liabilities and stockholders'
equity................................ $ 88,889 $ 82,230 $ 92,365 $ 82,260 $ 80,110 $ 68,704
---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ----------
SELECTED PERFORMANCE RATIOS: (5)(6)
Return on average assets................. 1.09% 0.92% 1.17% (.22)% .84% .83%
Return on average stockholders' equity... 14.23 12.71 15.53 (3.15) 10.83 11.90
Net interest margin (7).................. 5.35 5.39 5.39 5.42 5.89 5.33
Dividend payout ratio.................... 29.92 -- 14.85 -- -- --
CONSOLIDATED CAPITAL RATIOS:
Tier 1 risk-based........................ 10.16% 9.79% 9.77% 9.40% 10.32% 11.61%
Total risk-based......................... 11.46 11.15 11.06 10.76 11.78 13.25
Leverage (8)............................. 7.78 7.41 8.09 7.13 8.26 7.51
</TABLE>

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

(2) Excluding the effect of Noninterest expense-Other, and after giving effect
to available tax benefits, net income and net income per share would have
been as follows, for the respective periods indicated below. Dollars are in
thousands except per share data.

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992
------------- ------------- ------------- ------------- ----------- -------------
Historical net income (loss).......... $ 238 $ 184 $ 959 $ (184) $ 611 $ 602
Noninterest expense -- other.......... -- 23 102 1,046 534 137
Tax expense adjustment................ -- (40) (263) (334) -- --
----- ----- ----- ----- ----------- -----
Net income, as adjusted............... $ 238 $ 167 $ 798 $ 528 $ 1,145 $ 739
----- ----- ----- ----- ----------- -----
----- ----- ----- ----- ----------- -----
Net income per share.................. $ 0.28 $ 0.20 $ 0.93 $ 0.62 $ 1.34 $ 0.86
----- ----- ----- ----- ----------- -----
----- ----- ----- ----- ----------- -----
</TABLE>

(3) All Per Share Data reflects the three-for-one stock split, in the form of a
stock dividend, which will take place prior to the date of the Offering.

(4) All book value per share numbers are based on the number of shares
outstanding at period end.

(5) Excluding the effect of Noninterest expense-Other, and after giving effect
to available tax benefits, Selected Performance Ratios would have been as
follows, for the respective periods indicated below:

(6) The Selected Performance Ratios for March 31, 1996 and 1995 are computed on
an annualized basis.

(7) No taxable equivalent adjustments are necessary because the Company had no
tax-exempt securities or loans.

(8) Based on annual average assets.

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The year ended December 31, 1995 represented the Company's most successful
year. The Company reported record net income of $959,000, and assets increased
by $10,105,000 to $92,365,000, in 1995. For the three month period ended March
31, 1996, the Company had net income of $238,000, reflecting a 29% increase over
the $184,000 net income recorded for the comparable period in 1995.

The Company continues to maintain a "well capitalized" status with a total
risk-based capital ratio (total capital divided by assets weighted for risk
elements) of 11.46% and 11.06% at March 31, 1996 and December 31, 1995,
respectively. Of these ratios, Tier 1 capital at March 31, 1996 and December 31,
1995 represents 10.16% and 9.77%, respectively, while the leverage ratio (based
on annual average assets) is 7.78% and 8.09%, respectively.

The Company reported a net loss of $184,000 for the year ended December 31,
1994, due to legal and related expenses not incurred in connection with core
banking operations. These costs were incurred in the defense and settlement of
certain employment related lawsuits, the expensing of previously deferred
professional fees related to the Company's proposed 1994 securities offering and
professional fees incurred in connection with the issue of ownership of certain
shares of the Company's Common Stock. See "Other Expense." If these items
totaling $1,046,000 in 1994 are excluded, the Company would have been profitable
with net income after taxes of $714,000. The $714,000 adjusted net income for
1994 assumes that the valuation allowance on deferred tax assets was utilized in
1994 instead of 1995 thus resulting in a lower income tax expense for 1994. Had
this actually been the case, net income for 1995 would not have utilized the
valuation allowance on deferred tax assets and net income for 1995, adjusted for
$102,000 in costs incurred during the year to finalize the ownership issues,
would have been $805,000, reflecting an increase of 13% over 1994's adjusted net
income of $714,000. The Company also incurred legal and related expenses not in
connection with its core banking operations of $534,000 in 1993 and $137,000 in
1992, relating to the defense and settlement of employment related lawsuits.
Despite these expenses, the Company remained profitable in those years but as a
result of available tax benefits, did not record an income tax provision. Had
these expenses not been incurred in 1993 and 1992, the Company would have fully
utilized its available tax benefits on an accelerated basis and by 1994 would
have been required to record a greater tax expense, of $186,000, resulting in
adjusted net income of $528,000 as compared to the $714,000 referred to above.
If these legal and related expenses not incurred in connection with core banking
operations, referred to above, were excluded from each year's net income
beginning in 1992 and the related tax benefits are assumed to be utilized at the
earliest available date, net income would have been $798,000 and $528,000 in
1995 and 1994, respectively.

The following analysis of financial condition and results of operations
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto, appearing elsewhere in this Prospectus.

16
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
YIELDS AND RATES
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1995,
1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
THREE MONTHS ENDED MARCH 31, 1996
1995
------------------------------------ ------------------------------------
AVERAGE INCOME AVERAGE INCOME
BALANCE EXPENSE AVERAGE RATE BALANCE EXPENSE AVERAGE RATE
--------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1)........................................ $ 60,960 $ 1,509 9.96% $ 60,318 $ 5,902 9.78%
Securities....................................... 12,612 182 5.80 14,367 859 5.98
Federal funds sold and resale agreements......... 8,103 109 5.41 2,235 130 5.82
Bankers' acceptances............................. -- -- -- -- -- --
Interest-bearing deposits in other banks......... 488 7 5.77 433 23 5.31
--------- ----------- --------- -----------
Total interest-earning assets.................. 82,163 1,807 8.85 77,353 6,914 8.94
Allowance for loan losses.......................... (1,273) (1,299)
Cash and due from banks............................ 5,337 4,715
Bank premises and equipment........................ 274 320
Other assets....................................... 1,181 1,205
--------- ---------
Total assets................................... $ 87,682 $ 82,294
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Time deposits.................................... $ 27,787 272 3.94 $ 27,740 1,094 3.94
Certificates of deposit.......................... 28,440 410 5.80 27,300 1,544 5.66
Federal funds purchased and repurchase
agreements...................................... 2,244 29 5.20 1,600 89 5.56
Other short term borrowings...................... -- -- -- 104 6 5.77
Long-term debt................................... 186 3 6.49 233 14 6.01
--------- ----------- --------- -----------
Total interest-bearing liabilities............. 58,657 714 4.90 56,977 2,747 4.82
----------- -----------
Non interest-bearing liabilities:
Demand deposits.................................. 21,546 18,547
Other liabilities................................ 752 594
Stockholders' equity............................... 6,727 6,176
--------- ---------
Total liabilities and stockholders' equity..... $ 87,682 $ 82,294
--------- ---------
--------- ---------
Net interest income (2)............................ $ 1,093 $ 4,167
----------- -----------
----------- -----------
Net interest spread................................ 3.95% 4.12%
--- ---
--- ---
Net interest margin................................ 5.35% 5.39%
--- ---
--- ---

1994 1993
------------------------------------ ------------------------------------

AVERAGE INCOME AVERAGE INCOME
BALANCE EXPENSE AVERAGE RATE BALANCE EXPENSE AVERAGE RATE

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

<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1)........................................ $ 58,245 $ 5,100 8.76% $ 47,903 $ 4,412 9.21%

Securities....................................... 15,609 876 5.61 16,540 989 5.98

Federal funds sold and resale agreements......... 2,246 88 3.92 2,598 83 3.19

Bankers' acceptances............................. -- -- -- 528 17 3.22

Interest-bearing deposits in other banks......... 491 18 3.67 406 12 2.96

--------- ----------- --------- -----------
Total interest-earning assets.................. 76,591 6,082 7.94 67,975 5,513 8.11

Allowance for loan losses.......................... (1,351) (1,404)
Cash and due from banks............................ 4,951 4,299
Bank premises and equipment........................ 364 396
Other assets....................................... 1,394 1,728
--------- ---------
Total assets................................... $ 81,949 $ 72,994
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Time deposits.................................... $ 28,556 839 2.94 $ 26,848 708 2.64

Certificates of deposit.......................... 25,798 1,017 3.94 23,351 763 3.27

Federal funds purchased and repurchase
agreements...................................... 1,549 57 3.68 465 17 3.66

Other short term borrowings...................... 61 3 4.92 -- -- --

Long-term debt................................... 299 18 6.02 340 20 5.88

--------- ----------- --------- -----------
Total interest-bearing liabilities............. 56,263 1,934 3.44 51,004 1,508 2.96

----------- -----------
Non interest-bearing liabilities:
Demand deposits.................................. 18,877 15,687
Other liabilities................................ 966 660
Stockholders' equity............................... 5,843 5,643
--------- ---------
Total liabilities and stockholders' equity..... $ 81,949 $ 72,994
--------- ---------
--------- ---------
Net interest income (2)............................ $ 4,148 $ 4,005
----------- -----------
----------- -----------
Net interest spread................................ 4.50% 5.15%

--- ---

Net interest margin................................ 5.42% 5.89%

--- ---

</TABLE>

- ------------------------------
(1) Nonaccrual loans are included in the average loan balances. Interest on
loans includes fees of approximately $40,000, $152,000, $151,000 and
$151,000 for March 31, 1996, December 31, 1995, 1994 and 1993,
respectively.

(2) No taxable equivalent adjustments are necessary because the Company had no
tax-exempt securities or loans during 1996, 1995, 1994 and 1993.

17
<PAGE>
ANALYSIS OF NET INTEREST INCOME

Net interest income, the most significant component of the Company's
earnings, increased by $80,000, or 8%, to $1,093,000 for the first three months
of 1996 as compared to $1,014,000 for the comparable 1995 period. Average
earning assets for the first quarter of 1996 of $82,163,000 increased by
$5,881,000, or 8%, over the comparable 1995 period. Increased net interest
income resulting from a 30% increase in demand deposit accounts for the first
quarter of 1996 as compared to 1995 more than offset the effects of a decline in
the average loan to deposit ratio of 78% for the first quarter of 1996 from 82%
for the comparable prior year period, as well as an increased cost of deposits.
These factors combined to produce a net interest spread (the difference between
the average interest rate earned on interest-earning assets and paid on
interest-bearing liabilities) of 3.95% and a net interest margin (net interest
income as a percentage of average interest-earning assets) of 5.35% for the
first quarter of 1996, reflecting decreases of 36 basis points and 4 basis
points, respectively, from the first quarter of 1995.

Net interest income increased by $19,000, or less than 1%, to $4,167,000 in
1995 as compared to $4,148,000 in 1994. This variance is consistent with the 1%
increase in average earning assets during the same period. Although the mix of
earning assets during 1995 was more heavily weighted towards loans, thus
improving interest income, a 138 basis point increase in rates paid on deposits
for 1995 as compared to 1994 offset virtually all the positive variances
achieved in interest income.

Although the net interest spread decreased by 38 basis points from 4.50% in
1994 to 4.12% in 1995, a $762,000 increase in the level of earning assets
coupled with improvements in the mix of earning assets during the same period
caused net interest income to increase by $19,000. The net interest margin for
1995 declined to 5.39% from 5.42% for 1994. Loans, the highest yielding
component of earning assets, represented approximately 78% of total average
earning assets for 1995 as compared to approximately 76% for 1994.

Net interest income, increased by $143,000, or 4%, to $4,148,000 in 1994 as
compared to $4,005,000 in 1993. This positive variance is a direct result of
both the $8,616,000, or 13%, increase in average earning assets from 1993 to
1994 and the Company's efforts to realign its earning assets to maximize yield.
The increase in net interest income occurred despite an increase in the average
rate paid on interest-bearing liabilities and a decrease in the average rate
earned on interest-earning assets. As illustrated in the table entitled
"Distribution of Assets, Liabilities and Stockholders' Equity; Yields and
Rates," the rate paid on interest-bearing liabilities increased by 48 basis
points to 3.44%, while the yield on earning assets declined by 17 basis points
to 7.94% in 1994 as compared to 1993. A significant contributor to the decline
in earning asset yields was a more competitive loan pricing strategy implemented
during 1994, resulting in 22% average loan growth as compared to 1993. In
addition, during 1993, the Company recognized as interest income approximately
$125,000 in purchase discounts on the payoff of a portion of the loans purchased
from the FDIC. When this interest income is excluded from 1993, the yield on
earning assets for 1993 would have been 7.93% as compared to 7.94% for 1994.

Although the net interest spread decreased by 65 basis points from 5.15% in
1993 to 4.50% in 1994, an $8,616,000 increase in the level of earning assets
coupled with a lesser increase in the level of interest-bearing liabilities of
$5,259,000 caused net interest income to increase. Despite the improvement in
the mix of earning assets away from securities and short-term investments and
towards loans and the increase in net noninterest-bearing sources of funds, the
net interest margin for 1994 declined to 5.42% from 5.89% for 1993. Loans in
1994 represented approximately 76% of total average earning assets as compared
to approximately 70% for the comparable 1993 period.

18
<PAGE>
INTEREST RATES AND INTEREST DIFFERENTIAL
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 VERSUS
THREE MONTHS ENDED 1994 VERSUS
MARCH 31, 1995 1995 VERSUS 1994 1993
------------------------------------------- --------------------------------------- ---------------
CHANGE PER: CHANGE PER:
NET INCREASE ------------------------ NET INCREASE ---------------------- NET INCREASE
(DECREASE) (1) RATE VOLUME (DECREASE) (1) RATE VOLUME (DECREASE) (1)
----------------- ----- ----------- --------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income from:
Loans (2)................ $ 91 $ 57 $ 34 $ 802 $ 620 $ 182 $ 688
Securities............... (46) (11) (35) (17) 53 (70) (113)
Federal funds sold and
securities purchased
under agreements to
resell.................. 90 (4) 94 42 43 (1) 5
Bankers acceptances...... -- -- -- -- -- -- (17)
Interest-bearing deposits
in banks................ 1 1 -- 5 7 (2) 6
--- --- --- ----- --------- ----- ------
Total interest
income (3)............ 136 43 93 832 723 109 569
Interest expense on:
Time deposits (4)........ (12) 3 (15) 255 279 (24) 131
Certificates of
deposit................. 73 48 25 527 468 59 254
Short-term borrowings.... (3) (4) 1 35 32 3 43
Long-term borrowings..... (1) -- (1) (4) -- (4) (2)
--- --- --- ----- --------- ----- ------
Total interest
expense............... 57 47 10 813 779 34 426
--- --- --- ----- --------- ----- ------
Net interest
income (3)............ $ 79 $ (4) $ 83 $ 19 $ (56) $ 75 $ 143
--- --- --- ----- --------- ----- ------
--- --- --- ----- --------- ----- ------

CHANGE PER:
----------------------
RATE VOLUME
--------- -----------
<S> <C> <C>
Interest income from:
Loans (2)................ $ (265) $ 953
Securities............... (57) (56)
Federal funds sold and
securities purchased
under agreements to
resell.................. 16 (11)
Bankers acceptances...... -- (17)
Interest-bearing deposits
in banks................ 3 3
--------- -----
Total interest
income (3)............ (303) 872
Interest expense on:
Time deposits (4)........ 86 45
Certificates of
deposit................. 174 80
Short-term borrowings.... 1 42
Long-term borrowings..... -- (2)
--------- -----
Total interest
expense............... 261 165
--------- -----
Net interest
income (3)............ $ (564) $ 707
--------- -----
--------- -----
</TABLE>

- ------------------------------
(1) Changes due to both rate and volume are allocated to rate.

(2) Interest on loans includes loan fees of approximately $40,000, $42,000,
$152,000, $151,000 and $151,000 for the periods ended March 31, 1996 and
1995, December 31, 1995, 1994 and 1993, respectively.

(3) No taxable equivalent adjustments are necessary because the Company had no
tax-exempt securities or loans during 1996, 1995, 1994 and 1993.

(4) Includes transaction accounts.

OTHER INCOME

Total other income, which consists primarily of service charges on deposits
and other fee income, decreased by approximately $7,000, or 4%, to $184,000 for
the first three months of 1996 as compared to the comparable 1995 period due to
modest decreases in overdraft activity as well as decreases in ATM income.

Total other income increased by $51,000, or 6%, to $841,000 in 1995 as
compared to $790,000 in 1994. This increase is due to increases in ATM income
resulting from the installation of more efficient ATM equipment in the Company's
Union Station location, as well as the full year's effect of the addition of one
new ATM at that location in April 1994.

Total other income decreased by $95,000, or 11%, to $790,000 in 1994 as
compared to $885,000 in 1993, due in part to a decrease in gains on securities
transactions during 1994. During 1994, one security was sold for liquidity
purposes resulting in a nominal loss. This compares with the sale of one
security from the held for sale portfolio resulting in a gain in 1993 of
$24,000.

OTHER EXPENSE

Total other expense decreased by $50,000, or 5%, to $901,000 for the first
three months of 1996 as compared to the comparable 1995 period. Salaries and
benefits of $432,000 for the first quarter of 1996 increased by $18,000, or 4%,
over the first quarter of 1995, due primarily to normal merit

19
<PAGE>
increases. Net occupancy expense of $172,000 for the first three months of 1996
reflects a decrease of $14,000, or 7%, from one year earlier, due primarily to
decreases in rental operating costs and depreciation expense. Professional fees
of $43,000 for the first three months of 1996 declined by $49,000 from one year
earlier due primarily to lower legal fees associated with loan and other
corporate matters. Data processing expense of $87,000 for the first quarter of
1996 increased by $22,000, or 34%, over the prior year as a result of increased
activity levels and item charges as well as the introduction of new electronic
services. Other operating expense of $168,000 for the first three months of 1996
reflects a decrease of $26,000, or 13%, over the prior year due primarily to
decreased FDIC deposit insurance premiums.

Total other expense decreased by $1,120,000, or 23%, to $3,781,000 in 1995
as compared to 1994. Salaries and benefits for 1995 increased by $38,000, or 2%,
to $1,649,000 as compared to 1994, primarily due to normal merit increases.
Occupancy and equipment expense decreased by $52,000, or 7%, to $699,000 during
the same period, principally due to decreases in operating costs of the
Company's main office location which are passed through to the Company by the
landlord. Professional fees decreased by $534,000, or 60%, to $353,000. This
decrease is attributable to decreases in legal and other costs related to the
issue of the ownership of certain shares of the Company's Common Stock, the
expensing in 1994 of previously deferred professional fees related to the
Company's proposed 1994 securities offering, and decreases in legal fees related
to three employment related lawsuits which were concluded in 1994. Professional
fees for 1995 include costs of approximately $102,000 incurred to finalize the
issues surrounding the ownership of certain shares of the Company's Common
Stock. See "Beneficial Ownership of Shares" for a further discussion of issues
relating to the Company's ownership. Data processing expense increased by
$34,000, or 13%, to $300,000 in 1995 as compared to 1994. Other operating
expense decreased by $605,000 in 1995 as compared to 1994. Of this decrease,
$387,000 is attributable to expenses incurred in 1994 for two employment related
lawsuits settled in 1994. During 1995, the Bank also experienced an $87,000
decrease in total FDIC insurance premiums as a result of premium rate
reductions. The remainder of the decrease is due to savings in various office
operating expenses.

Total other expense increased by $797,000, or 19%, to $4,901,000 in 1994 as
compared to 1993. Salaries and benefits for 1994 increased by $47,000, or 3%, to
$1,611,000 as compared to 1993, primarily due to normal merit increases.
Occupancy and equipment expense increased by $76,000, or 11%, to $750,000 during
the same period, principally due to increases in depreciation and amortization
expense on the new ATM equipment installed during 1994 coupled with increases in
operating costs of the Company's main office location. Professional fees
increased by $406,000, or 85%, to $887,000. Of this amount $645,000 is
attributable to legal fees related to three employment related lawsuits which
were concluded in 1994, legal and other costs related to the issue of the
ownership of certain shares of the Company's Common Stock and the expensing of
previously deferred professional fees related to the Company's proposed 1994
securities offering. Data processing expense increased by $22,000, or 9%, to
$266,000 in 1994 as compared to 1993. Other operating expense increased by
$246,000 in 1994 as compared to 1993. This increase is primarily attributable to
a $387,000 expense for two employment related lawsuits settled in 1994 as
compared to a $250,000 expense for a judgment for damages and a reserve for
legal fees associated with another employment related lawsuit in 1993. All three
of these employment suits were concluded during 1994 with no further amounts
owed. During 1994, the Bank also experienced an increase in total FDIC insurance
premiums due to increased deposit levels.

INCOME TAX EXPENSE

Income tax expense of $138,000 for the first three months of 1996 reflects
an increase of $69,000 over the $70,000 income tax expense recorded one year
earlier due to an increase in the Company's effective tax rate to 37% from 27%
for the first quarter of 1995. During 1995, the Company reduced to zero its
remaining valuation allowance on deferred tax assets causing a lower effective
tax rate.

20
<PAGE>
Income tax expense for the full year 1995 was recorded at a combined tax
rate of 22%, as the Company eliminated the remaining valuation allowance on
deferred tax assets during the year. See Note 8 of the Notes to Consolidated
Financial Statements.

There was no income tax expense recorded for 1994, as the Company reported a
loss for the year and under the criteria specified by generally accepted
accounting principles was not permitted to record a net tax benefit. See Note 8
of the Notes to Consolidated Financial Statements. There was no income tax
expense recorded for 1993, as the Company utilized its available net operating
loss carryforward.

ANALYSIS OF LOANS

The loan portfolio at March 31, 1996 of $60,215,000 decreased by $3,377,000,
or approximately 5%, as compared to the December 31, 1995 balance of $63,592,000
primarily due to normal fluctuations in the outstanding balance of commercial
loans issued under lines of credit. Loans outstanding on commercial lines of
credit were approximately 36% of the total committed line amount at March 31,
1996 as compared to 52% at December 31, 1995. New loans, exclusive of short-term
loans and lines of credit, of $1,508,000 were originated in the first quarter of
1996, however, loan principal payments of $1,376,000 offset the majority of this
increase. The loan to deposit ratio at March 31, 1996 was 76% as compared to 77%
at December 31, 1995. On average, the loan to deposit ratio for the first
quarter of 1996 was 78%.

The loan portfolio at December 31, 1995 increased by $2,863,000, or 5%, to
$63,592,000 from $60,729,000 reflected at December 31, 1994. The majority of
this growth was in commercial and residential real estate mortgages. On average,
the Company's loans increased by $2,073,000, or 4%, to $60,318,000 for 1995 from
$58,245,000 for 1994. As a result of this loan growth, the average loan to
deposit ratio increased to 82% in 1995 from 80% in 1994 and 73% in 1993. The
loan to deposit ratio at December 31, 1995 was 77% as compared to 81% at
December 31, 1994 and 76% at December 31, 1993. The Company has a target loan to
deposit ratio of 80% based on quarterly averages. See "Liquidity and Capital
Resources" for a further discussion of this ratio.

ANALYSIS OF LOANS BY CATEGORY
AT MARCH 31, 1996 AND DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Commercial and industrial...................................................... $ 41,377 $ 43,547 $ 42,961
Real estate -- mortgages....................................................... 15,302 14,151 11,074
Real estate -- construction and development.................................... 914 2,618 3,237
Installment to individuals..................................................... 2,978 3,652 3,816
----------- --------- ---------
60,571 63,968 61,088
Less: Deferred income and unearned discounts................................... (356) (376) (359)
----------- --------- ---------
Total........................................................................ $ 60,215 $ 63,592 $ 60,729
----------- --------- ---------
----------- --------- ---------
</TABLE>

21
<PAGE>
ANALYSIS OF LOAN MATURITY AND INTEREST SENSITIVITY
AT MARCH 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------------------------------------- ---------------------------------
WITHIN 1 1 - 5 AFTER WITHIN 1 1 - 5 AFTER
YEAR (1) YEARS 5 YEARS TOTAL YEAR (1) YEARS 5 YEARS
----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturity of Loans (2)(3):
Commercial............................. $ 13,374 $ 21,323 $ 6,680 $ 41,377 $ 15,311 $ 21,881 $ 6,355
Real estate -- mortgage................ 2,398 8,512 4,392 15,302 1,615 8,335 4,201
Real estate -- construction............ 712 37 165 914 1,591 340 687
Installment............................ 778 1,277 923 2,978 1,013 1,690 949
----------- --------- --------- --------- ----------- --------- ---------
Total loans (4)...................... $ 17,262 $ 31,149 $ 12,160 $ 60,571 $ 19,530 $ 32,246 $ 12,192
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Interest Rate Sensitivity of Loans:
With predetermined interest rates...... $ 3,594 $ 8,485 $ 837 $ 12,916 $ 3,520 $ 8,791 $ 780
With floating or adjustable interest
rates................................. 13,668 22,664 11,323 47,655 16,010 23,455 11,412
----------- --------- --------- --------- ----------- --------- ---------
Total loans (4)...................... $ 17,262 $ 31,149 $ 12,160 $ 60,571 $ 19,530 $ 32,246 $ 12,192
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------

TOTAL
---------
<S> <C>
Maturity of Loans (2)(3):
Commercial............................. $ 43,547
Real estate -- mortgage................ 14,151
Real estate -- construction............ 2,618
Installment............................ 3,652
---------
Total loans (4)...................... $ 63,968
---------
---------
Interest Rate Sensitivity of Loans:
With predetermined interest rates...... $ 13,091
With floating or adjustable interest
rates................................. 50,877
---------
Total loans (4)...................... $ 63,968
---------
---------
</TABLE>

- ------------------------------
(1) Includes demand loans, loans having no stated schedule of repayment and no
stated maturity, and overdrafts.

