AMERICAN NATIONAL BANKSHARES INC, S-4, 1995-12-08

AMERICAN NATIONAL BANKSHARES INC
S-4, 1995-12-08
NATIONAL COMMERCIAL BANKS

Previous: MAS FUNDS INC, NSAR-B, 1995-12-08

Next: ENEX OIL & GAS INCOME PROGRAM II-1 L P, DEFR14A, 1995-12-08

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1995.

REGISTRATION NO.33-__________

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

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

AMERICAN NATIONAL BANKSHARES INC.

(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
VIRGINIA 6711 52-1284688
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>

628 MAIN STREET
DANVILLE, VIRGINIA 24541
(804) 792-5111

(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive office)

CHARLES H. MAJORS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN NATIONAL BANKSHARES INC.
628 MAIN STREET
DANVILLE, VIRGINIA 24541
(804) 792-5111

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

WITH COPIES TO:
<TABLE>
<S> <C> <C>

LESLIE A. MURPHY H. DAN DAVIS FRANK M. CONNER III
MULDOON, MURPHY & FAUCETTE PRESIDENT AND CHIEF EXECUTIVE OFFICER ALSTON & BIRD
SUITE 500 MUTUAL SAVINGS BANK, F.S.B. 601 PENNSYLVANIA AVENUE, N.W.
5101 WISCONSIN AVENUE, N.W. 103 TOWER DRIVE NORTH BUILDING, SUITE 250
WASHINGTON, D.C. 20016 DANVILLE, VIRGINIA 24540 WASHINGTON, D.C. 20004
(202) 362-0840 (804) 791-0200 (202) 508-3303
</TABLE>

APPROXIMATE DATE OF THE COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:

As soon as practicable after the effective time of the merger (the "Merger")
described in the Joint Proxy Statement/Prospectus included in this
Registration Statement.

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

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------

TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 879,911 $18.17 $15,987,982 $5,514.00
$1.00 par value
</TABLE>

(1) This Registration Statement covers (i) the maximum number of shares of the
common stock of the Registrant which is expected to be issued in connection
with the Merger and (ii) the maximum number of shares of common stock of
the Registrant reserved for issuance under the option plan of Mutual
Savings Bank, F.S.B. ("Mutual"), the obligations under which will be
assumed by the Registrant upon consummation of the Merger, but which may be
issued prior to consummation of the Merger.

(2) Estimated solely for purposes of calculating the registration fee and
based, pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, on the book value of Mutual common stock as of September 30, 1995.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

<PAGE>

CROSS-REFERENCE SHEET

(CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING THE
LOCATION IN THE JOINT PROXY STATEMENT/PROSPECTUS OF THE RESPONSE TO THE ITEMS
OF PART I OF FORM S-4)

<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM CAPTION JOINT PROXY STATEMENT/PROSPECTUS
---- ------- --------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus

2. Inside Front and Outside Back Cover Pages of Available Information; Incorporation of
Prospectus Certain ANB Information by Reference; Table
of Contents

3. Risk Factors, Ratio of Earnings to Fixed Summary; Meetings of Shareholders; Pro Forma
Charges, and Other Information Financial Information

4. Terms of the Transaction Summary; The Merger; Effect of the Merger on
Rights of Shareholders; Amendment of ANB's
Articles of Incorporation; Description of
ANB Capital Stock

5. Pro Forma Financial Information Summary; Pro Forma Financial Information

6. Material Contacts With the Company Being The Merger
Acquired

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

8. Interests of Named Experts and Counsel Not Applicable

9. Disclosure of Commission Position on Not Applicable (see Part II, Item 20)
Indemnification for Securities Act
Liabilities

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

11. Incorporation of Certain Information by Not Applicable
Reference

<PAGE>

<CAPTION>
LOCATION OR HEADING IN
ITEM CAPTION JOINT PROXY STATEMENT/PROSPECTUS
---- ------- --------------------------------

12. Information With Respect to S-2 or S-3 Not Applicable
Registrants

13. Incorporation of Certain Information by Not Applicable
Reference

14. Information With Respect to Registrants Incorporation of Certain ANB Information by
Other than S-3 or S-2 Registrants Reference; Summary; Pro Forma Financial
Information; Selected Historical Financial
Data of ANB; Management's Discussion and
Analysis of ANB; Business of ANB; Amendment
of ANB's Articles of Incorporation;
Supervision and Regulation; Description of
ANB Capital Stock

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

16. Information With Respect to S-2 or S-3 Not Applicable
Companies

17. Information With Respect to Companies Other Summary; Pro Forma Financial Information;
than S-2 or S-3 Companies Selected Historical Financial Data of
Mutual; Management's Discussion and Analysis
of Mutual; Business of Mutual; Election of
Directors of Mutual; Appointment of Mutual's
Auditors for Fiscal Year Ending
September 30, 1996; Supervision and
Regulation

18. Information if Proxies, Consents, or Incorporation of Certain ANB Information by
Authorizations are to be Solicited Reference; Summary; Meetings of
Shareholders; The Merger; Amendment of ANB's
Articles of Incorporation; Election of
Directors of Mutual; Appointment of Mutual's
Auditors for Fiscal Year Ending
September 30, 1996

19. Information if Proxies, Consents, or Not Applicable
Authorizations are not to be Solicited in
an Exchange Offer

</TABLE>

<PAGE>

[LETTERHEAD OF MUTUAL]

____________, 1996

TO THE SHAREHOLDERS OF
MUTUAL SAVINGS BANK, F.S.B.:

You are cordially invited to attend the 1996 Annual Meeting of
Shareholders ("Mutual Annual Meeting") of Mutual Savings Bank, F.S.B. ("Mutual")
to be held on _____________, 1996, at _____ ___.m., local time, at
_________________________, notice of which is enclosed.

At this important meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Reorganization (the "Agreement") with
American National Bankshares Inc. ("ANB") and the related Plan of Merger with
American National Bank and Trust Company, a wholly owned subsidiary of ANB
("American National"), pursuant to which (i) Mutual will merge (the "Merger")
with and into American National and (ii) each share of the $1.00 par value
common stock of Mutual ("Mutual Common Stock") outstanding at the effective time
of the Merger will be converted into .705 of a share of the $1.00 par value
common stock of ANB ("ANB Common Stock"), plus the right to receive cash in lieu
of fractional shares as determined under the Agreement.

At the Mutual Annual Meeting, you also will be asked to consider and
vote upon a proposal to elect two nominees to the Board of Directors of Mutual
for three-year terms, each of whom currently serves as a director of Mutual, and
on a proposal to ratify the appointment of Manning, Perkinson, Floyd & Company
as the independent auditors of Mutual for the fiscal year ending September 30,
1996.

The Merger has been approved unanimously by your Board of Directors as
being in the best interests of Mutual and its shareholders. The Board of
Directors of Mutual believes the combined company will be a more effective
competitor in the rapidly changing financial services industry by creating a
combined institution with greater size, breadth of services, efficiency, and
market presence.

The Board of Directors of Mutual believes that the greater market
presence of ANB and the other benefits of the Merger, including opportunities
for cost savings and product penetration, will enhance significantly the ability
of management to achieve greater shareholder value. The Board of Directors also
believes that the shares of ANB Common Stock to be received in the Merger will
provide the shareholders of Mutual with a more liquid investment. For these
reasons, and the reasons discussed further in the Joint Proxy
Statement/Prospectus, the Board of Directors believes that the Merger is in the
best interests of Mutual and its shareholders.

It is anticipated that the exchange of shares of Mutual Common Stock
for shares of ANB Common Stock will qualify as a tax-free transaction for
federal income tax purposes. After consummation of the Merger, ANB Common Stock
will be traded in the over-the-counter market and quoted on the OTC Bulletin
Board under the symbol "AMNB."

The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the Merger, including descriptions of the effects of the Merger
on the rights of Mutual shareholders. Please give this information your careful
attention.

Approval of the Merger requires the affirmative vote at the Mutual
Annual Meeting by the holders of record of two-thirds of the outstanding shares
of Mutual Common Stock on

<PAGE>

____________, 1996. In addition to the approval of Mutual shareholders,
certain aspects of the Merger are subject to the approval of ANB shareholders
and various governmental agencies and to certain other conditions.

Election of the two nominees to serve as directors of Mutual for
three-year terms requires the affirmative vote of a plurality of the shares of
Mutual Common Stock voted at the Mutual Annual Meeting, assuming a quorum is
present. The ratification of the appointment of Manning, Perkinson, Floyd &
Company as the independent auditors of Mutual requires the affirmative vote of a
majority of the shares of Mutual Common Stock present and voted at the Mutual
Annual Meeting, assuming a quorum is present.

YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
AGREEMENT AND THE PLAN OF MERGER, THE ELECTION OF TWO NOMINEES TO SERVE AS
DIRECTORS OF MUTUAL, AND THE RATIFICATION OF THE APPOINTMENT OF MANNING,
PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL.

In view of the importance of the action to be taken, we urge you to
complete, sign, and date your proxy and return it promptly in the enclosed
envelope, whether or not you plan to attend the Mutual Annual Meeting. If you
attend the Mutual Annual Meeting, you may vote in person even if you previously
have mailed your proxy.

We look forward to seeing you at the Mutual Annual Meeting.

Sincerely,

H. Dan Davis
President and Chief Executive Officer

<PAGE>

[LETTERHEAD OF ANB]

__________________, 1996

TO THE SHAREHOLDERS OF
AMERICAN NATIONAL BANKSHARES INC.:

You are cordially invited to attend a Special Meeting of Shareholders
("ANB Special Meeting") of American National Bankshares Inc. ("ANB") to be held
on ____________, 1996, at ____ __.m., local time at
________________________________, notice of which is enclosed.

At this important meeting, you will be asked to consider and vote upon
the approval of an amendment to the Articles of Incorporation of ANB to increase
the number of authorized shares of the $1.00 par value common stock of ANB ("ANB
Common Stock") from 3,000,000 to 10,000,000 ("Articles of Incorporation
Amendment").

The Articles of Incorporation Amendment is being proposed by the Board
of Directors of ANB in order to permit consummation of the proposed merger (the
"Merger") of Mutual Savings Bank, F.S.B. ("Mutual") with and into American
National Bank and Trust Company, a wholly owned subsidiary of ANB ("American
National"), pursuant to the terms of the Agreement and Plan of Reorganization
(the "Agreement") between Mutual and ANB, and the related Plan of Merger between
Mutual and American National. In accordance with the terms of the Agreement,
upon consummation of the Merger, each share of the $1.00 par value common stock
of Mutual ("Mutual Common Stock") outstanding at the effective time of the
Merger will be converted into .705 of a share of ANB Common Stock. As ANB
currently has authorized 3,000,000 shares of ANB Common Stock, of which
2,400,000 shares were issued and outstanding as of September 30, 1995, and as
the Merger will require that ANB issue up to 879,911 additional shares of ANB
Common Stock in exchange for the outstanding shares of and options for Mutual
Common Stock, the Articles of Incorporation Amendment is required in order to
permit completion of the Merger.

The Articles of Incorporation Amendment has been approved unanimously
by your Board of Directors as being in the best interests of ANB and its
shareholders. The Board of Directors of ANB believes that the greater market
presence of ANB and the other benefits of the Merger, including opportunities
for cost savings and product penetration, will enhance significantly the ability
of management to achieve greater shareholder value. For these reasons, and the
reasons discussed further in the Joint Proxy Statement/Prospectus, the Board of
Directors believes that the Merger and the Articles of Incorporation Amendment
are in the best interests of ANB and its shareholders.

The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the Merger, including a description of the proposed Articles of
Incorporation Amendment. Please give this information your careful attention.

Approval of the Articles of Incorporation Amendment requires the
affirmative vote of more than two-thirds of the votes entitled to be cast at the
ANB Special Meeting by the holders of record of the outstanding shares of ANB
Common Stock on ___________, 1996. In addition to the approval of ANB
shareholders, the Merger is subject to the approval of Mutual shareholders and
various governmental agencies and to certain other conditions.

YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
ARTICLES OF INCORPORATION AMENDMENT.

<PAGE>

In view of the importance of the action to be taken, we urge you to
complete, sign, and date your proxy and return it promptly in the enclosed
envelope, whether or not you plan to attend the ANB Special Meeting. If you
attend the ANB Special Meeting, you may vote in person even if you previously
have mailed your proxy.

We look forward to seeing you at the ANB Special Meeting.

Sincerely,

Charles H. Majors
President and Chief Executive Officer
<PAGE>

MUTUAL SAVINGS BANK, F.S.B.
103 TOWER DRIVE
DANVILLE, VIRGINIA 24540

NOTICE OF THE 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 1996

______________, 1996

TO THE SHAREHOLDERS OF
MUTUAL SAVINGS BANK, F.S.B.:

NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
Mutual Savings Bank, F.S.B. ("Mutual") will be held at
____________________________________, on ______________, 1996, at _______
___.m., local time, for the following purposes:

1. MERGER. To consider and vote upon a proposal to approve the
Agreement and Plan of Reorganization, dated as of September 26, 1995 (the
"Agreement"), by and between Mutual and American National Bankshares Inc., a
corporation organized and existing under the laws of the Commonwealth of
Virginia ("ANB"), and the related Plan of Merger, dated as of September 26,
1995, by and between Mutual and American National Bank and Trust Company, a
national banking association organized and existing under the laws of the United
States and a wholly owned subsidiary of ANB ("American National"), pursuant to
which, among other matters, (i) Mutual will merge with and into American
National (the "Merger"), (ii) each share of the $1.00 par value common stock of
Mutual ("Mutual Common Stock") outstanding at the effective time of the Merger
will be converted into .705 of a share of the $1.00 par value common stock of
ANB ("ANB Common Stock"), plus the right to receive cash in lieu of fractional
shares as determined under the Agreement, and (iii) ANB will assume the
obligations of the Mutual stock option plan, all as more fully described in the
accompanying Joint Proxy Statement/Prospectus.

2. ELECTION OF DIRECTORS. To consider and vote upon a
proposal to elect two nominees as directors of Mutual to serve for
three-year terms or until their successors are duly elected and qualified.

3. RATIFICATION OF AUDITORS. To consider and vote upon a
proposal to ratify the appointment of Manning, Perkinson, Floyd & Company
as the independent auditors of Mutual for the fiscal year ending September
30, 1996.

4. OTHER BUSINESS. To transact such other business as may come properly
before the meeting or any adjournment or postponement thereof (the "Mutual
Annual Meeting"), including the adjournment of the Mutual Annual Meeting if
necessary to solicit additional proxies in the event sufficient proxies have not
been received to approve the foregoing proposals.

Shareholders of Mutual have a right to dissent from the Merger and
obtain payment in cash of the fair value of their shares of Mutual Common Stock
if the Merger is consummated. The right of any shareholder to receive such
payment is conditioned on strict compliance with the applicable provisions of
the regulations promulgated by the Office of Thrift Supervision, which are
attached to the accompanying Joint Proxy Statement/Prospectus as Appendix VI.

Only shareholders of record at the close of business on
_______________, 1996, will be entitled to receive notice of and to vote at the
Mutual Annual Meeting. Approval of the Merger requires the affirmative vote at
the Mutual Annual Meeting by the holders of record of two-thirds of

<PAGE>

the outstanding shares of Mutual Common Stock. Election of the two nominees to
serve as directors of Mutual for three-year terms requires the affirmative
vote of a plurality of the shares of Mutual Common Stock voted at the Mutual
Annual Meeting, assuming a quorum is present. The ratification of the
appointment of Manning, Perkinson, Floyd & Company as the independent auditors
of Mutual for the fiscal year ending September 30, 1996, requires the
affirmative vote of a majority of the shares of Mutual Common Stock present
and voted at the Mutual Annual Meeting, assuming a quorum is present.

THE BOARD OF DIRECTORS OF MUTUAL UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE PLAN OF MERGER, THE
ELECTION OF TWO NOMINEES TO SERVE AS DIRECTORS OF MUTUAL, AND THE RATIFICATION
OF THE APPOINTMENT OF MANNING, PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT
AUDITORS OF MUTUAL.

By Order of the Board of Directors

Secretary

Danville, Virginia
_________________, 1996

WHETHER OR NOT YOU PLAN TO ATTEND THE MUTUAL ANNUAL
MEETING, PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED FORM
OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES
WILL BE REPRESENTED AT THE MUTUAL ANNUAL MEETING.

<PAGE>

AMERICAN NATIONAL BANKSHARES INC.
628 MAIN STREET
DANVILLE, VIRGINIA 24541

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 1996

SHAREHOLDERS OF
AMERICAN NATIONAL BANKSHARES INC.:

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
American National Bankshares Inc. ("ANB") will be held at
__________________________, on ____________, 1996, at _________ ____.m., local
time, for the following purposes:

1. ARTICLES OF INCORPORATION AMENDMENT. To consider and vote upon a
proposal to approve an amendment to the Articles of Incorporation of ANB to
increase the number of authorized shares of the $1.00 par value common stock of
ANB ("ANB Common Stock") from 3,000,000 to 10,000,000 ("Articles of
Incorporation Amendment"), in order to permit consummation of the proposed
merger of Mutual Savings Bank, F.S.B. ("Mutual") with and into American National
Bank and Trust Company, a wholly owned subsidiary of ANB ("American National"),
pursuant to the terms of the Agreement and Plan of Reorganization (the
"Agreement"), dated as of September 26, 1995, by and between Mutual and ANB, and
the related Plan of Merger, dated as of September 26, 1995, by and between
Mutual and American National, all as more fully described in the accompanying
Joint Proxy Statement/Prospectus.

2. OTHER BUSINESS. To transact such other business as may come properly
before the meeting or any adjournment or postponement thereof (the "ANB Special
Meeting"), including the adjournment of the ANB Special Meeting if necessary to
solicit additional proxies in the event sufficient proxies have not been
received to approve the foregoing proposal.

Pursuant to the provisions of the Virginia Stock Corporation Act,
holders of ANB Common Stock will not have dissenters' rights with respect to the
Articles of Incorporation Amendment.

Only shareholders of record at the close of business on _____________,
1996, will be entitled to receive notice of and to vote at the ANB Special
Meeting. Approval of the Articles of Incorporation Amendment requires the
affirmative vote of more than two-thirds of the votes entitled to be cast at the
ANB Special Meeting by the holders of ANB Common Stock.

<PAGE>

THE BOARD OF DIRECTORS OF ANB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE ARTICLES OF INCORPORATION AMENDMENT.

By Order of the Board of Directors

Secretary

Danville, Virginia
_______________, 1996

WHETHER OR NOT YOU PLAN TO ATTEND THE ANB SPECIAL
MEETING, PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED FORM
OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES
WILL BE REPRESENTED AT THE ANB SPECIAL MEETING.

<PAGE>

PROSPECTUS
AMERICAN NATIONAL BANKSHARES INC.

COMMON STOCK, $1.00 PAR VALUE
---------------------------------------

JOINT PROXY STATEMENT

MUTUAL SAVINGS BANK, F.S.B. AMERICAN NATIONAL BANKSHARES INC.
103 Tower Drive 628 Main Street
Danville, Virginia 24540 Danville, Virginia 24541

This prospectus of American National Bankshares Inc. ("ANB") relates to
up to 879,911 shares of common stock, par value $1.00 per share, of ANB ("ANB
Common Stock") which are issuable to the shareholders of Mutual Savings Bank,
F.S.B. ("Mutual") (including shares reserved for issuance under the stock option
plan of Mutual) upon consummation of the proposed reorganization (the "Merger")
described herein, by which Mutual would be merged with and into American
National Bank and Trust Company, a national banking association organized and
existing under the laws of the United States and a wholly owned subsidiary of
ANB ("American National"), pursuant to the terms of an Agreement and Plan of
Reorganization, dated as of September 26, 1995, by and between Mutual and ANB
(the "Agreement"), and the related Plan of Merger, dated as of September 26,
1995, by and between Mutual and American National (the "Plan of Merger").

At the effective time of the Merger (as described herein, the
"Effective Time"), except as described herein, each outstanding share of common
stock, par value $1.00 per share, of Mutual ("Mutual Common Stock") will be
converted into .705 of a share of ANB Common Stock. For a further description of
the terms of the Merger, see "The Merger."

This prospectus also serves as a joint proxy statement of Mutual and ANB
and is being furnished to the shareholders of Mutual and ANB in connection
with the solicitation of proxies by the Board of Directors of Mutual for use
at its 1996 Annual Meeting of Shareholders (including any adjournment or
postponement thereof, the "Mutual Annual Meeting") and by the Board of
Directors of ANB for use at its Special Meeting of Shareholders (including
any adjournment or postponement thereof, the "ANB Special Meeting"), each to
be held on ____________________, 1996, for the shareholders of Mutual and
ANB, respectively, to consider and vote upon the matters submitted for the
approval of such shareholders (collectively, the "Meetings"). This joint
proxy statement/ prospectus (the "Joint Proxy Statement") is being mailed to
the shareholders of Mutual and ANB on or about _____________, 1996.

THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS
ACCOUNTS, OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.

<PAGE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION,
THE OFFICE OF THRIFT SUPERVISION, OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE COMMISSION, THE OFFICE OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT.
ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Joint Proxy Statement is ___________, 1996.

<PAGE>

AVAILABLE INFORMATION

ANB is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "SEC"). Copies of such reports, proxy statements, and
other information can be obtained, at prescribed rates, from the SEC by
addressing written requests for such copies to the Public Reference Section at
the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In
addition, such reports, proxy statements, and other information can be inspected
at the public reference facilities referred to above and at the regional offices
of the SEC at 7 World Trade Center, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.

This Joint Proxy Statement constitutes part of the Registration
Statement on Form S-4 of ANB (including any exhibits and amendments thereto, the
"Registration Statement") filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the securities offered hereby.
This Joint Proxy Statement does not include all of the information in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the SEC. For further information about ANB and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above.

Mutual also is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements, and
other information with the Office of Thrift Supervision (the "OTS"). Such
reports, proxy statements, and other information can be inspected and copied at
the Office of Public Information of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552, and also can be obtained by written request from such office at
prescribed rates.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE,
ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL ORA SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF THE
SECURITIES BEING OFFERED PURSUANT TO THIS JOINT PROXY STATEMENT SHALL CREATE,
UNDER ANY CIRCUMSTANCES, ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MUTUAL OR ANB SINCE THE DATE OF THIS JOINT PROXY STATEMENT OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.

INCORPORATION OF CERTAIN ANB INFORMATION BY REFERENCE

The following documents filed with the SEC by ANB are incorporated in
this Joint Proxy Statement by reference:

(a) ANB's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994;

(b) ANB's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30, and September 30, 1995;

<PAGE>

(d) ANB's Registration Statement on Form 8A, filed September
14, 1984, with respect to the description of ANB Common Stock contained
therein (and any amendment or report filed for the purpose of updating
such description).

Any statement contained herein, in any supplement hereto, or in a
document incorporated or deemed to be incorporated by reference herein or
attached hereto shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Joint Proxy Statement to the extent that a
statement contained herein, in any supplement hereto, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein or attached hereto modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement, this
Joint Proxy Statement, or any supplement hereto.

DOCUMENTS OF ANB INCORPORATED BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE TEXT OF SUCH DOCUMENTS) ARE
AVAILABLE, WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM A COPY OF THIS JOINT PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO DAVID HYLER, SECRETARY, AMERICAN NATIONAL BANKSHARES INC., 628 MAIN
STREET, DANVILLE, VIRGINIA 24541 (TELEPHONE NUMBER: (804) 792-5111). IN ORDER TO
ENSURE TIMELY DELIVERY OF DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY ANB BY
__________, 1996.

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

The information contained in this Joint Proxy Statement with respect to
ANB has been supplied by ANB. The information contained herein with respect to
Mutual has been supplied by Mutual.

-ii-

<PAGE>

TABLE OF CONTENTS

Available Information................................................. i
Incorporation of Certain ANB Information by Reference................. i
Summary............................................................... 1
The Parties.................................................... 1
Meetings of Shareholders....................................... 1
The Merger..................................................... 2
Other Proposals to be Considered at the Mutual Annual Meeting.. 7
Proposal to Amend ANB's Articles of Incorporation.............. 7
Comparative Per Share Data..................................... 7
Selected Historical Financial Data of ANB............................ 9
Selected Historical Financial Data of Mutual................... 11
Selected Pro Forma Financial Data.............................. 12
Meetings of Shareholders............................................. 14
Date, Place, Time, and Purpose................................. 14
Record Dates, Voting Rights, Required Votes, and Revocability
of Proxies.................................................... 14
The Merger........................................................... 17
Background of and Mutual's Reasons for the Merger.............. 17
ANB's Reasons for the Merger................................... 18
Opinions of Investment Bankers................................. 19
Exchange Ratio................................................. 25
Effect of the Merger on Stock Options.......................... 26
Management and Operations After the Merger..................... 26
Interests of Certain Persons in the Merger..................... 27
Effective Time................................................. 29
Distribution of ANB Certificates and Payment for Fractional
Shares........................................................ 29
Certain Federal Income Tax Consequences........................ 30
Accounting Treatment........................................... 31
Conditions to Consummation of the Merger....................... 31
Governmental Approvals......................................... 32
Amendment, Waiver, and Termination............................. 32
Conduct of Business Pending the Merger......................... 34
Expenses and Fees.............................................. 35
Resales of ANB Common Stock.................................... 36
Dissenters' Rights............................................. 37
Effect of the Merger on Rights of Shareholders....................... 39
General........................................................ 39
Capitalization................................................. 39
Amendment of Articles or Bylaws................................ 39
Required Shareholder Vote for Certain Actions; Anti-Takeover
Provisions.................................................... 40
Director Nominations........................................... 41
Directors and Classes of Directors; Vacancies and Removal of
Directors..................................................... 41
Preemptive Rights.............................................. 42
Liquidation Rights............................................. 42
Special Meetings of Shareholders............................... 42
Indemnification................................................ 43
Shareholder Proposals.......................................... 43
Shareholder Inspection Rights; Shareholder Lists............... 43
Dissenters' Rights............................................. 44
Payment of Dividends........................................... 44

-iii-

<PAGE>

Market Prices and Dividends of Mutual Common Stock and ANB Common
Stock............................................................... 46
Market Prices.................................................. 46
Dividends...................................................... 46
Pro Forma Financial Information...................................... 48
Pro Forma Condensed Combined Balance Sheet..................... 48
Pro Forma Condensed Combined Statements of Income (Unaudited).. 50
Selected Historical Financial Data of ANB............................ 52
Management's Discussion and Analysis of ANB.......................... 54
For the Three Years Ended December 31, 1994, 1993, and 1992.... 54
For the Three and Nine Months Ended September 30, 1995 and
1994.......................................................... 68
Business of ANB...................................................... 73
General........................................................ 73
Employees...................................................... 73
Competition.................................................... 73
Properties..................................................... 73
Legal Proceedings.............................................. 74
Management..................................................... 74
Comparative Company Performance................................ 77
Executive Compensation......................................... 77
Certain Transactions with ANB.................................. 80
Ownership of ANB Common Stock.................................. 80
Selected Historical Financial Data of Mutual......................... 81
Management's Discussion and Analysis of Mutual....................... 82
Changes in Condition for the Three Years Ended September
30, 1995...................................................... 87
Business of Mutual................................................... 91
General........................................................ 91
Lending Activities............................................. 91
Non-Performing Assets and Allowance for Loan Losses............ 97
Source of Funds................................................ 102
Employees...................................................... 105
Subsidiaries................................................... 105
Competition.................................................... 105
Federal and State Taxation..................................... 106
Properties..................................................... 107
Election of Directors of Mutual...................................... 108
Information As To Mutual Nominees And Continuing Directors..... 108
Mutual Board of Directors Meetings and Committees.............. 110
Mutual Directors Compensation.................................. 110
Mutual Executive Compensation.................................. 110
Indebtedness of Management..................................... 112
Compliance with Section 16 of the Exchange Act................. 113
Security Ownership Of Certain Beneficial Owners Of Mutual
Common Stock.................................................. 113
Appointment Of Mutual's Auditors For Fiscal Year Ending September
30, 1996............................................................ 114
Authority to Adjourn Mutual's Annual Meeting......................... 114
Amendment of ANB's Articles of Incorporation......................... 114
Supervision and Regulation........................................... 116
General........................................................ 116
Community Reinvestment......................................... 117
Payment of Dividends........................................... 119
Transactions with Affiliates................................... 120
Capital Adequacy............................................... 120
Support of American National................................... 121

-iv-

<PAGE>

Prompt Corrective Action....................................... 121
Brokered Deposits.............................................. 123
FDIC Insurance Assessments..................................... 123
Safety and Soundness Standards................................. 125
Depositor Preference........................................... 125
Other..................................................... 125
Description of ANB Capital Stock............................... 126
ANB Common Stock............................................... 126
ANB Preferred Stock............................................ 127
Legal Matters........................................................ 127
Experts ............................................................ 127
Other Matters........................................................ 128
Miscellaneous.................................................. 128
Solicitation................................................... 128
Shareholder Proposals................................................ 128
Index to Financial Statements........................................ F-1
Appendices:
Appendix I -- Agreement and Plan of Reorganization
Appendix II -- Plan of Merger
Appendix III -- Opinion of Baxter Fentriss and Company
Appendix IV -- Opinion of Scott & Stringfellow, Inc.
Appendix V -- Proposed Amended Articles of Incorporation of ANB
Appendix VI -- Section 552.14, Title 12, Code of Federal Regulations
Relating to Dissenting Shareholders

-v-
<PAGE>

SUMMARY

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT AND THE DOCUMENTS ATTACHED HERETO AS APPENDICES AND
INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE
DESCRIPTION OF THE MATTERS COVERED IN THIS JOINT PROXY STATEMENT AND IS SUBJECT
TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS JOINT PROXY STATEMENT,
INCLUDING THE APPENDICES HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE JOINT PROXY
STATEMENT, INCLUDING THE APPENDICES. AS USED IN THIS JOINT PROXY STATEMENT, THE
TERMS "MUTUAL," "ANB," AND "AMERICAN NATIONAL," REFER TO SUCH ENTITIES,
RESPECTIVELY, AND IF THE CONTEXT REQUIRES, SUCH ENTITIES AND THEIR RESPECTIVE
SUBSIDIARIES.

THE PARTIES

MUTUAL. Mutual is a federally chartered stock savings bank located in
Danville, Virginia. Mutual provides an array of financial services through four
offices located in Danville and Collinsville, Virginia. As of September 30,
1995, Mutual had total assets of approximately $83.4 million, total deposits of
approximately $67.5 million, total loans of approximately $39.9 million, and
total shareholders' equity of approximately $14.8 million. Mutual's principal
executive offices are located at 103 Tower Drive, Danville, Virginia 24540, and
its telephone number at such address is (804) 791-0200. For additional
information concerning the business of Mutual and its financial condition, see
"Selected Historical Financial Data of Mutual," "Management's Discussion and
Analysis of Mutual," and "Business of Mutual."

ANB. ANB is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), which serves as the holding
company for American National, a national banking association. Through American
National, ANB provides a broad array of financial services through seven offices
in Danville and Gretna, Virginia. As of September 30, 1995, ANB had total assets
of approximately $302.5 million, total deposits of approximately $259.9 million,
total loans of approximately $174.9 million, and total shareholders' equity of
approximately $33.5 million. ANB's principal executive offices are located at
628 Main Street, Danville, Virginia 24541, and its telephone number at such
address is (804) 792-5111. For additional information concerning the business of
ANB and its financial condition, see "Selected Historical Financial Data of
ANB," "Management's Discussion and Analysis of ANB," and "Business of ANB."

MEETINGS OF SHAREHOLDERS

MUTUAL. This Joint Proxy Statement is being furnished to the holders of
Mutual Common Stock in connection with the solicitation by the Mutual Board of
Directors of proxies for use at the Mutual Annual Meeting at which Mutual
shareholders will be asked to vote upon a proposal to approve the Agreement and
the Plan of Merger. At the Mutual Annual Meeting, the holders of Mutual Common
Stock also will be asked to vote upon a proposal to elect two nominees as
directors of Mutual for three-year terms or until their successors are duly
elected and qualified. In addition, the holders of Mutual Common Stock will be
asked to vote upon a proposal to ratify the appointment of Manning, Perkinson,
Floyd & Company as the independent auditors of Mutual for the fiscal year ending
September 30, 1996. The Mutual Annual Meeting will be held at ___________, on
_________, 1996 at ______ __. M. local time. See "Meetings of
Shareholders--Date, Place, Time, and Purpose."

Mutual's Board has fixed the close of business on __________ __, 1996,
as the record date (the "Mutual Record Date") for determination of the
shareholders entitled to notice of and to vote at the Mutual Annual Meeting.
Only holders of record of shares of Mutual Common Stock on the Mutual Record
Date will be entitled to notice of and to vote at the Mutual Annual Meeting.
Each share of Mutual Common Stock is entitled to one vote. Shareholders who
execute proxies retain the right to revoke them at any time prior to

<PAGE>

being voted at the Mutual Annual Meeting. On the Mutual Record Date, there were
________ shares of Mutual Common Stock outstanding. See "Meetings of
Shareholders--Record Dates, Voting Rights, Required Votes, and Revocability of
Proxies."

Approval of the Merger requires the affirmative vote at the Mutual
Annual Meeting by the holders of record of two-thirds of the outstanding shares
of Mutual Common Stock. Approval of the election of the two nominees as
directors of Mutual for three-year terms requires the affirmative vote of a
plurality of the shares of Mutual Common Stock voted at the Mutual Annual
Meeting, assuming a quorum is present. Approval of the appointment of Manning,
Perkinson, Floyd & Company as the independent auditors of Mutual for the fiscal
year ending September 30, 1996 requires the affirmative vote of a majority of
the shares of Mutual Common Stock present and voted at the Mutual Annual
Meeting, assuming a quorum is present.

On the Mutual Record Date, the directors and executive officers of
Mutual and their affiliates beneficially owned ____% of the outstanding shares
of Mutual Common Stock entitled to vote at the Mutual Annual Meeting. All of the
directors and executive officers of Mutual have executed support agreements
pursuant to which they have each committed to vote all of the shares of Mutual
Common Stock over which they have voting authority, other than in a fiduciary
capacity, in favor of the Merger. See "Meetings of Shareholders--Record Dates,
Voting Rights, Required Votes, and Revocability of Proxies."

ANB. This Joint Proxy Statement is being furnished to the holders of
ANB Common Stock in connection with the solicitation by the ANB Board of
Directors of proxies for use at the ANB Special Meeting at which ANB
shareholders will be asked to vote upon a proposal to approve the
Articles of Incorporation Amendment. See "Meetings of Shareholders--Date,
Place, Time, and Purpose."

ANB's Board of Directors has fixed the close of business on _________,
1996, as the ANB record date (the "ANB Record Date") for determination of the
shareholders entitled to notice of and to vote at the ANB Special Meeting. Only
holders of record of shares of ANB Common Stock on the ANB Record Date will be
entitled to notice of and to vote at the ANB Special Meeting. Each share of ANB
Common Stock is entitled to one vote. Shareholders who execute proxies retain
the right to revoke them at any time prior to being voted at the ANB Special
Meeting. On the ANB Record Date, there were _____ shares of ANB Common Stock
outstanding. See "Meetings of Shareholders--Record Dates, Voting Rights,
Required Votes, and Revocability of Proxies."

Approval of the Articles of Incorporation Amendment requires the
affirmative vote of more than two-thirds of the votes entitled to be cast at the
ANB Special Meeting by the holders of the issued and outstanding shares of ANB
Common Stock. On the ANB Record Date, the directors and executive officers of
ANB and their affiliates beneficially owned ___% of the outstanding shares of
ANB Common Stock entitled to vote at the ANB Special Meeting. All of the
directors and executive officers of ANB have indicated their intention to vote
their shares of ANB Common Stock in favor of the Articles of Incorporation
Amendment. See "Meetings of Shareholders--Record Dates, Voting Rights, Required
Votes, and Revocability of Proxies."

THE MERGER

GENERAL. At the Effective Time, ANB will acquire Mutual pursuant to the
merger of Mutual with and into American National. At the time the Merger is
consummated, each share of Mutual Common Stock issued and outstanding at the
Effective Time (other than shares held by Mutual companies or ANB companies,
other than in a fiduciary capacity or in satisfaction of debts previously
contracted and shares held by shareholders who perfect their dissenters' rights
of appraisal) will be converted into .705 of a share of ANB Common Stock (such
exchange ratio of ANB Common Stock for Mutual Common Stock is referred to herein
as the "Exchange Ratio"), with the result that Mutual will be merged with and
into American National. No fractional shares of ANB Common Stock will be issued.
Rather, cash (without interest) will be

-2-
<PAGE>

paid in lieu of any fractional share interest to which any Mutual shareholder
would be entitled upon consummation of the Merger, in an amount equal to such
fractional share interest multiplied by $30.50. Copies of the Agreement and the
Plan of Merger are attached to this Joint Proxy Statement as Appendices I and
II, respectively. See "The Merger."

RECOMMENDATION OF THE BOARDS OF DIRECTORS OF MUTUAL AND ANB. The Board
of Directors of Mutual believes that the Agreement, the Plan of Merger, and the
Merger are in the best interests of Mutual and its shareholders, and the Board
of Directors of ANB believes that the Agreement, the Plan of Merger, the Merger,
and the Articles of Incorporation Amendment are in the best interests of ANB and
its shareholders. Each Board has unanimously approved the matters to be approved
by their respective shareholders. THE MUTUAL DIRECTORS UNANIMOUSLY RECOMMEND
THAT MUTUAL SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE PLAN OF
MERGER. THE ANB DIRECTORS UNANIMOUSLY RECOMMEND THAT ANB SHAREHOLDERS VOTE FOR
THE ARTICLES OF INCORPORATION AMENDMENT. The Boards of Directors of Mutual and
ANB believe that the Merger will result in a company with expanded opportunities
for profitable growth and that the combined resources and capital of Mutual and
ANB will provide an enhanced ability to compete in the changing and competitive
financial services industry. See "The Merger--Background of the Merger,"
"--Background of and Mutual's Reasons for the Merger," and "--ANB's Reasons for
the Merger." IN ADDITION, THE MUTUAL DIRECTORS UNANIMOUSLY RECOMMEND THAT MUTUAL
SHAREHOLDERS VOTE FOR THE ELECTION OF TWO NOMINEES AS DIRECTORS OF MUTUAL AND
FOR THE RATIFICATION OF THE APPOINTMENT OF MANNING, PERKINSON, FLOYD & COMPANY
AS THE INDEPENDENT AUDITORS OF MUTUAL. See "Election of Directors of Mutual" and
"Appointment of Mutual's Auditors for Fiscal Year Ending September 30, 1996."

OPINIONS OF INVESTMENT BANKERS. Baxter Fentriss and Company ("Baxter
Fentriss") has served as financial advisor to Mutual in connection with the
Merger, and Scott & Stringfellow, Inc. ("Scott & Stringfellow") has served as
financial advisor to ANB, in connection with the Merger. Baxter Fentriss has
delivered a written opinion to the Board of Directors of Mutual to the effect
that, as of the date of this Joint Proxy Statement and on the basis of the
matters referred to herein, the Exchange Ratio is fair, from a financial point
of view, to the holders of Mutual Common Stock. Scott & Stringfellow has
delivered a written opinion to the Board of Directors of ANB to the effect that,
as of the date of this Joint Proxy Statement and on the basis of the matters
referred to herein, the Exchange Ratio is fair, from a financial point of view,
to the holders of ANB Common Stock. Copies of the opinions of Baxter Fentriss to
Mutual and Scott & Stringfellow to ANB are attached as Appendices III and IV,
respectively, to this Joint Proxy Statement and should be read in their entirety
for information with respect to the assumptions made and other matters
considered by Baxter Fentriss and Scott & Stringfellow in rendering their
respective opinions. See "The Merger--Opinions of Investment Bankers."

MANAGEMENT AND OPERATIONS AFTER THE MERGER. Upon consummation of the
Merger, ANB and American National will continue to operate their business to
serve the communities and customers of Danville, Virginia and the surrounding
counties. It is currently anticipated that certain branch offices of Mutual will
be closed and the deposits and assets domiciled in such branch offices will be
transferred to the nearest branch office of American National. It is further
anticipated that all of the officers and employees of Mutual will become
officers and employees of American National. For additional information
regarding ANB. See "Business of ANB."

The management at ANB will remain unchanged except that H. Dan Davis,
the current President and Chief Executive Officer of Mutual, and one other
individual currently serving on the Board of Directors of Mutual, will be
appointed to serve on the Boards of Directors of ANB and American National and
nominated for election to the Boards of Directors of ANB and American National
at the first annual meeting of shareholders of ANB following the Effective Time.
Mr. Davis also will be appointed an Executive Vice President of ANB and a Senior
Vice President of American National. See "The Merger--Management and Operations
After the Merger" and "Business of ANB--Management." For additional information
regarding the interests of certain persons in the Merger, see "The
Merger--Interests of Certain Persons in the Merger."

-3-
<PAGE>

For a description of the provisions of the Agreement affecting the operations of
Mutual and ANB prior to the Effective Time, see "The Merger--Conduct of Business
Pending the Merger."

In addition, following the consummation of the Merger, American
National will organize a new subsidiary, Mutual Mortgage Company ("Mutual
Mortgage"), that will focus on residential home mortgage lending. Mr. Davis will
serve as President and Chief Executive Officer of Mutual Mortgage.