(2) Loan maturity is based upon individual loan contract terms. The Company has
not established a rollover policy. Each loan is reviewed on a case by case
basis with respect to renewal.

(3) The Company has no foreign loans.

(4) The above table does not include deferred income and unearned discounts
which total a credit balance of $355,873 and $375,344 at March 31, 1996 and
December 31, 1995, respectively.

ANALYSIS OF LOAN CONCENTRATIONS BY INDUSTRY
AT MARCH 31, 1996 AND DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Service industry.................................................................... 35% 38% 34%
Real estate development/finance..................................................... 33 32 32
Wholesale/retail.................................................................... 22 21 21
Other............................................................................... 10 9 13
--- --- ---
Total............................................................................. 100% 100% 100%
--- --- ---
--- --- ---
</TABLE>

ANALYSIS OF INVESTMENTS

The Company classifies its debt and marketable equity securities into one of
three categories: trading, available for sale, or held to maturity. See Note
1(c) of the Notes to Consolidated Financial Statements. The available for sale
portfolio exists to maintain adequate liquidity and to provide a base for
executing asset/liability management strategy. These securities may be sold in
response to changes in interest rates, restructuring of maturity distributions,
need for additional funds for loans, tax planning and regulatory needs, as well
as for other purposes. The value of securities recorded as available for sale
fluctuates based on changes in interest rates. Generally, an increase in
interest rates will result in a decline in the value of securities available for
sale, while a decline in interest rates will result in an increase in the value
of such securities. Therefore, the value of securities available for sale and
the Company's stockholders' equity is subject to fluctuation based on changes in
interest rates.

Securities available for sale totaling $2,000,000 matured during the first
three months of 1996 as compared to purchases of $1,500,000 during the same
period. These securities transactions coupled with scheduled amortization and
accretion for the first quarter accounted for the $510,000 decrease in

22
<PAGE>

the available for sale portfolio to $4,998,000 at March 31, 1996 as compared to
$5,508,000 at December 31, 1995. Maturities totaling $1,650,000 in the
investment portfolio coupled with normal pay downs on mortgage-backed and other
amortizing securities, and offset by $1,024,000 in new purchases, accounted for
the $629,000 decrease in investment securities to $7,564,000 at March 31, 1996
as compared to $8,193,000 at December 31, 1995.

Investment securities and securities available for sale at December 31, 1995
totaled $13,701,000, a decrease of $1,389,000, or 9%, from one year earlier, due
principally to maturities and scheduled repayments. Of the $13,701,000
outstanding at December 31, 1995, $5,508,000 was segregated in the available for
sale portfolio, with the remainder classified as held to maturity investments.
The $5,508,000 available for sale portfolio at December 31, 1995 decreased by
$501,000 from $6,009,000 reported one year earlier. The investment (held to
maturity) portfolio at December 31, 1995 of $8,193,000 decreased by $888,000
from $9,081,000 reported at December 31, 1994. Although no securities were sold,
scheduled maturities and repayments in both the available for sale and held to
maturity portfolios were used to fund increases in the loan portfolio. See
"Liquidity and Capital Resources" for a further analysis of liquidity. On
average for 1995, the combined investment and available for sale securities
portfolio of $14,367,000 decreased by $1,242,000, or 8%, from $15,609,000 for
1994.

Based on an evaluation of the existing and projected liquidity needs of the
Company, during the second quarter of 1994, the Company reclassified $3,500,000
in securities previously classified as available for sale to the held to
maturity portfolio, resulting in an unrealized loss, net of taxes, on the date
of transfer of approximately $86,000. This unrealized loss is recorded in equity
and amortized as a yield adjustment over the remaining terms of the reclassified
securities. This amortization of approximately $39,000, net of taxes as of
December 31, 1995, coupled with unrealized gains in the remaining available for
sale portfolio of $7,000, net of taxes, brought the equity balance of unrealized
loss on securities to $40,000, at December 31, 1995.

23
<PAGE>
ANALYSIS OF SECURITIES PORTFOLIO
AT MARCH 31, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER
31, 1995
MARCH 31, 1996 -----------
------------------------------------------------------------------------------
SECURITIES AVAILABLE INVESTMENT
INVESTMENT SECURITIES FOR SALE SECURITIES
-------------------------------------- -------------------------------------- -----------
ADJUSTED ADJUSTED ADJUSTED
COST MARKET AVERAGE COST MARKET AVERAGE COST
BASIS (1) VALUE YIELD BASIS (1) VALUE YIELD BASIS (1)
----------- ----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury:
Within one year............ $ 500 $ 501 6.02% $ 1,500 $ 1,503 5.87% $ 1,499
----------- ----------- ----------- ----------- -----------
Obligations of other U.S.
Government agencies and
corporations (2):
Within one year............ 2,304 2,309 6.05 2,501 2,499 5.25 1,006
After one, but within five
years..................... 3,939 3,982 6.08 1,000 996 5.56 4,875
----------- ----------- ----------- ----------- -----------
Total.................... 6,243 6,291 6.07 3,501 3,495 5.34 5,881
----------- ----------- ----------- ----------- -----------
Mortgage-backed securities (3):
Federal National Mortgage
Association:
After one, but within five
years..................... 17 17 9.23 -- -- -- 17
Federal Home Loan Mortgage
Corporation:
After five, but within ten
years..................... 347 361 8.71 -- -- -- 369
----------- ----------- ----------- ----------- -----------
Total.................... 364 378 8.73 -- -- -- 386
----------- ----------- ----------- ----------- -----------
Federal Reserve Bank stock..... 163 163 6.00 -- -- -- 163
----------- ----------- ----------- ----------- -----------
Federal Home Loan Bank stock... 282 282 7.25 -- -- -- 252
----------- ----------- ----------- ----------- -----------
Corporate securities:
After ten years............ 12 12 -- -- -- -- 12
----------- ----------- ----------- ----------- -----------
Total investment
securities.............. $ 7,564 $ 7,627 6.23 $ 5,001 $ 4,998 5.50 $ 8,193
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

SECURITIES AVAILABLE
FOR SALE
--------------------------------------
ADJUSTED
MARKET AVERAGE COST MARKET AVERAGE
VALUE YIELD BASIS (1) VALUE YIELD
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury:
Within one year............ $ 1,500 5.71% $ 1,996 $ 2,002 5.85%
----------- ----------- -----------
Obligations of other U.S.
Government agencies and
corporations (2):
Within one year............ 1,015 6.68 2,501 2,503 5.48
After one, but within five
years..................... 4,964 5.96 1,000 1,003 5.56
----------- ----------- -----------
Total.................... 5,979 6.09 3,501 3,506 5.50
----------- ----------- -----------
Mortgage-backed securities (3):
Federal National Mortgage
Association:
After one, but within five
years..................... 17 9.18 -- -- --
Federal Home Loan Mortgage
Corporation:
After five, but within ten
years..................... 386 8.63 -- -- --
----------- ----------- -----------
Total.................... 403 8.65 -- -- --
----------- ----------- -----------
Federal Reserve Bank stock..... 163 6.00 -- -- --
----------- ----------- -----------
Federal Home Loan Bank stock... 252 7.25 -- -- --
----------- ----------- -----------
Corporate securities:
After ten years............ 12 -- -- -- --
----------- ----------- -----------
Total investment
securities.............. $ 8,309 6.16 $ 5,497 $ 5,508 5.63
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

- ------------------------------
(1) The adjusted cost basis of securities which were transferred from available
for sale to investment securities is shown net of unrealized loss on the
date of transfer.

(2) Includes obligations of quasi-government agencies and corporations.

(3) This reflects final maturity, although contractual maturity is not a
reliable indicator of expected life because borrowers have the right to
repay their obligations at any time. Monthly amortization prior to the
final maturity is not shown as it cannot be reasonably estimated.

For additional information about investment securities and securities
available for sale at December 31, 1995 and 1994, see Note 3 of the Notes to
Consolidated Financial Statements.

NONINTEREST - EARNING ASSETS

Cash and due from banks of $4,478,000 at March 31, 1996 decreased by
$475,000 from the December 31, 1995 balance of $4,953,000 due primarily to
variations in balances maintained at correspondent banks. This December 31, 1995
balance reflects an increase of $604,000, or 14%, from the $4,349,000 balance at
December 31, 1994, and is primarily attributable to normal fluctuations in cash
reserve balances maintained at the Federal Reserve Bank.

Bank premises and equipment of $278,000 at December 31, 1995 reflects a
decrease of $91,000, or 25%, from the $369,000 balance reported at December 31,
1994. This decrease is due to depreciation and amortization expense of $146,000
for the year, offset by equipment purchases of $55,000.

24
<PAGE>
Other assets of $1,273,000 at March 31, 1996 reflects an increase of
$120,000, or 10%, from the $1,153,000 reported at December 31, 1995 due
principally to increases in deferred taxes. The December 31, 1995 balance
reflects a decrease of $68,000, or 6%, from the $1,221,000 balance reported at
December 31, 1994. This decrease is principally due to a $47,000 increase in
accrued interest receivable and $260,000 increase in deferred taxes, offset by a
$375,000 decrease in taxes receivable at December 31, 1995 as compared with
December 31, 1994.

DEPOSITS

Total deposits of $78,812,000 at March 31, 1996 decreased by $4,251,000, or
5%, from the December 31, 1995 balance of $83,063,000. The December 31, 1995
balance increased by $7,770,000, or 10%, from December 31, 1994, as discussed
below.

Fluctuations in demand deposits, Negotiable Order of Withdrawal, or "NOW"
accounts, and money market accounts at March 31, 1996 as compared to December
31, 1995 are due to normal fluctuations in the balances of both personal and
commercial accounts. Demand deposits and money market accounts at December 31,
1995 increased over the balances one year earlier, principally due to
fluctuations in the balances of corporate and personal accounts. NOW accounts of
$7,343,000 at December 31, 1995 decreased by $3,038,000, or 29%, over the
$10,381,000 balance at December 31, 1994, due primarily to the withdrawal of the
deposit accounts of one large national organization, with a corresponding effect
on average balances, as well as fluctuations in the balances of both individual
and nonprofit customers.

Certificates of deposit at March 31, 1996 of $27,907,000 decreased by
$1,660,000 from the $29,567,000 balance at December 31, 1995, with certificates
of deposit $100,000 and over decreasing by $1,917,000 and certificates of
deposit under $100,000 increasing by $257,000. The decrease in certificates of
deposit $100,000 and over is primarily due to decreases in collateralized
government deposits.

Certificates of deposit of $100,000 or greater at December 31, 1995 of
$13,591,000 remained virtually unchanged from the $13,651,000 balance reported
one year earlier, despite the withdrawal of $5,000,000 of local government funds
which had been on deposit at December 31, 1994. These deposits had been
collateralized by U.S. Treasury and agency securities. Certificates of deposit
under $100,000 of $15,976,000 at December 31, 1995 increased by $3,469,000
during the same period. This increase is primarily attributable to approximately
$3,500,000 of brokered funds which were raised in the first quarter of 1995. In
addition, the Company continued to maintain $2,200,000 in certificates of
deposit under $100,000 issued during 1994 to custodial accounts for pension
funds.

MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT $100,000 AND OVER
AT MARCH 31, 1996, DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Within three months............................................................ $ 6,468 $ 5,716 $ 9,260
After three months but within six months....................................... 1,347 4,772 1,767
After six months but within twelve months...................................... 2,158 1,403 2,422
After twelve months............................................................ 1,700 1,700 202
----------- --------- ---------
Total...................................................................... $ 11,673 $ 13,591 $ 13,651
----------- --------- ---------
----------- --------- ---------
</TABLE>

25
<PAGE>
AVERAGE DEPOSITS AND RATES
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1996 1995 1994
---------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing demand accounts................. $ 7,652 2.42% $ 10,129 2.46% $ 11,470 2.31%
Savings deposits................................. 1,314 2.66 1,160 2.68 1,185 2.46
Money Market deposit accounts.................... 18,821 4.65 16,451 4.94 15,901 3.43
CD's $100,000 and over........................... 12,108 5.70 12,672 5.51 14,252 3.68
Other time deposits.............................. 16,332 5.88 14,628 5.78 11,546 4.26
--------- --------- ---------
Total interest-bearing deposits................ 56,227 4.88 55,040 4.79 54,354 3.41
Noninterest-bearing demand deposits.............. 21,546 18,547 18,877
--------- --------- ---------
Total deposits................................. $ 77,773 $ 73,587 $ 73,231
--------- --------- ---------
--------- --------- ---------
</TABLE>

SHORT-TERM BORROWINGS

Short-term borrowings were $2,233,000 at March 31, 1996 as compared to
$1,786,000 at December 31, 1995. Both balances consist entirely of repurchase
agreements with customers of the Company. This compares with repurchase
agreements outstanding at December 31, 1994 of $361,000. The Company did not
purchase any federal funds nor undertake any other short-term borrowings during
the first quarter of 1996. For additional information on short-term borrowings
as of December 31, 1995 and 1994, see Note 10 of the Notes to Consolidated
Financial Statements.

ASSET QUALITY

LOAN PORTFOLIO AND ADEQUACY OF THE ALLOWANCE FOR LOAN LOSSES

The Company manages the risk characteristics of its loan portfolio through
various control processes, such as credit evaluation of individual borrowers,
establishment of lending limits to individuals and application of lending
procedures, such as the holding of adequate collateral and the maintenance of
compensating balances. Although credit policies are designed to minimize risk,
management recognizes that loan losses will occur and that the amount of these
losses will fluctuate depending on the risk characteristics of the loan
portfolio as well as general and regional economic conditions.

As a result of improvement in the quality of the loan portfolio over the
last few years as well as relatively low levels of net charge-offs, the Company
took no provision for loan losses in the first quarter of 1996 or in 1995 as
compared to $221,000 recorded in 1994.

This loan loss provision of $221,000 in 1994 reflects an increase of $46,000
over the $175,000 recorded in 1993 primarily as a result of growth in the loan
portfolio during this period and the level of charge-offs during 1994.

While the Company continues to recognize the risk characteristics of the
loan portfolio, including specific reserves for problem credits and general
reserves for the overall loan portfolio, the Company deemed the allowance for
loan losses of $1,262,000 and $1,274,000 at March 31, 1996 and December 31,
1995, respectively, to be adequate. Although the dollar amount of the allowance
for loan losses of $1,274,000 at December 31, 1995 declined from the balance of
$1,290,000 one year earlier, as shown in the table entitled "Allocation of
Allowance for Loan Losses," the portion of the allowance for loan losses which
was not allocated to any particular component of the loan portfolio at March 31,
1996 increased by 26% to $319,000 from $253,000 at December 31, 1995, which
remained virtually unchanged from 1994 levels.

The allowance for loan losses as a percentage of outstanding loans at March
31, 1996 was 2.10%, as compared to 2.00% at December 31, 1995 and 2.12% at
December 31, 1994. The decrease in the ratio from December 31, 1994 to December
31, 1995 is predominantly due to improvement in the

26
<PAGE>
quality of the loan portfolio. See analysis of "Nonperforming Assets" for a
further discussion of asset quality. In assessing the adequacy of the allowance
for loan losses, Management primarily relies on its ongoing review of the loan
portfolio, which is undertaken both to determine whether there are probable
losses which must be written off and to assess the risk characteristics of the
loan portfolio as a whole. In addition to actual loss experience, Management
considers factors such as industry specific composition of the loan portfolio
and the general and regional economic conditions. This review takes into account
the judgment of the individual loan officer, senior management and the Board of
Directors. The Board of Directors reviews the Company's Classified and
Criticized Loans Quarterly Report and quarterly loan loss analyses. In addition,
the Company's review takes into account the judgment of the regulatory agencies
that review the loan portfolio as a part of the regular examination process.
Such regulatory agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination. The Company also has an independent loan review
performed by a consultant on an annual basis, which during 1994 and 1995 covered
a total of approximately 73% of the dollar volume of the loan portfolio, and
included 96% of the criticized and classified loans. While Management uses
available information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions and other factors.

In reviewing the adequacy of the allowance for loan losses, the Company also
prepares a detailed migration analysis which measures the Company's historical
loss experience relative to the risk classifications within the individual loan
portfolio pools. This historical loss experience is then adjusted for external
factors such as trends in volumes and characteristics of loans, national and
local economic trends and management experience, among other factors, and is
applied to the current outstanding loan portfolio pools within each risk
classification. Based on the results of this migration analysis, which
encompasses all of the factors previously used, Management makes a determination
as to the adequacy of the allowance for loan losses.

TRANSACTIONS IN THE ALLOWANCE FOR LOAN LOSSES FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR
ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED -------------------------------
MARCH 31, 1996 1995 1994 1993
------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of period............................... $ 1,274 $ 1,289 $ 1,386 $ 1,320
Provision for loan losses.................................... -- -- 221 175
Recoveries:
Commercial................................................. 20 55 122 78
Real estate -- mortgage.................................... -- 10 3 --
Installment................................................ 13 33 31 20
------- --------- --------- ---------
Total recoveries......................................... 33 98 156 98
------- --------- --------- ---------
Loans charged off:
Commercial................................................. (31) (14) (429) (83)
Real estate -- mortgage.................................... -- -- -- (64)
Installment................................................ (14) (99) (45) (60)
------- --------- --------- ---------
Total charge-offs........................................ (45) (113) (474) (207)
------- --------- --------- ---------
Net charge-offs........................................ (12) (15) (318) (109)
------- --------- --------- ---------
Balance at end of period..................................... $ 1,262 $ 1,274 $ 1,289 $ 1,386
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>

27
<PAGE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
AT MARCH 31, 1996, DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
MARCH 31, 1996 1995 1994 1993
--------------------------- --------------------------- --------------------------- -----------
RESERVE % OF LOANS RESERVE % OF LOANS RESERVE % OF LOANS RESERVE
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS AMOUNT
----------- -------------- ----------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 624 68.31% $ 658 68.08% $ 760 70.33% $ 843
Real estate --
mortgage............... 263 25.26 291 22.12 215 18.13 323
Real estate --
construction........... 9 1.51 27 4.09 21 5.30 36
Installment............. 47 4.92 45 5.71 46 6.24 67
Unallocated............. 319 -- 253 -- 248 -- 117
----------- ------- ----------- ------- ----------- ------- -----------
Total................. $ 1,262 100.00% $ 1,274 100.00% $ 1,290 100.00% $ 1,386
----------- ------- ----------- ------- ----------- ------- -----------
----------- ------- ----------- ------- ----------- ------- -----------

% OF LOANS
TO TOTAL LOANS
--------------
<S> <C>
Commercial.............. 66.80%
Real estate --
mortgage............... 20.57
Real estate --
construction........... 4.79
Installment............. 7.84
Unallocated............. --
-------
Total................. 100.00%
-------
-------
</TABLE>

NONPERFORMING ASSETS
Nonperforming assets include nonaccrual loans, restructured loans, past due
loans and other real estate. See Note 1(d) of the Notes to Consolidated
Financial Statements.

Nonaccrual loans at March 31, 1996 of $1,463,000 decreased $98,000 from the
$1,561,000 reported at December 31, 1995, while restructured loans and loans
past due 90 days or more at March 31, 1996 of $1,241,000 and $4,000,
respectively, remained virtually unchanged from the $1,245,000 and $6,000,
respectively, reported at December 31, 1995. Nonaccrual loans at December 31,
1995 increased $317,000 from $1,244,000 at December 31, 1994, representing four
loans to three borrowers totaling $536,000, offset by curtailments and payoffs
totaling $219,000. Restructured loans decreased by $56,000 from $1,301,000 at
December 31, 1994 and past due loans increased by $3,000 from $3,000 at December
31, 1994. At March 31, 1996 and December 31, 1995, nonaccrual loans include
$817,000 and $875,000, respectively, in loans guaranteed by the SBA for a total
of $691,000 and $743,000, respectively. Banking regulations require that the
full balance of these loans be placed on nonaccrual status, despite the SBA
guarantee on approximately 80% of the total loan amount. Subsequent to March 31,
1996, the Company transferred $254,000 to other real estate from loans
previously recorded on nonaccrual status, reflecting real property acquired in
satisfaction of the loan balance.

ANALYSIS OF NONPERFORMING ASSETS
AT MARCH 31, 1996, DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AT DECEMBER 31,
MARCH 31, ------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial.................................................................... $ 1,161 $ 1,244 $ 1,096
Real estate -- mortgage....................................................... 302 317 148
----------- ----------- -----------
Total nonaccrual loans (1).................................................. 1,463 1,561 1,244
Past due loans:
Installment -- individuals.................................................... 4 6 3
----------- ----------- -----------
Total past due loans........................................................ 4 6 3
Restructured loans:
Commercial.................................................................... 1,241 1,245 1,301
----------- ----------- -----------
Total restructured loans.................................................... 1,241 1,245 1,301
----------- ----------- -----------
Total nonperforming assets.................................................. $ 2,708 $ 2,812 $ 2,548
----------- ----------- -----------
----------- ----------- -----------
Total nonperforming assets exclusive of SBA guaranteed balances............. $ 2,018 $ 2,070 $ 1,664
----------- ----------- -----------
----------- ----------- -----------
Ratio of nonperforming assets to gross loans (2)................................ 4.50% 4.42% 4.20%
Ratio of nonperforming assets to total assets (2)............................... 3.05 3.04 3.10
Percentage of allowance for loan losses to nonperforming assets (2)............. 46.58 45.30 50.61
Ratio of net charge-offs to average loans....................................... 0.02 0.03 0.55
</TABLE>

- ------------------------
(1) Nonaccrual loans include $817,000, $875,000 and $1,013,000 in loans
guaranteed by the SBA at March 31, 1996, and December 31, 1995 and 1994,
respectively. The outstanding balances of these loans are guaranteed for
84.5%, or $691,000, 84.9%, or $743,000, and 87.3%, or $884,000,
respectively.
(2) Ratios include SBA guaranteed loan balances.

28
<PAGE>
For additional information concerning nonaccrual, restructured and past due
loans as of December 31, 1995 and 1994, see Note 4 to the Notes to Consolidated
Financial Statements included herein.

POTENTIAL PROBLEM LOANS

At March 31, 1996 and December 31, 1995, respectively, loans totaling
$685,000 and $618,000 were classified as potential problem loans which are not
reported in the table entitled "Analysis of Nonperforming Assets" as compared to
$1,742,000 at December 31, 1994. The loans are subject to management attention
as a result of financial difficulties of the borrowers, and their classification
is reviewed on a quarterly basis. Of the potential problem loans at March 31,
1996, 89% of the balance represents loans which are fully secured, with the
remaining 11%, or $73,000, guaranteed by the SBA for a total of $66,000. This
compares with potential problem loans at December 31, 1995, of $618,000, 98% of
which are partially to fully secured, with the remaining 2%, or $15,000,
guaranteed by the SBA.

Of the $1,742,000 in problem loans at December 31, 1994, $618,000 were
guaranteed by the SBA for a total of $503,000 and the majority of the remainder
were adequately collateralized.

IMPAIRED LOANS

At March 31, 1996 and December 31, 1995, respectively, loans totaling
$2,746,000 and $2,790,000 were classified as impaired loans, all of which are
reported above as nonaccrual, restructured or potential problem loans. For
additional information concerning impaired loans at December 31, 1995 and 1994,
see Notes 1(l) and 4 to the Notes to Consolidated Financial Statements included
herein.

INTEREST SENSITIVITY MANAGEMENT

The sensitivity of net interest income to fluctuations in interest rates is
known as interest rate risk. Sensitivity arises when assets and liabilities are
not subject to rate repricing within the same period. As shown by the table
entitled "Analysis of Interest Rate Sensitivity," at March 31, 1996, interest
sensitive assets repricing within each period of less than one year ranges from
117% to 130% of interest sensitive liabilities repricing in the comparable
periods. When non-rate sensitive assets and liabilities are excluded, the
interest sensitive assets in each remaining period beyond one year exceed
interest sensitive liabilities repricing in the comparable periods. Management
of interest rate sensitivity is monitored by the Asset/Liability Investment
Committee of the Bank which meets monthly and includes members of the Bank's
Board of Directors as well as the Bank's officers.

The Committee considers, among other things, the sensitivity of major asset
and liability categories to anticipated interest rate changes. The Company does
not necessarily attempt to maintain a matched position for each time frame.
While interest sensitivity analysis is a useful tool for asset/ liability
management, limitations exist which make it difficult to predict the Company's
net interest income solely on the basis of the interest sensitivity position.
For example, the relationship between interest rates earned on loans,
particularly the prime rate, and interest rates paid on deposits is not constant
over time. Despite these limitations, in an effort to better predict the effect
of possible interest rate changes on net interest income, the Company also
prepares an analysis of the effect on net interest income of interest rate
shocks of 1%, 2% and 3% in either direction. Based on the Company's interest
sensitivity position and the analyses performed of the effect of interest rate
movements at March 31, 1996, a rising interest rate environment will generally
tend to increase net interest income, while a declining interest rate
environment will generally tend to decrease net interest income.

29
<PAGE>
ANALYSIS OF INTEREST RATE SENSITIVITY
MARCH 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL NON-RATE
181-365 RATE SENSITIVE &
0-90 DAYS 91-180 DAYS DAYS SENSITIVE OVER 1 YEAR TOTAL
----------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans............................... $ 27,616 $ 9,920 $ 8,885 $ 46,421 $ 13,794 $ 60,215
Securities (1)...................... 4,032 1,196 1,710 6,938 5,624 12,562
Short-term investments.............. 10,945 -- 392 11,337 -- 11,337

Noninterest-earning assets............ -- -- -- -- 4,775 4,775
----------- ----------- ----------- --------- ----------- ---------
Total assets...................... 42,593 11,116 10,987 64,696 24,193 $ 88,889
---------
---------
Interest-bearing liabilities:
Deposits (2)........................ 33,630 5,336 14,090 53,056 5,184 $ 58,240
Short-term borrowings............... 2,233 -- -- 2,233 -- 2,233
Long-term debt...................... 168 -- -- 168 -- 168

Noninterest-bearing sources........... -- -- -- -- 28,248 28,248
----------- ----------- ----------- --------- ----------- ---------
Total liabilities and
stockholders' equity............. 36,031 5,336 14,090 55,457 33,432 $ 88,889
---------
---------
Excess (deficiency) of interest
sensitive assets over like
liabilities:
For the period...................... $ 6,562 $ 5,780 $ (3,103) $ 9,239 $ (9,239)
Cumulative.......................... 6,562 12,342 9,239

Rate sensitive assets/rate sensitive
liabilities:
Cumulative.......................... 1.18x 1.30x 1.17x
</TABLE>

- ------------------------
(1) Includes both investment securities and available for sale securities.

(2) NOW and savings accounts are reflected in the 181-365 days classification,
based on the Company's evaluation of historical run-off and interest
sensitivity of these deposits.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY
Principal sources of liquidity are cash and unpledged assets that can be
readily converted into cash, including investment securities maturing within one
year, the available for sale securities portfolio and short-term loans. In
addition to $15,815,000 in cash and short-term investments at March 31, 1996,
the Company has a securities portfolio which can be pledged to raise additional
deposits and borrowings, if necessary. At March 31, 1996, the Company had
$1,486,000 in unpledged securities which were available for such use with an
additional $5,711,000 in securities which could be available for immediate use
at the Company's request without any change in the Company's deposit or
borrowing structure. As a percentage of total assets, the amount of these cash
equivalent assets at March 31, 1996 and December 31, 1995 was 26% and 21%,
respectively. Normal fluctuations in the deposit levels of some of the Company's
large corporate customers may result in corresponding fluctuations in the
Company's liquidity position (short-term investments). The Bank's liquidity
needs are mitigated by the sizeable base of relatively stable funds which
includes demand deposits, NOW and money market accounts, savings deposits and
nonbrokered certificates of deposit under $100,000 (excluding financial
institutions and custodial funds raised under deposit acquisition programs)
representing 77% and 76% of average total deposits at March 31, 1996 and
December 31, 1995, respectively. In addition, the Bank has unsecured lines of
credit from correspondent financial institutions which can provide up to an
additional $1,000,000 in liquidity as well as access to other collateralized
borrowing programs.

30
<PAGE>
Although the Bank maintained an average loan to deposit ratio of 82% during
1995, the Bank has access to collateralized deposit programs through U.S.
government agencies which can be called upon to raise additional deposits, thus
lowering the loan to deposit ratio.

Through its membership in the Federal Home Loan Bank of Atlanta (the
"FHLB"), which serves as a reserve or central bank for member institutions
within its region, at March 31, 1996 the Bank is eligible to borrow up to
approximately $1,283,000 in funds from the FHLB collateralized by loans secured
by first liens on one- to four-family, multifamily and commercial properties as
well as investment securities. The Bank is eligible to increase the maximum
amount to be borrowed by $7,717,000 with the purchase of up to $1,696,000 in
additional stock in the FHLB. The Company has adequate resources to meet its
liquidity needs.

Normal fluctuations in the deposit levels of the Bank's customers comprise
the majority of the Company's net cash outflows from financing activities for
the first three months of 1996, as reductions in deposits totaled $4,252,000.
Curtailments and repayments of loans and maturities and scheduled amortization
of securities exceeded loan originations and security purchases during the first
quarter of 1996, constituting the majority of the Company's cash inflows from
investing activities.

STOCKHOLDERS' EQUITY

Stockholders' equity at March 31, 1996 increased by $170,000 over the
balance at December 31, 1995 to $6,789,000 as a result of the Company's $238,000
net income for the three months ended March 31, 1996 and a $4,000 decrease in
unrealized loss on securities, net of taxes, partially offset by dividends
declared in the first quarter of 1996 of $71,000. Average stockholders' equity
as a percentage of average total assets for the first three months of 1996 was
7.67% as compared to 7.23% for the comparable prior year period.

Stockholders' equity at December 31, 1995 increased by $857,000 over the
prior year to $6,619,000 as a result of the Company's 1995 net income of
$959,000 and the $40,000 decrease in unrealized loss on securities, net of
taxes, partially offset by dividends paid of $142,000. Average stockholders'
equity as a percentage of average total assets for 1995 was 7.50% as compared to
7.13% for 1994.

The tables below present the Company's and the Bank's capital positions
relative to their various minimum statutory and regulatory capital requirements
at March 31, 1996 and December 31, 1995. The Company and the Bank are considered
"well-capitalized" under regulatory guidelines. See "Supervision and
Regulation."

<TABLE>
<CAPTION>
COMPANY BANK
---------------------- ---------------------- MINIMUM CAPITAL
AMOUNT RATIO AMOUNT RATIO REQUIREMENTS
--------- ----------- --------- ----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
March 31, 1996:
Leverage ratio (1).................................... $ 6,826 7.78% $ 6,683 7.63% 4.0%
Tier 1 risk-based ratio (2)........................... 6,826 10.16 6,683 9.96 4.0
Total risk-based ratio (2)............................ 7,695 11.46 7,552 11.26 8.0
December 31, 1995:
Leverage ratio (1).................................... $ 6,659 8.09% $ 6,405 7.79% 4.0%
Tier 1 risk-based ratio (2)........................... 6,659 9.77 6,405 9.40 4.0
Total risk-based ratio (2)............................ 7,541 11.06 7,287 10.69 8.0
</TABLE>

- ------------------------
(1) Based on annual average assets

(2) Based on risk-adjusted assets

On May 21, 1996, the Bank paid off its $167,625 long-term capital note.
Because less than 20% of the note's balance was included in Tier 2 capital, the
effect of the repayment on the Company's and the Bank's capital ratios is not
significant.

During 1994, the Company's Board of Directors, on the recommendation of the
Special Committee adopted a Rights Agreement, the purpose of which was to
provide the Board of Directors with adequate time to respond effectively to a
takeover attempt and in a manner that would maximize the

31
<PAGE>
value of the Company for all stockholders. For a further discussion of the
Rights Agreement, see "Beneficial Ownership of Shares," "Description of Capital
Stock," and Note 17 to the Notes to Consolidated Financial Statements included
herein.

CHANGES IN ACCOUNTING PRINCIPLES

For a discussion of the adoption of certain new accounting principles, see
Note 1 of the Notes to Consolidated Financial Statements.

32
<PAGE>
BUSINESS

GENERAL

Abigail Adams National Bancorp, Inc. (the "Company") is a bank holding
company which conducts business through its wholly-owned bank subsidiary, The
Adams National Bank (the "Bank"). The Bank serves the nation's capital through
three full-service offices located in Washington, with a fourth branch expected
to open in August 1996. At March 31, 1996, the Company had consolidated assets
of $88,889,000, deposits of $78,812,000 and stockholders' equity of $6,789,000,
and reported net income of $238,000 for the three months then ended. The Company
reported record net income of $959,000 for the year ended December 31, 1995. The
Bank exceeds all regulatory capital requirements. See "Supervision and
Regulation."

MARKET AREA

The Bank draws most of its customer deposits and conducts most of its
lending activities from and within the Washington metropolitan region, including
suburban Virginia and Maryland. The nation's capital attracts a significant
number of businesses of all sizes, professional corporations and national
nonprofit organizations. The Bank actively solicits banking relationships with
these firms and organizations, as well as their professional staff, and with the
significant population of high net worth individuals who live and work in the
region.

The Washington metropolitan region has experienced weak economic conditions
in the past 18 months. A significant decline in federal procurement during the
last quarter of 1995, as a result of two government shutdowns, has slowed job
growth, home sales and retail sales in the region. Federal downsizing also is
contributing to slow economic performance. Although commercial occupancy rates
currently are rising, in the past, segments of the commercial real estate market
have experienced deteriorating economic trends, including declining occupancy,
rental rates, and property values. Management believes that current government
spending trends and federal downsizing could continue in this fiscal year. See
"Risk Factors -- Regional Economic Conditions."

The Company seeks to identify acquisitions in neighboring markets in
Virginia and Maryland. These areas are experiencing greater growth in
residential communities and commercial sectors. Management expects that a
strategic acquisition in such market would contribute to the overall growth of
the Company.

SERVICES OF THE BANK

The Bank offers a full range of banking services to its customers. While
providing financial services to a wide-ranging customer base, including high net
worth individuals, Fortune 100 corporations, small- to medium-sized businesses
and nonprofit and other organizations, the Bank remains committed to assisting
women and minorities with access to credit opportunities for career growth and
small business ownership.

The following types of services are offered by the Bank:

COMMERCIAL SERVICES

- Loans, including working capital loans and lines of credit, a wide range
of demand, term and time loans, and loans for real estate land
acquisition, development and construction, equipment, inventory and
accounts receivable financing.

- Cash management, including automatic overnight investment of funds.

- Collateralized repurchase agreements.

33
<PAGE>
- Investments, including certificates of deposit.

- Direct deposit of payroll.

- Letters of credit.

- ExecuBanc Business Banking, a computer accessed banking service.

RETAIL SERVICES

- Transaction accounts, including checking and NOW accounts.

- Money market accounts.

- Overdraft checking.

- Certificates of deposit.

- Individual retirement accounts and Keogh accounts.

- Installment and home equity loans and lines of credit.

- Residential construction and first mortgage loans.

- Direct deposit.

- 24-hour automated teller machines ("ATMs") with access to the
MOST-Registered Trademark- and CIRRUS-Registered Trademark- systems.

- 24-hour telephone banking.

- VISA-Registered Trademark- credit card services.

- Traveler's checks, money orders, cashier's checks and safe deposit boxes.

- Custodial services.

Commercial and consumer loans are made to corporations, partnerships and
individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, renovation, inventory and real estate loans. Consumer lending
focuses on automobile, home equity and personal loans made on a direct, secured
basis. Real estate loans are originated for both commercial and consumer
purposes. Through its "Residential Express" program in affiliation with Knutson
Mortgage Corporation ("Knutson"), the Bank is able to offer a variety of
residential home mortgage loan products.

STRATEGY

MARKETING

In its marketing efforts, the Bank actively targets

- High net worth individuals

- Fortune 100 companies

- Small businesses and professional corporations

- Nonprofit organizations

- Women and minorities

In addition, the Bank seeks opportunities to participate in significant
community development projects and to establish a presence in high traffic areas
of Washington. The Bank's participation in the syndicated loan for the
construction of the MCI Arena and the Bank's branch and ATM locations at Union
Station are examples of this strategy.

The Bank uses a variety of marketing strategies to attract and retain
customers. Strategies include publicity on regional radio and television,
targeted mailings to companies in select markets,

34
<PAGE>
referrals from existing customers, cross-selling services to existing customers,
and relationships developed through officers' and directors' leadership in
business, civic and community organizations, as well as officers' and branch
managers' loan and deposit calling programs. Through personalized professional
service and competitive pricing, the Bank has been successful in attracting new
customers. As technological developments continue to become available to all
banks, large and small, the Bank can expand its marketing reach beyond its
branch network on a cost-effective basis by accessing customers through
technological means. The Bank is in the process of developing its own electronic
site (home page) on the Internet (World Wide Web). Management believes that use
of electronic media such as the Internet will allow the Bank to further enhance
its image in its target market and identify future prospects for electronic and
home banking services.

ACQUISITION AND EXPANSION STRATEGY

The Company seeks to diversify both its market area and asset base while
increasing profitability through acquisitions and expansion. Management believes
that it possesses substantial expertise in lending to groups traditionally
underserved by the banking industry and that these capabilities could be
leveraged by making strategic acquisitions in the neighboring markets of
Maryland and Virginia.

In 1992, the Company initiated a strategy to expand through acquisition by
purchasing from the FDIC and the Resolution Trust Corporation insured deposits
and certain performing loans of financial institutions which were placed into
receivership in the Washington metropolitan region. The Company was the
successful bidder on three such purchases, one in each of 1992, 1993 and 1994.
In 1992, the Company purchased insured deposits and certain performing loans
from the FDIC, for a premium of $1,000. In addition, the Company was entitled to
any future recoveries received on loans charged off prior to the bid date for
the sale of the loans. As of December 31, 1995, $104,000 in recoveries on such
loans has been received. The Company also purchased certain performing loans
from the FDIC at discounted prices of 96.2% and 96.9% of the outstanding loan
amounts in 1993 and 1994, respectively.

The Company identifies potential merger or acquisition candidates primarily
on the basis of the size of an institution and the prospects for branch
compatability. The Company also has relationships with investment bankers and
banking industry executives who may bring possible candidates to the Company's
attention from time to time. Although the Company continues to explore
acquisition opportunities in Washington and suburban Maryland and Virginia, no
banks have been identified as probable merger or acquisition candidates. It is
expected that additional discussions will take place in the future as
opportunities are presented. However, no assurance can be given that any such
merger or acquisition candidates will be identified or that any merger or
acquisition will be consummated.

The Company also considers establishing branches as a means of expanding its
presence in current or new market areas and is presently reviewing potential
locations in Washington and suburban Maryland and Virginia. In March 1996, the
Company signed a lease to open a fourth branch in Washington. The Company will
also consider the expansion into other lines of business closely related to
banking if it believes these lines could be profitable without undue risk to the
Company and if the Company can be competitive.

OPERATIONS

The Company's strategy is to provide a high level of personalized service
and quality products to customers within the community it serves, through its
experienced staff. The Company uses technology to enhance its delivery systems.
It offers its retail customers 24-hour banking by touch tone phone, by means of
an interactive voice response system, and in 1996 it will offer customers the
ability to access account information, transfer funds and pay certain bills by
personal computer. The Company also maintains an integrated PC-based server
network system that provides immediate interaction among all operating functions
of the Bank, thereby enhancing internal communications and customer service.

35
<PAGE>
The Bank contracts with an outside firm to provide data processing and back
room operations. The state-of-the-art resources provided by this outside firm,
in conjunction with the Bank's internal data management system, enable the Bank
to provide a high level of customer service and to effectively manage its
growth.

LENDING ACTIVITIES

The Bank provides a range of commercial and retail lending services to
individuals, small- to medium-sized businesses, professional corporations,
nonprofits and other organizations. These services include, but are not limited
to, commercial business loans, commercial and residential real estate loans,
renovation and mortgage loans, loan participations, consumer loans, revolving
lines of credit and letters of credit. Consumer lending focuses on automobile,
home equity and personal loans made on a direct, secured basis. Real estate
loans are originated for both commercial and consumer purposes, with a variety
of residential home mortgage loan products originated predominantly under the
Bank's Residential Express program. As of March 31, 1996, approximately 79% of
the Bank's total loan portfolio was comprised of loans with interest rates which
either float or generally adjust on an annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Analysis of Loans."

The Bank aggressively markets its services to qualified lending customers in
both the commercial and consumer sectors, including small businesses and
nonprofit organizations. The Bank offers SBA-guaranteed loans which provide
better terms and more flexible repayment schedules than conventional financing.
Management believes that making such loans helps the local community and
provides the Bank with attractive returns with minimal risk, as the majority of
each loan is guaranteed by the SBA, and solid future lending relationships as
such businesses grow and prosper. As lending requirements of small businesses
grow to exceed the Bank's lending limit, the Bank has the ability to sell
participations in these larger loans to other financial institutions. The Bank
believes that such participations will help to preserve lending relationships
while providing a high level of customer service. As of March 31, 1996,
commercial and real estate SBA loans totaled $4,151,000.

The Bank provides financing to nonprofit organizations for construction and
renovation of local headquarters offices and other facilities, working capital
lines of credit and equipment financing. Current nonprofit customers of the Bank
include organizations which focus on issues relating to women's rights, the
environment, minority rights, Vietnam Veterans and AIDS treatment and education.
At March 31, 1996, commercial and real estate loans to these customers totaled
$4,689,000.

Commercial and real estate lending is performed by the Bank's Lending
Division, which is comprised of four loan officers, a credit analyst, a
collections staff person and an administrative assistant concentrating in loan
documentation. The Treasury Division includes the Loan Operations staff of two,
responsible for recording and processing new loans and loan payments and working
with the Lending Division, in order to ensure the timely receipt of all ongoing
loan documentation and the prompt reporting of any exceptions. Credit analysis
on loans is performed by individual loan officers, using a sophisticated credit
analysis computer program, which provides not only the flexibility necessary to
analyze loans but also the structure necessary to ensure that all documentation
requirements are appropriately met.

Policies and procedures have been established by the Bank to promote safe
and sound lending. The Bank requires a loan-to-value ratio of 75% or less for
almost all loans. Loan officers have individual lending authorities established
based on both their seniority and experience. Loans in excess of individual
officers' lending limits are presented to the Officers' Loan Committee ("OLC"),
which meets weekly, and is comprised of all loan officers and the President of
the Bank. While a maximum of two loan officers may pool their loan authorities
to approve a loan, most loans over $100,000 are brought to this Committee. The
OLC has authority to approve unsecured loans up to $250,000 and secured loans up
to $400,000. Loans over $250,000 on an unsecured basis and over $400,000 on a
secured basis are brought to the Executive Loan Committee ("ELC"), which meets

36
<PAGE>
approximately twice per month. The ELC is comprised of two outside directors and
the President of the Bank. In addition to approving new loans, this Committee
approves the restructuring of loans it originally approved, reviews past due
loans and approves charge-offs.

COMMERCIAL LENDING

The Bank provides a wide range of commercial business loans, including lines
of credit for working capital purposes and term loans for the acquisition of
equipment and other purposes. In most cases, the Bank has collateralized these
loans and/or taken personal guarantees to help assure repayment. Collateral for
these loans generally includes accounts receivable, inventory, equipment and
real estate. Terms of commercial business loans generally range from three
months to five years. These loans often require that borrowers maintain certain
levels of deposits with the Bank as compensating balances. Commercial business
lending generally involves greater risk than residential mortgage lending and
involves risks that are different from those associated with residential,
commercial and multi-family real estate lending. Although commercial business
loans are often collateralized by real estate, equipment, inventory, accounts
receivable or other business assets, the liquidation of collateral in the event
of a borrower default is often not a sufficient source of repayment because
accounts receivable may be uncollectible and inventories and equipment may be
obsolete or of limited use, among other things. The primary repayment risk for
commercial loans is the failure of the business due to economic or financial
factors. As of March 31, 1996, commercial loans totaled $41,377,000.

REAL ESTATE LENDING

The Bank originates residential mortgage loans through an affiliated loan
program with Knutson. A variety of fixed and variable rate loan products are
offered for varying terms through this program. Loan applications can be taken
by the Bank or through a 24 hour Knutson Hot Line. These loans are preapproved
by Knutson prior to funding by the Bank and are generally sold (inclusive of
servicing rights) to Knutson at the original principal amount within one to
three days of closing. The Bank has the option, however, of retaining these
loans for its own portfolio. While the Bank has a real estate mortgage portfolio
of $15,302,000 at March 31, 1996, these loans are predominantly amortizing
variable rate or annually repricing commercial or residential investment
mortgage loans with a maximum maturity of five years.

The majority of the $914,000 in loans classified as construction and land
development loans at March 31, 1996 in the Consolidated Financial Statements,
included elsewhere in this Prospectus, are primarily for renovation of
commercial properties. Construction financing generally is considered to involve
a higher degree of risk of loss than long-term financing on improved, occupied
real estate. Multi-family and commercial real estate lending entails significant
additional risks as compared to one- to four-family residential lending. For
example, such loans typically involve large loans to single borrowers or related
borrowers, the payment experience on such loans is typically dependent on the
successful operation of the project, and these risks can be significantly
affected by the supply and demand conditions in the market for commercial
property and multi-family residential units. To minimize these risks, the Bank
limits the aggregate amount of outstanding construction loans, and generally
makes such loans only in its market area and to borrowers with which it has
substantial experience or who are otherwise well known to the Bank. It is the
Bank's current practice to obtain personal guarantees and current financial
statements from all principals obtaining commercial real estate loans. The Bank
also obtains appraisals on each property in accordance with applicable
regulations.

CONSUMER LENDING

The Bank's consumer lending includes loans for motor vehicles, home
improvement, home equity and small personal credit lines. Consumer loans
generally involve more risk than first mortgage residential and commercial real
estate loans. Repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
damage, loss or depreciation, and the remaining deficiency often does not
warrant further substantial collection

37
<PAGE>

efforts against the borrower. In addition, loan collections are dependent on the
borrower's continuing financial stability. Further, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered. In underwriting consumer
loans, the Bank considers the borrower's credit history, an anlysis of the
borrower's income, expenses and ability to repay the loan and the value of the
collateral.

During 1994, the Bank entered the credit card market by issuing its own
VISA-Registered Trademark- card at competitive rates and with no annual fee. The
credit card is offered to both new and existing customers as well as corporate
accounts, and provides various cardmember benefits, including frequent flyer
miles. Through its credit card services, the Bank hopes to increase profits and
augment its cross-selling opportunities by increasing its marketing base. As of
March 31, 1996, consumer loans totaled $2,978,000 or 5% of the Bank's loan
portfolio.

COMPETITION

The Bank encounters strong competition among financial institutions in
Washington, Northern Virginia and suburban Maryland for both deposits and loans.
Principal competitors include other community commercial banks and larger
financial institutions with branches in the Bank's service area. Intense
competition is expected to continue as bank mergers and acquisitions of smaller
banks by larger institutions in the Washington metropolitan region may be
expected to continue for the foreseeable future.

The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. The Bank faces
competition for deposits and loans throughout its market areas not only from
local institutions but also from out-of-state financial intermediaries which
have opened loan production offices or which solicit deposits in its market
areas. Many of the financial intermediaries operating in the Bank's market areas
offer certain services, such as trust, investment and international banking
services, which the Bank does not offer. Additionally, banks with larger
capitalization and financial intermediaries not subject to bank regulatory
restrictions have larger lending limits and are thereby able to serve the needs
of larger customers.

In order to compete with other financial services providers, the Bank
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those instances
where the Bank is unable to accommodate a customer's needs, the Bank will
arrange for those services to be provided by its correspondents.

EMPLOYEES

At March 31, 1996, the Company employed 36 people, 34 on a full time and 2
on a part time basis. The employees are not represented by a union and
management believes that its relations with its employees are good.

PROPERTIES

The principal executive offices of the Company and the main office of the
Bank are located in leased space at 1627 K Street, N.W., Washington, D.C. 20006.
The Bank leases three other offices, located at 2905 M Street, N.W., Washington,
D.C.; Union Station, 50 Massachusetts Avenue, N.E.,

38
<PAGE>
Washington, D.C.; and 1604 17th Street, N.W., Washington, D.C. An additional ATM
was opened in Union Station in 1989 and a third ATM was opened in Union Station
in May 1994. Leases for these facilities expire as follows:

<TABLE>
<CAPTION>
LOCATION EXPIRATION OF LEASE
- ------------------------------------------------------------------ --------------------------
<S> <C>
1627 K Street, N.W. 2002
2905 M Street, N.W. Month-to-month term
50 Massachusetts Avenue, N.E. 1999
Union Station ATM 1999
Union Station ATM 1999
1604 17th Street, N.W. 2016
</TABLE>

In 1995, the Company and the Bank incurred rental expense on leased real
estate of approximately $408,000. The Company considers all of the properties
leased by the Bank to be suitable and adequate for their intended purposes.