EFFECTIVE TIME. If the Merger is approved by the requisite vote of the
shareholders of Mutual and the Articles of Incorporation Amendment is approved
by the requisite vote of the shareholders of ANB and the other conditions to the
Merger are satisfied or waived (to the extent permitted by applicable law), the
Merger will be consummated and effected at the time of the issuance of the
Certificate of Merger by the Office of the Comptroller of the Currency (the
"OCC") or on such other date or at such other time as the OCC declares the
Merger effective. See "The Merger--Conditions to Consummation of the Merger."

The Agreement provides that, unless otherwise mutually agreed upon in
writing by the chief executive officers or chief financial officers of ANB and
Mutual, ANB and Mutual shall use their reasonable efforts to cause an Effective
Time to occur on the first business day following the last to occur of (i) the
effective time (including expiration of any applicable waiting period) of the
last required consent of any regulatory agency having authority over approving
or exempting the Merger, and (ii) the date on which the shareholders of ANB and
Mutual approve the Agreement and the Plan of Merger to the extent such approval
is required by applicable law or such later date within 30 days of such date as
may be mutually agreed upon by Mutual and ANB. The Agreement may be terminated
by either Mutual or ANB in certain circumstances, including failure to
consummate the Merger by July 31, 1996.

DISTRIBUTION OF ANB CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES.
Promptly after the Effective Time, the exchange agent selected by ANB will mail
to each holder of record of a certificate or certificates (collectively, the
"Certificates") which, immediately prior to the Effective Time, represented
outstanding shares of Mutual Common Stock, a letter of transmittal and
instructions for use in effecting the surrender and cancellation of the
Certificates in exchange for certificates representing shares of ANB Common
Stock. Cash will be paid to the holders of Mutual Common Stock in lieu of the
issuance of any fractional shares of ANB Common Stock. See "The
Merger--Distribution of ANB Certificates and Payment for Fractional Shares."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES. It is intended that the Merger
will be treated as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, no gain or
loss will be recognized by a Mutual shareholder upon the exchange of such
shareholder's Mutual Common Stock for shares of ANB Common Stock. Gain or loss
will be recognized with respect to cash received in lieu of fractional shares.
Consummation of the Merger is conditioned upon receipt by Mutual and ANB of an
opinion of Alston & Bird substantially to this effect. DUE TO THE INDIVIDUAL
NATURE OF THE TAX CONSEQUENCES OF THE MERGER, MUTUAL SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF THE MERGER ON THEM
UNDER FEDERAL, STATE, LOCAL, AND FOREIGN TAX LAWS. For a further discussion of
the federal income tax consequences of the Merger, see "The Merger--Certain
Federal Income Tax Consequences" and "--Dissenters' Rights."

ACCOUNTING TREATMENT. As a condition to consummation of the Merger,
the Merger must be accounted for as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16. See "The Merger--Accounting
Treatment."

CONDITIONS TO CONSUMMATION OF THE MERGER. Consummation of the Merger is
subject to various conditions, including (i) receipt of the approval of the
Merger by the shareholders of Mutual, (ii) receipt of the approval of the
Articles of Incorporation Amendment by the shareholders of ANB, (iii) receipt of
certain regulatory approvals without burdensome conditions from the OCC and
other regulatory authorities,

-4-
<PAGE>

(iv) receipt of a favorable opinion of Alston & Bird as to the tax-free nature
(except for cash received in lieu of fractional shares) of the Merger, (v) the
Registration Statement being declared effective and all necessary SEC and state
approvals relating to the issuance of the shares of ANB Common Stock in the
transaction shall have been issued, (vi) the accuracy, as of the date of the
Agreement and as of the Effective Time, of the representations and warranties of
Mutual and ANB as set forth in the Agreement, (vii) the performance of all
agreements and the compliance with all covenants of Mutual and ANB as set forth
in the Agreement, (viii) receipt of letters by Mutual and ANB, respectively,
within a date ten days prior to the date of this Joint Proxy Statement, from
each of Baxter Fentriss and Scott & Stringfellow with respect to the fairness of
the Exchange Ratio to the shareholders of Mutual and ANB, respectively, (ix)
receipt by ANB of a letter from Arthur Andersen LLP, dated as of the Effective
Time, to the effect the Merger will qualify for pooling-of-interests accounting
treatment, (x) receipt of all consents required for consummation of the Merger
or for the preventing of any default under any contract or permit which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect, (xi) the absence of any law or order or
any action taken by any court, governmental or regulatory authority prohibiting,
restricting, or making illegal the consummation of the transaction, and (xii)
satisfaction of certain other conditions, including the receipt of legal
opinions from the respective counsel to Mutual and ANB and various certificates
from the officers of Mutual and ANB. See "The Merger--Conditions to Consummation
of the Merger," "--Governmental Approvals," and "--Amendment, Waiver, and
Termination."

GOVERNMENTAL APPROVALS. Consummation of the Merger is subject to
obtaining the prior approval of the OCC and all other requisite regulatory
approvals. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE TIMING OF ANY SUCH APPROVAL. THERE ALSO CAN BE NO
ASSURANCE THAT ANY SUCH APPROVALS WILL NOT IMPOSE CONDITIONS THAT ARE DEEMED
MATERIALLY BURDENSOME BY MUTUAL AND ANB. On November 28, 1995, ANB filed
an application to obtain the OCC's approval of the Merger. See "The
Merger--Governmental Approvals."

TERMINATION; AMENDMENT. The Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time (i) by the mutual consent of
the Boards of Directors of Mutual and ANB or (ii) by the Board of Directors of
Mutual or ANB, (a) in the event of any inaccuracy of any representation or
warranty of the other party contained in the Agreement which cannot be or has
not been cured within 30 days after giving written notice to the breaching party
of such inaccuracy and which inaccuracy would provide the terminating party the
ability to refuse to consummate the Merger under the applicable standards set
forth in the Agreement, (b) in the event of a material breach by the other party
of any covenant or agreement contained in the Agreement which cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching party of such breach, (c) if the Merger is not consummated by July 31,
1996, (d) if (1) any approval of any regulatory authority required for
consummation of the Merger and the other transactions contemplated by the
Agreement has been denied by final nonappealable action, or if any action taken
by such authority is not appealed within the time limit for appeal, (2) the
shareholders of Mutual fail to vote their approval of the Agreement and the
transactions contemplated thereby as required by the Home Owners' Loan Act of
1933, as amended ("HOLA"), and the regulations of the OTS at the Mutual Annual
Meeting, or (3) the shareholders of ANB fail to vote their approval of the
Articles of Incorporation Amendment as required by the Virginia Stock
Corporation Act (the "VSCA") at the ANB Special Meeting, or (e) if any of the
conditions precedent to the obligations of such party to consummate the Merger
have not been satisfied, fulfilled, or waived by the appropriate party by the
Effective Time. The Agreement may be amended upon the written agreement of
Mutual and ANB without the approval of shareholders at any time, except that the
Exchange Ratio may not be decreased after the Meetings without further
shareholder approval. See "The Merger--Amendment, Waiver, and Termination."

DISSENTERS' RIGHTS. Each holder of Mutual Common Stock who dissents
from the Merger is entitled to the rights and remedies of dissenting
shareholders provided in 12 C.F.R. Section 552.14, subject to compliance with
the procedures set forth therein. A copy of 12 C.F.R. Section 552.14 is attached
as Appendix VI to this Joint Proxy Statement, and a summary thereof is included
under "The Merger--

-5-
<PAGE>

Dissenters' Rights." Under the VSCA, the holders of ANB Common Stock are not
entitled to dissenters' rights of appraisal with respect to the Articles of
Incorporation Amendment.

INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of Mutual's
management and the Mutual Board have interests in the Merger in addition to
their interests as shareholders of Mutual generally. These include, among other
things, provisions in the Agreement relating to indemnification and eligibility
for certain ANB employee benefits and provisions in an employment agreement
between Mutual and one of its officers. In connection with the Merger, all
rights with respect to Mutual stock options outstanding at the Effective Time
will become rights with respect to ANB Common Stock. Also, one of the members of
the management of Mutual will become an executive officer of ANB and certain
directors of Mutual will be elected to the Boards of Directors of ANB, American
National, and Mutual Mortgage. In addition, at the Effective Time, ANB has
agreed to offer to enter into an employment agreement with H. Dan Davis, the
President and Chief Executive Officer of Mutual. See "The Merger--Interests of
Certain Persons in the Merger."

EFFECTS OF THE MERGER ON RIGHTS OF SHAREHOLDERS. Upon consummation of
the Merger, shareholders of Mutual will become shareholders of ANB, which will
be governed by the Articles of Incorporation of ANB, as amended pursuant to the
Articles of Incorporation Amendment. There are certain differences affecting the
rights of shareholders between the laws governing federally chartered stock
savings banks and the laws governing a Virginia corporation. The provisions of
the Charter and Bylaws of Mutual differ in certain respects from the provisions
of the Articles of Incorporation, as amended pursuant to the Articles of
Incorporation Amendment, and Bylaws of ANB. For a comparison of the rights of
shareholders under the laws governing federally chartered savings banks and the
laws governing a Virginia corporation and the Charter and Bylaws of Mutual and
the Articles of Incorporation, as amended pursuant to the Articles of
Incorporation Amendment, and Bylaws of ANB, see "Effect of the Merger on Rights
of Shareholders."

MARKET AND MARKET PRICES OF COMMON STOCK. Mutual Common Stock is not
actively traded in any established market. Prior to the date of the Agreement,
ANB Common Stock also was not actively traded in any established market.
Subsequent to the date of the Agreement, ANB Common Stock was listed on the OTC
Bulletin Board but is still not actively traded. However, management of Mutual
and ANB are aware of various (but not necessarily all) trades of Mutual Common
Stock and ANB Common Stock in the over-the-counter market. The following table
sets forth the sale prices per share of the last trades known to the respective
managements for Mutual Common Stock and ANB Common Stock and the equivalent per
share prices (as explained below) for Mutual Common Stock in trades occurring on
September 11, 1995, in the case of Mutual, and on September 20, 1995, in the
case of ANB, preceding the public announcement of the execution of the
Agreement, and __________, 1996, the latest practicable date prior to the
mailing of this Joint Proxy Statement. The equivalent per share price of a share
of Mutual Common Stock at each specified date represents the price of a share of
ANB Common Stock on the indicated date multiplied by the Exchange Ratio. As
there is limited trading in Mutual Common Stock and ANB Common Stock, additional
information with respect to the trading range of such common stock is provided
under "Market Prices and Dividends of Mutual Common Stock and ANB Common Stock."
<TABLE>
<CAPTION>

Market Price Mutual ANB Equivalent Per
Per Share at: Common Stock Common Stock Share Price
---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C>
September 11 (as to Mutual)
and 20 (as to ANB), 1995.. $16.00 $30.50 $21.50
</TABLE>

______ __, 1996................

-6-
<PAGE>

There can be no assurance as to what the market price of the ANB
Common Stock will be if and when the Merger is consummated. See "Market
Prices and Dividends of Mutual Common Stock and ANB Common Stock."

OTHER PROPOSALS TO BE CONSIDERED AT THE MUTUAL ANNUAL MEETING

At the Mutual Annual Meeting, the shareholders of Mutual also will be
voting on a proposal to elect two nominees to the Board of Directors of Mutual
to serve for three-year terms or until their successors are duly elected and
qualified. See "Election of Directors of Mutual." In addition, the shareholders
of Mutual will be voting on a proposal to ratify the appointment of Manning,
Perkinson, Floyd & Company as the independent auditors of Mutual for the fiscal
year ending September 30, 1996. See "Appointment of Mutual's Auditors for Fiscal
Year Ending September 30, 1996."

PROPOSAL TO AMEND ANB'S ARTICLES OF INCORPORATION

At the ANB Special Meeting, the shareholders of ANB will be voting on
amending ANB's Articles of Incorporation to provide that Article 3 be amended to
increase the number of authorized shares of ANB Common Stock from 3,000,000 to
10,000,000. Because the Articles of Incorporation Amendment to increase the
number of authorized shares of ANB Common Stock is necessary to consummate the
Merger, in the event the shareholders of ANB do not approve the Articles of
Incorporation Amendment by the requisite vote, the Merger will not be
consummated. See "Amendment of ANB's Articles of Incorporation."

COMPARATIVE PER SHARE DATA

The following unaudited financial information reflects certain
comparative per share data relating to net income, cash dividends, and book
value per common share on (i) an historical basis for ANB and Mutual, (ii) a pro
forma combined basis per share of ANB Common Stock giving effect to the Merger,
and (iii) an equivalent pro forma basis per share of Mutual Common Stock, giving
effect to the Merger. The pro forma combined information and the Mutual pro
forma equivalent information give effect to the Merger on a pooling-of-interests
accounting basis and reflect the Exchange Ratio of .705 of a share of ANB Common
Stock for each share of Mutual Common Stock. For a description of
pooling-of-interests accounting with respect to the Merger, see "The
Merger--Accounting Treatment." The information shown below should be read in
conjunction with the historical consolidated financial statements of Mutual and
ANB, including the respective notes thereto, which, in the case of Mutual, are
attached to this Joint Proxy Statement, and in the case of ANB, are incorporated
by reference in, and attached to, this Joint Proxy Statement, and the unaudited
pro forma financial statements, including the notes thereto, appearing elsewhere
in this Joint Proxy Statement. Results of ANB for the nine months ended
September 30, 1995, are not necessarily indicative of the results which may be
expected for any other interim period or for the year as a whole. The pro forma
financial data are not necessarily indicative of results that actually would
have occurred had the Merger been consummated on the dates indicated or that may
be obtained in the future. See "Incorporation of Certain ANB Information by
Reference," "Pro Forma Financial Information," and "Index to Financial
Statements."

-7-
<PAGE>

At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
---------------------- ------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
ANB historical.................................. $1.32 $1.07 $1.47 $1.38 $1.46
Mutual historical............................... 0.61 0.59 0.81 1.06 0.88
Pro forma combined(2)........................... 1.20 1.01 1.39 1.41 1.40
Mutual pro forma equivalent(3).................. 0.85 0.71 0.98 0.99 0.99

CASH DIVIDENDS DECLARED PER COMMON SHARE(4):
ANB historical.................................. $0.27 $0.25 $0.75 $0.47 $0.66
Mutual historical............................... 0.30 0.30 0.40 0.40 0.39
Pro forma combined(5)........................... 0.20 0.19 0.56 0.35 0.49

BOOK VALUE PER COMMON SHARE (END OF PERIOD):
ANB historical.................................. $13.97 $12.83 $12.83 $12.12 $11.21
Mutual historical............................... 12.81 12.36 12.36 11.90 11.09
Pro forma combined(2)........................... 15.03 14.10 14.02 13.32 12.35
Mutual pro forma equivalent(3).................. 10.60 9.94 9.88 9.39 8.71
</TABLE>

- ---------------------
(1) ANB prepares annual financial statements based on a fiscal year ending on
December 31, and Mutual prepares annual financial statements based on a
fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.

(2) Represents the pro forma combined information of ANB and Mutual as if the
Merger were consummated on January 1, 1992, and accounted for as a
pooling-of-interests.

(3) Represents the pro forma combined information multiplied by the Exchange
Ratio of .705 of a share of ANB Common Stock for each share of Mutual
Common Stock.

(4) See "Market Prices and Dividends of Mutual Common Stock and ANB Common
Stock."

(5) Represents the historical dividends paid by ANB divided by pro forma
shares outstanding as of the last date of the period which includes
Mutual shares multiplied by the Exchange Ratio of .705.

-8-
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA OF ANB

The following table sets forth certain unaudited historical financial
data of ANB and is based on the consolidated financial statements of ANB,
including the respective notes thereto, which are incorporated by reference in,
and attached to, this Joint Proxy Statement and should be read in conjunction
therewith. Results for the nine months ended September 30, 1995, are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. See "Incorporation of Certain ANB
Information by Reference" and "Index to Financial Statements."

At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
--------------------- -----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS DATA
Total interest income...... $ 14,158 $ 11,753 $ 16,057 $ 15,918 $ 17,349 $ 19,527 $ 19,404
Total interest expense..... 5,978 4,671 6,374 7,017 8,826 11,669 11,520
--------- --------- ---------- --------- -------- -------- --------
Net interest income........ 8,180 7,082 9,683 8,901 8,523 7,858 7,884
Provision for loan losses.. 374 189 272 214 230 214 308
--------- --------- ---------- --------- -------- -------- --------
Net interest income after
provision for loan losses 7,806 6,893 9,411 8,687 8,293 7,644 7,576
Non-interest income........ 1,492 1,328 1,886 1,871 1,728 1,383 1,137
Non-interest expenses...... 4,696 4,453 6,119 5,772 5,290 4,981 4,692
-------- -------- --------- -------- -------- -------- --------
Income before taxes ....... 4,602 3,768 5,178 4,786 4,731 4,046 4,021
Income taxes............... 1,431 1,194 1,645 1,483 1,237 994 922
-------- -------- --------- -------- -------- -------- --------
Net income................. $ 3,171 $ 2,574 $ 3,533 $ 3,303 $ 3,494 $ 3,052 $ 3,099
--------- --------- ---------- --------- -------- -------- --------
--------- --------- ---------- --------- -------- -------- --------

PER SHARE DATA(1)

Earnings per share......... $1.32 $1.07 $1.47 $1.38 $1.46 $1.27 $1.29
Dividends per share(2)..... 0.27 0.25 0.75 0.47 0.66 0.41 0.57
Book value per share....... 13.97 12.83 12.83 12.12 11.21 10.42 9.56

BALANCE SHEET DATA

Total assets............... $302,500 $253,768 $253,768 $247,706 $240,589 $228,033 $215,644
Investment securities...... 107,257 79,297 79,251 91,826 93,560 85,822 66,134
Loans receivable, net...... 171,360 151,126 151,126 137,877 127,940 121,686 125,455
Deposits................... 259,936 215,861 215,861 217,655 212,439 200,620 187,096
Shareholders' equity....... 33,518 30,785 30,786 29,082 26,907 24,997 22,929
</TABLE>

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

(1) Per share amounts are based on 2,400,000 shares of ANB Common Stock
outstanding and have been restated to retroactively reflect a 2 for 1
stock split declared on April 21, 1992.

(2) For years ended December 31, 1994, 1992, and 1990, dividend amount
includes special dividends of $0.25, $0.22, and $0.19 per share,
respectively.

-9-
<PAGE>
<TABLE>
<CAPTION>

At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS(1)
Return on average assets... 1.69% 1.41% 1.43% 1.36% 1.48% 1.37% 1.52%
Return on average shareholders'
equity.................. 13.19 11.44 11.64 11.96 13.50 12.93 14.12
Efficiency ratio(2)........ 49.03 53.45 53.39 53.91 51.92 54.25 52.38

ASSET QUALITY RATIOS
Net chargeoffs to average
loans(1)................ 0.11% 0.05% 0.05% 0.12% 0.11% 0.09% 0.12%
Nonperforming assets to total
assets 0.03 0.06 0.07 0.19 0.27 0.30 0.37
Allowance for loan losses
to net loans............ 1.50 1.50 1.53 1.54 1.61 1.62 1.49
Allowance for loan losses
to nonperforming loans.. 31.33 X 14.11 X 13.76X 4.61 X 3.24 X 2.94 X 2.39 X
</TABLE>

(1) The ratios have been annualized for the nine months ended September 30,
1995, and 1994.

(2) General and administrative expenses divided by net interest income plus
fee-based income.

-10-
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA OF MUTUAL

The following table sets forth certain unaudited historical financial data of
Mutual and is based on the consolidated financial statements of Mutual,
including the respective notes thereto, which are attached to this Joint Proxy
Statement and should be read in conjunction therewith. See "Index to Financial
Statements."