LEGAL PROCEEDINGS

Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Company or the Bank is a party or to which any of their
property is subject. For a discussion of certain legal proceedings in connection
with the Company's prior ownership, see "Beneficial Ownership of Shares."

39
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------------- --- ------------------------------------------------------
<S> <C> <C>
Barbara Davis Blum 56 Chairwoman of the Board, President and Chief Executive
Officer
Shireen L. Dodson 44 Director
Susan Hager 51 Director
Jeanne D. Hubbard 48 Director
Clarence L. James, Jr. 62 Director
Steve Protulis 54 Director*
Marshall T. Reynolds 59 Director
Robert L. Shell, Jr. 52 Director
Dana B. Stebbins 49 Director
Susan J. Williams 55 Director
Kimberly J. Levine 39 Senior Vice President, Treasurer and Chief Financial
Officer
Thomas O. Griel 49 Senior Vice President, Lending*
</TABLE>

- ------------------------
* These positions are held with the Bank.

BARBARA DAVIS BLUM has served as Chairwoman of the Board of the Company and
the Bank since March 1986, President and Chief Executive Officer of the Company
since 1985 and President and Chief Executive Officer of the Bank since 1983. She
also serves as Chairwoman of the Economic Development Finance Corporation, a
quasi-public economic development corporation for the benefit of District of
Columbia businesses; Chairwoman, Center for Policy Alternatives, a national
nonprofit organization; and a Director of Kaiser Permanente Health Care of the
Mid-Atlantic States. She is a director of the Greater Washington Board of Trade;
a Trustee of the Federal City Council; a member of the National Advisory Council
of the U.S. Small Business Administration; Senior Advisor, Commercial Real
Estate Women; and a Director of the Institute of American Indian Art, a
Presidential appointment requiring Senate confirmation. She was a founder of
Leadership Washington in 1985 and served as its Chairwoman in 1987. She also
served as 1995 and 1996 Greater Washington Area, United States Savings Bonds
Chairwoman. From 1981 to 1983, she served as President of Direction
International, an environmental consulting firm, and from 1977 to 1981 she
served as the Deputy Administrator of the U.S. Environmental Protection Agency.

SHIREEN L. DODSON has served as the Assistant Director of Administration and
Planning for the Center for African American History and Culture (formerly
called the National African American Museum Project) of the Smithsonian
Institution since 1993. From 1985 to 1992, she served as Comptroller of the
Smithsonian Institution. She also served as the Commissioner of the District of
Columbia Minority Business Opportunity Commission from 1989 to 1992. She has
been President of the Coalition of 100 Black Women of D.C., Inc. and currently
serves on the Advisory Committee of that organization. She is also a member of
the Women's Advisory Board, Girl Scout Council of the National Capital. She is
Treasurer of the Washington D.C. Chamber of Commerce and has been a Director of
the Company since 1993 and a Director of the Bank since February 1992.

SUSAN HAGER has been the President of Hager Sharp, Inc., an issues oriented
communications firm, since 1973. She is also a Director of the Greater
Washington Board of Trade, Chairwoman of the Board of the Lab School of
Washington, a member of the National Advisory Council of the U.S. Small Business
Administration and a Trustee of the Federal City Council. She served as
President of

40
<PAGE>
National Small Business United, a national small business trade association, and
Chairwoman of the U.S. Department of the Treasury's Small Business Advisory
Council. She was a founder of the National Association of Women Business Owners
(NAWBO). She has been a Director of the Company and the Bank since June 1992.

JEANNE D. HUBBARD has served as a consultant to First Guaranty Bank,
Hammond, Louisiana, since 1993. From 1980 to 1993, Ms. Hubbard held a variety of
officer positions, including Vice President and Senior Commercial Lender and
Chairwoman of the Loan Committee and Asset/Liability Committee, with First Bank
of Ceredo, Ceredo, West Virginia. She served as President of the C-K Rotary Club
and Chairwoman of the Citizens Advisory Committee of the United Way in
Huntington, West Virginia. She has been a Director of the Company and the Bank
since October 1995.

CLARENCE L. JAMES, JR. joined the law firm of Manatt, Phelps & Phillips,
LLP, in 1995, and currently serves as Executive Director and a member of the
Board of Directors of Executive Leadership Council, an association he founded of
top national African American business leaders. From 1983 to 1995, he served as
President and Chief Operating Officer of The Keefe Company, a government
relations and public affairs firm. From 1981 to 1983, he was Vice President of
Domestic Affairs and General Counsel of The Keefe Company. Since 1990, he has
also served as Chairman of the Board of Douglas James Securities, Incorporated,
a registered broker-dealer and a member of the National Association of
Securities Dealers, Inc. From 1977 to 1981, he served as Commissioner and
Chairman of the Copyright Royalty Tribunal, a Presidential appointment. From
1971 to 1977, he was Managing Partner of James, Moore, Douglas & Co., LPA, a
corporate, tax and land development law practice. He has been a Director of the
Company and the Bank since February 1993.

STEVE PROTULIS is the Executive Director of the National Council of Senior
Citizens (NCSC), a position he has held since August 1995. From 1988 to 1995, he
coordinated senior efforts for the AFL-CIO COPE Department, and was the national
coordinator for various related support groups. Mr. Protulis has two decades of
experience working with the United Auto Workers and various legislative efforts.
He has been an executive board member of NCSC since 1984, a member of the board
of the Congressional Hispanic Caucus Institute since 1991, and an executive
board member of the National Council on Aging since 1994. He has been a director
of the Bank since September 1995.

MARSHALL T. REYNOLDS is the Chairman of the Board, President and Chief
Executive Officer of Champion Industries, Inc., a holding company for commercial
printing and office products companies, a position he has held since 1992. He
became Chairman of the Board of Premier Financial Bancorp in the first quarter
of 1996. He became Chairman of the Board of First Guaranty Bank during the
second quarter of 1996. From 1964 to 1993, Mr. Reynolds was President and
Manager of The Harrah and Reynolds Corporation (predecessor to Champion
Industries, Inc.). From 1983 to 1993, he was Chairman of the Board of Banc One,
West Virginia Corporation (formerly Key Centurion Bancshares, Inc.). He has
served as Chairman of United Way of the River Cities, Inc. and Boys and Girls
Clubs of Huntington. He has been a Director of the Company and the Bank since
November 1995.

ROBERT L. SHELL, JR., is the Chairman and Chief Executive Officer of Guyan
International, a privately held holding company for manufacturing and service
companies, a position he has held since 1985. Mr. Shell is also the Chairman of
Carolina Hose and Hydraulics, Standard Leasing Co. and Permco Hydraulik AG. He
has been a director of First State Bank of Sarasota since February 1994. He is a
member of the Huntington Boys and Girls Clubs, the Cabell Huntington Hospital
Foundation and the West Virginia Foundation for Independent Colleges. He was
formerly the Chairman of the Marshall Artists Series. He has been a Director of
the Company and the Bank since October 1995.

DANA B. STEBBINS is a partner in Wilkes, Artis, Hedrick & Lane, a law firm
located in Washington, D.C., where she has practiced since 1989. From 1983 to
1989, she was Special Counsel for Klimek, Kolodney & Casale, P.C. From 1981 to
1983, she was Special Counsel for the U.S. House of Representatives Committee on
Small Business. From 1980 to 1982, she was Special Assistant to the Associate
Administrator of the U.S. Small Business Administration. From 1978 to 1980, she
was the Special Assistant and White House Liaison to the Chairman of the
Commodity Futures Trading Commission.

41
<PAGE>
From 1977 to 1978, she was Advisor to the White House Office of Domestic and
Urban Policy. She is currently President of the Washington D.C. Chamber of
Commerce, a Trustee of the Federal City Council and is on the Board of the
Greater Washington Boys and Girls Clubs, as well as the Lab School of
Washington. She has been a Director of the Company and the Bank since March
1993.

SUSAN J. WILLIAMS is the President of Bracy Williams & Company, a government
and public affairs
consulting firm, a position she has held since 1982. In 1986, she was a
representative on the Southern Growth Policies Board for the State of Virginia.
From 1979 to 1981, Ms. Williams served as Assistant Secretary for Governmental
Affairs of the U.S. Department of Transportation and from 1977 to 1979 she was
Deputy Assistant Secretary for Governmental and Public Affairs for that agency.
She is the Chair-Elect of the Greater Washington Board of Trade, having
previously served as Secretary. She is also a Director of the Henry L. Stimson
Center and the American Institute for Public Service. She has been a Director of
the Company since October 1995 and the Bank since September 1994.

KIMBERLY J. LEVINE, CPA, has been Senior Vice President and Treasurer of the
Company and the Bank since 1988. From 1984 to 1987, she was Vice President and
Controller of the First American Bank, N.A. From 1979 to 1984, she was Assistant
Vice President of Suburban Bank in various accounting and reporting positions.
From 1977 to 1979, she was a Senior Accountant with Arthur Andersen & Co. She
formerly served as a member of the Corporate Reporting Task Force, a combination
public and private sector task force designed to address District of Columbia
government tax issues and has been an instructor for the American Institute of
Banking. Ms. Levine holds a Bachelor of Economics from the Wharton School of
Business of the University of Pennsylvania.

THOMAS O. GRIEL, CPA, has served as the Bank's Senior Vice President,
Lending since 1990. Prior to joining the Bank, Mr. Griel was a self-employed
business consultant from 1987 to 1990. He served as President and Chief
Executive Officer of McLachlen National Bank in Washington, D.C. from 1980 to
1987, and was a partner with Ross, Langan and McKendree, a certified public
accounting firm, from 1975 to 1980. He served as Corporate Controller for
Fairfax County National Bank from 1973 to 1974 and for Northern Virginia Bank
from 1974 to 1975. Prior to that time, he served as a national bank examiner
with the Office of the Comptroller of the Currency from 1969 to 1973. Mr. Griel
holds a Bachelors of Science degree from the University of Maryland.

DIRECTORS' COMPENSATION

During 1995, each director of the Company received $250 for each meeting of
the Board of Directors, $200 for each Executive Committee meeting and $100 for
all other committee meetings attended by such director.

EXECUTIVE COMPENSATION

The executive officers of the Company receive cash compensation from the
Bank in connection with their positions as executive officers of the Bank. The
Company does not separately compensate its executive officers with cash, but
does offer certain stock option compensation.

The following table shows the cash compensation paid by the Bank during the
fiscal years ended December 31, 1995, 1994 and 1993 to the Chief Executive
Officer, who is the only executive officer of the Company whose cash
compensation exceeded $100,000, for services rendered during these years:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER ANNUAL
YEAR SALARY BONUS/OTHER COMPENSATION (1)
--------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Barbara Davis Blum, 1995 $ 185,155 $ 0 $ 5,555
Chairwoman of the Board, President, Chief Executive Officer of 1994 185,155 0 5,183
the Company and the Bank 1993 173,040 0 4,271
</TABLE>

- ------------------------
(1) Represents the Bank's contribution to the former 401(k) Plan for the account
of Barbara Davis Blum. Ms. Blum received certain perquisites but the cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
her salary.

42
<PAGE>
EMPLOYMENT AGREEMENT

On February 20, 1996, the Company and the Bank entered into an employment
agreement with Barbara Davis Blum providing for the employment by the Company
and the Bank of Ms. Blum as Chairwoman, President and Chief Executive Officer of
the Company and the Bank through February 20, 1998. The agreement shall
automatically be extended for an additional two-year period unless, six months
prior to the expiration date, the Boards of Directors of the Company and the
Bank determine in a duly adopted resolution that the agreement should not be
extended and so notify Ms. Blum. Under the terms of the employment agreement,
which was amended on March 29, 1996, Ms. Blum is entitled to receive a base
salary for 1996 of $194,413, all benefits provided by any plan available by the
Bank to its employees, certain executive fringe benefits, annual or other
bonuses at the sole discretion of the Company's and the Bank's Boards.

Ms. Blum also was granted a nonqualified stock option (the "Option") to
purchase 75,000 shares of the Company's Common Stock. The Option vests beginning
in 1996 at an annual rate of 20% at the end of each year and is exercisable for
a period of 10 years from the date of grant at an exercise price equal to $6.74
per share, which is 85% of the fair market value of the Company's Common Stock
on the date of grant. The Option shall become fully vested in the event of a
"Change in Control" (as defined in the employment agreement) or in the event Ms.
Blum's employment should terminate for any reason, and remain exercisable for a
period of two years. Ms. Blum was granted certain registration rights in
connection with the shares subject to the Option, including "piggyback" rights
for registration at the Company's expense, and one "demand" right for
registration at the Company's expense, each subject to certain limitations.

The employment agreement provides that, in the event Ms. Blum shall resign
with 60 days notification, she shall be entitled to receive a cash payment equal
to the current year's salary then in effect. In addition, the agreement provides
that in the event of Ms. Blum's death, disability, termination without just
cause or termination without her written consent and for a reason other than
just cause in connection with or within 12 months after any Change in Control,
or upon the occurrence of certain other events in connection with a Change in
Control, she shall be entitled to receive a cash payment equal to two times her
base salary (in semi-monthly payments in the event of disability) and the
acceleration of the unvested portion of any stock options. In addition, she
shall be included to the full extent eligible in all plans providing benefits,
including group life insurance, disability insurance and pension programs for
executive employees of the Company during the term of the employment agreement
and for two years following her disability or termination without just cause or
one year following her voluntary termination. The change in control benefits are
estimated to have an aggregate value of approximately $499,000 at March 31,
1996. Ms. Blum has agreed not to engage in the banking business elsewhere in the
Washington or Baltimore, Maryland metropolitan areas or to solicit the Bank's
customers or employees for a period of one year following the voluntary
termination of her employment.

NON-QUALIFIED STOCK OPTION PLAN

No options have been granted to date under the Company's Non-Qualified Stock
Option Plan (the "Plan"). A total of 90,000 shares of the Company's Common Stock
are authorized for issuance under the Plan, in which officers of the Company and
the Bank who have been employed for at least one year are eligible to
participate. The option exercise price of any options granted under the Plan
will equal 100% of the book value of the shares as of the date of grant. Any
options granted under the Plan will become exercisable on a cumulative basis at
a rate of 25% per year during the period of four years after the grant;
provided, however, that the first 25% will not become exercisable until the
expiration of six months after the date of grant.

EMPLOYEE INCENTIVE STOCK OPTION PLAN

On January 23, 1996, the Board of Directors of the Company approved a
qualified Employee Incentive Stock Option Plan (the "Employee Plan"). A total of
9,987 shares of the Company's Common Stock are authorized for issuance under the
Employee Plan, in which key employees of the

43
<PAGE>

Company and the Bank are eligible to participate. On January 23, 1996, all such
options were granted at an exercise price of 100% of fair market value at the
date of grant, or $7.93. Options granted under the Employee Plan are immediately
exercisable and expire not later than ten years following the date of grant. The
Employee Plan is subject to shareholder approval, which will be sought at the
next annual meeting.

DIRECTORS STOCK OPTION PLAN

On January 23, 1996, the Board of Directors of the Company approved a
nonqualified Directors Stock Option Plan (the "Directors Plan"). A total of
6,429 shares of the Company's Common Stock are authorized for issuance under the
Directors Plan, in which all directors of the Company and the Bank in 1995 are
eligible to participate based upon the total months of 1995 Board service. On
January 23, 1996, all such options were granted at an exercise price of 85% of
fair market value at the date of grant, or $6.74. Options granted under the
Directors Plan vest beginning in 1996 at an annual rate of 20% at the end of
each year and expire at the earlier of ten years following the date of grant or
two years after leaving the Board. The options shall become fully vested in the
event of a "Change in Control" (as defined in the Directors Plan) or in the
event the director leaves the Board. The Directors Plan is subject to
shareholder approval, which will be sought at the next annual meeting.

EMPLOYEE STOCK OWNERSHIP PLAN WITH 401(K) PROVISIONS

On April 16, 1996, the Company's and the Bank's Boards of Directors adopted
an employee stock ownership plan with 401(k) provisions ("ESOP"). The ESOP
replaced the Bank's former 401(k) Plan. Employees of the Bank who are at least
21 years of age and who have completed one year of service are eligible to
participate. The Company will submit an application to the Internal Revenue
Service for a letter of determination as to the tax-qualified status of the
ESOP. Although no assurances can be given, the Company expects the ESOP to
receive a favorable letter of determination. The ESOP may be amended or
terminated at any time by the Bank.

The ESOP is to be funded by contributions made by the Bank in cash or shares
of the Company's Common Stock. It is expected that the ESOP will borrow funds
from the Company in an amount sufficient to purchase up to 25,000 shares of
Common Stock. This loan will be secured by the shares of Common Stock purchased
and earnings thereon. Shares purchased with such loan proceeds will be held in a
suspense account for allocation, as the loan is repaid, among participants who
are eligible to share in the Bank's contribution for the year. Dividends paid on
allocated shares may be paid to participants or used to repay the ESOP loan.
Dividends on unallocated shares are expected to be used to repay the ESOP loan.

Participants may elect to contribute a percentage of their salary, which
amount may not be less than 1% nor more than 15% of the participant's annual
salary (up to $9,500 for 1996). In addition, the Bank may make a discretionary
matching contribution equal to one-half of the percentage of the amount of the
salary reduction elected by each participant (up to a maximum of 3%), which
percentage will be determined each year by the Bank, and an additional
discretionary contribution determined each year by the Bank. Contributions by
the Bank and shares released from the suspense account will be allocated among
participants on the basis of their annual wages subject to federal income tax
withholding, plus amounts withheld under certain qualified plans. Each
participant is immediately vested in his or her contributions and the Bank's
matching contributions. Each participant will begin to vest in his or her
interest in the Bank's discretionary contributions to the ESOP after three years
of service and will be fully vested upon seven years of service. Benefits are
payable upon a participant's retirement, death, disability, or separation from
service, in a single lump-sum payment or in installments. Distributions at
retirement will be in the form of cash or shares of Common Stock or both. In
addition, the participant or beneficiary has certain put rights in the event
that the Common Stock distributed cannot be readily sold.

The Trustee of the ESOP will vote all shares of Common Stock held by it as a
part of the ESOP assets, provided that a participant or beneficiary will be
entitled to direct the Trustee as to the manner

44
<PAGE>
in which voting rights are to be exercised, with respect to shares of Common
Stock allocated to the participant, in connection with certain corporate
transactions as described in the ESOP. The Bank intends to appoint an unrelated
corporate Trustee for the ESOP.

SEVERANCE AGREEMENTS

On April 7, 1994, the Board of Directors of the Bank approved severance
arrangements for seven key management officials. These arrangements were
incorporated into Severance Agreements, dated as of April 7, 1994 (the
"Severance Agreements").

The Severance Agreements provide that, in the event of a "Change in Control"
(as defined in the Severance Agreements), the officers will be entitled to
resign from the Bank within the one year period following a Change in Control
and receive a lump sum payment equal to one year's full base salary at the rate
applicable to the officer in effect at that time. The term Change in Control
does not include a transaction approved by a majority of the "Continuing
Directors" (as defined in the Severance Agreements) then in office. In addition,
an officer will be entitled to receive such severance payment in the event the
officer's employment with the Bank is "Terminated" (as defined in the Severance
Agreements) within the one year period following a Change in Control, prior to
the resignation of the officer. These benefits are estimated to have an
aggregate value of approximately $504,000 as of March 31, 1996 based on current
salary levels. Any severance payment payable under the Severance Agreements will
be reduced to the extent that any such payment constitutes an "Excess Parachute
Payment" as such term is defined in the Internal Revenue Code of 1986, as
amended. The Severance Agreements are binding on the Bank and its successors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Bank has had, and it is expected that it will have in the future,
banking transactions in the ordinary course of business with the Company's
directors, officers and their associates on substantially the same terms,
including interest rates, collateral and payment terms on extensions of credit,
as those prevailing at the same time for comparable transactions with others. In
the opinion of Management these transactions did not in 1995 involve more than a
normal risk of collectibility or present other unfavorable features.

As of May 10, 1996, the aggregate principal amount of indebtedness to the
Bank owed by officers and directors of the Company and their associates on that
date was approximately $413,000. The highest aggregate principal amount owed
during 1995 by all officers and directors of the Company and their associates
who were indebted to the Bank during the year was approximately $1,001,000.

The Company has engaged in transactions in the ordinary course of business
with some of its directors, officers, principal stockholders and their
associates. Management believes that all such transactions are made on the same
terms as those prevailing at the time with other persons. During 1994 and 1995,
the Company engaged Hager Sharp, Inc., of which Susan Hager, a director of the
Company, is President, to provide public relations services. For the fiscal year
ended December 31, 1995, the Company paid Hager Sharp, Inc. $15,000 for such
services. For the fiscal year ended December 31, 1994, the Company paid Hager
Sharp, Inc. $32,000 for such services.

45
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES

The following table sets forth information regarding the beneficial
ownership of the Common Stock as of May 10, 1996 by (i) each person or group
known by the Company to own beneficially more than 5% of the outstanding Common
Stock; (ii) each of the Company's directors; and (iii) all directors and
executive officers of the Company as a group. Unless otherwise noted below, the
persons named in the table have sole voting and sole investment powers with
respect to each of the shares reported as beneficially owned by such person.

<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING (8)
------------------------------- -------------------------------
BENEFICIAL BENEFICIAL
OWNERSHIP OF PERCENT OF OWNERSHIP OF PERCENT OF
NAME AND ADDRESS SHARES CLASS OWNED SHARES CLASS OWNED
- ------------------------------------------------------- ---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Shirley A. Reynolds.................................... 345,495(1)(2) 40.4% 345,495 22.3%
1130 13th Avenue
Huntington, West Virginia 25701
Barbara W. Beymer...................................... 81,000(1) 9.5% 81,000 5.2%
214 North Boulevard West
Huntington, West Virginia 25701
Deborah P. Wright...................................... 81,000(1)(3) 9.5% 81,000 5.2%
1517 Diederich Boulevard
Flatwoods, Kentucky 41139
SAG, Corp. Money Purchase Plan and Trust (Pension),
Neal R. Gross, Trustee Ava S. Gross, Trustee.......... 60,483(4) 7.1% 60,483 3.9%
4218 Lenore Lane, N.W.
Washington, D.C. 20008
Barbara Davis Blum..................................... 5,124(5) * 5,124 *
Shireen L. Dodson...................................... 300 * 300 *
Susan Hager............................................ 1,566 * 1,566 *
Jeanne D. Hubbard...................................... 4,500(1) * 4,500 *
Clarence L. James, Jr.................................. 300 * 300 *
Marshall T. Reynolds................................... 225,495(1)(2) 26.4% 225,495 14.6%
Robert L. Shell, Jr.................................... 66,000(1)(6) 7.7% 66,000 4.3%
Dana B. Stebbins....................................... 300 * 300 *
Susan J. Williams...................................... 1,566 * 1,566 *
All directors and executive officers as a group (10
persons).............................................. 306,963(7) 35.8% 306,963 19.8%
</TABLE>

- ------------------------
* Less than 1%.

(1) Based upon Amendment No. 1 to Schedule 13D dated July 21, 1995, Marshall T.
Reynolds, Shirley A. Reynolds, Robert L. Shell, Jr., Robert H. Beymer,
Barbara W. Beymer, Thomas W. Wright, Deborah P. Wright and Jeanne D. Hubbard
acquired 609,114 outstanding shares of the Company. Amendment No. 2 to
Schedule 13D dated March 5, 1996 evidences the disposition of a total of
45,000 shares by Marshall T. Reynolds and Robert L. Shell, Jr. An additional
13,881 shares were acquired by Mr. and Mrs. Reynolds, jointly, in a tender
offer which was completed on September 15, 1995.

(2) Marshall T. Reynolds and Shirley A. Reynolds share voting and dispositive
power with respect to 195,495 shares owned jointly. An additional 30,000
shares are held by a dependent child.

46
<PAGE>
(3) Thomas W. Wright and Deborah P. Wright share voting and dispositive power
with respect to 21,000 shares owned jointly.

(4) Based upon a Schedule 13D dated September 18, 1995, Neal R. Gross and Ava S.
Gross share voting and dispositive power with respect to these shares.

(5) Includes options to purchase 2,268 shares granted to Ms. Blum under the
Employee Plan.

(6) Based upon Amendment No. 2 to Schedule 13D dated March 5, 1996, upon any
default under Robert L. Shell, Jr.'s loan agreement with Bank One, West
Virginia which extended financing for the purchase of Mr. Shell's shares,
Marshall T. Reynolds would be required to purchase the shares of the
Company's Common Stock attributed to Mr. Shell, increasing the number of
shares held with sole voting and dispositive power by Mr. Reynolds to 60,000
and reducing Mr. Shell's beneficial ownership to -0-. Mr. Shell's shares
include 6,000 shares transferred by gift to his wife.