At or for the Years Ended September 30,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income............. $ 6,040 $ 5,664 $ 6,090 $ 6,576 $ 6,770
Interest expense............ 2,920 2,545 2,698 3,577 4,330
------- ------- ------- ------- -------
Net interest income ........ 3,120 3,119 3,392 2,999 2,440
Provision for loan losses... 8 -- -- 98 68
------- ------- ------- ------- -------
Net interest income after
provision for loan losses... 3,112 3,119 3,392 2,901 2,372
Noninterest income.......... 198 326 197 267 154
Noninterest expense......... 1,830 1,963 1,777 1,633 1,567
------- ------- ------- ------- -------
Income before taxes......... 1,480 1,482 1,812 1,535 959
Income taxes................ 487 506 550 482 318
------- ------- ------- ------- -------
Net income.................. $ 993 $ 976 $ 1,262 $ 1,053 $ 641
------- ------- ------- ------- -------
------- ------- ------- ------- -------

BALANCE AT YEAR-END
Assets...................... $83,396 $83,586 $80,203 $81,378 $73,615
Interest-bearing deposits... 1,167 770 2,074 1,608 747
Investment securities....... 24,598 25,974 20,535 11,133 6,688
Mortgage-backed securities.. 14,338 16,334 14,957 22,298 17,557
Loans receivable, net....... 39,870 36,908 39,253 42,816 45,069
Deposits.................... 67,513 66,931 65,668 67,497 60,723
Borrowed funds.............. -- 1,500 12 146 108
Stockholders' equity........ 14,787 14,260 13,733 12,799 12,105

PER SHARE DATA
Net income.................. $ 0.82 $ 0.81 $ 1.06 $ 0.88 $ 0.54
Stockholders' equity........ 12.81 12.36 11.90 11.09 10.49
Cash dividends declared..... 0.40 0.40 0.40 0.39 0.37

SIGNIFICANT RATIOS
Return on average assets.... 1.20% 1.19% 1.56% 1.35% 0.87%
Return on average equity.... 6.77 6.90 9.48 8.39 5.45
Average equity to average...
assets.................... 17.72 17.24 16.50 16.07 15.94
Interest rate spread........ 3.23 3.40 3.79 3.22 2.48
Dividend payout ratio....... 46.49 47.30 36.59 42.75 66.56
Regulatory Capital.......... 17.73 17.06 16.48 15.26 16.40

OTHER DATA
Full service offices........ 2 1 1 1 1
Total offices............... 4 4 4 4 4
</TABLE>

-11-
<PAGE>

SELECTED PRO FORMA FINANCIAL DATA

The following table sets forth certain unaudited pro forma combined
financial data for ANB giving effect to the Merger accounted for as a pooling of
interests. For a description of the pooling-of-interests accounting with
respect to the Merger, see "The Merger--Accounting Treatment." The following
information does not include any pro forma adjustments. This information should
be read in conjunction with the historical consolidated financial statements of
Mutual and ANB, including the respective notes thereto, which, in the case of
Mutual, are attached to this Joint Proxy Statement, and in the case of ANB, are
incorporated by reference in, and attached to, this Joint Proxy Statement and
the unaudited consolidated historical and other pro forma financial information,
including the notes thereto, appearing elsewhere in this Joint Proxy Statement.
Results for the nine months ended September 30, 1995, are not necessarily
indicative of the results which may be expected for any other interim period or
for the year as a whole. The pro forma financial data are not necessarily
indicative of results that actually would have occurred had the Merger been
consummated on the dates indicated or that may be obtained in the future. See
"Incorporation of Certain ANB Information by Reference," "Pro Forma Financial
Information," and "Index to Financial Statements."

<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
------------------------- ----------------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Total interest income . . . . . . . . . . . . . . $18,716 $15,990 $21,721 $22,008 $23,925
Total interest expense. . . . . . . . . . . . . . 8,236 6,580 8,919 9,715 12,403
------- ------- ------- ------- -------
Net interest income . . . . . . . . . . . . . . . 10,480 9,410 12,802 12,293 11,522
Provision for loan losses . . . . . . . . . . . . 381 189 272 214 328
------- ------- ------- ------- -------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . . . . . 10,099 9,221 12,530 12,079 11,194
Non-interest income . . . . . . . . . . . . . . . 1,655 1,608 2,212 2,068 1,995
Non-interest expenses . . . . . . . . . . . . . . 6,048 5,978 8,082 7,549 6,923
------- ------- ------- ------- -------
Income before taxes . . . . . . . . . . . . . . . 5,706 4,851 6,660 6,598 6,266
Income taxes. . . . . . . . . . . . . . . . . . . 1,792 1,568 2,151 2,033 1,719
------- ------- ------- ------- -------
Net income. . . . . . . . . . . . . . . . . . . . $ 3,914 $ 3,283 $ 4,509 $ 4,565 $ 4,547
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>

- -------------------------
(1) ANB prepares annual financial statements based on a calendar year ending on
December 31, and Mutual prepares annual financial statements based on a
fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and for
the years ended on December 31.

-12-
<PAGE>

<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
------------------------- -----------------------------------------
1995 1994 1994 1993 1992
-------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Income Per Common Share(2)........... $1.20 $1.01 $1.39 $1.41 $1.40
Dividends per share(4)................... 0.20 0.19 0.56 0.35 0.49
Book value per share(3).................. 15.03 14.10 14.02 13.32 12.35

BALANCE SHEET DATA
Total assets............................. $385,896 $334,690 $337,354 $327,909 $321,967
Investment securities.................... 131,855 105,271 105,225 112,361 104,693
Mortgage-backed securities............... 14,338 16,334 16,334 14,957 22,298
Loans receivable, net.................... 211,230 187,139 188,034 177,130 170,756
Deposits................................. 327,449 284,775 282,792 283,323 279,936
Borrowed funds........................... -- 1,500 1,500 12 146
Shareholders' equity..................... 48,305 45,315 45,046 42,815 39,706

PERFORMANCE RATIOS(5)
Return on average assets................. 1.57% 1.34% 1.37% 1.41% 1.45%
Return on average shareholders' equity... 11.15 9.89 10.13 11.15 11.83
Efficiency ratio......................... 50.43 55.55 54.90 53.06 51.94
</TABLE>

- --------------------
(1) ANB prepares annual financial statements based on a calendar year ending
on December 31, and Mutual prepares annual financial statements based on
a fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.

(2) The pro forma combined net income per common share data are based on (i)
combined historical income of Mutual and ANB assuming the Merger is
accounted for as a pooling of interests and (ii) pro forma combined
equivalent common shares of Mutual (as adjusted for the Exchange Ratio of
.705 of a share of ANB Common Stock for each share of Mutual Common
Stock) and ANB.

(3) The pro forma combined book value per common share data are based on (i)
combined historical shareholders' equity of Mutual and ANB assuming the
Merger is accounted for as a pooling of interests and (ii) pro forma
combined equivalent common shares of Mutual (as adjusted for the Exchange
Ratio of .705 of a share of ANB Common Stock for each share of Mutual
Common Stock) and ANB.

(4) Represents the historical dividends paid by ANB divided by pro forma
shares outstanding as of the last date of the period which includes
Mutual shares multiplied by the Exchange Ratio of .705.

(5) The ratios have been annualized for the nine months ended September 30,
1995 and 1994.

-13-
<PAGE>

MEETINGS OF SHAREHOLDERS

DATE, PLACE, TIME, AND PURPOSE

MUTUAL. This Joint Proxy Statement is being furnished to the holders of
Mutual Common Stock in connection with the solicitation by the Mutual Board of
Directors of proxies for use at the Mutual Annual Meeting at which Mutual
shareholders will be asked to vote upon a proposal to approve the Agreement and
the Plan of Merger. At the Mutual Annual Meeting, the Mutual shareholders also
will be asked to vote upon a proposal to elect two nominees to serve as
directors of Mutual for three-year terms or until their successors are duly
elected and qualified and a proposal to ratify the appointment of Manning,
Perkinson, Floyd & Company as the independent auditors of Mutual for the fiscal
year ending September 30, 1996. The Mutual Annual Meeting will be held at
___________, on _________, 1996, at ___ ___. M. local time. See "The Merger,"
"Election of Directors of Mutual," and "Appointment of Mutual's Auditors for
Fiscal Year Ending September 30, 1996."

ANB. This Joint Proxy Statement is being furnished to the holders of
ANB Common Stock in connection with the solicitation by the ANB Board of
Directors of proxies for use at the ANB Special Meeting at which ANB
shareholders will be asked to vote upon a proposal to approve the Articles of
Incorporation Amendment. The ANB Special Meeting will be held at
_______________________, on ________________, 1996, at ______ ___.M., local
time. See "The Merger" and "Amendment of ANB's Articles of Incorporation."

RECORD DATES, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES

MUTUAL. The close of business on _______, 1996, has been fixed as the
Mutual Record Date for determining holders of outstanding shares of Mutual
Common Stock entitled to notice of and to vote at the Mutual Annual Meeting.
Only holders of Mutual Common Stock of record on the books of Mutual at the
close of business on the Mutual Record Date are entitled to notice of and to
vote at the Mutual Annual Meeting. As of the Mutual Record Date, there were
__________ shares of Mutual Common Stock issued and outstanding and held by
___________ holders of record.

Holders of Mutual Common Stock are entitled to one vote on each matter
considered and voted upon at the Mutual Annual Meeting for each share of Mutual
Common Stock held of record as of the Mutual Record Date. To hold a vote on any
proposal, a quorum must be assembled, which is a majority of the outstanding
shares of Mutual Common Stock entitled to vote, present in person or represented
by proxy. After determining that a quorum exists at the Mutual Annual Meeting
for purposes of all matters to be voted on, the withdrawal of sufficient record
holders, present in person or represented by proxy, to make up less than a
quorum shall not prevent the remaining shareholders from otherwise duly
transacting business. The vote required for the approval of the Agreement and
the Plan of Merger is two-thirds of the outstanding shares of Mutual Common
Stock. Consequently, with respect to the proposal to approve the Agreement and
the Plan of Merger, abstentions and broker non-votes will be counted as part of
the base number of votes to be used in determining if the proposal has received
the requisite number of base votes for approval. Thus, an abstention and a
broker non-vote will have the same effect as a vote "against" such proposal. The
vote required for the approval of the election of two nominees to serve as
directors of Mutual for three-year terms is a plurality of the votes cast at the
Mutual Annual Meeting, assuming a quorum is determined. The vote required for
the approval of the proposal to ratify the appointment of Manning, Perkinson,
Floyd & Company as the independent auditors of Mutual for the fiscal year ending
September 30, 1996 is a majority of those shares present and voting.
Consequently, with respect to these proposals, abstentions and broker non-votes
will not be counted as part of the base number of

-14-
<PAGE>

votes to be used in determining if the proposal has received the requisite
number of base votes for approval.

Shares of Mutual Common Stock represented by properly executed proxies,
if such proxies are received in time and not revoked, will be voted in
accordance with the instructions indicated on the proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND THE
PLAN OF MERGER, FOR APPROVAL OF THE PROPOSAL TO ELECT TWO NOMINEES AS DIRECTORS
OF MUTUAL, AND FOR APPROVAL OF THE PROPOSAL TO RATIFY THE APPOINTMENT OF
MANNING, PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL, AND,
IN THE DISCRETION OF THE PROXY HOLDER, AS TO ANY OTHER MATTER WHICH MAY COME
PROPERLY BEFORE THE MUTUAL ANNUAL MEETING. IF NECESSARY, THE PROXY HOLDER MAY
VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE MUTUAL ANNUAL MEETING IN ORDER TO
PERMIT FURTHER SOLICITATION OF PROXIES IN THE EVENT THERE ARE NOT SUFFICIENT
VOTES TO APPROVE THE FOREGOING PROPOSALS AT THE TIME OF THE MUTUAL ANNUAL
MEETING.

FAILURE TO RETURN THE PROXY CARD OR TO VOTE IN PERSON AT THE MUTUAL
ANNUAL MEETING WILL HAVE THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE
AGREEMENT AND THE PLAN OF MERGER BUT, ASSUMING A QUORUM IS OBTAINED, WILL HAVE
NO EFFECT ON APPROVAL OF THE PROPOSAL TO ELECT TWO NOMINEES AS DIRECTORS OF
MUTUAL FOR THREE-YEAR TERMS OR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
MANNING, PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL FOR
THE FISCAL YEAR ENDING SEPTEMBER 30, 1996.

A Mutual shareholder who has given a proxy may revoke it at any time
prior to its exercise at the Mutual Annual Meeting by (i) giving written notice
of revocation to the Secretary of Mutual, (ii) properly submitting to Mutual a
duly executed proxy bearing a later date, or (iii) attending the Mutual Annual
Meeting and voting in person. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Mutual Savings Bank, F.S.B., 103 Tower Drive, Danville, Virginia 24540,
Attention: Barbara Hobgood, Secretary.

As of the Mutual Record Date, Mutual's directors and executive officers
and their affiliates owned beneficially _______ shares, or approximately __%, of
Mutual Common Stock, and the directors and executive officers of ANB owned
beneficially _____ shares, or approximately _____%, of Mutual Common Stock. All
of the directors and executive officers of Mutual have executed support
agreements pursuant to which they have each committed to vote all of the shares
of Mutual Common Stock over which they have voting authority, other than in a
fiduciary capacity, in favor of the Merger.

ANB. The close of business on _________, 1996, has been fixed as the
ANB Record Date for determining holders of outstanding shares of ANB Common
Stock entitled to notice of and to vote at the ANB Special Meeting. Only holders
of ANB Common Stock of record on the books of ANB at the close of business on
the ANB Record Date are entitled to notice of and to vote at the ANB Special
Meeting. As of the ANB Record Date, there were issued and outstanding ____
shares of ANB Common Stock. At that date, there were ____ holders of record of
ANB Common Stock.

Holders of ANB Common Stock are entitled to one vote on each matter
considered and voted upon at the ANB Special Meeting for each share of ANB
Common Stock held of record as of the ANB Record Date. To hold a vote on any
proposal, a quorum must be assembled, which is a majority of the outstanding
shares of ANB Common Stock entitled to vote, present in person or represented by
proxy. In determining whether a quorum exists at the ANB Special Meeting for
purposes of all matters to be voted on, all votes "for" or "against," as well as
all abstentions, with respect to the proposal receiving the most such votes,
will be counted. The vote required for the approval of the Articles of
Incorporation Amendment is more than two-thirds of the shares of ANB

-15-
<PAGE>
Common Stock entitled to be cast at the ANB Special Meeting. Abstentions and
broker non-votes will have the same effect as a vote "against" the proposal to
approve the Articles of Incorporation Amendment.

Shares of ANB Common Stock represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE ARTICLES OF
INCORPORATION AMENDMENT AND, IN THE DISCRETION OF THE PROXY HOLDER, AS TO ANY
OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE ANB SPECIAL MEETING. IF
NECESSARY, THE PROXY HOLDER MAY VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE ANB
SPECIAL MEETING IN ORDER TO PERMIT FURTHER SOLICITATION OF PROXIES IN THE EVENT
THERE ARE NOT SUFFICIENT VOTES TO APPROVE THE FOREGOING PROPOSAL AT THE TIME OF
THE ANB SPECIAL MEETING.

FAILURE TO RETURN THE PROXY CARD OR TO VOTE IN PERSON AT THE ANB
SPECIAL MEETING WILL HAVE THE EFFECT OF A VOTE AGAINST THE APPROVAL OF THE
ARTICLES OF INCORPORATION AMENDMENT.

An ANB shareholder who has given a proxy may revoke it at any time
prior to its exercise at the ANB Special Meeting by (i) giving written notice of
revocation to the Secretary of ANB, (ii) properly submitting to ANB a duly
executed proxy bearing a later date, or (iii) attending the ANB Special Meeting
and voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: American
National Bankshares Inc., 628 Main Street, Danville, Virginia 24541, Attention:
David Hyler, Secretary.

As of the ANB Record Date, ANB's directors and executive officers and
their affiliates owned beneficially ____ shares, or approximately __%, of ANB
Common Stock, and the directors and executive officers of Mutual owned
beneficially 1500 shares, or approximately 0.06%, of ANB Common Stock. All such
directors and officers have indicated that they will vote all of their shares of
ANB Common Stock in favor of the Articles of Incorporation Amendment.

In addition, as of the ANB Record Date, American National, as
fiduciary, custodian, and agent, had sole or shared voting power over _____
shares, or ____%, of the issued and outstanding shares of ANB Common Stock,
under trust agreements and other instruments and agreements. It is the policy of
American National not to vote such shares in the absence of instructions from
other appropriate parties having an interest in such stock, such as a
co-fiduciary. In the absence of appropriate parties which may instruct the
voting of any such shares, American National may provide for co-fiduciaries in
order that such shares of ANB Common Stock can be voted at the ANB Special
Meeting.

-16-
<PAGE>

THE MERGER

THE FOLLOWING INFORMATION DESCRIBES CERTAIN OF THE MATERIAL ASPECTS OF
THE MERGER. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE APPENDICES HERETO, INCLUDING THE AGREEMENT AND
THE PLAN OF MERGER, WHICH ARE ATTACHED TO THIS JOINT PROXY STATEMENT AS
APPENDICES I AND II, RESPECTIVELY, AND ARE INCORPORATED HEREIN BY REFERENCE. ALL
SHAREHOLDERS ARE URGED TO READ THE APPENDICES IN THEIR ENTIRETY.

BACKGROUND OF AND MUTUAL'S REASONS FOR THE MERGER

In 1992, management of Mutual, recognizing that substantial and rapid
changes were occurring in the banking industry, began general discussions with
investment bankers to determine ways to best position Mutual to respond to
heightened regulatory involvement, increasingly intense competition and rapid
industry consolidation. Based on those discussions, Mutual engaged an investment
banker to provide financial advisory services pertaining to the possible merger
of Mutual with another financial institution. The investment banker identified
several potential merger candidates, including ANB, and after meeting with
management and presenting the various prospects to the Mutual Board, the Mutual
Board decided that Mutual should engage in negotiations with a North Carolina
bank holding company. Those negotiations ultimately resulted in the Mutual Board
entering into a definitive agreement on August 10, 1993, pursuant to which
Mutual would become a national bank and a subsidiary of such company. Primarily
as a result of delays outside of Mutual's control, on July 6, 1994, Mutual and
the bank holding company announced that they had jointly agreed to terminate the
agreement and to abandon the combination of the two companies.

After July 6, 1994, management and the Mutual Board determined not to
continue looking for merger partners, but to seek other ways to enhance
shareholder value by improving Mutual's competitive position and positioning
Mutual for continued growth and profitability. Because of the uncertain future
and the increased regulatory involvement occurring in the thrift industry,
management pursued the possibility of converting to a national bank, but
abandoned this pursuit when the cost of such a conversion appeared prohibitive
for an institution of Mutual's size. During this time, Mutual was approached by
several financial institutions (including ANB) wanting to discuss the
possibility of acquiring Mutual. Management considered the potential offers, but
in each instance determined that by remaining independent shareholder value
could be enhanced more than by any of the proposals that were presented.
Therefore, Mutual's Board advised those institutions that Mutual's current
policy was to remain independent and that management and the Mutual Board
believed that Mutual's opportunities to improve its business prospects and
enhance shareholder value were better if Mutual remained independent.
Subsequently, management considered expansion and actively looked for branches
in its market and surrounding areas. Management of Mutual placed a bid to
acquire a branch office that would have expanded Mutual's market share in
Collinsville, but the bid was not accepted.

In the course of investigating potential branch acquisitions,
management talked with several investment bankers, one of which, Baxter
Fentriss, informed Mutual of several financial institutions and their holding
companies who were looking for expansion opportunities and would be interested
in Mutual's franchise. Baxter Fentriss met with the Mutual Board to review the
current merger and acquisition environment. On May 2, 1995, Mutual entered into
an agreement with Baxter Fentriss whereby Baxter Fentriss agreed to provide
financial advisory services generally concerning mergers, acquisitions, and
restructurings. In June, 1995, Baxter Fentriss contacted prospective merger
partners for Mutual, including ANB and other companies who had previously
expressed an interest in Mutual, and distributed an information package on
Mutual. In July, 1995, Baxter Fentriss met with

-17-
<PAGE>

prospective acquirors and solicited preliminary indications of interest for
Mutual. On August 3, 1995, Baxter Fentriss discussed the proposals received with
Mutual's management. The proposals did not reach the level which management
believed represented the intrinsic worth of Mutual and Baxter Fentriss was
directed to negotiate with the bidders for an improved offer. From August 3
through August 20, 1995, Baxter Fentriss attempted to solicit improved offers.
During August, the Mutual Board, management, and Baxter Fentriss had numerous
special meetings to review the preliminary indications of interest, and discuss
further the possibility of pursuing a merger or acquisition of Mutual. In some
cases representatives from the companies who had offered indications of interest
were present. In these meetings the following aspects were discussed: the terms
and conditions of any proposal; the nature of the proposed acquirer's business,
earnings, capital strength, and prospects; the consideration being offered both
in amount and nature and, with respect to companies offering an exchange of
stock, the market for each company's stock, the financial implications of a
merger with each company, including a review of potential pro forma earnings per
share, dividends, book value per share, and comparative shareholder rates of
return, and potential dilutive effects on Mutual's shareholders; the prospects
for Mutual's employees in the resulting company; and comparable operating
characteristics and market data for each company. In addition, management of
Mutual had meetings with senior management of the companies. On August 21, 1995,
several companies (including ANB) submitted improved proposals which were
discussed with management and presented to the Mutual Board on August 22, 1995.
Three of the proposals were determined by the Mutual Board to warrant further
consideration. One of the three refused to improve its offer and another
determined to withdraw its bid after further consideration of its market
priorities. Negotiations with ANB were continued in which ANB increased the
consideration to be offered to Mutual shareholders and on September 1, 1995, the
Mutual Board met with Baxter Fentriss and representatives of ANB to discuss the
ANB proposal.

The Mutual Board concluded that ANB's preliminary indication of
interest afforded Mutual shareholders greater potential shareholder value for a
variety of reasons. These reasons included the proven financial strength of ANB,
as well as the prospects for economies of scale and reduced expenses upon
merging Mutual and American National. The prospects of merging with and becoming
a national bank with its expanded products and improved profitability (while
retaining the mortgage lending capabilities of Mutual in the form of a mortgage
subsidiary) were believed to be better than merging with another thrift, given
the uncertain future of the thrift industry. The Mutual Board determined that if
the suggested value for Mutual Common Stock could be increased, management
should seek to negotiate a definitive agreement satisfactorily addressing all
terms of the proposed acquisition. Management undertook such a negotiation and
the consideration to be offered to Mutual shareholders was increased to an
amount that management and Baxter Fentriss believed to be a fair exchange ratio
from a financial point of view, and negotiations were commenced on a definitive
agreement.

On September 26, 1995 the Mutual Board met to consider the offer from
ANB and determined to accept
it and sign the Agreement.

THE BOARD OF DIRECTORS OF MUTUAL BELIEVES THAT THE TERMS OF THE MERGER
ARE FAIR TO AND IN THE BEST INTERESTS OF MUTUAL AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND THE PLAN OF MERGER AND RECOMMENDS
APPROVAL OF THE AGREEMENT AND THE PLAN OF MERGER BY MUTUAL'S SHAREHOLDERS.

ANB'S REASONS FOR THE MERGER

The ANB Board of Directors has approved the Agreement and determined
that the Merger and the Articles of Incorporation Amendment are in the best
interests of ANB and its shareholders. In approving the Agreement and the
Articles of Incorporation Amendment, the ANB Board

-18-
<PAGE>

considered a number of factors. Without assigning any relative or specific
weights to the factors, the ANB Board of Directors considered the following
material factors. In reaching its conclusion, the Board of Directors of ANB
considered, among other things, the following:

(a) The effectiveness of the Merger in implementing ANB's basic
business strategy of enhancing shareholder value by virtue of the improved
competitive position of the resulting institution and the greater financial and
capital resources available to the resulting institution to compete more
effectively against larger and nonregulated competitors;

(b) The enhanced opportunities for cost savings and synergies that are
expected to result from the Merger and the projected growth after the Merger;

(d) The presentation by the ANB management team regarding its due
diligence reviews of Mutual, including the business, operations, earnings, asset
quality, financial condition and performance, regulatory compliance,
asset-liability management, and operations of Mutual on an historical,
prospective, and pro forma basis;

(e) The terms of the Agreement, the Plan of Merger, and the other
documents executed in connection with the Merger;

(f) The opinion of Scott & Stringfellow (discussed elsewhere in this
Joint Proxy Statement) that the Exchange Ratio is fair, from a financial point
of view, to the holders of ANB Common Stock; and

(g) The current and prospective economic and competitive environment
facing financial institutions, generally, and ANB, in particular.

THE BOARD OF DIRECTORS OF ANB BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF ANB AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND RECOMMENDS APPROVAL OF THE ARTICLES OF
INCORPORATION AMENDMENT IN CONNECTION WITH THE MERGER BY ANB'S SHAREHOLDERS.

OPINIONS OF INVESTMENT BANKERS

BAXTER FENTRISS. Baxter Fentriss has acted as financial advisor to
Mutual ("Mutual") in connection with the merger. Baxter Fentriss assisted Mutual
in identifying prospective acquirors. On December 1, 1995 Baxter Fentriss
delivered to Mutual its opinion that as of such date, and on the basis of
matters referred to herein, the Exchange Ratio was fair, from a financial point
of view, to the holders of Mutual Common Stock. In rendering its opinion Baxter
Fentriss consulted with the management of Mutual and ANB; reviewed the Agreement
and the Plan of Merger, and certain publicly-available information on the
parties; and reviewed certain additional materials made available by the
management of the respective banks.

In addition, Baxter Fentriss discussed with the management of Mutual
and ANB their respective businesses and outlook. No limitations were imposed by
Mutual's Board of Directors upon Baxter Fentriss with respect to the
investigation made or procedures followed by it in rendering its opinion. The
full text of Baxter Fentriss' written opinion is attached as Appendix III to
this Joint Proxy Statement and should be read in its entirety with respect to
the procedures followed, assumptions made, matters considered, and
qualifications and limitations on the review undertaken by Baxter Fentriss in
connection therewith.

-19-
<PAGE>

Baxter Fentriss' opinion is directed to Mutual's Board of Directors,
and is directed only to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of Mutual Common Stock. It does not address
Mutual's underlying business decision to effect the proposed Merger, nor does it
constitute a recommendation to any Mutual shareholder as to how such shareholder
should vote with respect to the Merger at the Mutual Annual Meeting or as to any
other matter.

Baxter Fentriss' opinion was one of many factors taken into
consideration by Mutual's Board of Directors in making its determination to
approve the Agreement, and the Plan of Merger, and the receipt of Baxter
Fentriss' opinion is a condition precedent to Mutual consummating the Merger.
The opinion of Baxter Fentriss does not address the relative merits of the
Merger as compared to any alternative business strategies that might exist for
Mutual or the effect of any other business combination in which Mutual might
engage.

Baxter Fentriss, as part of its investment banking business, is
continually engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and valuations for
estate, corporate and other purposes. Baxter Fentriss is a nationally recognized
advisor to firms in the financial services industry on mergers and acquisitions.
Mutual selected Baxter Fentriss as its financial advisor because Baxter Fentriss
is an investment banking firm focusing on bank and thrift transactions, and
because of the firm's extensive experience and expertise in transactions similar
to the Merger. Baxter Fentriss is not affiliated with ANB or Mutual.

In connection with rendering its opinion to Mutual's Board of
Directors, Baxter Fentriss performed a variety of financial analyses. In
conducting its analyses and arriving at its opinion as expressed herein, Baxter
Fentriss considered such financial and other factors as it deemed appropriate
under the circumstances including, among others, the following: (i) the
historical and current financial condition and results of operations of ANB and
Mutual including interest income, interest expense, interest sensitivity,
noninterest income, noninterest expense, earnings, book value, returns on assets
and equity, capitalization, the amount and type of non-performing assets, the
impact of holding certain non-earning real estate assets, the reserve for loan
losses and possible tax consequences resulting from the transaction; (ii) the
business prospects of ANB and Mutual (iii) the economies of ANB's and Mutual's
respective market areas; (iv) the historical and current market for ANB and
Mutual Common Stock; and (v) the nature and terms of certain other merger
transactions that it believed to be relevant. Baxter Fentriss also considered
its assessment of general economic, market, financial and regulatory conditions
and trends, as well as its knowledge of the financial institutions industry, its
experience in connection with similar transactions, its knowledge of securities
valuation generally, and its knowledge of merger transactions in Virginia.

In connection with rendering its opinion, Baxter Fentriss reviewed (i)
the Agreement; (ii) drafts of this Joint Proxy Statement; (iii) the annual
reports to shareholders, including the audited financial statements of Mutual
for the year ended September 30, 1994 and ANB for the year ended December 31,
1994, and the quarterly reports of ANB for the nine months ended September 30,
1995; (iv) pro forma combined statements of income for the year ended December
31, 1994 and September 30, 1995; and (v) certain additional financial and
operating information with respect to the business, operations and prospects of
ANB and Mutual as it deemed appropriate. Baxter Fentriss also (i) held
discussions with members of the senior management of ANB and Mutual regarding
the historical and current business operation, financial condition and future
prospects of their respective companies; (ii) reviewed the historical market
prices and trading activity for the common stock of Mutual and ANB; (iii)
compared the results of operations of Mutual and ANB with those of certain
banking companies that it deemed to be relevant; (iv) analyzed the pro forma
financial impact of the Merger on ANB; (v) analyzed the pro forma financial
impact of the Merger on Mutual; and

-20-
<PAGE>

(vi) conducted such other studies, analyses, inquiries and examinations as
Baxter Fentriss deemed appropriate.

The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the Exchange Ratio to holders of Mutual Common Stock was to some extent
a subjective one based on the experience and judgment of Baxter Fentriss and not
merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Baxter Fentriss believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Baxter Fentriss' view of the
actual value of Mutual or ANB.

In performing its analyses, Baxter Fentriss made numerous assumptions
with respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Mutual or ANB. The analyses
performed by Baxter Fentriss are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. In rendering its opinion, Baxter Fentriss assumed that, in
the course of obtaining the necessary regulatory approvals for the Acquisition,
no conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Acquisition, on a pro forma basis, to Mutual.

The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion:

(a) Stock Price History. Baxter Fentriss studied the history of the
trading prices and volume for Mutual Common Stock and ANB Common Stock and
compared that to publicly traded banks and thrifts in Virginia and to the price
offered by ANB. As of September 30, 1995, Mutual's fully diluted book value was
$12.81.

(b) Comparative Analysis. Baxter Fentriss compared the price to
earnings multiple, price to book multiple, and price to assets multiple of the
ANB offer with other comparable merger transactions in Virginia after
considering Mutual's non-performing assets and other variables. The comparative
multiples included both bank and thrift sales during the last 3 years.

(c) Baxter Fentriss considered the pro forma impact of the transaction
and concluded the transaction should have a positive long-term impact on ANB.

(d) Baxter Fentriss performed a discounted cash flow analysis to
determine hypothetical present values for a share of Mutual's common stock as a
5- and 10-year investment. Under this analysis, Baxter Fentriss considered
various scenarios for the performance of Mutual's stock using (i) a range from
5.0% to 12% in the growth of Mutual's earnings and dividends and (ii) a range
from 8 times to 20 times earnings as the terminal value for Mutual's stock. A
range of discount rates from 11% to 15% were applied to these alternative growth
and terminal value scenarios. These ranges of discount rates, growth
alternatives, and terminal values were chosen based upon what Baxter Fentriss,
in its judgment, considered to be appropriate taking into account, among other
things, Mutual's past and current performance, the general level of inflation,
rates of return for fixed income

-21-
<PAGE>

and equity securities in the marketplace generally and for companies with
similar risk profiles. In most of the scenarios considered, the present value of
a share of Mutual's common stock was calculated at less than that of the ANB
offer. Thus, Baxter Fentriss' discounted cash flow analysis indicated that
Mutual shareholders would be in a better financial position by receiving the ANB
Common Stock offered in the Merger transaction rather than continuing to hold
Mutual Common Stock.

Using publicly available information on ANB and applying the capital
guidelines of federal regulators of banks and thrifts, Baxter Fentriss' analysis
indicated that the Merger would not seriously dilute the capital and earnings
capacity of ANB and would, therefore, likely not be opposed by the federal
regulatory agencies from a capital perspective. Furthermore, Baxter Fentriss
considered the likely market overlap and the guidelines of the Board of
Governors of the Federal Reserve System (the "Federal Reserve") with regard to
market concentration and did not believe there to be an issue with regard to
possible antitrust concerns.

Baxter Fentriss has relied, without any independent verification, upon
the accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale, were reasonably prepared by management and reflect their
best current judgments. Baxter Fentriss did not make an independent appraisal of
the assets or liabilities of either Mutual or ANB, and has not been furnished
such an appraisal.

No company or transaction used as a comparison in the above analysis is
identical to Mutual or the Acquisition. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies used for comparison in the above analysis.

Baxter Fentriss will be paid an amount equal to 1.5% of aggregate
consideration plus reasonable out-of-pocket expenses for its services. Based on
the price per share of ANB Common Stock of $30.50, the dollar amount of Baxter
Fentriss fee is expected to be approximately $400,000. Baxter Fentriss also was
paid a fee of $15,000 for rendering its opinion on the fairness of the Exchange
Ratio. Mutual has agreed to indemnify Baxter Fentriss against certain
liabilities, including certain liabilities under federal securities laws.

SCOTT & STRINGFELLOW. ANB retained the investment banking firm of Scott
& Stringfellow to evaluate the terms of the Exchange Ratio and Scott &
Stringfellow has rendered its opinion to the Board of Directors of ANB that the
Exchange Ratio is fair from a financial point of view to holders of ANB Common
Stock. In developing its opinion, Scott & Stringfellow reviewed and analyzed:
(i) the Agreement; (ii) the Registration statement filed with the SEC in
connection with the Merger; (iii) Mutual's audited financial statements for the
three years ended September 30, 1995, and other information related to Mutual
prepared by Mutual's management, including but not limited to asset quality,
reserve adequacy, margin analysis, interest rate sensitivity, internal controls,
loan policies, budgets, regulatory matters and legal matters; (iv) information
regarding the trading market for the common stocks of ANB and Mutual and the
price ranges within which the respective stocks have traded; (v) the
relationships for prices paid to relevant financial data such as net worth,
loans, deposits, and earnings in certain financial institutions mergers and
acquisitions in Virginia in recent years; (iv) ANB's annual reports to
shareholders and its audited financial statements for the three fiscal years
ended December 31, 1994; (vii) ANB's unaudited financial statements for the nine
months ended September 30, 1994 and 1995; and (viii) other information related
to ANB prepared by ANB's management including but not limited to asset quality,
reserve adequacy, margin analysis, interest rate sensitivity, internal controls,
loan policies, budgets, regulatory matters and legal matters.

-22-
<PAGE>

Scott & Stringfellow has discussed with members of Mutual's and ANB's management
the background of the Merger, the reasons and basis for the Exchange Ratio, and
the business and future prospects of Mutual and ANB as a combined entity. No
instructions or limitation were given or imposed by Mutual or ANB in connection
with the scope of the examination or investigation made by Scott & Stringfellow
in arriving at its findings. Finally, Scott & Stringfellow has conducted such
other studies, analyses and investigations particularly of the banking industry,
and has considered such other information as it deemed appropriate, the material
portion of which is described below. A copy of that opinion, which sets forth
the assumptions made, matters considered and limitation on the review
undertaken, is attached as Appendix IV to the Joint Proxy Statement and should
be read in its entirety.

The consideration to be given to Mutual shareholders in the Merger was
determined by ANB and Mutual in their negotiations. In connection with rendering
its opinion to ANB's Board of Directors, Scott & Stringfellow performed a
variety of financial analyses. However, the preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to particular
circumstances and therefore such opinion is not readily susceptible to summary
description. Scott & Stringfellow, in conducting its analysis and in arriving at
its opinion, has not conducted a physical inspection of any of the properties or
assets of Mutual, and has not made or obtained any independent valuation or
appraisals of any properties, assets or liabilities of Mutual. Scott &
Stringfellow has assumed and relied upon the accuracy and completeness of the
financial and other information that was provided to it by Mutual or that was
publicly available. Its opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to it as of
the date of, its analysis.

VALUATION METHODOLOGIES. In connection with its opinion on the Exchange
Ratio and the presentation of that opinion to ANB's Board of Directors, Scott &
Stringfellow performed three valuation analyses with respect to Mutual: (i) a
comparison with comparable publicly traded companies; (ii) an analysis of
comparable prices and terms of recent transactions involving financial
institutions buying thrifts; and (iii) a discounted cash flow analysis. For
purposes of the comparable company and comparable transaction analysis, ANB's
stock was valued at $30.50 per share, which was the price at which numerous
trades had taken place in the month prior to the signing of the Agreement and of
which management was aware. Based on the Exchange Ratio of 0.705 ANB shares for
each Mutual share outstanding, the implied purchase price per share for Mutual
was $21.50. Each of these methodologies is discussed below.

COMPARABLE COMPANY ANALYSIS. In performing its comparable company
analysis, Scott & Stringfellow analyzed the market trading of Mutual Common
Stock relative to publicly traded thrifts in Virginia. The institutions included
in the comparison to Mutual consisted of Bedford Bancshares, Inc. (BFSB),
Community Financial Corp. (CFFC), CENIT Bancorp, Inc. (CNIT), CSB Financial
Corp. (COSB), FFVA Financial Corp. (FFFC), Fidelity Federal Bankshares (FFRV),
Life Bancorp, Inc. (LIFB), Virginia Beach Financial (VABF), and Virginia First
(VFFC).

Among the market trading information compared was market price to book
value and tangible book value, of which the average multiples for the
comparables was 1.05 times and 1.07 times, respectively, compared to the
multiple of approximately 1.59 times book value and tangible book value
represented by the consideration to be received by Mutual shareholders in the
Merger. Also examined was the market price to the latest twelve months earnings
per share, for which the average multiple for the comparable thrifts was 11.0
times, compared to the multiple of approximately 23.9 times represented by the
consideration to be received by the Mutual Shareholders in the Merger on the
basis of the Exchange Ratio.

-23-
<PAGE>

COMPARABLE TRANSACTION ANALYSIS. Scott & Stringfellow performed an
analysis of premiums paid for selected thrifts in the Commonwealth of Virginia.
Comparable transactions were considered to be a total of ten transactions since
January 1, 1994, where the seller was a savings association or savings bank
located in Virginia. When determining if a transaction is fair, from a financial
point of view, to the institution's shareholders, Scott & Stringfellow compares
the proposed transaction with the other transactions in the market place with
similar characteristics. Four ratios that are considered by Scott & Stringfellow
to be the most determinative in this fairness analysis are price to book value,
price to tangible book value, price to earnings per share, and price as a
percentage of the tangible book premium to core deposits. No ratio, however, is
determinative on its own, but rather the performance of the other ratio analysis
must be reviewed.

Based on transactions since January 1, 1994, where the seller was a
savings association or savings bank located in Virginia, the analysis yielded a
range of transaction value to book value of 1.11 times to 2.04 times with an
average of 1.60 times. These compare to the transaction value for the Exchange
Ratio of approximately 1.59 times of the Mutual book value as of June 30, 1995.

In addition, the analysis yielded a range of transaction values as a
multiple of tangible book value for the comparable transactions ranging from
1.11 times to 3.82 times with an average of 1.87 times. These compare to a
transaction value for the Exchange Ratio of approximately 1.59 times of the
Mutual book value as of June 30, 1995.

Furthermore, the analysis yielded a range of transaction values as a
multiple of trailing twelve month earnings per share. These values ranged from
8.87 times to infinity (one of the institutions recorded losses for the trailing
twelve month period) and averaged 20.6 times. These compare to a transaction
value to the June 30, 1995 trailing twelve months earnings per share of 23.9
times for the Exchange Ratio.

Lastly, the analysis yielded a range of transaction values as a
percentage of tangible book premium to core deposits of 2.76% to 22.54% and
averaged 8.08%. These compare to a transaction value of tangible book premium to
core deposits of 13.73% as of June 30, 1995 for the Exchange Ratio.

No company or transaction used in the comparable transaction analysis
is identical to Mutual. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments, as well as other factors that
affect the public trading value or acquisition value of the company to which it
is being compared.

DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
Scott & Stringfellow estimated the present value of the future stream of
after-tax cash flows that Mutual could produce through 1999, under various
circumstances, assuming that Mutual performed in accordance with the
earnings/return projections of management at the time that Mutual entered into
acquisition discussions in July, 1995. Scott & Stringfellow estimated the
terminal value for Mutual at the end of the period by applying multiples of
earnings ranging from 12.0 to 13.5 times and then discounting the cash flow
streams, and terminal value using differing discount rates (ranging from 7.0% to
9.0%) chosen to reflect different assumptions regarding the required rates of
return of Mutual and the inherent risk associated with the underlying
projections. This discounted cash flow analysis indicated a range of $22.2
million to $26.3 million, or $18.44 to $21.83 per share, for Mutual. These
values compared to the value implied by the Exchange Ratio of $21.50, based on
the market value of ANB Common Stock as of the signing of the Agreement. This
fact, among others, contributes to Scott & Stringfellow's opinion that the
Exchange Ratio is fair from a financial point of view to the ANB shareholders.

-24-
<PAGE>

The preparation of a fairness opinion is not susceptible to partial
analysis or summary description. Scott & Stringfellow believes that its analyses
must be considered as a whole and that selecting portions of its analysis and
the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the process underlying the preparation of its
opinion.

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

COMPENSATION OF SCOTT & STRINGFELLOW. Pursuant to an engagement letter
dated July 19, 1995 between ANB and Scott & Stringfellow, ANB agreed to pay
Scott & Stringfellow a fee totaling approximately $18,000 to evaluate this
transaction and render its opinion of fairness. ANB has also agreed to indemnify
and hold harmless Scott & Stringfellow and its officers and employees against
certain liabilities in connection with its services under the engagement letter,
except for liabilities resulting from the negligence of Scott & Stringfellow.

EXCHANGE RATIO

At the time the Merger is consummated, each share of Mutual Common
Stock issued and outstanding at the Effective Time (other than shares held by
Mutual companies or ANB companies, other than in a fiduciary capacity or as a
result of debts previously contracted and shares held by shareholders who
perfect their dissenters' rights of appraisal) will be converted into .705 of a
share of ANB Common Stock. Each share of ANB Common Stock outstanding
immediately prior to the Effective Time will remain outstanding and unchanged as
a result of the Merger.