(7) Includes options to purchase 3,480 shares granted to all directors and
officers as a group.

(8) Assumes no shares are purchased in the Offering.

For several years, an issue existed regarding the ownership of 609,114
shares of the Company's Common Stock (on a post-split basis). Citibank, N.A.
("Citibank") held a security interest in 609,114 shares, representing
approximately 71% of the outstanding shares (the "Pledged Shares"). Beginning in
1990, the Company and its advisors participated in various discussions with
Citibank and its advisors concerning the disposition by Citibank of the Pledged
Shares or a sale of the Company.

On April 12, 1994, the Company's Board of Directors, on the recommendation
of the Special Committee (a Board appointed Committee of Outside Directors
comprised of those of the Company's directors who were neither employees nor
significant stockholders of the Company), adopted a Rights Agreement, the
purpose of which was to provide the Board of Directors with adequate time to
respond effectively to a takeover attempt and in a manner that would maximize
the value of the Company for all shareholders. See "Description of Capital Stock
- -- Common Stock Purchase Rights."

On April 14, 1994, Citibank filed a complaint against the Company and each
of its directors in the Delaware Chancery Court seeking to enjoin the Company
from implementing the Rights Agreement or distributing the Rights. The complaint
alleged, among other things, that the Rights Agreement violated Delaware law and
that in adopting the Rights Agreement the directors of the Company violated
their fiduciary duty to all of the shareholders of the Company and tortiously
interfered with the consummation of Citibank's proposed sale of the Pledged
Shares to National Bankshares, Inc., a group with whom Citibank had negotiated
the sale of the Pledged Shares from 1992 through 1994 ("NBI"). On June 24, 1994,
the Company filed an answer to the complaint denying the allegations and in a
counterclaim against Citibank requested that the court enter a judgment
declaring the Rights Agreement valid and lawfully adopted under Delaware law
(collectively, the "Delaware Litigation").

On June 29, 1994, the Special Committee was advised by Baxter Fentriss and
Company (the Company's investment advisor) of a proposal received from Marshall
T. Reynolds to purchase the Pledged Shares from Citibank and to make an offer to
purchase up to the 245,418 shares of Common Stock that were not owned by
Citibank (the "Minority Shares"). On April 19, 1995, the Board of Directors of
the Company, on the recommendation of the Special Committee, authorized the
entry by the Company into an agreement with Mr. Reynolds (the "Reynolds
Agreement") pursuant to which he agreed that if his purchase of the Pledged
Shares from Citibank was completed, he would within 20 business days commence a
tender offer to purchase the Minority Shares at a price of $7.00 per share.
Under the Reynolds Agreement, Mr. Reynolds also agreed that until the Tender
Offer was completed neither he nor any assignee of his rights to purchase the
Pledged Shares would vote the Pledged Shares, without the consent of the
Company's Board of Directors, to change in any respect the composition of the
Company's Board of Directors. In consideration for the commitment of Reynolds to
undertake the Tender Offer, the Company agreed (i) to amend the Rights Agreement
to prevent the purchase by Mr. Reynolds of the Pledged Shares or the Tender
Offer from triggering the exercisability

47
<PAGE>
of the Rights, (ii) to take such actions as were necessary to ensure that
neither the purchase of the Pledged Shares nor the Tender Offer would constitute
a "Change in Control" under the Bank's Severance Agreements with certain key
officers and (iii) not to, or not permit the Bank to (A) amend the Severance
Agreements (except as described above), (B) amend the Employment Agreement among
the Company, the Bank and Barbara Davis Blum (except that an extension of the
termination date to a date that is not more than 90 days following the
completion of the purchase of the Pledged Shares would be permitted), (C) issue
any stock, or any options, warrants or rights to purchase stock, or any
long-term debt securities, (D) enter into, or materially increase the level of
contributions to, any pension, retirement, stock option, profit sharing,
deferred compensation, bonus, group insurance or similar plan for directors,
officers or employees, (E) other than in the ordinary course of business,
mortgage, pledge or dispose of any assets, incur any indebtedness, increase the
compensation or benefits payable to directors, officers or employees, incur any
material obligation, or enter into any material contract, or (F) amend the
Certificate of Incorporation or Bylaws of the Company or the Articles of
Association or Bylaws of the Bank. The foregoing restrictions were subject to
the exception that the Company or the Bank was permitted to adopt a stock option
plan for its directors and employees and during the first year of the plan issue
options to purchase shares of Common Stock not in excess of 2 1/2% of the total
number of shares outstanding.

On April 20, 1995, the Company amended the Rights Agreement to provide that
neither (i) the entry by Mr. Reynolds into an agreement with Citibank to
purchase the Pledged Shares or the purchase by Mr. Reynolds (or any of his
permitted assignees) of the Pledged Shares nor (ii) the announcement, conduct or
completion of the Tender Offer would trigger the exercisability of the Rights.

On April 21, 1995, Citibank and Mr. Reynolds entered into a Stock Purchase
Agreement pursuant to which Mr. Reynolds agreed to purchase the Pledged Shares
at a purchase price of $5.67 per share. The purchase was completed on July 21,
1995. In connection with the closing of the purchase of the Pledged Shares, the
Company, the Bank and each director of the Company (other than Richard Naing, a
former director of the Bank) delivered a release releasing Citibank and its
directors, officers, employees, agents and representatives from any and all
claims relating to actions taken by Citibank with respect to the Pledged Shares.
Correspondingly, Citibank delivered a release releasing the Company, the Bank
and each director (other than Mr. Naing who declined to deliver a release in
favor of Citibank), officer, employee, agent and representative of the Company
and the Bank from any and all claims relating to Citibank's efforts to dispose
of the Pledged Shares. In addition, the Company, the Bank and each director
(other than Mr. Naing) and executive officer of the Company delivered a release
releasing NBI and its directors, officers, employees, agents and representatives
from any and all claims relating to NBI's efforts to purchase the Pledged
Shares. Correspondingly, NBI delivered a release releasing the Company, the Bank
and each director, executive officer, employee, agent and representative of the
Company and the Bank (other than Mr. Naing who declined to deliver a release in
favor of NBI). On July 21, 1995, the Delaware Litigation was dismissed with
prejudice.

On August 16, 1995, Mr. Reynolds commenced his Tender Offer to purchase up
to 245,418 shares of Common Stock, consisting of the outstanding shares of
Common Stock that were not then owned by him or his associates at a price of
$7.00 per share net to seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated August 16, 1995 and the
related Letter of Transmittal (which together constitute the "Tender Offer").
The Tender Offer was completed on September 15, 1995. A total of 13,881 shares
were tendered and acquired by Marshall T. Reynolds and Shirley A. Reynolds,
jointly.

48
<PAGE>
SUPERVISION AND REGULATION

Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain
provisions of certain laws which relate to the regulation of the Company and the
Bank. The description does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.

THE COMPANY

The Company, as a registered bank holding company, is subject to regulation
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company
is required to file quarterly reports and annual reports with the Federal
Reserve Board and such additional information as the Federal Reserve Board may
require pursuant to the BHCA. The Federal Reserve Board may conduct examinations
of the Company and its subsidiaries.

The Federal Reserve Board may require that the Company terminate an activity
or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank
holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, the Company must
file written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.

Under the BHCA and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company is required by
the Federal Reserve Board to maintain certain levels of capital.

The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of the Company and another bank holding company.

The Company is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company, subject to the prior
approval of the Federal Reserve Board, may engage in any activities, or acquire
shares of companies engaged in activities that are deemed by the Federal Reserve
Board to be so closely related to banking or managing or controlling banks as to
be a proper incident thereto.

Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's
regulations or both. This doctrine has become known as the "source of strength"
doctrine. The validity of the source of strength doctrine has been and is likely
to continue to be the subject of litigation until definitively resolved by the
courts or by Congress.

49
<PAGE>
THE BANK

The Bank, as a national banking association, is subject to primary
supervision, examination and regulation by the OCC. If, as a result of an
examination of the Bank, the OCC should determine that the financial condition,
capital resources, asset quality, earnings prospects, management, liquidity or
other aspects of the Bank's operations are unsatisfactory or that the Bank or
its management is violating or has violated any law or regulation, various
remedies are available to the OCC. Such remedies include the power to enjoin
"unsafe or unsound practices," to require affirmative action to correct any
conditions resulting from any violation or practice, to issue an administrative
order that can be judicially enforced, to direct an increase in capital, to
restrict the growth of the Bank, to assess civil monetary penalties, and to
remove officers and directors. The FDIC has similar enforcement authority, in
addition to its authority to terminate a bank's deposit insurance, in the
absence of action by the OCC and upon a finding that a bank is in an unsafe or
unsound condition, is engaging in unsafe or unsound activities, or that its
conduct poses a risk to the deposit insurance fund or may prejudice the interest
of its depositors. The Bank is not subject to any such actions by the OCC or the
FDIC.

The deposits of the Bank are insured by the FDIC in the manner and to the
extent provided by law. For this protection, the Bank pays a semiannual
statutory assessment. See "Premiums for Deposit Insurance." Various other
requirements and restrictions under the laws of the United States affect the
operations of the Bank. Federal statutes and regulations relate to many aspects
of the Bank's operations, including reserves against deposits, interest rates
payable on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices, capital requirements and disclosure
obligations to depositors and borrowers. Further, the Bank is required to
maintain certain levels of capital. See "Capital Standards."

RESTRICTIONS ON TRANSFERS OF FUNDS TO THE COMPANY BY THE BANK

The Company is a legal entity separate and distinct from the Bank. The
Company's ability to pay cash dividends is limited by Delaware state law. In
addition, the prior approval of the OCC is required if the total of all
dividends declared by the Bank in any calendar year exceeds the Bank's net
profits (as defined) for that year combined with its retained net profits (as
defined) for the preceding two years, less any transfers to surplus.

The OCC also has authority to prohibit the Bank from engaging in activities
that, in the OCC's opinion, constitute unsafe or unsound practices in conducting
its business. It is possible, depending upon the financial condition of the bank
in question and other factors, that the OCC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the OCC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines and the restrictions that are or
may be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Bank or the Company may pay. See
"Prompt Corrective Regulatory Action and Other Enforcement Mechanisms" and
"Capital Standards" for a discussion of these additional restrictions on capital
distributions.

The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, the Company or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of the Company or other affiliates. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Bank to or in the
Company or to or in any other affiliate is limited to 10% of the Bank's capital
and surplus (as defined by federal regulations) and such secured loans and
investments are limited, in the aggregate, to 20% of the Bank's capital and
surplus (as defined by federal regulations).

50
<PAGE>
Additional restrictions on transactions with affiliates may be imposed on the
Bank under the prompt corrective action provisions of federal law. See "Prompt
Corrective Action and Other Enforcement Mechanisms."

CAPITAL STANDARDS

The Federal Reserve Board and the OCC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.

A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock,
retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for possible loan and lease losses, cumulative
preferred stock, long term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. The federal banking agencies
require a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In
addition to the risk-based guidelines, federal banking regulators require
banking organizations to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage ratio.

Only a well capitalized depository institution may accept brokered deposits
without prior regulatory approval. Under FDIC regulations, an institution is
generally considered "well capitalized" if it has a total risk-based capital
ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6%, and a
Tier 1 capital (leverage) ratio of at least 5%. Federal law generally requires
full-scope on-site annual examinations of all insured depository institutions by
the appropriate federal bank regulatory agency although the examination may
occur at longer intervals for small well-capitalized or state chartered banks.

Federally supervised banks and savings associations are currently required
to report deferred tax assets in accordance with SFAS No. 109. See Note 8 of the
Notes to Consolidated Financial Statements. The federal banking agencies issued
final rules, effective April 1, 1995, which limit the amount of deferred tax
assets that are allowable in computing an institution's regulatory capital. The
standard has been in effect on an interim basis since March 1993.

In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. Because this proposal has only recently been issued,
the Bank currently is unable to predict the impact of the proposal on the Bank
if the policy statement is adopted as proposed.

Future changes in regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Bank to grow and could restrict the amount of profits,
if any, available for the payment of dividends.

51
<PAGE>
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS

Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. In September 1992, the federal
banking agencies issued uniform final regulations implementing the prompt
corrective action provisions of federal law.

An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.

In addition to restrictions and sanctions imposed under the prompt
corrective action provisions, commercial banking organizations may be subject to
potential enforcement actions by the federal regulators for unsafe or unsound
practices in conducting their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency or any written
agreement with the agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease and desist order that can be
judicially enforced, the termination of insurance of deposits (in the case of a
depository institution), the imposition of civil money penalties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the issuance of removal and prohibition orders against
institution-affiliated parties and the enforcement of such actions through
injunctions or restraining orders based upon a judicial determination that the
agency would be harmed if such equitable relief was not granted.

SAFETY AND SOUNDNESS STANDARDS

In July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness. The guidelines set forth
operational and managerial standards relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation, fees and benefits.
Guidelines for asset quality and earnings standards will be adopted in the
future. The guidelines establish the safety and soundness standards that the
agencies will use to identify and address problems at insured depository
institutions before capital becomes impaired. If an institution fails to comply
with a safety and soundness standard, the appropriate federal banking agency may
require the institution to submit a compliance plan. Failure to submit a
compliance plan or to implement an accepted plan may result in enforcement
action.

PREMIUMS FOR DEPOSIT INSURANCE

Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90% of the fair market value of assets of institutions acquired
by the FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of BIF. Any borrowings not repaid by asset sales
are to be repaid through insurance premiums assessed to member institutions. The
result of these provisions is that the assessment rate on deposits of BIF
members could increase in the future. The FDIC also has authority to impose
special assessments against insured deposits.

The FDIC implemented a final risk-based assessment system, effective January
1, 1994, under which an institution's premium assessment is based on the
probability that the deposit insurance fund will incur a loss with respect to
the institution, the likely amount of any such loss, and the

52
<PAGE>
revenue needs of the deposit insurance fund. On August 8, 1995, the FDIC issued
final regulations adopting an assessment rate schedule for BIF members of 4 to
31 basis points effective on June 1, 1995. On November 14, 1995, the FDIC
further reduced deposit insurance premiums to a range of 0 to 27 basis points
effective for the semi-annual period beginning January 1, 1996.

Under the risk-based assessment system, a BIF member institution such as the
Bank is categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three categories based
on supervisory evaluations by its primary federal regulator (in the Bank's case,
the FDIC). The three supervisory categories are: financially sound with only a
few minor weaknesses (Group A), demonstrates weaknesses that could result in
significant deterioration (Group B), and poses a substantial probability of loss
(Group C). The capital ratios used by the FDIC to define well-capitalized,
adequately capitalized and undercapitalized are the same in the FDIC's prompt
corrective action regulations.

Since the Bank is considered well-capitalized under regulatory standards and
met certain other criteria during 1995, the Bank paid the FDIC insurance premium
rate of $.04 per $100 of deposits. Beginning January 1, 1996, the Bank pays a
flat $2,000 per year for FDIC deposit insurance.

INTERSTATE BANKING AND BRANCHING

In September 1994, the Riegel-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate
Act, beginning one year after the date of enactment, a bank holding company that
is adequately capitalized and managed may obtain approval under the BHCA to
acquire an existing bank located in another state without regard to state law. A
bank holding company would not be permitted to make such an acquisition if, upon
consummation, it would control (a) more than 10% of the total amount of deposits
of insured depository institutions in the United States or (b) 30% or more of
the deposits in the state in which the bank is located. A state may limit the
percentage of total deposits that may be held in that state by any one bank or
bank holding company if application of such limitation does not discriminate
against out-of-state banks. An out-of-state bank holding company may not acquire
a state bank in existence for less than a minimum length of time that may be
prescribed by state law except that a state may not impose more than a five year
existence requirement.

DESCRIPTION OF CAPITAL STOCK

Prior to this Offering, the Company intends to amend its Certificate of
Incorporation to increase its authorized shares of Common Stock from 800,000 to
5,000,000 shares and reduce the par value of the Common Stock from $10.00 to
$.01 per share, and to issue a three-for-one stock split in the form of a stock
dividend. On a post-split basis, at May 10, 1996, 859,212 shares of Common Stock
were issued and 854,532 shares were outstanding and the Company had
approximately 578 stockholders. Upon completion of the Offering, the issued and
outstanding capital stock of the Company will consist of 1,549,532 shares of
Common Stock (1,650,032 shares if the over-allotment option is exercised in
full).

COMMON STOCK

Each holder of the Common Stock is entitled to one vote for each share held
of record on each matter submitted to a vote of stockholders. Cumulative voting
in the election of directors is not permitted. As a result, the holders of more
than 50% of the outstanding shares have the power to elect all directors.

The holders of shares of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor and, in the event of the liquidation, dissolution or winding
up of the Company, to share ratably in all assets remaining after the payment of
liabilities. There are no preemptive or other subscription rights, conversion
rights, or redemption or sinking fund provisions with respect to shares of
Common Stock. All of the shares of Common Stock outstanding are legally issued,
fully paid and nonassessable.

53
<PAGE>
COMMON STOCK PURCHASE RIGHTS

On April 12, 1994, the Company's Board of Directors declared a dividend of
one common share purchase right (a "Right") for each outstanding share of the
Company's Common Stock (the "Common Shares"). The dividend was paid on April 25,
1994 (the "Record Date") to the shareholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one share of Common
Stock of the Company, at a price of $20.11 per share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement, as amended on April 20, 1995 (the "Rights Agreement"),
between the Company and The First National Bank of Maryland, as Rights Agent
(the "Rights Agent").

Until the earliest to occur of (a) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership or
record ownership of 25% or more of the outstanding Common Shares; (b) 10 days
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership or record ownership by a person or group of 25% or more of such
outstanding Common Shares; or (c) the date a person or group of affiliated or
associated persons is or becomes the beneficial or record owner of 15% or more
of the outstanding Common Shares and (i) the actions such person proposes to
take are likely to have a material adverse impact on the business or prospects
of the Company; (ii) such person intends to cause the Company to repurchase the
Common Shares owned by such person; (iii) such person exercises or attempts to
exercise a controlling influence over the Company; or (iv) such person transfers
all or a portion of such Common Shares in a manner that results in a person
owning 9.9% or more of the Common Shares (an "Adverse Person") (the earliest of
such dates being called the "Distribution Date"), the Rights will be evidenced,
with respect to any of the Common Share certificates outstanding as of the
Record Date, by such Common Share certificate with a copy of a Summary of Rights
attached thereto.

Notwithstanding the foregoing, the Rights Agreement, as amended on April 20,
1995, provides that neither (i) the entry by Mr. Reynolds into an agreement with
Citibank to purchase the Pledged Shares or the purchase by Mr. Reynolds (or any
of his permitted assignees) of the Pledged Shares nor (ii) the announcement,
conduct or completion of the Tender Offer would trigger the exercisability of
the Rights.

The Rights are not exercisable until the Distribution Date. The Rights will
expire on December 31, 2003 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company. At any time prior to the date a Person becomes an Acquiring Person or
an Adverse Person, the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price. The terms of the Rights may be amended by the
Board of Directors of the Company without the consent of the holders of the
Rights, including an amendment to extend the Final Expiration Date and, provided
there is no Acquiring Person or Adverse Person, to extend the period during
which the Rights may be redeemed, except that from and after such time as any
person becomes an Acquiring Person or an Adverse Person no such amendment may
adversely affect the interests of the holders of the Rights.

In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right. In the event that any Person becomes an Acquiring Person or
an Adverse Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person or Adverse Person (which will thereafter be void), will

54
<PAGE>
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right, but in no
event will the purchase price per share be less than the par value of the Common
Shares.

DELAWARE BUSINESS COMBINATION LAW

Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined in Section 203, generally, as a person owning 15% or more
of a corporation's outstanding voting stock), from engaging in a "business
combination" (as defined in Section 203) with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became such or approved the business combination
transaction, (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding stock held by directors who are
also officers of the corporation and by associated stock plans that do not
provide associates with the rights to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer) or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.

55
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters, for whom Ferris, Baker Watts, Incorporated is serving as
Representative, has severally agreed to purchase, the number of shares of Common
Stock set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
- --------------------------------------------------------------------------- -----------------
<S> <C>
Ferris, Baker Watts, Incorporated..........................................

--------
Total.................................................................. 670,000
--------
--------
</TABLE>

The nature of the Underwriters' obligations under the Underwriting Agreement
is such that all shares of Common Stock offered, excluding shares covered by the
over-allotment option granted to the Underwriters, must be purchased if any are
purchased. The Underwriting Agreement provides that the obligations of the
several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions.

The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public initially at the price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. The public offering price and concessions and
allowances to dealers may be changed by the Representative.

The Company has granted the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 100,500
shares of Common Stock to cover over-allotments, at the same price per share to
be paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any such additional shares pursuant to this option, each
of the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any, in
connection with the Offering made hereby.

The executive officers, directors and certain stockholders of the Company
have agreed that they will not offer, sell, contract to sell or grant an option
to purchase or otherwise dispose of any shares of the Company's Common Stock,
options or warrants to acquire shares of Common Stock or any securities
exercisable for or convertible into Common Stock owned by them, in the open
market or otherwise, for a period of 180 days from the date of this Prospectus,
without the prior written consent of the Representative. The Company has agreed
not to offer, sell or issue any shares of Common Stock, options or warrants to
acquire Common Stock or securities exercisable for or convertible into shares of
Common Stock for a period of 180 days after the date of this Prospectus, without
the prior written consent of the Representative, except that the Company may
issue securities pursuant to the Company's stock option plans and upon the
exercise of all outstanding stock options.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, which may arise out of or be based upon any untrue statement or alleged
untrue statement of any material fact made by the indemnifying party and
contained in this Prospectus, the Registration Statement, any supplement or
amendment thereto, or any documents filed with state securities authorities, or
any omission or

56
<PAGE>

alleged omission of the indemnifying party to state a material fact required to
be stated in any such document or required to make the statements in any such
document, in light of the circumstances in which they are made, not misleading.

Prior to this Offering, the market for the Company's Common Stock has been
limited. The public offering price for the Common Stock was determined by
negotiation among the Company and the Representative of the Underwriters. The
material factors considered in determining the public offering price were the
current market for the Common Stock, an evaluation of assets, earnings and other
established criteria of value, as well as the comparisons of the relationships
between market prices and book values of financial institutions of a similar
size and asset quality.

The Representative intends to make a market in the securities of the
Company, as permitted by applicable laws and regulations. The Representative,
however, is not obligated to make a market in such securities and any such
market making may be discontinued at any time at the sole discretion of the
Representative.

In addition to the discounts and commissions that appear on the cover page
of this Prospectus, the Company will reimburse the Representative $85,000 for
expenses incurred by the Representative. The Company also paid a financial
advisory fee to the Representative of $25,000.

The Representative has informed the Company that it does not expect the
Underwriters to confirm sales of Common Stock offered by this Prospectus to any
accounts over which they exercise discretionary authority.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Shapiro and Olander, Baltimore, Maryland. Certain legal matters
related to the Offering will be passed upon for the Underwriters by Manatt,
Phelps & Phillips, LLP, Washington, D.C.

EXPERTS

The consolidated financial statements of Abigail Adams National Bancorp,
Inc. as of December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, included herein have been included in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.

57
<PAGE>
This page intentionally left blank.

58
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of March 31, 1996 (unaudited) and as of December 31, 1995 and 1994.......... F-3
Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) and
for the years ended December 31, 1995, 1994 and 1993.................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993.................................... F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) and
for the years ended December 31, 1995, 1994 and 1993.................................................... F-6
Notes to Consolidated Financial Statements at March 31, 1996 and 1995 (unaudited).......................... F-7
Notes to Consolidated Financial Statements at December 31, 1995 and 1994................................... F-9
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Abigail Adams National Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of Abigail
Adams National Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company'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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Abigail
Adams National Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Washington, D.C.
January 26, 1996, except for Note 19 which is as of May 31, 1996.

F-2
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

MARCH 31, 1996 (UNAUDITED)
AND
DECEMBER 31, 1995 AND 1994
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
MARCH 31, ------------- -------------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks (Note 2)..................................... $ 4,478,105 $ 4,953,200 $ 4,349,250
Short-term investments:
Federal funds sold................................................. 10,850,000 9,475,000 1,300,000
Interest-bearing deposits in other banks........................... 486,715 486,715 490,715
------------- ------------- -------------
Total short-term investments..................................... 11,336,715 9,961,715 1,790,715
Securities available for sale (Note 3)............................... 4,997,870 5,508,406 6,009,025
Investment securities (market value of $7,626,518, $8,309,265 and
$8,838,874 at March 31, 1996 and December 31, 1995 and 1994,
respectively) (Note 3).............................................. 7,563,546 8,192,647 9,080,778
Loans (net of deferred fees and unearned discounts) (Notes 4 and
10)................................................................. 60,214,781 63,592,395 60,729,437
Less: Allowance for loan losses (Note 4)........................... (1,261,672) (1,273,965) (1,289,562)
------------- ------------- -------------
Loans, net..................................................... 58,953,109 62,318,430 59,439,875
------------- ------------- -------------
Bank premises and equipment, net (Note 5)............................ 287,175 277,517 369,218
Other assets (Note 8)................................................ 1,272,692 1,152,761 1,221,580
------------- ------------- -------------
Total assets................................................... $ 88,889,212 $ 92,364,676 $ 82,260,441
------------- ------------- -------------
------------- ------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Notes 3 and 6):
Demand deposits.................................................. $ 20,571,738 $ 23,443,937 $ 19,677,159
NOW accounts..................................................... 6,877,672 7,343,282 10,381,478
Money market accounts............................................ 22,159,158 21,391,814 17,850,822
Savings accounts................................................. 1,296,342 1,317,226 1,225,538
Certificates of deposit of $100,000 or greater................... 11,673,224 13,590,946 13,651,233
Certificates of deposit less than $100,000....................... 16,233,468 15,975,990 12,507,272
------------- ------------- -------------
Total deposits................................................. 78,811,602 83,063,195 75,293,502
------------- ------------- -------------
Short-term borrowings (Note 10).................................... 2,233,030 1,785,402 360,708
Long-term debt -- capital note (Note 9)............................ 167,625 186,250 260,750
Other liabilities.................................................. 887,670 710,963 583,211
------------- ------------- -------------
Total liabilities.............................................. 82,099,927 85,745,810 76,498,171
------------- ------------- -------------
Stockholders' equity (Notes 9, 12 and 19):
Common stock, par value $0.01 per share, authorized 5,000,000
shares; issued 859,212 shares; outstanding 854,532 shares in 1996,
1995 and 1994..................................................... 8,592 8,592 8,592
Additional paid-in capital......................................... 6,147,421 6,147,421 6,147,421
Retained earnings (deficit)........................................ 698,652 531,830 (284,646)
------------- ------------- -------------
6,854,665 6,687,843 5,871,367
Less: Treasury stock, 4,680 shares at cost......................... (28,710) (28,710) (28,710)
Less: Unrealized loss on securities, net of taxes.................. (36,670) (40,267) (80,387)
------------- ------------- -------------
Total stockholders' equity..................................... 6,789,285 6,618,866 5,762,270
------------- ------------- -------------
Total liabilities and stockholders' equity..................... $ 88,889,212 $ 92,364,676 $ 82,260,441
------------- ------------- -------------
------------- ------------- -------------
Commitments and contingent liabilities (Notes 7 and 11)
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------ ------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ---------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (Note 4).................... $1,508,727 $1,418,178 $5,902,325 $5,100,609 $4,412,001
Interest on securities available/held for sale:
U.S. Treasury........................................ 26,562 45,956 175,979 220,986 238,443
Obligations of U.S. government agencies.............. 47,311 41,289 128,954 173,619 251,849
----------- ----------- ---------- ------------ ----------
Total interest on securities available/held for
sale............................................ 73,873 87,245 304,933 394,605 490,292
Interest and dividends on investment securities:
U.S. Treasury 7,489 18,004 69,417 45,055 --
Obligations of U.S. government agencies.............. 85,593 98,325 413,396 373,813 379,806
Mortgage-backed securities........................... 8,128 12,491 38,539 50,862 85,919
Other securities..................................... 7,036 11,496 32,460 11,774 32,549
----------- ----------- ---------- ------------ ----------
Total interest and dividends on investment
securities...................................... 108,246 140,316 553,812 481,504 498,274
Interest on short-term investments:....................
Federal funds sold................................... 109,238 18,904 130,069 87,954 83,108
Bankers' acceptances................................. -- -- -- -- 16,820
Deposits with other banks............................ 6,866 5,837 22,920 18,025 12,573
----------- ----------- ---------- ------------ ----------
Total interest on short-term investments......... 116,104 24,741 152,989 105,979 112,501
----------- ----------- ---------- ------------ ----------
Total interest income............................ 1,806,950 1,670,480 6,914,059 6,082,697 5,513,068
----------- ----------- ---------- ------------ ----------
INTEREST EXPENSE:
Interest on deposits (Note 6):
NOW accounts......................................... 46,064 70,655 249,377 264,771 256,815
Money market accounts................................ 217,388 205,839 812,916 544,798 418,340
Savings accounts..................................... 8,686 7,719 31,060 29,125 32,961
Certificates of deposit:
$100,000 or greater................................ 171,469 178,362 698,356 525,099 421,563
Less than $100,000................................. 238,675 158,990 845,681 492,134 341,275
----------- ----------- ---------- ------------ ----------
Total interest on deposits....................... 682,282 621,565 2,637,390 1,855,927 1,470,954
Interest on short-term borrowings:
Federal funds purchased and repurchase agreements...... 28,447 26,147 88,871 57,131 16,502
Other short-term borrowings............................ -- 5,113 6,364 3,382 --
----------- ----------- ---------- ------------ ----------
Total interest on short-term borrowings.......... 28,447 31,260 95,235 60,513 16,502
Interest on capital note (Note 9)........................ 2,794 3,911 13,969 18,028 20,445
----------- ----------- ---------- ------------ ----------
Total interest expense........................... 713,523 656,736 2,746,594 1,934,468 1,507,901
----------- ----------- ---------- ------------ ----------
Net interest income.............................. 1,093,427 1,013,744 4,167,465 4,148,229 4,005,167
Provision for loan losses (Note 4)....................... -- -- -- 221,572 175,000
----------- ----------- ---------- ------------ ----------
Net interest income after provision for loan
losses.......................................... 1,093,427 1,013,744 4,167,465 3,926,657 3,830,167
----------- ----------- ---------- ------------ ----------
OTHER INCOME:
Service charges on deposit accounts.................... 172,269 179,753 737,059 696,829 669,242
Other income........................................... 12,150 11,878 103,712 93,837 191,040
Gain (loss) on securities transactions................. -- -- -- (281) 24,495
----------- ----------- ---------- ------------ ----------
Total other income............................... 184,419 191,631 840,771 790,385 884,777
----------- ----------- ---------- ------------ ----------
OTHER EXPENSE:
Salaries and employee benefits......................... 431,691 414,145 1,649,071 1,611,127 1,564,364
Occupancy and equipment expense (Notes 5 and 7)........ 171,724 185,494 698,570 750,359 674,341
Professional fees...................................... 42,617 92,419 353,205 887,347 480,860
Data processing fees................................... 86,879 64,632 299,580 265,897 243,742
Other operating expense (Note 16)...................... 168,423 194,586 781,000 1,386,444 1,140,578
----------- ----------- ---------- ------------ ----------
Total other expense.............................. 901,334 951,276 3,781,426 4,901,174 4,103,885
----------- ----------- ---------- ------------ ----------
Income (loss) before taxes....................... 376,512 254,099 1,226,810 (184,132) 611,059
Applicable income tax expense (Note 8)................... 138,479 69,877 267,912 -- --
----------- ----------- ---------- ------------ ----------
NET INCOME (LOSS)................................ $ 238,033 $ 184,222 $ 958,898 $ (184,132) $ 611,059
----------- ----------- ---------- ------------ ----------
----------- ----------- ---------- ------------ ----------
NET INCOME (LOSS) PER COMMON SHARE (Note 19)..... $ .28 $ .22 $ 1.12 $ (.22) $ .72
----------- ----------- ---------- ------------ ----------
----------- ----------- ---------- ------------ ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTH PERIOD ENDED MARCH 31, 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
ADDITIONAL RETAINED UNREALIZED
PAID-IN EARNINGS TREASURY LOSS ON
COMMON STOCK CAPITAL (DEFICIT) STOCK SECURITIES TOTAL
------------- ------------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993............. $ 2,864,040 $ 3,291,973 $ (711,573) $ (28,710) $ -- $ 5,415,730
Net income................. -- -- 611,059 -- -- 611,059
------------- ------------- ------------ ---------- ---------- -------------
Balance at December 31,
1993........................ 2,864,040 3,291,973 (100,514) (28,710) -- 6,026,789
Net loss................. -- -- (184,132) -- -- (184,132)
Unrealized loss on
securities, net of
taxes..................... -- -- -- -- (80,387) (80,387)
------------- ------------- ------------ ---------- ---------- -------------
Balance at December 31,
1994........................ 2,864,040 3,291,973 (284,646) (28,710) (80,387) 5,762,270
Change in par value of
common stock (Note 19).... (2,861,176) 2,861,176 -- -- -- --
Shares issued in
three-for-one stock split
in the form of a stock
dividend (Note 19)........ 5,728 (5,728) -- -- -- --
Net income................. -- -- 958,898 -- -- 958,898
Dividends declared......... -- -- (142,422) -- -- (142,422)
Unrealized gain on
securities, net of
taxes..................... -- -- -- -- 40,120 40,120
------------- ------------- ------------ ---------- ---------- -------------
Balance at December 31,
1995........................ 8,592 6,147,421 531,830 (28,710) (40,267) 6,618,866
Net income................. -- -- 238,033 -- -- 238,033
Dividend declared.......... -- -- (71,211) -- -- (71,211)
Unrealized gain on
securities, net of
taxes..................... -- -- -- -- 3,597 3,597
------------- ------------- ------------ ---------- ---------- -------------
Balance at
March 31, 1996
(unaudited)................. $ 8,592 $ 6,147,421 $ 698,652 $ (28,710) $ (36,670) $ 6,789,285
------------- ------------- ------------ ---------- ---------- -------------
------------- ------------- ------------ ---------- ---------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------------ ----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................... $ 238,033 $ 184,222 $ 958,898 $ (184,132) $ 611,059
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Provision for loan and other real estate losses.... -- -- -- 221,572 179,775
Depreciation, amortization and retirement of bank
premises and equipment............................ 28,237 40,617 146,084 154,177 140,159
Loss (gain) on sale of securities.................. -- -- -- 281 (24,495)
Loss on sale of other real estate.................. -- -- -- 11,516 --
Accretion of loan discounts........................ (9,083) (5,774) (106,116) (6,549) (184,412)
Amortization and accretion of discounts and
premiums on securities............................ (1,553) 7,698 19,097 33,226 61,779
Benefit (provision) for deferred income taxes...... (94,576) (44,734) (300,227) 254,046 (356,630)
Decrease (increase) in other assets................ (119,930) (64,679) 369,045 (444,958) 621,994
Increase (decrease) in other liabilities........... 268,750 (21,725) (11,874) (476,874) 684,933
----------- ----------- ------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES...................................... 309,878 95,625 1,074,907 (437,695) 1,734,162
----------- ----------- ------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from repayment and maturity of investment
securities.......................................... 1,650,000 150,000 1,888,400 800,000 5,314,450
Proceeds from maturity of securities available/held
for sale............................................ 2,000,000 2,088,400 10,000,000 6,750,000 3,950,000
Proceeds from repayment of mortgage-backed
securities.......................................... 22,094 28,583 126,951 258,705 647,776
Proceeds from sale of securities..................... -- -- -- 449,718 1,524,495
Purchase of investment securities.................... (1,024,775) -- (1,092,225) (1,758,334) --
Purchase of securities available/held for sale....... (1,500,000) (1,588,400) (9,485,625) (5,747,500) (8,889,403)
Net decrease (increase) in interest-bearing deposits
in other banks...................................... -- -- 4,000 -- (94,715)
Principal collected on loans......................... 1,375,823 4,140,085 14,072,132 10,402,119 13,616,541
Loans originated..................................... (1,507,667) (2,729,731) (12,771,600) (16,665,764) (18,254,957)
Loans purchased from FDIC as receiver for other
banks............................................... -- -- -- (493,086) (6,418,028)
Net decrease (increase) in short-term loans.......... (155,889) (24,031) (96,137) (160,958) (9,000)
Net decrease (increase) in lines of credit........... 3,662,138 443,475 (3,936,146) 754,607 (339,495)
Purchase of bank premises and equipment.............. (37,895) (14,156) (54,383) (184,284) (44,499)
Proceeds from disposition of other real estate....... -- -- -- 716,984 --
----------- ----------- ------------ ------------ ------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES...................................... 4,483,829 2,494,225 (1,344,633) (4,877,793) (8,996,835)
----------- ----------- ------------ ------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in transaction and savings
deposits............................................ (2,591,348) (3,077,684) 4,361,262 2,948,474 3,949,010
Proceeds from issuance of time deposits.............. 3,463,596 13,860,339 40,745,855 34,897,519 45,663,732
Payments for maturing time deposits.................. (5,123,841) (11,160,540) (37,337,424) (35,008,768) (38,003,294)
Net increase (decrease) in short-term borrowings..... 447,627 187,197 1,424,694 165,818 (1,400,110)
Payments on long-term debt........................... (18,625) -- (74,500) (56,250) (38,000)
Cash dividends paid to common stockholders........... (71,211) -- (71,211) -- --
----------- ----------- ------------ ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES...................................... (3,893,802) (190,688) 9,048,676 2,946,793 10,171,338
----------- ----------- ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 899,905 2,399,162 8,778,950 (2,368,695) 2,908,665
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR... 14,428,200 5,649,250 5,649,250 8,017,945 5,109,280
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR......... $15,328,105 $ 8,048,412 $ 14,428,200 $5,649,250 $ 8,017,945
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Supplementary disclosures:
Interest paid on deposits and borrowings......... $ 731,883 $ 629,244 $ 2,711,626 $1,924,179 $ 1,401,879
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Income taxes paid................................ $ 95,500 $ -- $ 327,593 $ 511,250 $ 8,000
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
Securities transferred to investment
securities...................................... $ -- $ -- $ -- $3,500,000 $ --
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)

1. The unaudited information at and for the three months ended March 31, 1996
and 1995 furnished herein reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented. All adjustments are of a normal and recurring nature.

2. CONTINGENT LIABILITIES

Under the terms of an employment agreement with the President and Chief
Executive Officer of the Company and the Bank, the Company is obligated to make
payments to her under certain conditions, totaling approximately $499,000, in
the event her employment is terminated.

Under the terms of severance agreements with seven key management officials
of the Bank, the Bank is obligated to make payments totaling $504,000 under
certain conditions in the event of a change in control of the Company or the
Bank.

The Company maintains directors' and officers' liability insurance in the
amount of $2,000,000, subject to certain exclusions. In addition, according to
the by-laws, the Company is obligated to indemnify any director or officer for
losses incurred to the full extent authorized or permitted by Delaware general
corporation law.

3. SHAREHOLDER RIGHTS PLAN

On April 12, 1994, the Board of Directors of the Company adopted a Rights
Agreement ("Rights Agreement"), which was amended April 20, 1995. Pursuant to
the Rights Agreement, the Board of Directors of the Company declared a dividend
of one share purchase right for each share of the Company's common stock
outstanding on April 25, 1994 ("Right"). Among other things, each Right entitles
the holder to purchase one share of the Company's common stock at an exercise
price of $20.11.

Subject to certain exceptions, the Rights will be exercisable if a person or
group of persons acquires 25% or more of the Company's common stock ("Acquiring
Person"), or announces a tender offer, the consummation of which would result in
ownership by a person or group of persons of 25% or more of the common stock, or
if the Board determines that a person or group of persons holding 15% or more of
the Company's common stock is an Adverse Person, as defined in the Rights
Agreement.

Upon the occurrence of one of the triggering events, all holders of Rights,
except the Acquiring Person or Adverse Person, would be entitled to purchase the
Company's common stock at 50% of the market price. If the Company is acquired in
a merger or business combination, each holder of a Right would be entitled to
purchase common stock of the Acquiring Person at a similar discount.

The Board of Directors may redeem the Rights for $0.01 per share or amend
the Plan at any time before a person becomes an Acquiring Person. The Rights
expire on December 31, 2003.

4. EMPLOYEE BENEFITS

The Company has adopted a Nonqualified Stock Option Plan for certain
officers and key employees and has reserved 90,000 shares of common stock for
options to be granted under the plan. No options have been granted to date.

F-7
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996 AND 1995
(UNAUDITED)

4. EMPLOYEE BENEFITS (CONTINUED)

vested in the event of a Change in Control, as defined in the Directors Plan, or
in the event that the Director leaves the Board. Options under the Employee Plan
are granted at a price of 100% of the fair market value of the Company's common
stock on the date of grant and are immediately exercisable. Options under both
plans expire not later than ten years after the date of grant. Options for a
total of 16,416 shares of common stock available for grant under the above Plans
were granted at a price of $6.74 for directors and $7.93 for employees. No
options have been exercised under these plans.

On March 29, 1996, the Company granted the President and Chief Executive
Officer a nonqualified stock option to purchase 75,000 shares at a price equal
to 85% of the fair market value of the Company's common stock on the date of
grant ($6.74). The option vests beginning in 1996 at an annual rate of 20% at
the end of each year and becomes fully vested in the event of a Change in
Control as defined in the Agreement, or in the event that she leaves the Company
or the Bank.

On April 16, 1996, the Company and the Bank adopted an employee stock
ownership plan ("ESOP") with 401(k) provisions, replacing the Bank's former
401(k) Plan. Participants may elect to contribute to the ESOP a portion of their
salary, which may not be less than 1% nor more than 15%, of their annual salary
(up to $9,500 for 1996). In addition, the Bank may make a discretionary matching
contribution equal to one-half of the percentage amount of the salary reduction
elected by each participant (up to a maximum of 3%), which percentage will be
determined each year by the Bank, and an additional discretionary contribution
determined each year by the Bank. Employee contributions and the employer's
matching contributions immediately vest. Employer's discretionary contributions
are vested as follows: 0% for less than three years of service; 20% for three
years of service; 40% for four years of service; 60% for five years of service;
80% for six years of service; and 100% for seven or more years of service.

5. NET INCOME (LOSS) PER SHARE

Net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares and common share
equivalents outstanding during the period, 860,940 and 854,532 for the three
months ended March 31, 1996 and 1995. Common share equivalents include stock
options.

F-8
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Abigail Adams National Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, The Adams National Bank (the "Bank"), prepare their financial
statements on the accrual basis and in conformity with generally accepted
accounting principles. The more significant accounting policies are explained
below. As used herein, the term the Company includes the Bank unless the context
otherwise requires.

(a) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.

(b) CASH AND CASH EQUIVALENTS

The Company has defined cash and cash equivalents as those amounts included
in cash and due from banks and Federal funds sold.

Management determines the appropriate classifications of securities at the
time of purchase. Securities which the Company has the ability and the intent to
hold until maturity are classified as investment securities and reported at
amortized cost. Securities bought and held principally for the purpose of
selling them in the near term are classified as trading and reported at fair
market value with unrealized gains and losses included in earnings. Securities
which are not classified as trading or held to maturity are classified as
available for sale and are reported at fair value with unrealized gains and
losses reported as a separate component of stockholders' equity. The unrealized
loss on securities recognized had the effect of decreasing the Company's
stockholders' equity by approximately $40,000, and $80,000, net of tax, at
December 31, 1995 and 1994, respectively. The Company does not maintain a
trading account.

Premiums and discounts are amortized using a method which approximates the
interest method over the term of the security. Realized gains and losses on
securities sold are computed using the specific identification method.

(d) LOANS

Loans are stated at unpaid principal amount, net of unearned discount and
deferred loan fees and costs.

The Company discontinues the accrual of interest when the timely collection
of principal or interest is doubtful. Interest accruals are resumed on such
loans when they are brought fully current with respect to interest and principal
or when, in the judgment of management, the loans have demonstrated a new period
of performance and are estimated to be fully collectible as to both principal
and interest.

(e) ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a current estimate of the anticipated
losses in the present loan portfolio. The allowance is increased by provisions
charged to operating expenses and decreased by loan charge-offs, net of
recoveries. The allowance for loan losses is based on management's evaluation of
several factors, including loan loss experience, composition and volume of the
loan portfolio, overall portfolio quality, review of specific problem loans and
current economic trends and specific conditions that may effect the borrower's
ability to pay. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such

F-9
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination. Management believes that the current allowance for loan losses is
adequate to absorb losses that are inherent in the current loan portfolio.

(f) LOAN ORIGINATION FEES AND COSTS

All fee income received from loan origination and purchases as well as costs
directly attributable to the loan origination are deferred. The net deferred
fees are amortized into interest income on loans as a yield adjustment over the
estimated life of the loan. Deferred fees and costs are not amortized during
periods in which interest income is not being recognized because of concerns
about the realization of loan principal or interest. Discounts obtained on loans
purchased from the FDIC as receiver for other banks are considered credit
discounts and are not amortized into income until such time as a periodic credit
evaluation deems that the discount, or a portion thereof, is no longer necessary
or until such time as the loans have paid off. If the credit evaluation deems
all or some of the discount is no longer necessary, it is then amortized into
interest on loans as a yield adjustment over the remaining estimated life of the
loan.

(g) DEPRECIATION

Depreciation of Bank premises and equipment is computed over the estimated
useful lives of the respective assets, ranging from three to five years, on the
straight-line basis. Leasehold improvements are amortized on a straight-line
basis over the estimated useful lives of the respective assets or the terms of
the respective leases, whichever is shorter. Expenditures for major renewals and
betterments of Bank premises and equipment are capitalized at cost and those for
maintenance and repairs are charged to expense as incurred.

(h) OTHER REAL ESTATE

Other real estate includes assets that have been acquired in satisfaction of
debt ("assets owned") and in-substance foreclosures. Other real estate is
recorded at the lower of cost or fair value. Any valuation adjustments required
at the date of transfer are charged to the allowance for loan losses. Subsequent
to acquisition, other real estate is carried at the lower of its cost basis at
foreclosure or fair value less estimated selling costs, based upon periodic
evaluations.

(i) INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

(j) NET INCOME (LOSS) PER SHARE

Net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
year, 854,532 in 1995, 1994 and 1993.

(k) FAIR VALUE DISCLOSURES

In December, 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 107, "Disclosures About Fair Value of
Financial Instruments" (SFAS

F-10
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No. 107). SFAS No. 107 requires entities to disclose the fair value of financial
instruments, both assets and liabilities recognized and not recognized in the
statement of financial position, for which it is practical to estimate fair
value. SFAS No. 107 is effective for the Company at December 31, 1995. The fair
value of the Company's financial instruments is reported in Note 18.

(l) ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
(SFAS No. 114) and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures" (SFAS No. 118) which amended SFAS No. 114. SFAS No. 114 and SFAS
No. 118 require creditors to measure impaired loans in one of three ways: the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
underlying collateral. If the measure of the impaired loan is less than the
recorded investment in the loan, the creditor shall recognize the impairment by
creating a valuation allowance with a corresponding charge to expense.

Impaired loans are specifically reviewed loans for which it is probable that
the Company will be unable to collect all amounts due according to the terms of
the loan agreement. The specific factors that influence management's judgment in
determining when a loan is impaired include evaluation of financial strength of
the borrower and the fair value of the collateral. The Company's impaired loans
are generally nonaccrual loans and restructured loans. Restructured loans are
impaired loans in the year of restructuring and thereafter, such loans are
subject to management's evaluation of impairment based on the restructured
terms. The Company's charge-off policy for impaired loans is consistent with its
policy for all loan charge-offs. Impaired loans are charged-off when all or a
portion thereof is considered uncollectible or transferred to foreclosed
properties. Consistent with the Company's method for nonaccrual loans, interest
receipts on impaired loans are recognized as interest income or are applied to
principal when the ultimate collectibility of principal is in doubt.

SFAS No. 114 and SFAS No. 118 were adopted by the Company as of January 1,
1995. The adoption of SFAS No. 114 and SFAS No. 118 did not have a material
impact on the Company.

(m) DERIVATIVE FINANCIAL INSTRUMENTS

In October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" (SFAS No. 119). SFAS No.
119 requires entities to disclose the amount, nature and terms of all derivative
financial instruments, such as futures, forward, swap or option contracts, or
other financial instruments with similar characteristics, and to separately
disclose certain information about these instruments which are held or issued
for trading purposes and those which are held or issued for purposes other than
trading. SFAS No. 119 was adopted as of January 1, 1995.

(n) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121).
SFAS No. 121 requires that assets to be held and used be evaluated for
impairment whenever events or circumstances indicate that the carrying value may
not be recoverable. SFAS No. 121 also requires that assets to be disposed of be
reported at the lower of

F-11
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cost or fair value less selling costs. Implementation of SFAS No. 121 is not
expected to have a material impact on the results of operations or financial
position. SFAS No. 121 is effective for the Company as of January 1, 1996.

(o) ACCOUNTING FOR MORTGAGE SERVICING RIGHTS

In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS No. 122). SFAS No. 122 provides accounting for mortgage servicers
that sell or securitize loans and retain servicing rights. SFAS No. 122 is
effective as of January 1, 1996. The Company does not sell or securitize
mortgage loans and therefore the implementation of SFAS No. 122 will not have a
material impact.