No fractional shares of ANB Common Stock will be issued in connection
with the Merger. In lieu of issuing fractional shares, ANB will make a cash
payment (without interest) equal to the fractional interest which a Mutual
shareholder otherwise would receive multiplied by $30.50.

-25-
<PAGE>

EFFECT OF THE MERGER ON STOCK OPTIONS

The Agreement and the Plan of Merger contemplate that, at the Effective
Time, all rights with respect to Mutual Common Stock pursuant to stock options
(the "Mutual Options") granted by Mutual under the existing Mutual Stock Plan
(the "Mutual Stock Plan"), which Mutual Options are outstanding at the Effective
Time, whether or not then exercisable, will be converted into and become rights
with respect to ANB Common Stock, and ANB will assume each of such Mutual
Options in accordance with the terms of the Mutual Stock Plan and the stock
option agreement by which it is evidenced, except that from and after the
Effective Time, (i) the Board of Directors of Mutual Mortgage shall be
substituted for the Committee of Mutual's Board of Directors (including, if
applicable, the entire Board of Directors of Mutual) administering such Mutual
Stock Plan, (ii) the number of shares of ANB Common Stock subject to such Mutual
Option shall be equal to the number of shares of Mutual Common Stock subject to
such Mutual Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, and (iii) the per share exercise price under each such Mutual
Option shall be adjusted by dividing the per share exercise price under each
such Mutual Option by the Exchange Ratio and rounding up to the nearest cent.
Therefore, after the Effective Time, the Mutual Options will become options to
purchase ANB Common Stock on a basis adjusted to reflect the Exchange Ratio, as
contemplated by the Agreement and the Plan of Merger.

Approval of the Merger by the shareholders of Mutual and approval of
the Articles of Incorporation Amendment by the shareholders of ANB will
constitute shareholder approval of the assumption by ANB of the rights and
obligations of Mutual under the Mutual Options. Such approval also will
constitute shareholder approval of related amendments to the Mutual Stock
Plan to provide for, among other things, the conversion at the Effective Time
of each outstanding Mutual Stock Option into an option to purchase ANB Common
Stock. See "Election of Directors of Mutual."

MANAGEMENT AND OPERATIONS AFTER THE MERGER

Upon consummation of the Merger, ANB and American National will
continue to operate their business to serve the communities and customers of
Danville, Virginia and the surrounding counties. It is currently anticipated
that certain branch offices of Mutual will be closed and the deposits and assets
domiciled in such branch offices will be transferred to the nearest branch
office of American National.

The management at ANB will remain unchanged except that H. Dan Davis,
the current President and Chief Executive Officer of Mutual, and one other
individual currently serving as an outside director on the Board of Directors of
Mutual, will be appointed to serve on the Boards of Directors of ANB and
American National and nominated for election to the Boards of Directors of ANB
and American National at the first annual meeting of shareholders following the
Effective Time. Mr. Davis also will be appointed an Executive Vice President of
ANB and a Senior Vice President of American National. The Agreement provides
that ANB will elect or appoint all individuals of Mutual who are serving as
officers of Mutual at the Effective Time as officers of either American National
or Mutual Mortgage, taking into account the prior positions and experience of
such officers with Mutual in designating such officer positions. ANB has further
agreed not to terminate, except for "cause" as determined under the employee
policies of ANB, any employee of Mutual who becomes an employee of ANB at the
Effective Time for a period of one year after the Effective Time.

In addition, following the consummation of the Merger, American
National will establish Mutual Mortgage to focus on residential home mortgage
lending. Mr. Davis will serve as President and Chief Executive Officer of Mutual
Mortgage and all individuals who are serving as members of Mutual's Board of
Directors at the Effective Time (other than the outside former Mutual director
who is elected a director of ANB) shall comprise the Board of Directors of
Mutual Mortgage. Such

-26-
<PAGE>

individuals will receive fees for such service as directors of Mutual Mortgage
at the same rate as Mutual's Board as of the date of the Agreement. See
"Business of ANB--Management." For additional information regarding the
interests of certain persons in the Merger, see "The Merger--Interests of
Certain Persons in the Merger." For a description of the provisions of the
Agreement affecting the operations of Mutual and ANB prior to the Effective
Time, see "The Merger--Conduct of Business Pending the Merger."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

GENERAL. Information as to the shareholdings of directors and executive
officers of Mutual and ANB in the respective companies is included under,
respectively, "Business of ANB--Ownership of ANB Common Stock" and "Business of
Mutual--Ownership of Mutual Common Stock." At the Mutual Record Date, _____ of
the directors and executive officers of Mutual owned an aggregate of
approximately _________ shares of ANB Common Stock. Also, at the Mutual Record
Date, ____ of the directors and executive officers of ANB owned an aggregate of
approximately _____ shares of Mutual Common Stock.

STOCK OPTIONS. As described under "The Merger--Effect of the Merger on
Stock Options," the Agreement and the Plan of Merger also provide that all
rights with respect to Mutual Options which are outstanding at the Effective
Time will be converted into and will become rights with respect to ANB Common
Stock, and ANB will assume each of such Mutual Options in accordance with its
terms. Information related to the executive officers and directors of Mutual who
hold Mutual Options is included under "Election of Directors of
Mutual--Executive Compensation" and "--Director Compensation."

POST-MERGER EMPLOYMENT, COMPENSATION, AND BENEFITS. ANB has agreed to
offer employment to all employees of Mutual with no reduction in base salary.
ANB has further agreed not to terminate, except for "cause" as determined under
the employee policies of ANB, any employee of Mutual who becomes an employee of
ANB at the Effective Time for a period of one year after the Effective Time.

In addition, ANB has agreed to cause two members of Mutual's Board of
Directors, which members shall be nominated by Mutual and approved by ANB and
willing so to serve (subject to any applicable legal restrictions) including H.
Dan Davis, to be elected or appointed as directors of ANB and American National
at the first meetings of the Boards of Directors of ANB and American National
held after the Effective Time. At the first annual meeting of shareholders of
ANB after the Effective Time, ANB shall take all corporate action necessary to,
and shall, renominate such two former Mutual directors for election as directors
of ANB and shall recommend that the ANB shareholders vote for the election of
such individuals as directors.

ANB has agreed to establish a Board of Directors for Mutual Mortgage,
which will be composed of all individuals who are serving as members of Mutual's
Board of Directors at the Effective Time (other than the outside former Mutual
director who is elected a director of ANB), and the outside directors of the
Mutual Mortgage Board will receive fees for such service as directors of Mutual
Mortgage at the same rate as Mutual's Board as of the date of this Agreement.

ANB is also obligated to elect or appoint all individuals of Mutual who
are serving as officers of Mutual at the Effective Time as officers of either
American National or Mutual Mortgage Company, taking into account the prior
positions and experience of such officers with Mutual in designating such
officer positions. The Agreement provides that, after the Effective Time, ANB
will provide generally to officers and employees of Mutual and its subsidiaries
who become officers or employees of ANB or its subsidiaries, employee benefits
under employee benefit plans (other than

-27-
<PAGE>

stock options or other plans involving a potential issuance of ANB Common
Stock), on terms and conditions that, when taken as whole, are substantially
similar to those currently provided by ANB and its subsidiaries to their
similarly situated officers and employees. For purposes of participation and
vesting (but not benefit accrual) under such employee benefit plans, service
with Mutual or its subsidiaries prior to the Effective Time will be treated as
service with ANB or its subsidiaries.

INDEMNIFICATION. The Agreement provides that ANB will maintain all
rights of indemnification existing in favor of the employees, agents, directors,
and officers of Mutual on terms no less favorable than those provided in
applicable OTS regulations and the Charter or Bylaws of Mutual or otherwise in
effect on the date of the Agreement, including provisions relating to advances
of expenses incurred in the defense of any litigation, and that such rights will
continue in full force and effect for at least six years from the Effective Time
with respect to matters occurring prior to the Effective Time. See "Effect of
the Merger on Rights of Shareholders."

The Agreement also provides that, for one year after the Effective
Time, ANB will use its reasonable efforts to maintain Mutual's existing
directors' and officers' liability insurance policy (or a policy providing
comparable coverage) on terms no less favorable than those in effect on the date
of the Agreement.

EMPLOYMENT CONTRACT. Under the Agreement, ANB has agreed to appoint H.
Dan Davis as (i) Executive Vice President of ANB and Senior Vice President of
American National at the Effective Time and (ii) President and Chief Executive
Officer of Mutual Mortgage at the time of its organization. In addition, at the
Effective Time, ANB has agreed to offer to enter into an employment agreement
(the "Employment Agreement") with Mr. Davis. The Employment Agreement, when
entered into by Mr. Davis, will supersede Mr. Davis' current employment
agreement with Mutual.

Under the terms of the Employment Agreement, Mr. Davis will: (i)
receive an annual salary of $110,000; (ii) be eligible to participate in the
group and major medical benefit plans made available to similarly positioned
officers of American National and in the 401-K Plan, the Retirement Plan, and
the group life and disability plan of American National; (iii) have the right to
use of an automobile supplied by American National under the terms of its policy
relating to American National vehicles; and (iv) have the right to have
reasonable expenses paid for him and his spouse to attend meetings that he has
customarily attended of bankers associations, including, but not limited to,
meetings of the Virginia Bankers Association. The initial term of the Employment
Agreement is two years.

Under the Employment Agreement, during the initial two-year term, Mr.
Davis will have the right to elect to become a senior consultant to ANB for a
term effective on the first calendar day of the month following such election
and expiring seven years from the Effective Time. If Mr. Davis elects to become
a senior consultant to ANB, he will have to resign, upon the effectiveness of
his election, all management positions with ANB, American National, and Mutual
Mortgage. As a senior consultant, ANB will pay Mr. Davis a consulting salary of
$5,500 per month, but Mr. Davis will not be entitled to receive any other
compensation, fees, or other benefits, except for the group health and major
medical benefit plans made available to any full-time employee of ANB, American
National, or Mutual Mortgage. As a senior consultant, Mr. Davis will be
responsible for carrying out such advisory or consulting duties and
responsibilities as may be requested of him from time to time by the chief
executive officer of ANB or the Board of Directors of ANB. If Mr. Davis elects
to become a senior consultant, the Employment Agreement also restricts Mr.
Davis' ability to serve in a management, policy-making, consulting, or marketing
capacity for any bank, savings and loan association, credit union, or other
financial institution maintaining an office in any city or county in which ANB
or any of its subsidiaries maintains a banking or banking-related office or in
any city or

-28-
<PAGE>

county whose city or county limits are within 50 miles of a city or county in
which ANB or any of its subsidiaries maintains a banking or banking-related
office.

EFFECTIVE TIME

If the Merger is approved by the requisite vote of the shareholders of
Mutual, the Articles of Incorporation Amendment is approved by the requisite
vote of the shareholders of ANB, the Merger is approved by the OCC, as described
under "The Merger--Governmental Approvals," and the other conditions to the
Merger are satisfied or waived (to the extent permitted by applicable law), the
Merger will be consummated and effected at the time of the issuance of the
Certificate of Merger by the OCC or on such other date or at such other time as
the OCC declares the Merger effective. See "The Merger--Conditions to
Consummation of the Merger."

The Agreement provides that, unless otherwise agreed upon in writing by
the respective chief executive officers or chief financial officers of Mutual
and ANB, Mutual and ANB will cause the Effective Time to occur on the first
business day following the last to occur of (i) the effective time (including
expiration of any applicable waiting period) of the last required consent of any
Regulatory Authority having authority over and approving or exempting the Merger
and (ii) the date on which the shareholders of Mutual and ANB approve the
Agreement; or such later date within 30 days of such date as may be agreed upon
by Mutual and ANB. The Agreement may be terminated by either Mutual or ANB in
certain circumstances, including failure to consummate the Merger by July 31,
1996. See "The Merger--Amendment, Waiver, and Termination."

DISTRIBUTION OF ANB CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES

Mutual and ANB will select an exchange agent (the "Exchange Agent") to
effect the exchange of certificates in connection with the Merger. Promptly
after the Effective Time, the Exchange Agent will mail to each holder of record
of Certificates that immediately prior to the Effective Time represented
outstanding shares of Mutual Common Stock a letter of transmittal and
instructions for its use in effecting the surrender of Certificates in exchange
for certificates representing shares of ANB Common Stock. SHAREHOLDERS OF MUTUAL
SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. Upon surrender of Certificates (duly
endorsed, if the Exchange Agent so requires) for exchange and cancellation to
the Exchange Agent, together with a duly executed letter of transmittal, the
holder of such Certificates will be entitled to receive in exchange therefor a
certificate representing the number of shares of ANB Common Stock to which such
Certificate holder becomes entitled pursuant to the Merger, and the Certificate
so surrendered forthwith will be canceled. In lieu of any such fractional share,
ANB will pay to each former Mutual shareholder who otherwise would be entitled
to receive a fractional share of ANB Common Stock an amount in cash determined
as described under "The Merger--Exchange Ratio." Lost, stolen, mutilated, or
destroyed Certificates will be treated in accordance with the existing
procedures of ANB.

After the Effective Time, to the extent permitted by law, former
shareholders of Mutual otherwise having the right to do so will be entitled to
vote at any meeting of ANB shareholders the number of whole shares of ANB Common
Stock into which their shares of Mutual Common Stock are converted, regardless
of whether such holders have exchanged their Certificates as described above. In
addition, after the Effective Time, no dividend or other distribution payable on
ANB Common Stock will be paid to the holder of any Certificates until such
holder physically surrenders such Certificates for exchange as instructed.
Subject to any applicable law, after surrender of the Certificates formerly
representing the shares of Mutual Common Stock, such holder will receive the
certificates representing shares of ANB Common Stock issuable upon the exchange
or conversion of such shares of Mutual Common Stock, all withheld dividends or
other distributions (without interest),

-29-
<PAGE>

and any withheld cash payments (without interest) for any fractional share to
which such shareholder is entitled.

If any certificates for shares of ANB Common Stock or check
representing cash is to be issued in a name other than that in which the
Certificates surrendered for exchange are issued, the Certificates so
surrendered shall be endorsed properly or otherwise in proper form for transfer,
and the person requesting such exchange shall affix any requisite stock transfer
tax stamps to the Certificates surrendered, provide funds for their purchase, or
establish to the satisfaction of the Exchange Agent that such taxes are not
payable.

At the Effective Time, the transfer books of Mutual will be closed as
to holders of Mutual Common Stock. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the Exchange Agent, they
will be canceled and exchanged for Certificates representing whole shares of ANB
Common Stock pursuant to the terms of the Agreement.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED ON THE FEDERAL INCOME TAX LAWS
AS NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE INTO ACCOUNT
POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING AMENDMENTS TO
APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR ADMINISTRATIVE
RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY DOES NOT
PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR,
AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES OR STATUS (FOR EXAMPLE, AS FOREIGN PERSONS, TAX-EXEMPT
ENTITIES, DEALERS IN SECURITIES, INSURANCE COMPANIES, AND CORPORATIONS, AMONG
OTHERS). NOR DOES THIS SUMMARY ADDRESS ANY CONSEQUENCES OF THE MERGER UNDER ANY
STATE, LOCAL, ESTATE, OR FOREIGN TAX LAWS. SHAREHOLDERS, THEREFORE, ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICATION AND
EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL, AND OTHER TAX LAWS, AND THE
IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.

A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service. Instead, Alston & Bird, counsel to
ANB, has rendered an opinion to Mutual and ANB concerning certain federal income
tax consequences of the proposed Merger under federal income tax law. It is such
firm's opinion that, based upon the assumption the Merger is consummated in
accordance with applicable law and in conformity with the representations made
by the management of Mutual and ANB, the transaction will have the following
federal income tax consequences:

(a) The merger of Mutual with and into American National will qualify
as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D). Mutual, American National, and ANB will each be "a party to a
reorganization" within the meaning of Section 368(b).

(b) No gain or loss will be recognized by a Mutual shareholder upon the
exchange of such shareholder's Mutual Common Stock for shares of ANB Common
Stock.

(c) The basis of the ANB Common Stock to be received by a Mutual
shareholder will be the same as the basis of the Mutual Common Stock surrendered
in exchange therefor.

-30-
<PAGE>

(d) The holding period of the ANB Common Stock to be received by a
Mutual shareholder (including the holding period of any fractional share
interest) will include the holding period of the Mutual Common Stock surrendered
in exchange therefor, provided Mutual Common Stock was held as a capital asset
on the date of the exchange.

(e) The payment of cash in lieu of fractional shares of ANB Common
Stock will be treated as if the fractional shares were issued as part of the
exchange and then redeemed by ANB. These cash payments will be treated as having
been received as distributions in full payment in exchange for the stock
redeemed. Generally, any gain or loss recognized upon such exchange will be
capital gain or loss, provided the fractional share would constitute a capital
asset in the hands of the exchanging shareholder.

The tax opinion does not address any state, local, or other tax
consequences of the Merger.

ACCOUNTING TREATMENT

Consummation of the Merger is conditioned upon the Merger being
accounted for as a pooling of interests. Under the pooling-of-interests method
of accounting, as of the effective date of the Merger, the recorded amounts of
the assets and liabilities of Mutual and ANB will be combined at their
previously recorded amounts. Revenues and expenses will be restated and
conformed as if Mutual and ANB were combined for the entire fiscal period in
which the Merger occurs and for all periods prior to the Merger at previously
recorded amounts.

For information concerning certain conditions to be imposed on the
exchange of Mutual Common Stock for ANB Common Stock in the Merger by affiliates
of Mutual and certain restrictions to be imposed on the transferability of the
ANB Common Stock received by those affiliates in the Merger in order, among
other things, to ensure the availability of pooling-of-interests accounting
treatment, see "The Merger--Resales of ANB Common Stock."

CONDITIONS TO CONSUMMATION OF THE MERGER

The obligations of Mutual and ANB to consummate the Merger are subject
to the satisfaction or waiver (to the extent permitted by applicable law) of
certain conditions, including the following: (i) receipt of the approval of the
Merger by the shareholders of Mutual, (ii) receipt of the approval of the
Articles of Incorporation Amendment by the shareholders of ANB, (iii) receipt of
certain regulatory approvals from the OCC without burdensome conditions and
other regulatory authorities, (iv) receipt of a favorable opinion of Alston &
Bird as to the tax-free nature (except for cash received in lieu of fractional
shares) of the Merger, (v) the Registration Statement being declared effective
and all necessary SEC and state approvals relating to the issuance of the ANB
shares used in the transaction shall have been issued, (vi) the accuracy, as of
the date of the Agreement and as of the Effective Time, of the representations
and warranties of Mutual and ANB as set forth in the Agreement, (vii) the
performance of all agreements and the compliance with all covenants of Mutual
and ANB as set forth in the Agreement, (viii) receipt of letters by Mutual and
ANB, respectively, within a date ten days prior to the date of this Joint Proxy
Statement, from each of Baxter Fentriss and Scott & Stringfellow with respect to
the fairness, from a financial point of view, of the Exchange Ratio to the
shareholders of Mutual and ANB, respectively; (ix) receipt by ANB of a letter
from Arthur Andersen LLP, dated as of the Effective Time, to the effect the
Merger will qualify for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16; (x) receipt of all consents required
for consummation of the Merger or for the preventing of any default under any
contract or permit which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a material adverse effect; (xi) the absence of
any law or order or any action taken by any court or governmental or regulatory
authority prohibiting, restricting, or making illegal the

-31-
<PAGE>

consummation of the transaction; and (xii) satisfaction of certain other
conditions, including the receipt of legal opinions from the respective counsel
to Mutual and ANB and various certificates from the officers of Mutual and ANB.

No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before July
31, 1996, the Agreement may be terminated and the Merger abandoned by a vote of
a majority of the Board of Directors of either Mutual or ANB. See "The
Merger--Amendment, Waiver, and Termination."

GOVERNMENTAL APPROVALS

Consummation of the Merger is subject to obtaining the prior approval
of the OCC and all other requisite regulatory approvals. THERE CAN BE NO
ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE OBTAINED OR AS TO THE TIMING OF
ANY SUCH APPROVAL. THERE ALSO CAN BE NO ASSURANCE THAT ANY SUCH APPROVALS WILL
NOT IMPOSE CONDITIONS THAT ARE DEEMED MATERIALLY BURDENSOME BY ANB AND MUTUAL.
On November 29, 1995, ANB filed an application to obtain the OCC's approval of
the Merger.

Mutual and ANB are not aware of any material governmental approvals or
actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. Should Mutual and ANB
not receive approval for the Merger, the Merger will not be consummated, and
each of Mutual and ANB will remain an independent entity and a going concern.