(p) ACCOUNTING FOR STOCK BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123). SFAS No. 123 allows companies either to continue
to account for stock-based employee compensation plans under existing accounting
standards or to adopt a fair-value-based method of accounting as defined in the
new standard. The Company will follow the existing accounting standards for
these plans, but will provide pro-forma disclosure of net income and earnings
per share as if the expense provisions of SFAS No. 123 had been adopted.
Implementation of SFAS No. 123 is not expected to have a material impact on
results of operations or financial condition.

(q) RISKS AND UNCERTAINTIES

The Company is subject to competition from other financial institutions, and
is also subject to the regulations of certain federal agencies and undergoes
periodic examination by those regulatory authorities.

The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.

Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses
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 loans losses and other real estate, management periodically obtains
independent appraisals for significant properties.

(r) RECLASSIFICATIONS

Certain reclassifications have been made to amounts previously reported in
1994 and 1993 to conform with the 1995 presentation.

2. RESTRICTIONS ON CASH BALANCES
Included in cash and due from banks are balances maintained within the
Company to satisfy legally required reserves and to compensate for services
provided from correspondent banks. Balances maintained totaled $1,475,000 and
$1,526,000 at December 31, 1995 and 1994, respectively. There were no other
withdrawal, usage restrictions or legally required compensating balances at
December 31, 1995 or 1994.

F-12
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

3. SECURITIES
Investment securities at December 31, 1995 and 1994 are summarized as
follows:

<TABLE>
<CAPTION>
1995
----------------------------------------------------
GROSS GROSS
ADJUSTED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year......................................... $ 1,499,200 $ 1,581 $ -- $ 1,500,781
------------ ----------- ----------- ------------
Total................................................. 1,499,200 1,581 -- 1,500,781
------------ ----------- ----------- ------------
Obligations of U.S. government agencies and corporations:
Within one year........................................... 1,005,685 9,627 -- 1,015,312
After one, but within five years.......................... 4,875,445 90,630 2,500 4,963,575
------------ ----------- ----------- ------------
Total................................................... 5,881,130 100,257 2,500 5,978,887
------------ ----------- ----------- ------------
Mortgage-backed securities:
Federal National Mortgage Association:
After one, but within five years.......................... 16,961 343 -- 17,304
Federal Home Loan Mortgage Corp.:
After five but within ten years........................... 368,656 16,937 -- 385,593
------------ ----------- ----------- ------------
Total................................................... 385,617 17,280 -- 402,897
------------ ----------- ----------- ------------
Corporate securities (1)...................................... 12,500 -- -- 12,500
------------ ----------- ----------- ------------
Federal Reserve Bank Stock (1)................................ 162,700 -- -- 162,700
------------ ----------- ----------- ------------
Federal Home Loan Bank Stock (1).............................. 251,500 -- -- 251,500
------------ ----------- ----------- ------------
Total investment securities............................. $ 8,192,647 $ 119,118 $ 2,500 $ 8,309,265
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>

<TABLE>
<CAPTION>
1994
----------------------------------------------------
GROSS GROSS
ADJUSTED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year........................................... $ 987,423 $ -- $ 15,861 $ 971,562
After one, but within five years.......................... 496,767 -- 9,111 487,656
------------ ----------- ----------- ------------
Total................................................... 1,484,190 -- 24,972 1,459,218
------------ ----------- ----------- ------------
Obligations of U.S. government agencies and corporations:
After one, but within five years.......................... 6,657,520 -- 215,935 6,441,585
------------ ----------- ----------- ------------
Total................................................... 6,657,520 -- 215,935 6,441,585
------------ ----------- ----------- ------------
Mortgage-backed securities:
Federal National Mortgage Association:
After one, but within five years.......................... 30,076 577 -- 30,653
Federal Home Loan Mortgage Corp.:
After five but within ten years........................... 482,292 952 2,526 480,718
------------ ----------- ----------- ------------
Total................................................... 512,368 1,529 2,526 511,371
------------ ----------- ----------- ------------
Corporate securities (1)...................................... 12,500 -- -- 12,500
------------ ----------- ----------- ------------
Federal Reserve Bank Stock (1)................................ 162,700 -- -- 162,700
------------ ----------- ----------- ------------
Federal Home Loan Bank Stock (1).............................. 251,500 -- -- 251,500
------------ ----------- ----------- ------------
Total investment securities............................. $ 9,080,778 $ 1,529 $ 243,433 $ 8,838,874
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>

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

(1) Corporate securities and Federal Reserve Bank and Federal Home Loan Bank
Stocks have no stated maturities.

F-13
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

3. SECURITIES (CONTINUED)
Securities available for sale at December 31, 1995 and 1994 are summarized
below:

Securities in the amount of approximately $8,616,000 and $11,925,000 were
pledged to collateralize public deposits and repurchase agreements at December
31, 1995 and 1994, respectively.

The Company had no securities exempt from federal taxation during 1995 and
1994 or any securities whose book value as to any single issuer exceeded 10% of
stockholders' equity.

During 1994, the Company reclassified $3,500,000 in securities previously
classified as available for sale to the held to maturity portfolio, resulting in
an unrealized loss, net of taxes, on the date of transfer of approximately
$86,440. This unrealized loss is recorded in equity and amortized as a yield
adjustment over the remaining terms of the reclassified securities. Amortization
of approximately $39,545, net of taxes, as of December 31, 1995, coupled with
unrealized gains in the remaining available for sale portfolio of $6,628, net of
taxes, brings the equity balance of unrealized loss on securities to $40,267 at
December 31, 1995.

F-14
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

4. LOANS
Loans at December 31, 1995 and 1994 are summarized as follows:

<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Commercial and industrial........................................................ $ 43,547,303 $ 42,960,687
Real estate -- mortgages......................................................... 14,150,578 11,074,167
Real estate -- construction and development...................................... 2,617,836 3,237,156
Installment to individuals....................................................... 3,652,022 3,816,083
-------------- --------------
63,967,739 61,088,093
Less: Deferred income and unearned discounts..................................... (375,344) (358,656)
-------------- --------------
Total.......................................................................... $ 63,592,395 $ 60,729,437
-------------- --------------
-------------- --------------
</TABLE>

Loan concentrations at December 31, 1995 and 1994 are summarized as follows:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Service industry................................................................................ 38% 34%
Real estate development/finance................................................................. 32 32
Wholesale/retail................................................................................ 21 21
Other........................................................................................... 9 13
--- ---
Total......................................................................................... 100% 100%
--- ---
--- ---
</TABLE>

A substantial portion, $41,418,000, or approximately 65%, at December 31,
1995, and $41,862,000, or approximately 69%, at December 31, 1994, of the
Company's loans are secured by real estate in the Washington, D.C. metropolitan
area. Accordingly, the ultimate collectibility of a substantial portion of the
Company's loan portfolio is susceptible to changes in market conditions in the
Washington metropolitan area.

Transactions in the allowance for loan losses for the years ended December
31, 1995 and 1994 are summarized as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1................................................. $ 1,289,562 $ 1,385,875 $ 1,320,487
Provision for loan losses............................................ -- 221,572 175,000
Recoveries........................................................... 97,993 156,374 97,552
Loans charged off.................................................... (113,590) (474,259) (207,164)
------------- ------------- -------------
Net charge-offs.................................................... (15,597) (317,885) (109,612)
------------- ------------- -------------
Balance at December 31............................................... $ 1,273,965 $ 1,289,562 $ 1,385,875
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

Included in the accompanying consolidated balance sheets are certain loans
that are accounted for on a nonaccrual basis. These nonaccrual loans totaled
approximately $1,561,000, $1,244,000 and $1,733,000 at December 31, 1995, 1994
and 1993, respectively. Had the loans been current in accordance with their
original terms, gross interest income for these loans would have been $212,000,
$150,000 and $154,000 in 1995, 1994 and 1993, respectively. Actual recorded
interest income on these loans was $40,000, $53,000 and $82,000 in 1995, 1994
and 1993, respectively. Nonaccrual loans include $875,000, $1,013,000 and
$1,151,000 in loans guaranteed by the U.S. Small Business Administration at
December 31, 1995, 1994 and 1993, respectively. These loans are guaranteed for
an average of 84.9% of the outstanding balance, or $743,000, 87.3% of the
outstanding balance, or $884,000, and 77.4% of the outstanding balance, or
$891,000 at December 31, 1995, 1994 and 1993, respectively. Also

F-15
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

4. LOANS (CONTINUED)

included in the accompanying consolidated balance sheets are $1,245,000,
$1,301,000 and $1,502,000 in loans at December 31, 1995, 1994 and 1993,
respectively, restructured due to a deterioration in the financial condition of
the borrowers. Actual interest income recorded subsequent to the date of
restructuring on loans reported as restructured at each year-end was $124,000,
$110,000 and $148,000 in 1995, 1994 and 1993, respectively. Interest income
which would have been recorded on these restructured loans had they been current
in accordance with their original terms and outstanding throughout the entire
period was $154,000, $159,000 and $171,000 in 1995, 1994 and 1993, respectively.
As of year-end 1995, 1994 and 1993, these loans were performing in accordance
with the restructured terms. Nonaccrual loans at December 31, 1995 and 1994
include $0 and $826,000 in loans which were reported as restructured as of the
prior year-end. The Company had no commitments to lend additional funds to any
of the borrowers whose loans are recorded as nonaccrual or restructured at
December 31, 1995, 1994 and 1993. At December 31, 1995, 1994 and 1993, the
Company had $6,000, $3,000 and $89,000, respectively, in loans greater than 90
days delinquent which were still accruing. These loans consisted primarily of
loans which were both adequately secured and in the process of collection.

At December 31, 1995, the recorded investment in impaired loans was
$2,790,000, substantially all of which are on nonaccrual status or are reported
as restructured loans. Included in this amount is $1,631,000 of impaired loans
for which the related impairment allowance is $416,000 and $1,037,000 of loans
that do not have an impairment allowance. The average recorded investment in
impaired loans during 1995 was $2,918,000. The amount of interest income
recognized on impaired loans during the year ended December 31, 1995 has been
disclosed above in the discussion of nonaccrual and restructured loans. The
allowance for credit losses contains additional amounts for impaired loans as
deemed necessary to maintain allowances at levels considered adequate by
management.

The Company has engaged in banking transactions in the ordinary course of
business with some of its directors, officers, principal shareholders and their
associates. Management believes that all loans or commitments to extend loans
and the payment of overdrafts included in such transactions are made on the same
terms, including interest rates and collateral, as those prevailing at the time
of comparable loans with other persons and do not involve more than the normal
risk of collectibility. At December 31, 1995 and 1994, none of these loans are
either reported as nonaccrual, restructured or classified. The aggregate amount
of loans to related parties for the years ended December 31, 1995 and 1994 was
as follows:

<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Balance at January 1.............................................................. $ 726,153 $ 472,447
Additions......................................................................... 481,774 668,102
Repayments........................................................................ (675,350) (260,594)
Terminations...................................................................... -- (153,802)
-------------- --------------
Balance at December 31............................................................ $ 532,577 $ 726,153
-------------- --------------
-------------- --------------
</TABLE>

F-16
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1995 and 1994 is summarized as
follows:

<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Furniture, fixtures and equipment................................................. $ 1,351,454 $ 1,311,979
Leasehold improvements............................................................ 692,936 678,028
-------------- --------------
Total, at cost.................................................................. 2,044,390 1,990,007
Less: Accumulated depreciation and amortization................................... (1,766,873) (1,620,789)
-------------- --------------
Total, net...................................................................... $ 277,517 $ 369,218
-------------- --------------
-------------- --------------
</TABLE>

Amounts charged to operating expenses for depreciation and amortization
aggregated approximately $146,000, $154,000 and $140,000 in 1995, 1994 and 1993,
respectively.

6. INTEREST-BEARING DEPOSITS
Related party deposits totaled approximately $2,481,000 and $610,000 at
December 31, 1995 and 1994, respectively. In management's opinion, rates paid on
these deposits, where applicable, are available to others at the same terms.

At December 31, 1995 and 1994, brokered deposits totaled approximately
$7,090,000 and $3,135,000, respectively.

7. LEASING ARRANGEMENTS
The Company leases its main office space under two leases which expire in
2002. The Company also leases space for two branch offices and two automated
teller machines. The lease on the M Street branch expires in 1996, and the
leases on the Union Station branch and the two automated teller machines expire
in 1999. All leases are classified as operating leases.

The following is a schedule of future minimum payments under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 1995:

<TABLE>
<CAPTION>
LEASE
PAYMENTS
-----------
<S> <C>
1996................................................................................................. $ 398,114
1997................................................................................................. 386,340
1998................................................................................................. 383,676
1999................................................................................................. 324,756
2000................................................................................................. 322,742
2001 and thereafter.................................................................................. 591,694
</TABLE>

Rental expense in 1995, 1994 and 1993 was approximately $408,000, $452,000
and $392,000, respectively.

F-17
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

8. INCOME TAXES
Income tax expense attributable to income from continuing operations for
1995, 1994 and 1993 consists of:

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................................................... $ 428,452 $ (167,026) $ 289,174
District of Columbia.................................................. 139,687 (87,020) 67,456
------------ ------------ ------------
568,139 (254,046) 356,630
------------ ------------ ------------
Deferred:
Federal............................................................... (160,540) 167,026 (289,174)
District of Columbia.................................................. (139,687) 87,020 (67,456)
------------ ------------ ------------
(300,227) 254,046 (356,630)
------------ ------------ ------------
Total:
Federal............................................................... 267,912 -- --
District of Columbia.................................................. -- -- --
------------ ------------ ------------
$ 267,912 $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following:

<TABLE>
<CAPTION>
1995 1994 1993
------------------------- ----------------------- -------------------------
AMOUNT % AMOUNT % AMOUNT %
------------ ----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate.......... $ 417,116 34.0% $ (62,605) (34.0)% $ 207,760 34.0%
Increase (decrease) in taxes resulting
from District of Columbia franchise
tax, net of Federal tax effect........ 124,952 10.2 (31,583) (17.2) 16,708 2.7
Other.................................. 37,235 3.0 2,550 1.4 -- --
Change in beginning of year valuation
allowance............................. (311,391) (25.4) 91,638 49.8 (224,468) (36.7)
------------ ----- ---------- ----- ------------ -----
$ 267,912 21.8% $ -- 0.0% $ -- 0.0%
------------ ----- ---------- ----- ------------ -----
------------ ----- ---------- ----- ------------ -----
</TABLE>

The significant components of deferred income tax expense attributable to
income from continuing operations for the year ended December 31, 1995 and 1994
are as follows:

<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Deferred tax benefit (exclusive of the effects of other components listed below)....... $ 11,164 $ 162,409
Increase (decrease) in beginning of the year balance of the valuation allowance for
deferred tax assets................................................................... (311,391) 91,637
------------ -----------
$ (300,227) $ 254,046
------------ -----------
------------ -----------
</TABLE>

F-18
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

8. INCOME TAXES (CONTINUED)

The following is a summary of the tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Book allowance for loan losses...................................................... $ 519,332 $ 525,690
Interest income on nonaccrual loans, due to accrual for tax purposes................ 51,401 51,401
Deferred loan fees, due to cash basis for tax purposes.............................. 76,344 97,136
Furniture and equipment, principally due to differences in
depreciation....................................................................... 101,962 91,266
Unrealized losses on securities..................................................... 26,778 55,298
Compensated absences, principally due to cash basis for financial reporting
purposes........................................................................... 8,184 7,005
Other............................................................................... -- 20,401
------------ ------------
Total gross deferred tax assets................................................... 784,001 848,197
Less: Valuation allowance........................................................... -- (311,391)
------------ ------------
Net deferred tax assets......................................................... 784,001 536,806
Deferred tax liabilities:
Tax allowance for loan losses....................................................... (321,737) (332,806)
Prepaid expenses due to cash basis for tax purposes................................. (19,513) (20,987)
------------ ------------
Total gross deferred tax liabilities.............................................. (341,250) (353,793)
------------ ------------
Net deferred tax assets......................................................... $ 442,751 $ 183,013
------------ ------------
------------ ------------
</TABLE>

The Company had established a valuation allowance through December 31, 1994
for the excess of deferred tax assets over taxes paid in the carryback years and
future reversals of certain existing taxable temporary differences. As of
December 31, 1995, all deferred tax assets were recoverable through taxes paid
in the carryback years and therefore no valuation allowance was required.

At December 31, 1995, the Company had utilized all of its available
financial statement net operating loss carryforwards. Deferred income tax assets
at December 31, 1995 and 1994 were $442,751 and $183,013, respectively, and are
included in other assets in the accompanying financial statements. Also included
in other assets at December 31, 1995 and 1994, were current tax receivables of
$54,000 and $429,000, respectively.

9. LONG-TERM DEBT -- CAPITAL NOTE
On February 2, 1988, the Bank renegotiated its subordinated capital note
agreement with Minbanc Capital Corp. The principal balance of this note shall be
repaid in 16 quarterly installments of $9,500 each commencing on September 30,
1990 through June 30, 1994 and thereafter 16 quarterly installments of $18,625
through the note's maturity on June 30, 1998. The rate of interest payable on
the principal balance of this note was initially fixed at 6.50%. On June 30,
1989 and annually thereafter, the interest rate adjusts to the equivalent of 2%
under the rate of the most recently

F-19
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

9. LONG-TERM DEBT -- CAPITAL NOTE (CONTINUED)
auctioned ten year United States Treasury Note. The note carries a minimum rate
of 6.00% and a maximum rate of 12% per annum. As of December 31, 1995, the note
carried an interest rate of 6.00%. Annual principal maturities as of December
31, 1995 are as follows:

The note agreement restricts the total cash dividends which may be paid by
the Bank in any twelve calendar month period to 25% of net operating income.

10. SHORT-TERM BORROWINGS
Short-term borrowings consist primarily of Federal funds purchased and
securities sold under repurchase agreements. Federal funds purchased represent
overnight funds, while securities sold under repurchase agreements generally
involve the receipt of immediately available funds which mature in one business
day or roll over under a continuing contract.

The balance of securities sold under repurchase agreements at December 31,
1995 and 1994 of $1,785,402 and $360,708, respectively, represents funds
received by the Company for securities sold to customers of the Company, at the
customer's request, which mature in one business day but roll over under a
continuing contract. In accordance with these contracts, the underlying
securities sold are U.S. Treasuries or government agencies which are segregated
from the Company's other investment securities in the Bank's Federal Reserve
Bank account. The book value of the underlying securities sold under these
repurchase agreements at December 31, 1995 and 1994 was approximately $2,060,000
and $1,196,000, respectively. The market value of these same securities at
December 31, 1995 and 1994 was $2,094,000 and $1,159,000, respectively. At
maturity, the same security is repurchased by the Company.

Repurchase agreements are entered into with related parties in the normal
course of business. At December 31, 1995, such related party repurchase
agreements totalled approximately $500,000. In management's opinion, rates paid
on these repurchase agreements are available to others at the same terms.

In the normal course of business, there are securities sold under repurchase
agreements that the Company initiates with correspondent banks for liquidity
purposes. As with the customer repurchase agreements, these contracts generally
involve the receipt of immediately available funds which mature in one business
day or roll over under a continuing contract, however, the underlying securities
sold are transferred to the correspondent bank's Federal Reserve Bank account
until maturity. At maturity, the same security is repurchased by the Company.

Other short-term borrowings during 1995 and 1994 consist of borrowings from
the Federal Home Loan Bank of Atlanta ("FHLB") for liquidity purposes.
Borrowings are collateralized by loans secured by first liens on one to four
family, multifamily and commercial mortgages as well as investment securities.
Although no FHLB borrowings are outstanding at December 31, 1995 and 1994, the
outstanding balance of loans pledged at December 31, 1995 and 1994 to
collateralize future borrowings from the FHLB were $3,194,000 and $2,719,000.
The collateral value of the loans pledged at December 31, 1995 and 1994 was
$2,127,000 and $2,150,000, respectively.

F-20
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

10. SHORT-TERM BORROWINGS (CONTINUED)
Short-term borrowings for 1995 and 1994 are summarized below:

<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
Federal funds purchased
Balance at end of year........................................................ $ -- $ --
Daily average balance outstanding during year................................. 89,114 63,219
Maximum balance outstanding as of any month-end during year................... 850,000 1,000,000
Daily average interest rate during year....................................... 5.34% 4.68%

Securities sold under repurchase agreements
Balance at end of year........................................................ $ 1,785,402 $ 360,708
Daily average balance outstanding during year................................. 1,510,954 1,484,991
Maximum balance outstanding as of any month-end during year................... 3,217,340 3,987,421
Daily average interest rate during year....................................... 5.57% 3.65%
Average interest rate on balance at end of year............................... 4.92 --

Other short-term borrowings
Balance at end of year........................................................ $ -- $ --
Daily average balance outstanding during year................................. 103,493 61,370
Maximum balance outstanding as of any month-end during year................... 1,200,000 1,100,000
Daily average interest rate during year....................................... 6.15% 5.56%
</TABLE>

11. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various outstanding commitments
and contingent liabilities such as commitments to extend credit that are not
reflected in the accompanying consolidated financial statements. No material
losses are anticipated as a result of these transactions. At December 31, 1995
and 1994, the Company had outstanding letters of credit aggregating
approximately $706,000 and $474,000, commitments to originate variable rate
loans aggregating approximately $13,867,000 and $13,315,000, and commitments to
originate fixed rate loans aggregating approximately $1,410,000 and $452,000,
respectively.

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 are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case by case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and residential and
income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support lease and security deposits and private
borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company holds cash, marketable securities and other collateral supporting
those commitments for which collateral is deemed necessary. The portion of
letters of credit which are collateralized was 100% at December 31, 1995 and
1994.

F-21
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

11. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Under the terms of an employment agreement with the President and Chief
Executive Officer of the Company and the Bank, the Company is obligated to make
payments to her under certain conditions, in the event her employment is
terminated.

12. RESTRICTIONS ON DIVIDEND PAYMENTS AND LOANS BY AFFILIATED BANK
Any dividends payable by the Company are dependent on dividends payable from
the Bank to the Company. Federal banking laws restrict the total dividend
payments that a national banking association may make during any calendar year
to the total net income of the bank for current year plus retained net income
for the preceding two years, except with the prior written approval of the
Office of the Comptroller of the Currency. As a result of additional dividend
restrictions referred to in Note 9 above, the Bank is restricted from making
dividend payments in excess of 25% of net operating income in any twelve
calendar month period. The Federal Reserve Board has issued a statement
effective November 14, 1985 which indicates that dividends should only be paid
out of net income available to common shareholders over the past year.
Restrictions are also imposed upon the ability of the Bank to make loans to the
Company, purchase stock in the Company or use the Company's securities as
collateral for indebtedness of the Bank.

13. PARENT COMPANY INFORMATION
On April 1, 1982, the Company acquired, through merger, all of the
outstanding shares of the Bank, becoming the parent and sole stockholder. The
earnings (losses) of the Bank are recorded by the Company using the equity
method of accounting. Earnings (losses) are recorded as an increase (decrease)
in the Company's investment, and dividends declared by the Bank are recorded as
reductions in the Company's investment in the Bank.