The Merger will require the approval of the OCC pursuant to the Bank
Merger Act, as amended (the "Bank Merger Act"), and National Bank Act, as
amended (the "National Bank Act"), and 12 C.F.R. Section 5.33 of the regulations
promulgated by the OCC. In granting its approval under the National Bank Act and
the relevant regulations, the OCC must take into consideration, among other
factors, the effect of the transaction upon competition; the convenience and
needs of the community to be served; the history of the merging depository
institutions; the condition of the merging depository institutions, including
capital, management, and earnings prospects; the existence of insider
transactions; and the adequacy of disclosure of the terms of the Merger. Under
the Bank Merger Act and the relevant OCC regulations, the OCC is prohibited from
approving the Merger (i) if it would result in a monopoly or be in furtherance
of any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States or (ii) if its effect in
any section of the country may be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner be a restraint of
trade, unless the OCC finds that any anticompetitive effects are outweighed
clearly in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. Under the
Bank Merger Act, the Merger may not be consummated until the 30th day (which the
OCC may reduce to 15 days) following the date of OCC approval, during which time
the United States Department of Justice may challenge the transaction on
antitrust grounds. The commencement of any antitrust action would stay the
effectiveness of the OCC's approval, unless a court specifically orders
otherwise.

AMENDMENT, WAIVER, AND TERMINATION

To the extent permitted by applicable law, Mutual and ANB, with the
approval of their respective Boards of Directors, may amend the Agreement by
written agreement at any time before or after approval of the Agreement by the
Mutual shareholders; provided, however, that after the approval of the Merger by
the shareholders of Mutual, no amendment may decrease the

-32-
<PAGE>

consideration to be received by the Mutual shareholders without the requisite
approval of the holders of Mutual Common Stock. In addition, prior to or at the
Effective Time, either Mutual or ANB, or both, acting through their respective
Boards of Directors or chief executive officers or other authorized officers,
without shareholder approval, may waive any default in the performance of any
term of the Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Agreement and may waive any of the conditions precedent to the
obligations of such party under the Agreement, except any condition that, if not
satisfied, would result in the violation of any applicable law or governmental
regulation.

The Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time (i) by the mutual consent of the Boards of Directors
of Mutual and ANB or (ii) by the Board of Directors of Mutual or ANB, (a) in the
event of any inaccuracy of any representation or warranty of the other party
contained in the Agreement which cannot be or has not been cured within 30 days
after giving written notice to the breaching party of such inaccuracy and which
inaccuracy would provide the terminating party the ability to refuse to
consummate the Merger under the applicable standards set forth in the Agreement
(provided that the terminating party is not then in breach of any representation
or warranty contained in the Agreement under the applicable standards set forth
in the Agreement or in material breach of any covenant or other agreement
contained in the Agreement), (b) in the event of a material breach by the other
party of any covenant or agreement contained in the Agreement which cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach (provided that the terminating party is not in
breach of any representation or warranty contained in the Agreement under the
applicable standards set forth in the Agreement or in material breach of any
covenant or other agreement contained in the Agreement), (c) if the Merger is
not consummated by July 31, 1996, (d) if (1) any approval of any regulatory
authority required for consummation of the Merger and the other transactions
contemplated by the Agreement has been denied by final nonappealable action, or
if any action taken by such authority is not appealed within the time limit for
appeal, (2) the shareholders of Mutual fail to vote their approval of the
Agreement and the transactions contemplated thereby as required by the HOLA and
the regulations of the OTS at the Mutual Annual Meeting, or (3) the shareholders
of ANB fail to vote their approval of the Articles of Incorporation Amendment as
required by the VSCA at the ANB Special Meeting, or (e) if any of the conditions
precedent to the obligations of such party to consummate the Merger have not
been satisfied, fulfilled, or waived by the appropriate party by the closing of
the Merger (unless the conditions precedent providing the bases for termination
can reasonably be and are satisfied within a reasonable period of time, in which
case such closing will be postponed appropriately). Such termination and
abandonment would not require the approval of shareholders.

If the Merger is terminated as described above, the Agreement and the
Plan of Merger will become void and have no effect, except that certain
provisions of the Agreement, including those relating to the obligations to
share certain expenses, maintain the confidentiality of certain information
obtained, and return all documents obtained from the other party under the
Agreement, will survive. In addition, termination of the Agreement will not
relieve any breaching party from liability for any uncured breach of a
representation, warranty, covenant, or agreement giving rise to such
termination. Moreover, if the Agreement is terminated because of the willful
breach by one party of any representation, warranty, covenant, undertaking, or
restriction contained therein, the breaching party may be required to pay
certain expenses incurred by the nonbreaching party in connection with the
Merger, provided that such payment would not limit the rights of the
nonbreaching party to seek remedies to which it may be entitled. See "The
Merger--Expenses and Fees."

-33-
<PAGE>

CONDUCT OF BUSINESS PENDING THE MERGER

Pursuant to the Agreement, each of Mutual and ANB has agreed, unless
one party has obtained the prior consent of the other party, and except as
otherwise contemplated by the Agreement, to operate their respective businesses
and engage in transactions only in the ordinary course, to preserve intact their
respective business organizations and assets and to maintain their rights and
franchises, to take no action that would materially adversely affect either the
ability of any of the parties to obtain any necessary approvals of governmental
authorities or their respective abilities to perform their covenants and
agreements under the Agreement in all material respects, and to cause their
respective subsidiaries to do the same.

In addition, Mutual has agreed that, prior to the earlier of the
Effective Time or termination of the Agreement, Mutual will not, except with the
prior written consent of the chief executive officer or chief financial officer
of ANB or as expressly contemplated or permitted by the Agreement, do, or agree
to commit to do, any of the following: (i) amend the Charter, Bylaws, or other
governing instruments of any Mutual company; (ii) incur, guarantee, or otherwise
become responsible for, any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Mutual company to another Mutual
company) in excess of an aggregate of $50,000 (for the Mutual companies on a
consolidated basis) except in the ordinary course of the business of Mutual
companies consistent with past practices (which shall include, for Mutual
creation of deposit liabilities, purchases of federal funds, advances from the
Federal Home Loan Bank ("FHLB") System or the Federal Reserve Bank, and entry
into repurchase agreements fully secured by U.S. government or agency
securities), or forgive any such indebtedness of any person to any Mutual
company (in excess of an aggregate of $25,000), or impose, or suffer the
imposition, on any share of stock held by any Mutual company of any lien or
permit any such lien to exist; (iii) repurchase, redeem, or otherwise acquire or
exchange (other than exchanges in the ordinary course under employee benefit
plans or in their capacity as transfer agent), directly or indirectly, any
shares, or any securities convertible into any shares, of the capital stock of
any Mutual company, or declare or pay any dividend or make any other
distribution in respect of any Mutual Common Stock; provided that Mutual may (to
the extent legally able to do so), but shall not be obligated to, declare and
pay regular quarterly cash dividends on the shares of Mutual Common Stock at a
rate not in excess of $.10 per share with usual and regular record and payment
dates in accordance with past practice as previously disclosed by Mutual to ANB;
PROVIDED FURTHER, that any dividend declared or payable on the shares of Mutual
Common Stock for the quarter during which the Effective Time occurs shall,
unless otherwise agreed upon in writing by Mutual and ANB, be declared only if
the record date for payment of the quarterly dividend to holders of ANB Common
Stock for the quarter in which the Effective Time occurs is prior to the
Effective Time; and PROVIDED FURTHER, that in the event ANB declares a special
cash dividend prior to the Effective Time, Mutual may (to the extent legally
able to do so), but shall not be obligated to, declare and pay a cash dividend
on the shares of Mutual Common Stock at a rate per share of Mutual Common Stock
equivalent, taking into account the Exchange Ratio, to the special dividend paid
by ANB on each share of ANB Common Stock; (iv) except pursuant to the exercise
of stock options outstanding as of the date of the Agreement and pursuant to the
terms thereof in existence on the date of the Agreement, issue, sell, pledge,
encumber, authorize the issuance of, enter into any contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Mutual Common Stock, Mutual preferred
stock, or any other capital stock of any Mutual company, or any stock
appreciation rights, or any option, warrant, conversion, or other right to
acquire any such stock, or any security convertible into any such stock; (v)
adjust, split, combine, or reclassify any capital stock of any Mutual company or
issue or authorize the issuance of any other securities in respect of or in
substitution for shares of Mutual Common Stock or sell, lease, mortgage, or
otherwise dispose of or otherwise encumber any shares of capital stock of any
Mutual subsidiary (unless any such shares of stock are sold or otherwise
transferred to another Mutual company) or

-34-
<PAGE>

any assets other than in the ordinary course of business for reasonable and
adequate consideration; (vi) acquire direct or indirect control over, or invest
in equity securities of, any person, other than in connection with (a)
foreclosures in the ordinary course of business, or (b) acquisitions of control
by Mutual in its fiduciary capacity; (vii) grant any increase in compensation or
benefits to the employees or officers of any Mutual company except in the
ordinary course of business or as previously disclosed by Mutual to ANB or as
required by law; pay any bonus except in the ordinary course of business or
pursuant to the provisions of any applicable program or plan adopted by its
Board of Directors prior to the date of the Agreement and as previously
disclosed by Mutual to ANB; enter into or amend any severance agreements with
officers of any Mutual company except as previously disclosed by Mutual to ANB;
or grant any increase in fees or other increases in compensation or other
benefits to directors of any Mutual company; (viii) enter into or amend any
employment contract between any Mutual company and any person (unless such
amendment is required by law) that the Mutual company does not have the
unconditional right to terminate without liability (other than liability for
services already rendered), at any time on or after the Effective Time; (ix)
adopt any new employee benefit plan or program of any Mutual company or make any
material change in or to any existing employee benefit plans or programs of any
Mutual company other than any such change that is required by law or that, in
the opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; (x) make any significant change in any accounting
methods, principles, or practices or systems of internal accounting controls,
except as may be necessary to conform to changes in regulatory accounting
requirements or generally accepted accounting principles; (xi) commence or
settle any litigation other than in accordance with past practice; provided
that, except to the extent specifically reserved against in the Mutual financial
statements dated prior to the date of the Agreement, no Mutual company shall
settle any litigation involving any liability of any Mutual company for money
damages in excess of $25,000 or restrictions upon the operations of any Mutual
company; or (xii) except in the ordinary course of business, enter into or
terminate any material contract or make any change in any material lease or
contract, other than renewals of leases and contracts without material adverse
changes of terms.

EXPENSES AND FEES

The Agreement provides in general that each of the parties will bear
and pay its own expenses in connection with the transactions contemplated by the
Agreement, including fees and expenses of its own financial or other
consultants, investment bankers, accountants, and counsel, except that ANB will
bear and pay the filing fees and printing costs in connection with this Joint
Proxy Statement. Notwithstanding the foregoing, the Agreement provides that for
12 months following the termination of the Agreement under certain circumstances
or failure to consummate the Merger at a time in which it has been publicly
disclosed that a third party has disclosed an intent to acquire Mutual, it will
be a binding condition to Mutual's entering into a letter of intent, agreement
in principle, or definitive agreement (whether or not considered binding,
nonbinding, or conditional) with respect to, or recommending shareholder
acceptance of, any business combination with any third party, that such third
party that is a party to the business combination will pay to ANB, not later
than the announcement of the business combination, an amount in cash equal to
$1,000,000, which sum represents the direct costs and expenses incurred by ANB
in negotiating and carrying out the transactions contemplated by the Agreement,
and the indirect costs and expenses incurred by ANB in connection with the
transactions contemplated by the Agreement, including ANB management time
devoted to negotiation and preparation for such transaction. In the event such
third party refuses to pay such amount, the amount will be an obligation of
Mutual and will be paid by Mutual promptly upon notice to Mutual by ANB. See
"The Merger--Amendment, Waiver, and Termination."

-35-
<PAGE>

RESALES OF ANB COMMON STOCK

ANB Common Stock to be issued to shareholders of Mutual in connection
with the Merger will be registered under the Securities Act. All shares of ANB
Common Stock received by holders of Mutual Common Stock, and all shares of ANB
Common Stock issued and outstanding immediately prior to the Effective Time,
upon consummation of the Merger will be freely transferable by those
shareholders of Mutual and ANB not deemed to be "Affiliates" of Mutual or ANB.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with Mutual or ANB at the time of the
Meetings (generally, executive officers and directors).

Rules 144 and 145 promulgated under the Securities Act restrict the
sale of ANB Common Stock received in the Merger by Affiliates and certain of
their family members and related interests. Generally speaking, the rules, as
currently in effect, provided that during the two years following the Effective
Time, Affiliates of Mutual or ANB may resell publicly the ANB Common Stock
received by them in the Merger within certain limitations as to the amount of
ANB Common Stock sold in any three-month period and as to the manner of sale.
After the two-year period, such Affiliates of Mutual who are not affiliates of
ANB may resell their shares without restriction. The ability of Affiliates to
resell shares of ANB Common Stock received in the Merger under Rule 144 or 145
as summarized herein generally will be subject to ANB's having satisfied its
Exchange Act reporting requirements for specified periods prior to the time of
sale. Affiliates will receive additional information regarding the effect of
Rules 144 and 145 on their ability to resell ANB Common Stock received in the
Merger. The SEC has proposed an amendment to Rule 144 that, if adopted, would
reduce the holding period to one year. Affiliates also would be permitted to
resell ANB Common Stock received in the Merger pursuant to an effective
registration statement under the Securities Act or an available exemption from
the Securities Act registration requirements. This Joint Proxy Statement does
not cover any resales of ANB Common Stock received by persons who may be deemed
to be Affiliates of Mutual or ANB.

Mutual has agreed to use its reasonable efforts to cause each person
who may be deemed to be an Affiliate of Mutual to execute and deliver to ANB not
later than 30 days prior to the Effective Time an agreement (each, an "Affiliate
Agreement") providing that such Affiliate will not sell, pledge, transfer, or
otherwise dispose of any ANB Common Stock obtained as a result of the Merger (i)
except in compliance with the Securities Act and the rules and regulations of
the SEC thereunder and (ii) in any case, until after results covering 30 days of
post-Merger operations of ANB have been published. Certificates representing
shares of Mutual Common Stock surrendered for exchange by any person who is an
Affiliate of Mutual for purposes of Rule 145(c) under the Securities Act shall
not be exchanged for certificates representing shares of ANB Common Stock until
ANB has received such a written agreement from such person. Prior to publication
of such results, ANB will not transfer on its books any shares of ANB Common
Stock received by an Affiliate pursuant to the Merger. The stock certificates
representing ANB Common Stock issued to Affiliates in the Merger may bear a
legend summarizing the foregoing restrictions. See "The Merger--Conditions to
Consummation of the Merger."

-36-
<PAGE>

DISSENTERS' RIGHTS

MUTUAL COMMON STOCK. If the Merger is consummated, pursuant to
regulations of the OTS, any shareholder of record of Mutual Common Stock who (i)
objects to the Agreement and the Plan of Merger, (ii) does not vote any of such
holder's shares in favor of the Agreement and the Plan of Merger, and (iii)
fully complies with all of the provisions of 12 C.F.R. Section 552.14 will be
entitled to demand and receive payment in an amount equal to the fair or
appraised value of such holder's shares of Mutual Common Stock. For the purpose
of determining the amount to be received in connection with the exercise of
dissenters' rights pursuant to regulations of the OTS, the fair value of a
dissenting shareholder's Mutual Common Stock equals the fair market value of the
shares as of the Effective Time, exclusive of any element of value arising from
the accomplishment or expectation of the Merger.

Any Mutual shareholder desiring to receive payment of the fair value of
such holder's Mutual Common Stock in accordance with the requirements of 12.
C.F.R. Section 552.14 must (i) deliver to Mutual, prior to voting on the
Agreement and the Plan of Merger, a writing identifying such holder and stating
such holder's intention to demand appraisal of and payment for such holder's
shares of Mutual Common Stock and (ii) not vote in favor of the Agreement and
the Plan of Merger. Any written notice of intent to demand appraisal of and
payment for shares of Mutual Common Stock should be sent to: H. Dan Davis,
President and Chief Executive Officer, Mutual Savings Bank, F.S.B., 103 Tower
Drive, Danville, Virginia 24540. A vote against the Agreement and the Plan of
Merger will not satisfy the requirements for the separate written notice of
intent to demand appraisal of and payment for shares of Mutual Common Stock
referred to in condition (i) above. Rather, such demand must be made prior and
in addition to and separate from any proxy or vote against the Agreement and the
Plan of Merger by the dissenting shareholder.

Within ten days of the Effective Time, ANB or American National must
(i) give written notice of the Effective Time by mail to any shareholder who
complied with the provisions above and did not vote in favor of the Agreement
and the Plan of Merger and (ii) make a written offer to each such shareholder to
pay for such holder's shares at a price ANB or American National estimates to be
the fair value of the shares. Such notice and offer must be accompanied by
Mutual's balance sheet and statement of income for a fiscal year ending not more
than 16 months before the date of notice and offer, together with the latest
available interim financial statements and a statement of the procedures that
must be followed if the shareholder elects under 12 C.F.R. Section 552.14(c)(5)
and (6) to demand appraisal and payment of a different amount than that offered
by ANB or American National.

If within 60 days of the Effective Time the shareholder accepts ANB's
or American National's offer of the fair value for such holder's shares, or the
fair value is otherwise agreed upon between ANB or American National and the
dissenting shareholder, ANB or American National must make payment for the
dissenting shareholder's shares within 90 days of the Effective Time. At any
time within 60 days of the Effective Time, a dissenting shareholder may withdraw
a demand for appraisal and accept the terms of the Agreement and the Plan of
Merger, and such shares of Mutual Common Stock will become shares of ANB Common
Stock in accordance with the terms of the Agreement.

If the dissenting shareholder and ANB or American National do not agree
as to the fair value of the dissenting shareholder's shares within 60 days of
the Effective Time, the dissenting shareholder must file a petition with the
OTS, with a copy by registered or certified mail to ANB or American National,
demanding a determination of the fair market value of the shares. Each
shareholder demanding appraisal of and payment for such holder's shares of
Mutual Common Stock in compliance with 12 C.F.R. Section 552.14 must deliver
such holder's shares of Mutual Common Stock to the Exchange Agent for notation
thereon that an appraisal proceeding is pending. If a

-37-
<PAGE>

dissenting shareholder fails to file a petition with the OTS demanding a
determination of fair value within 60 days of the Effective Time or fails to
deliver such holder's shares of Mutual Common Stock to the Exchange Agent, such
dissenting shareholder will be deemed to have accepted the terms of the
Agreement and the Plan of Merger, and such shareholder's shares of Mutual Common
Stock will become shares of ANB Common Stock in accordance with the terms of the
Agreement.

The director of the OTS (the "Director") may appoint either appropriate
OTS staff or one or more independent persons to appraise the shares of a
dissenting shareholder who has complied fully with 12 C.F.R. Section 552.14.
Appraisals prepared by independent persons will be subject to review by OTS
staff. If the Director concurs in the final valuation of the shares, the
Director will instruct Mutual to pay the appraised fair market value, together
with accrued interest, upon the surrender of the dissenting shareholder's Mutual
Common Stock. The Director, at his or her discretion, may apportion or assess
the cost of the appraisal proceeding against some or all of the parties to the
proceeding.

The foregoing does not purport to be a complete statement of the
provisions of the OTS regulations relating to dissenter and appraisal rights and
is qualified in its entirety by reference to the dissenter and appraisal rights
provisions of 12 C.F.R. Section 552.14, which section is reproduced in Appendix
VI to this Joint Proxy Statement and which hereby is incorporated by reference
herein.

ANB COMMON STOCK. Under the VSCA, the holders of ANB Common Stock do
not have dissenters' rights of appraisal with respect to the Articles of
Incorporation Amendment.

-38-
<PAGE>

EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
GENERAL

Mutual is a federally chartered savings bank, and accordingly, the
rights of Mutual's shareholders are governed by Mutual's Charter and Bylaws and
regulations of the OTS (the "OTS Regulations"). ANB is incorporated under the
laws of the Commonwealth of Virginia, and accordingly, the rights of ANB's
shareholders currently are governed by ANB's Articles of Incorporation and
Bylaws and the VSCA.

Upon consummation of the Merger, shareholders of Mutual will become
shareholders of ANB. In connection with the Merger, the shareholders of ANB are
being asked to approve an amendment to ANB's Articles of Incorporation. See
"Amendment of ANB's Articles of Incorporation." The Articles of Incorporation of
ANB as amended by the Articles of Incorporation Amendment, which is a condition
to consummation of the Merger, are referred to herein as the Amended Articles of
Incorporation of ANB. Accordingly, upon consummation of the Merger, the rights
of shareholders of Mutual, as well as shareholders of ANB, will be governed by
the Amended Articles of Incorporation of ANB, the Bylaws of ANB, and the VSCA.
Certain differences arise from this change of governing law, as well as from
distinctions between the Charter and Bylaws of Mutual and the Amended Articles
of Incorporation and the Bylaws of ANB.