F-22
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

13. PARENT COMPANY INFORMATION (CONTINUED)
CONDENSED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Due from banks and interest-bearing balances with subsidiary bank................... $ 248,797 $ 169,768
Investment in subsidiary bank....................................................... 6,364,594 5,684,937
Dividend receivable from subsidiary bank............................................ 71,211 --
Other assets........................................................................ 8,459 4,438
------------- -------------
Total assets.................................................................... $ 6,693,061 $ 5,859,143
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities................................................................. $ 74,195 $ 96,873
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares; issued
859,212 shares; outstanding 854,532 shares in 1995 and 1994...................... 8,592 8,592
Additional paid-in capital........................................................ 6,147,421 6,147,421
Retained earnings (deficit)....................................................... 491,563 (365,033)
------------- -------------
6,647,576 5,790,980
Less: Treasury Stock, 4,680 shares at cost........................................ (28,710) (28,710)
------------- -------------
Total stockholders' equity...................................................... 6,618,866 5,762,270
------------- -------------
Total liabilities and stockholders' equity...................................... $ 6,693,061 $ 5,859,143
------------- -------------
------------- -------------
</TABLE>

F-23
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

13. PARENT COMPANY INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Dividends from subsidiary bank........................................ $ 213,633 $ -- $ --
Interest earned on balances with subsidiary bank...................... 4,906 6,162 7,004
Interest on securities available for sale............................. -- 7,518 8,722
Interest on other..................................................... -- (281) 6,750
Management fees earned from subsidiary bank........................... 444 31,880 12,649
------------ ------------ ------------
Total income........................................................ 218,983 45,279 35,125
Expenses:
Professional fees..................................................... 125,569 433,641 32,882
Organizational and other.............................................. 75,046 157,315 109,854
------------ ------------ ------------
Total expenses...................................................... 200,615 590,956 142,736
Income (loss) before taxes and equity in undistributed net income of
subsidiary......................................................... 18,368 (545,677) (107,611)
Applicable income tax benefit........................................... 300,993 -- --
------------ ------------ ------------
Income (loss) before equity in undistributed net income of
subsidiary......................................................... 319,361 (545,677) (107,611)
Equity in undistributed net income of subsidiary........................ 639,537 361,545 718,670
------------ ------------ ------------
Net income (loss)................................................... $ 958,898 $ (184,132) $ 611,059
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-24
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

13. PARENT COMPANY INFORMATION (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net income (loss)..................................................... $ 958,898 $ (184,132) $ 611,059
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Equity in undistributed loss (net income) of subsidiary............. (639,537) (361,545) (718,670)
Dividends declared from subsidiary bank not received................ (71,211)
Other, net.......................................................... (97,910) 94,102 (1,064)
------------ ------------ ------------
Net cash provided (used) by operating activities.................. 150,240 (451,575) (108,675)
Investing Activities
Proceeds from maturity of securities available for sale............... -- 450,000 --
Proceeds from maturity of investment securities....................... -- -- 900,000
Purchase of securities................................................ -- -- (900,000)
------------ ------------ ------------
Net cash provided by investing activities........................... -- 450,000 --
Financing Activities
Cash dividends paid to stockholders................................... (71,211) -- --
------------ ------------ ------------
Net cash used by financing activities............................... (71,211) -- --
------------ ------------ ------------
Increase (decrease) in cash......................................... 79,029 (1,575) (108,675)
Cash and cash equivalents at beginning of year...................... 169,768 171,343 280,018
------------ ------------ ------------
Cash and cash equivalents at end of year............................ $ 248,797 $ 169,768 $ 171,343
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

14. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT
Regulations implementing the prompt corrective action provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) became
effective on December 19, 1992. FDICIA requires the regulators to stratify
institutions into five quality tiers based upon their respective capital
strengths and to increase progressively the degree of regulation over the weaker
institutions, limits the pass-through deposit insurance treatment of certain
types of accounts, adopts a "Truth in Savings" program, calls for the adoption
of risk-based premiums on deposit insurance and requires banks to observe
insider credit underwriting procedures no less strict than those applied to
comparable noninsider transactions.

The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Institutions
categorized as "undercapitalized" or below are subject to certain restrictions,
including the requirement to file a capital plan with its primary federal
regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institution either
by its primary federal regulator or by the FDIC, including requirements to raise
additional capital, sell assets or sell the entire institution. Once an
institution becomes "critically undercapitalized" it is generally placed in
receivership or conservatorship within 90 days.

F-25
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

14. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT (CONTINUED)
To be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at least 6%
and a total risk-based capital ratio of at least 10%. At December 31, 1995 and
1994, both the Company and the Bank were considered "well capitalized."

15. EMPLOYEE BENEFITS

The Company has a 401(k) plan covering all full-time employees. The Company
made contributions to the plan of $34,000, $40,000 and $24,000 in 1995, 1994 and
1993, respectively. These amounts are included in salaries and employee benefits
in the accompanying consolidated statements of operations.

On January 23, 1996, the Company adopted a nonqualified Directors Stock
Option Plan (the "Directors Plan") and a qualified Employee Incentive Stock
Option Plan covering key employees (the "Employee Plan"), subject to shareholder
approval. Shares subject to options under these plans may be authorized but
unissued shares or treasury shares. Options under the Directors Plan are granted
at a price not less than 85% of the fair market value of the Company's common
stock on the date of grant. The options vest beginning in 1996 at an annual rate
of 20% at the end of each year and become fully vested in the event of a Change
in Control, as defined in the Directors Plan, or in the event that the Director
leaves the Board. Options under the Employee Plan are granted at a price of 100%
of the fair market value of the Company's common stock on the date of grant and
are immediately exercisable. Options under both plans expire not later than ten
years after the date of grant. Options for a total of 16,416 shares of common
stock available for grant under the above Plans were granted at a price of $6.74
for directors and $7.93 for employees. No options have been exercised under
these plans.

16. OTHER OPERATING EXPENSE
Other operating expenses for 1995, 1994 and 1993 are summarized as follows:

<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------- -------------
<S> <C> <C> <C>
FDIC insurance premiums................................................ $ 84,607 $ 171,582 $ 154,107
Courier service and bank security...................................... 149,689 148,884 131,229
Stationery and office supplies......................................... 75,585 103,017 71,542
Employment litigation expense.......................................... -- 387,000 250,000
Other.................................................................. 471,119 575,961 533,700
----------- ------------- -------------
Total other operating expense........................................ $ 781,000 $ 1,386,444 $ 1,140,578
----------- ------------- -------------
----------- ------------- -------------
</TABLE>

The Company has engaged in transactions in the ordinary course of business
with some of its directors, officers, principal stockholders and their
associates. Management believes that all such transactions are made on the same
terms as those prevailing at the time with other persons. The Company expended
$15,000, $32,000 and $27,000 during 1995, 1994 and 1993, respectively, to such
related parties in connection with public relations activities. The Company
expended $17,000 to such related parties for legal services during 1995.

17. SHAREHOLDER RIGHTS PLAN
On April 12, 1994, the Board of Directors of the Company adopted a Rights
Agreement ("Rights Agreement"), which was amended April 20, 1995. Pursuant to
the Rights Agreement, the Board of Directors of the Company declared a dividend
of one share purchase right for each share of the

F-26
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

17. SHAREHOLDER RIGHTS PLAN (CONTINUED)

Company's common stock outstanding on April 25, 1994 ("Right"). Among other
things, each Right entitles the holder to purchase one share of the Company's
common stock at an exercise price of $20.11.

The Board of Directors may redeem the Rights for $0.01 per share or amend
the Plan at any time before a person becomes an Acquiring Person. The Rights
expire on December 31, 2003.

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

During 1995, the Company adopted Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS No. 107),
which requires the 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. Quoted market prices, when available, are
used as the measure of fair value. In cases where quoted market prices are not
available, fair values are based on present value estimates or other valuation
techniques. These derived fair values are estimates at a specific point in time
and are significantly affected by assumptions used, principally the timing of
future cash flows and the discount rate. Because assumptions are inherently
subjective in nature, the estimated fair values cannot be substantiated by
comparison to independent market quotes and, in many cases, the estimated fair
values would not necessarily be realized in an immediate sale or settlement of
the instrument. The disclosure requirements of SFAS No. 107 exclude certain
financial instruments and all nonfinancial instruments. The estimated fair
values presented do not give effect to the values associated with the Company's
banking business, existing customer relationships, branch network, property or
equipment. Also, under SFAS No. 107, the fair value of noninterest-bearing
demand deposits, savings and NOW accounts and money market deposit accounts is
equal to the carrying amount because these deposits have no stated maturity.
This approach to estimating fair value excludes the significant benefit that
results from the low-cost funding provided by such deposit liabilities, as
compared to alternative sources of funding. Accordingly, the aggregate fair
value amounts presented do not represent management's estimation of the
underlying value of the Company.

SFAS No. 119 amended SFAS No. 107 for disclosure purposes. The amendments
require that the disclosures distinguish between financial instruments held for
trading purposes, measured at fair value with gains and losses recognized in
earnings, and financial instruments held or issued for purposes other than
trading. The fair value of derivative financial instruments must be disclosed
separately from non-derivative financial instruments. The Company does not hold
any financial instruments for trading purposes and does not have any material
derivative financial instruments.

F-27
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

18. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following are the estimated fair values of the Company's financial
instruments at December 31, 1995 followed by a general description of the
methods and assumptions used to estimate such fair values.

<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT VALUE
-------------- --------------
<S> <C> <C>
Financial assets:
Cash........................................................................... $ 4,953,200 $ 4,953,200
Short-term investments......................................................... 9,961,715 9,961,715
Securities available for sale.................................................. 5,508,406 5,508,406
Investment securities.......................................................... 8,192,647 8,309,265
Loans.......................................................................... 63,592,395
Less: Allowance for loan losses................................................ (1,273,965)
--------------
Net loans.................................................................... 62,318,430 62,145,121

Financial liabilities:
Noninterest-bearing deposits................................................... 23,443,937 23,443,937
Interest-bearing deposits with no stated maturity.............................. 30,052,322 30,052,322
Time deposits.................................................................. 29,566,936 29,101,285
Short-term borrowings.......................................................... 1,785,402 1,785,402
Long-term debt................................................................. 186,250 186,250
</TABLE>

The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:

CASH AND DUE FROM BANKS. The carrying amounts reported in the balance
sheet approximate fair value due to the short-term nature of these assets.

SHORT-TERM INVESTMENTS. The carrying amounts of short-term investments
on the balance sheet with maturities of 90 days or less approximate fair
value. For short-term investments with maturities of greater than 90 days,
fair value estimates are based on market quotes for similar instruments
adjusted for such differences between the quoted instruments and the
instruments being valued as to maturity and credit quality.

SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES. The estimated
fair values of securities by type are based on quoted market prices, when
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.

LOANS. Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are classified by variable rate, fixed rate
and loans which reprice on a predetermined schedule. Non-variable rate loans
are further classified by general purpose within the commercial, real estate
and consumer portfolios. Loans are further classified by performing or
nonperforming loans.

For performing variable-rate loans which reprice immediately as market
rates change, the carrying amounts approximate fair value. Additionally,
most variable rate lines of credit, which comprise more than half of the
variable loan portfolio, are reviewed and extended on at least an annual
basis. At the time of that review, these loans are repriced to reflect the
current credit risk inherent in these loans. For performing fixed-rate loans
and loans which reprice on a pre-determined schedule, fair values are
estimated by discounting the expected cash flows up to and including the
date of repricing, if applicable, by a discount rate that reflects the
interest rate and

F-28
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994

18. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
credit risk inherent in the loan. The estimated maturity of these loans
reflects both contractual maturity and management's assessment of
prepayments, economic condition, and other factors that may affect the
maturity of the portfolio. The discount rate is based on the rate that would
be currently offered for loans with similar terms to borrowers of similar
credit quality.

Nonperforming loans are included in each of the loan portfolios
previously described. The fair value of nonperforming loans is estimated in
a manner which approximates discounting the expected return of principal
over the period of time the Company anticipates receiving principal payments
on the loan at a discount rate which is reflective of the higher risk
surrounding these assets compared to a performing loan.

DEPOSITS. The fair value of deposits with no stated maturity, such as
noninterest-bearing deposits, NOW accounts, savings and money market deposit
accounts, is the amount payable on demand as of year-end. For time deposits,
fair value is estimated by discounting the contractual cash flows using a
discount rate equal to the incremental deposit rate for similar remaining
maturities.

SHORT-TERM BORROWINGS. The carrying values of federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximate fair values.

LONG-TERM DEBT. The fair values of long-term debt and other borrowings
are estimated by discounting the contractual cash flows for each instrument.
The discount rate applied is based on the current incremental borrowing
rates for similar arrangements with similar maturities.

COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT. The Company has
commitments to extend credit of $15,277,000 and letters of credit of
$706,000. Pricing of these financial instruments is based on the credit
quality and relationship, fees, interest rates, probability of funding,
compensating balance and other covenant requirements. Non-credit card
commitments generally have fixed expiration dates, are variable rate and
contain termination and other clauses which provide for relief from funding
in the event that there is a significant deterioration in the credit quality
of the customer. Many loan commitments are expected to, and typically do,
expire without being drawn upon. Approximately 85% of the Company's
commitments to lend expire within one year. The rates and terms of the
Company's commitments to lend and letters of credit are competitive with
others in the markets in which the Company operates. Carrying amounts which
are comprised of the unamortized fee income and, where necessary, reserves
for any expected credit losses from these financial instruments, are
immaterial.

19. SUBSEQUENT EVENT

On May 21, 1996, the Board of Directors approved a three-for-one stock split
in the form of a stock dividend of two shares of common stock for each share of
common stock issued and outstanding as of May 31, 1996. Additionally, the Board
of Directors approved an increase in the number of shares of authorized common
stock from 800,000 to 5,000,000 and a reduction of the par value from $10 to
$0.01 per share, both of which were subject to shareholder approval. Shareholder
approval was obtained as of May 31, 1996. All presentations of shares
outstanding and amounts per share have been restated to reflect these changes.

F-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY
OF THESE SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Additional Information......................... 3
Prospectus Summary............................. 4
Risk Factors................................... 8
Use of Proceeds................................ 11
Price Range of Common Stock and Dividend
Policy........................................ 12
Capitalization................................. 13
Selected Consolidated Financial Data........... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 33
Management..................................... 40
Certain Relationships and Related
Transactions.................................. 45
Beneficial Ownership of Shares................. 46
Supervision and Regulation..................... 49
Description of Capital Stock................... 53
Underwriting................................... 56
Legal Matters.................................. 57
Experts........................................ 57
Index to Consolidated Financial Statements..... F-1
</TABLE>

670,000 SHARES

COMMON STOCK

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

PROSPECTUS

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

FERRIS, BAKER WATTS
INCORPORATED

, 1996

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits Delaware corporations to include in their certificates of incorporation
a provision limiting director's liability for monetary damages for breach of the
duty of care. Section 145 of the Delaware General Corporation Law gives Delaware
corporations the power to indemnify each of the present and former officers or
directors under certain circumstances, if such person acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation.

Article FOURTEENTH of the Company's Certificate of Incorporation, as
amended, limits the liability of the Company's directors to the Company or its
shareholders for monetary damages for certain breaches of fiduciary duty arising
out of certain aspects of the director's conduct. Article XI of the Company's
By-laws permits indemnification of officers and directors to the fullest extent
permitted by law.

The Company maintains directors' and officers' liability insurance in the
amount of $2,000,000.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Estimated expenses payable by the Company in connection with the sale of the
securities offered hereby is as follows:

<TABLE>
<S> <C>
SEC registration fee................................................... $ 2,468.79
NASD Filing Fee........................................................ 1,215.95
NASDAQ National Market System Fee...................................... 12,747.66
Accounting fees and expenses........................................... *
Legal fees and expenses................................................ *
Blue Sky fees and expenses............................................. *
Transfer agent's fee................................................... *
Printing and engraving................................................. *
Underwriters' Expenses................................................. 85,000
Miscellaneous.......................................................... *
----------
Total.............................................................. $ *
----------
----------
</TABLE>

- ------------------------
* To be filed by amendment.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

(1) On February 20, 1996, the Company and the Bank entered into an Employment
Agreement with Barbara Davis Blum which, among other things, granted a
non-qualified stock option (the "Option") to Ms. Blum to purchase 75,000
shares of the Company's Common Stock. The Option vests beginning in 1996 at
an annual rate of 20% at the end of each year and is exercisable for a
period of ten (10) years from the date of grant at an exercise price of
$6.74 per share, which is equal to 85% of the fair market value of the
Company's common stock on the date of the grant. Subject to certain
limitations, Ms. Blum has "piggyback" rights, and one "demand" right, for
registration of shares subject to the Option. The Company has not issued any
shares of common stock pursuant to the exercise of the Option.

(2) On January 23, 1996, a total of 9,987 shares of the Company's Common Stock
were authorized for issuance pursuant to a grant of options under the
Employee Incentive Stock Option Plan, in which key employees of the Company
and the Bank are eligible to participate. The options were granted at an
exercise price of 100% of fair value at the date of the grant or Seven
Dollars and

II-1
<PAGE>
Ninety-Three Cents ($7.93) per share. Options granted under this plan are
immediately exercisable and expire not later than ten (10) years following
the date of the grant. The Company has not issued any shares of Common Stock
pursuant to the exercise of these options.

(3) On January 23, 1996, a total of 6,429 shares of the Company's Common Stock
which were authorized for issuance pursuant to a grant of options under the
Non-Qualified Directors Stock Option Plan in which all Directors on the
Company's and Bank's Boards in 1995 were eligible. The options were granted
at an exercise price of 85% of fair value at the date of the grant or Six
Dollars and Seventy-Four Cents ($6.74) per share. Options granted under this
plan vest beginning in 1996 at an annual rate of 20% at the end of each year
and expire at the earlier of 10 years following the date of grant or two
years after leaving the Board. The Company has not issued any shares of
Common Stock pursuant to the exercise of these options.

The share amounts set forth above give effect to the Company's three-for-one
stock split in the form of a stock dividend to be issued prior to the effective
date of this registration statement. With respect to the grant of stock options
described in paragraphs 1 through 3, an exemption from registration was
unnecessary in that none of the transactions involved a "sale" of securities as
such term is used in Section 2(3) of the Securities Act.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ----------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company, as amended (1)
3.1.1 Certificate of Amendment of Certificate of Incorporation of the Company*
3.2 By-laws of the Company, as amended (1)
4.1.1 Rights Agreement dated as of April 12, 1994, between the Company and The First National Bank of
Maryland, as Rights Agent (Right Certificate attached as Exhibit A to Rights Agreement and Summary
of Rights to Purchase Common Shares attached as Exhibit B to Rights Agreement) (2)
4.1.2 First Amendment to Rights Agreement (3)
5.1 Opinion of Shapiro and Olander*
10.1 Subordinated Note Agreement dated February 2, 1988 between The Adams National Bank and Minbanc
Capital Corp. (4)
10.2.1 Non-qualified Stock Option Plan, as amended (5)
10.2.2 Employee Incentive Stock Option Plan and Agreement (6)
10.2.3 Directors Stock Option Plan and Agreement (7)
10.2.4 Non-Qualified Stock Option Agreement (8)
10.3 Employment Agreement dated February 20, 1996 between the Company, The Adams National Bank and
Barbara Davis Blum, as amended on March 29, 1996 (9)
10.4 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank, N.A. as Trustee for Account
Number p99904 and The Adams National Bank (10)
10.5 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank, N.A. as Trustee for Account
Number p99904 and The Adams National Bank (11)
10.6 Lease Agreement dated April 21, 1988 between Union Station Joint Venture, Ltd. and The Adams
National Bank (12)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- ----------------------------------------------------------------------------------------------------
10.7.1 Lease Agreement dated April 21, 1989, as amended on August 1, 1989 between Union Station Joint
Venture, Ltd. and The Adams National Bank (13)
<S> <C>
10.7.2 Amendment dated December 20, 1993 to Lease Agreement dated April 21, 1989, as amended on August 1,
1989 between Union Station Joint Venture, Ltd. and The Adams National Bank (14)
10.8 Lease Agreement dated December 20, 1993 between Union Station Joint Venture, Ltd. and The Adams
National Bank (15)
10.9 Sublease Agreement dated September 1, 1981, as amended September 1, 1984, between 2909 M Associates
and The Adams National Bank (16)
10.10 Lease Agreement dated March 6, 1996 between The Adams National Bank and 1604 17th Street Limited
Partners (17)
10.11 Information Technology Services Agreement between Electronic Data Systems Corporation and The Adams
National Bank (18)
10.12 Special Program Financial Services Agreement dated December 30, 1993 between IBAA Bancard, Inc. and
The Adams National Bank (19)
10.13 Deposit Insurance Transfer and Asset Purchase Agreement dated as of May 1, 1992 by and among the
Federal Deposit Insurance Corporation as Receiver of Metropolitan Bank, N.A., the Federal Deposit
Insurance Corporation and The Adams National Bank (20)
10.14 Asset Pool Proposal Form and the Asset Pool Sale Agreement dated as of July 6, 1993 by and among the
Federal Deposit Insurance Corporation as Receiver of City National Bank, the Federal Deposit
Insurance Corporation and The Adams National Bank (21)
10.15 Severance Agreement between the Bank and Alexander Beltran dated as of April 7, 1994 (22)
10.16 Severance Agreement between the Bank and Devin Blum dated as of April 7, 1994 (23)
10.17 Severance Agreement between the Bank and Thomas O. Griel dated as of April 7, 1994 (24)
10.18 Severance Agreement between the Bank and Joyce R. Hertz dated as of April 7, 1994 (25)
10.19 Severance Agreement between the Bank and Kimberly J. Levine dated as of April 7, 1994 (26)
10.20 Severance Agreement between the Bank and Melrose Nathan dated as of April 7, 1994 (27)
10.21 Severance Agreement between the Bank and Bijan Partovi dated as of April 7, 1994 (28)
10.22 Agreement, dated as of April 20, 1995, between the Company and Marshall T. Reynolds (29)
10.23 The Adams National Bank Employee Stock Ownership Plan with 401(k) Provisions**
21 Subsidiaries of the Registrant (30)
23.1 Consent of Shapiro and Olander (included in Exhibit 5)
</TABLE>

II-3
<PAGE>

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

* To be filed by amendment.

** Previously filed.

(1) Incorporated by reference to Exhibit 3 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987.

(2) Incorporated by reference to Exhibits 1-3 of the Company's Registration
Statement on Form 8-A dated April 12, 1994.

(3) Incorporated by reference to Exhibit 4 of the Company's Registration
Statement on Form 8-A/A dated April 21, 1995.

(4) Incorporated by reference to Exhibit 10(a) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987.

(5) Incorporated by reference to Exhibit 10(b) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987 and Exhibit 10(I) of
the Company's Annual Report on Form 10-K for fiscal year ended December 31,
1989.

(6) Incorporated by reference to Exhibit 10.2.2 of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995.

(7) Incorporated by reference to Exhibit 10.2.3 of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995.

(8) Incorporated by reference to Exhibit 10.2.4 of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995.

(9) Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995.

(10) Incorporated by reference to Exhibit 10(d) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.

(11) Incorporated by reference to Exhibit 10(e) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.

(12) Incorporated by reference to Exhibit 10(f) of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1988.

(13) Incorporated by reference to Exhibit 10(g) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989.

(14) Incorporated by reference to Exhibit 10.7.2 of the Company's Annual Report
on Form 10-k for the fiscal year ended December 31, 1993.

(15) Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.

(16) Incorporated by reference to Exhibit 10.9 of the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1994.

(17) Incorporated by reference to Exhibit 10.10 of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995.

II-4
<PAGE>
(18) Incorporated by reference to Exhibit 10(j) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.

(19) Incorporated by reference to Exhibit 10.11 of the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1994.

(20) Incorporated by reference to Exhibit 10 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992.

(21) Incorporated by reference to Exhibit 10 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1993.

(22) Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(23) Incorporated by reference to Exhibit 10.2 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(24) Incorporated by reference to Exhibit 10.3 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(25) Incorporated by reference to Exhibit 10.4 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(26) Incorporated by reference to Exhibit 10.5 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(27) Incorporated by reference to Exhibit 10.6 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(28) Incorporated by reference to Exhibit 10.7 of the Company's Current Report
on Form 8-K dated April 27, 1994 (earliest event reported April 7, 1994).

(29) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-A/A dated April 21, 1995.

(30) Incorporated by reference to Exhibit 22 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987.

(b) Financial Statement Schedules.

Schedules have been omitted because they are not applicable or not required
or because the required information is included in the consolidated financial
statements or notes thereto.

ITEM 28. UNDERTAKINGS.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.

(3) 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

II-5
<PAGE>
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.

II-6
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this
Pre-Effective Amendment No. 1 to registration statement to be signed on its
behalf by the undersigned, in the District of Columbia on July 3, 1996.

ABIGAIL ADAMS NATIONAL BANCORP, INC.

By: /s/ BARBARA DAVIS BLUM

-----------------------------------
Barbara Davis Blum
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRWOMAN OF THE BOARD

In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to registration statement has been signed by the
following persons in the capacities and on the dates indicated.

<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------

/s/ BARBARA DAVIS BLUM President, Chief Executive Officer and
------------------------------------------- Chairwoman of the Board of Directors July 3, 1996
Barbara Davis Blum (Principal executive officer)

*
------------------------------------------- Director July 3, 1996
Shireen L. Dodson

*
------------------------------------------- Director July 3, 1996
Susan Hager

*
------------------------------------------- Director July 3, 1996
Jeanne D. Hubbard

*
------------------------------------------- Director July 3, 1996
Clarence L. James, Jr.

/s/ KIMBERLY J. LEVINE Vice President, Treasurer and Chief
------------------------------------------- Financial Officer (Principal July 3, 1996
Kimberly J. Levine accounting and financial officer)

*
------------------------------------------- Director July 3, 1996
Marshall T. Reynolds
</TABLE>

II-7
<PAGE>

<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------- ----------------
*
------------------------------------------- Director July 3, 1996
Robert L. Shell, Jr.

*
------------------------------------------- Director July 3, 1996
Dana B. Stebbins

*
------------------------------------------- Director July 3, 1996
Susan J. Williams
</TABLE>

<TABLE>
<S> <C> <C> <C>
* By: /s/ KIMBERLY J. LEVINE July 3, 1996
-------------------------------------
Kimberly J. Levine
Attorney-in-Fact
</TABLE>

II-8

<PAGE>
EXHIBIT 23.2

The Board of Directors
Abigail Adams National Bancorp, Inc.

We consent to the use of our report, included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Washington, D.C.
July 3, 1996