The following is a summary of certain significant differences between
the VSCA and the OTS Regulations, as well as between the Amended Articles of
Incorporation of ANB and Bylaws of ANB and Mutual's Charter and Bylaws that
might affect significantly the rights of Mutual's shareholders. This discussion
is not intended to be a complete statement of the differences affecting the
rights of shareholders. The Amended Articles of Incorporation, which are
attached to this Joint Proxy Statement as Appendix V, and are incorporated
herein by reference, should be reviewed for more detailed information. For
further discussion of the amendment of ANB's Articles of Incorporation, see
"Amendment of ANB's Articles of Incorporation."

CAPITALIZATION

MUTUAL. Mutual's Charter authorizes the issuance of up to 10,000,000
shares of Mutual capital stock, of which 7,500,000 shares are Mutual Common
Stock, of which _________ shares were issued and outstanding as of the Mutual
Record Date, and of which 2,500,000 shares are Mutual preferred stock, par value
$1.00 per share ("Mutual Preferred Stock"), of which no shares were issued and
outstanding as of the Mutual Record Date.

ANB. ANB's authorized capital under the current Articles of
Incorporation and the Amended Articles of Incorporation is set forth under
"Description of ANB Capital Stock."

AMENDMENT OF ARTICLES OR BYLAWS

MUTUAL. No amendment of Mutual's Charter may be made unless it is first
proposed by the Board of Directors of Mutual, then preliminarily approved by the
OTS, and thereafter approved by the holders of a majority of the total votes
eligible to be cast at a legal meeting.

The Bylaws of Mutual may be amended by a majority vote of the full
Board of Directors of Mutual or by a majority vote of the votes cast by the
shareholders of Mutual at any legal meeting, subject to either objection by the
OTS or, in certain cases, approval by the OTS pursuant to governing regulations.

-39-

<PAGE>

ANB. As provided in the VSCA, unless a greater vote is required by law
or by a resolution of the Board of Directors, ANB's Articles of Incorporation
may be amended if the amendment is adopted by the Board of Directors and
approved by a vote of the holders of more than two-thirds of the votes entitled
to be cast on the amendment by each voting group entitled to vote thereon.
Pursuant to ANB's Articles of Incorporation, Articles 5, 8, and 9, concerning
"Cumulative Voting," "Directors," and "Voting Requirements for Certain Business
Combinations," respectively, may not be amended unless such amendment receives
the affirmative vote of 80% of all shares of voting stock of ANB (except those
amendments which are unanimously recommended by the Board of Directors when no
other entity owns 25% or more of ANB's voting stock or if all such directors
were directors prior to the other entity acquiring 25% of the voting stock).

ANB's Bylaws generally provide that the Bylaws may be amended, altered,
or repealed either by the shareholders at any regular meeting of the
shareholders or at any special meeting called for that purpose or by affirmative
vote of a majority of the Board of Directors at any regular or special meeting.
However, the authority of the Board includes the authority to amend, alter, or
repeal any bylaw adopted by the shareholders, unless the shareholders with
respect to any specific bylaw, limit the power of the Board to amend or repeal
any such specific bylaw.

REQUIRED SHAREHOLDER VOTE FOR CERTAIN ACTIONS; ANTI-TAKEOVER PROVISIONS

MUTUAL. An OTS Regulation generally requires the approval of the Board
of Directors of Mutual and the affirmative vote of two-thirds of the outstanding
stock of Mutual for mergers, consolidations, and sales of all or substantially
all of Mutual's assets. Such regulation permits Mutual to merge with another
corporation without obtaining the approval of its shareholders if: (i) it does
not involve an interim savings association; (ii) Mutual's Charter is not
changed; (iii) each share of Mutual Common Stock outstanding immediately prior
to the effective date of the transaction is to be an identical outstanding share
or a treasury share of Mutual after such effective date; and (iv) either: (a) no
shares of voting stock of Mutual and no securities convertible into such stock
are to be issued or delivered under the plan of combination or (b) the
authorized unissued shares or the treasury shares of voting stock of Mutual to
be issued or delivered under the plan of combination, plus those initially
issuable upon conversion of any securities to be issued or delivered under such
plan, do not exceed 15% of the total shares of voting stock of Mutual
outstanding immediately prior to the effective date of the transaction.

The Charter of Mutual further provides that, during the three years
after a person acquires 10% or more of any class of outstanding voting shares of
Mutual, thereby becoming an interested shareholder, Mutual can not enter into a
merger, or similar, transaction with such interested shareholder without an
affirmative vote of a majority of the disinterested directors and an affirmative
vote of two-thirds of the voting shares other than the shares beneficially owned
by the interested shareholder. This requirement is subject to certain limited
exceptions.

ANB. The VSCA generally requires the approval of a majority of a
corporation's Board of Directors and the holders of more than two-thirds of all
the votes entitled to be cast thereon by each voting group entitled to vote on
any plan of merger or consolidation, plan of share exchange, or sale of
substantially all of the assets of a corporation not in the ordinary course of
business. The VSCA also specifies additional voting requirements for affiliated
mergers and transactions that would cause an acquiring person's voting power to
meet or exceed 10% of the outstanding voting shares. ANB's Articles of
Incorporation also require, with certain specified exceptions, a vote of 80% of
the voting shares, considered as one class, for a business combination with any
entity that owns 25% or more of the outstanding shares of voting stock of ANB or
has in the past owned 25% or more and is currently an affiliate of ANB.

-40-

<PAGE>

None of the additional voting requirements contained in the ANB
Articles of Incorporation or the VSCA are applicable to the Merger.

DIRECTOR NOMINATIONS

MUTUAL. Pursuant to the Bylaws of Mutual, the Board of Directors acts
as the nominating committee for selecting Board nominees for election as
directors. The Board generally delivers its written nominations to the Secretary
of Mutual at least 20 days prior to the date of the annual meeting. Upon
delivery, such nominations are posted in a conspicuous place in each of Mutual's
branch offices. Nominations for election as a director of Mutual may be made by
shareholders, but such nominations must be in writing and delivered to the
Secretary of Mutual at least five days prior to the annual meeting.

ANB. In accordance with the Bylaws of ANB, the directors of ANB are
selected by the shareholders at the annual meeting of shareholders after being
nominated in accordance with Virginia law.

DIRECTORS AND CLASSES OF DIRECTORS; VACANCIES AND REMOVAL OF DIRECTORS

MUTUAL. Mutual's Charter and Bylaws require the Board of Directors of
Mutual to be divided into three classes as nearly equal in number as possible
and that the members of each class be elected for a term of three years or until
their successors are elected and qualified, with one class being elected
annually. The Bylaws of Mutual provide that the number of directors shall be
nine.

Any vacancy occurring in the Board of Directors of Mutual, whether by
death, resignation, removal, or increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors. A
director elected to fill a vacancy shall serve for the unexpired portion of the
term or until his successor is elected and qualified. A director elected to fill
a newly created directorship shall serve until the next election of directors by
the Mutual shareholders.

Under Mutual's Bylaws, any director may be removed for cause by the
holders of a majority of the outstanding shares entitled to vote at an election
of directors at a meeting of shareholders called expressly for such purpose.

ANB. ANB's Articles of Incorporation provide that the number of
directors, shall be set forth in the Bylaws, but the number of directors set
forth in the Bylaws may not be increased by more than two during any 12-month
period except by the affirmative vote of more than 80% of the votes entitled to
be cast. The Bylaws provide for a Board of Directors consisting of 11 members.
ANB's Board of Directors is divided into three classes, each as nearly equal in
number as possible, with one class being elected annually.

The Articles of Incorporation of ANB further provide that any vacancy
occurring on the Board of Directors, including a vacancy resulting from an
increase by not more than two in the number of directors, may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors. Directors so chosen shall hold office for a
term expiring at the next following annual meeting of shareholders at which
directors are elected. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.

-41-

<PAGE>

Subject to the rights of the holders of preferred stock then
outstanding, any director may be removed, with cause, only by the affirmative
vote of the holders of at least 80% of outstanding voting shares ANB Common
Stock.

PREEMPTIVE RIGHTS

Neither the shareholders of ANB nor the shareholders of Mutual have
preemptive rights. Thus, if additional shares of ANB Common Stock or Mutual
Common Stock are issued, or if shares of preferred stock of ANB with a par value
of $5.00 per share ("ANB Preferred Stock") are issued by ANB as authorized by
ANB's Articles of Incorporation, or if shares of Mutual Preferred Stock are
issued by Mutual as authorized by Mutual's Charter, holders of such stock, to
the extent they do not participate in such additional issuance of shares, would
own proportionately smaller interests in a larger amount of outstanding capital
stock.

LIQUIDATION RIGHTS

MUTUAL. Subject to the prior rights of the holders of any shares of
Mutual Preferred Stock that may be outstanding, in the event of any liquidation,
dissolution, or winding up of Mutual, the holders of the Mutual Common Stock
would be entitled to receive all assets of Mutual available for distribution,
after payment of all debts and liabilities of Mutual (including all deposit
accounts and accrued interest thereon) and after distribution of the balance
remaining in the liquidation account ("Liquidation Account") established upon
the conversion of Mutual to stock form for the benefit of certain depositors who
have continued to maintain deposit accounts with Mutual. After the consummation
of the Merger, American National will assume liability for Mutual's Liquidation
Account.

ANB. The VSCA generally provides that a corporation's Board of
Directors may propose dissolution for submission to shareholders and that to be
authorized dissolution must be approved by the holders of more than two-thirds
of all votes entitled to be cast on the proposal, unless the articles of
incorporation of the corporation require a greater or lesser vote. There are no
provisions in the Articles of Incorporation of ANB which would modify the
statutory requirements for dissolution under the VSCA.

SPECIAL MEETINGS OF SHAREHOLDERS

MUTUAL. Mutual's Bylaws provide that special meetings of the
shareholders relating to a change in control of Mutual or to an amendment of the
Charter may be called only by the Board of Directors. Special meetings for any
other purpose or purposes, unless otherwise prescribed by the regulations of the
OTS, may be called by the Chairman of the Board, the President, or a majority of
the Board of Directors of Mutual and shall be called by the Chairman, President,
or Secretary of Mutual upon the written request of the holders of not less than
10% of the outstanding capital stock of Mutual entitled to vote at the meeting.

ANB. Under the VSCA, special meetings may be called by the chairman of
the board of directors, the president, the board of dirctors and any person
designated in the by-laws of the corporation. The Bylaws of ANB provide that
Special Meetings of the shareholders may be called for any purpose at any time
by the Board of Directors or by any shareholder at the written request of at
least 10% of the shares entitled to vote at the meeting.

-42-

<PAGE>

INDEMNIFICATION

MUTUAL. Federal savings associations are required by an OTS Regulation
to indemnify their directors, officers, and employees against any action brought
or threatened because that person is or was a director, officer, or employee
for: (i) any amount for which such person becomes liable under a judgment in
such action, and (ii) reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred by that person in defending or
settling such action or in enforcing such person's rights under the applicable
regulation if he or she attains a favorable judgment in such enforcement action.
Indemnification shall be made to such person only if: (i) final judgment on the
merits is in such person's favor, or (ii) in the case of: (a) settlement,
(b) final judgment against such person, or (c) final judgment in such person's
favor, other than on the merits, if a majority of the disinterested directors of
the savings association determine that such person was acting in good faith
within the scope of such person's employment or authority as such person could
reasonably have perceived it under the circumstances and for a purpose such
person could reasonably have believed under the circumstances was in the best
interests of the savings association or its shareholders. No indemnification
shall be made unless the association gives the OTS at least 60 days' notice of
its intentions to make such indemnification and if the OTS, within such notice
period, advises the association in writing of its objection thereto.

ANB. The Articles of Incorporation of ANB provide that each director
and officer be indemnified by ANB against liabilities, fines, penalties, and
claims imposed upon or served against him and (including amounts paid in
settlement) by reason of having been an officer or director of ANB, including
all expenses and counsel fees reasonably incurred by him in connection with
such, except in relation to matters as to which he shall have been finally
judged to be liable by reason of having been guilty of gross negligence or
willful misconduct in the performance of his duties as an officer or director.

SHAREHOLDER PROPOSALS

MUTUAL. The Bylaws of Mutual generally provide that shareholders of
Mutual must provide Mutual with written notice of shareholder nominations for
election as directors and shareholder proposals at least five days prior to the
date of the annual meeting of the shareholders of Mutual at which these matters
will be considered. Shareholder proposals which are proposed to be included in
the Mutual proxy materials must be submitted in accordance with the notice and
other requirements of Rule 14a-8 under the Exchange Act.

ANB. The Articles of Incorporation and Bylaws of ANB do not discuss
shareholder proposals. The VSCA provides that notice must be given to the
shareholders of a corporation describing the purpose of any special meeting. The
VSCA further provides that only those matters described in such notice may be
considered at a special meeting.

SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS

MUTUAL. An OTS Regulation provides that certain shareholders of a
federally-chartered savings association such as Mutual may, upon making written
demand stating a proper purpose and, if requested, providing specified
affidavits, inspect its books and records of account, minutes, and record of
shareholders. Such right of examination pursuant to the OTS regulations is
limited to a shareholder or group of shareholders holding of record (i) voting
shares having a cost of not less than $100,000 or constituting not less than
1.0% of the total outstanding voting shares, provided in either case that the
shareholder or group of shareholders have held of record such voting shares for
at least six months, or (ii) not less than 5.0% of the total outstanding voting
shares.

-43-

<PAGE>

ANB. The Articles of Incorporation and Bylaws of ANB do not contain any
provisions which govern shareholder inspection rights or shareholder lists.
Under the VSCA, the shareholder of a Virginia corporation is entitled to inspect
and copy certain books and records of the corporation, including a list of
shareholders, if (i) the shareholder has been a shareholder of record for at
least six months immediately preceding his or her written demand or is the
holder of at least 5.0% of the corporation's outstanding shares, (ii) the
shareholder's demand is made in good faith and for a proper purpose, (iii) the
shareholder describes with reasonable particularity the purpose of the request
and the records desired to be inspected, and (iv) the records are directly
related to the stated purpose. The VSCA also provides that a corporation shall
make available for inspection by any shareholder during usual business hours, at
least 10 days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting.

DISSENTERS' RIGHTS

MUTUAL. An OTS Regulation provides that a shareholder of a
federally-chartered savings association such as Mutual which engages in a
merger, consolidation, or sale of all or substantially all of its assets shall
have the right to demand from such savings association payment of the fair or
appraised value of his or her stock in the savings association, subject to
specified procedural requirements. This regulation also provides that the
shareholders of a federally-chartered savings association with stock that is
listed on a national securities exchange or quoted on the Nasdaq System are not
entitled to dissenters' rights in connection with a merger involving such
savings association if the shareholder is required to accept only "qualified
consideration" for the shareholder's stock, which is defined to include cash,
shares of stock of any savings association or corporation which at the effective
date of the merger will be listed on a national securities exchange or quoted on
the Nasdaq System, or any combination of such shares of stock and cash. Because
neither Mutual Common Stock nor ANB Common Stock is listed on a national stock
exchange or quoted on the Nasdaq System, Mutual shareholders will be entitled to
exercise their dissenter's rights regarding the Merger and obtain payment of the
fair value of their shares of Mutual Common Stock if they follow the procedures
outlined in the OTS regulations for perfecting such rights. See "The
Merger--Dissenters' Rights."

ANB. The provisions of Article 15 of the VSCA which provide a
shareholder of a Virginia corporation the right to dissent from, and obtain
payment of the fair value of such holder's shares in the event of, mergers,
consolidations, and certain other corporate transactions are applicable to ANB
as a Virginia corporation. Though Article 15 of the VSCA provides that holders
of shares of a Virginia corporation which has shares listed on a national
securities exchange or which has at least 2,000 record shareholders are not
entitled to dissenters' rights unless certain requirements are met, because ANB
does not currently have more than 2,000 record shareholders and is not currently
traded on a national securities exchange, the shareholders of ANB have rights to
dissent from mergers, consolidations, and certain other corporate transactions
to which ANB is a party.

PAYMENT OF DIVIDENDS

MUTUAL. The ability of a federally-chartered savings association such
as Mutual to pay dividends on its capital stock is restricted by regulatory
considerations. Dividends by Mutual are subject to the requirements of an OTS
Regulation which governs capital distributions by savings associations. This
regulation creates a safe harbor for specified levels of capital distributions
by savings associations which meet at least their minimum capital requirements,
so long as such associations notify the OTS and receive no objection from the
OTS to the distribution, and provides that savings associations that do not
qualify for the safe harbor are required to obtain prior OTS approval before
making any capital distributions.

-44-

<PAGE>

Generally, Tier 1 associations, which are savings associations that
before and after the proposed distribution meet or exceed their fully phased-in
capital requirements, may make capital distributions during any calendar year
equal to the greater of: (i) 100% of net income for the calendar year-to-date
plus 50% of its "surplus capital ratio," as defined, at the beginning of the
calendar year, and (ii) 75% of its net income over the most recent four-quarter
period. Tier 2 associations, which are associations that before and after the
proposed distribution meet or exceed their current minimum capital requirements
but do not exceed their fully phased-in capital requirements, may make capital
distributions totaling up to 75% of net income over the most recent four quarter
period. Tier 3 associations, which are associations that do not meet current
minimum capital requirements, or that have capital in excess of either their
fully phased-in requirement or minimum capital requirement but which have been
notified by the OTS that they will be treated as a Tier 3 association for
purposes of the OTS capital distribution regulation, may not make any capital
distribution without obtaining prior OTS approval. Mutual is currently
considered by the OTS to be a Tier 1 association.

ANB. The VSCA generally provides that a corporation may make
distributions to its shareholders unless, after giving effect to the
distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise, which in the case of ANB they do
not) the amount that would be needed, if the corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.

In addition to the limitations set forth in the VSCA, there are various
regulatory requirements which are applicable to distributions by bank holding
companies such as ANB. For a description of the regulatory limitations on
distributions by ANB, see "Supervision and Regulation--Payment of Dividends" and
"Description of ANB Capital Stock--ANB Common Stock."

-45-

<PAGE>

MARKET PRICES AND DIVIDENDS OF MUTUAL COMMON STOCK
AND ANB COMMON STOCK

MARKET PRICES

Mutual Common Stock is not actively traded in any established
market. Prior to the date of the Agreement, ANB Common Stock also was not
actively traded in any established market. Subsequent to the date of the
Agreement, ANB Common Stock was listed on the OTC Bulletin Board but is still
not actively traded. However, management of Mutual and ANB are aware of
various (but not necessarily all) trades of Mutual Common Stock and ANB
Common Stock in the over-the-counter market. The following table sets forth
the high and low bid or, when known, actual sale prices of shares of Mutual
Common Stock, known to Mutual, and high and low closing sale prices of shares
of ANB Common Stock, known to ANB, for the periods indicated.

<TABLE>
<CAPTION>
Mutual ANB
Common Stock Common Stock
---------------------------- ----------------------------
High Low High Low
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1993
Quarter ended March 31................. $ 9.25 $ 9.00 $27.00 $27.00
Quarter ended June 30.................. 9.25 9.00 28.00 27.00
Quarter ended September 30............. 9.25 9.00 29.00 28.00
Quarter ended December 31.............. 9.25 9.00 29.00 29.00

1994
Quarter ended March 31................. 11.00 9.50 29.50 29.00
Quarter ended June 30.................. 11.00 10.75 30.50 29.50
Quarter ended September 30............. 12.00 12.00 30.50 30.50
Quarter ended December 31.............. 13.00 12.00 30.50 30.50

1995
Quarter ended March 31................. 13.00 13.00 30.50 26.00
Quarter ended June 30.................. 14.00 13.50 30.50 27.00
Quarter ended September 30............. 16.00 14.00 30.50 27.00
Quarter ending December 31.............
(through December __)
</TABLE>

DIVIDENDS

Mutual has paid regular quarterly cash dividends on Mutual
Common Stock since 1988. ANB has paid regular semi-annual cash dividends
for more than 25 years, and in addition has paid special cash dividends in
certain years. The following table sets forth for the periods indicated
the per share cash dividends paid on Mutual Common Stock and ANB Common
Stock. For information regarding provisions of the Agreement affecting
Mutual's payment of dividends prior to the Effective Time, see "The
Merger--Conduct of Business Pending the Merger."

<TABLE>
<CAPTION>
Mutual ANB
Common Stock Common Stock
------------ ------------
<S> <C> <C>
1993
Quarter ended March 31................. $0.10 $ --
Quarter ended June 30.................. 0.10 0.23
Quarter ended September 30............. 0.10 --
Quarter ended December 31.............. 0.10 0.24
</TABLE>

-46-

<PAGE>

<TABLE>
<CAPTION>
Mutual ANB
Common Stock Common Stock
------------ ------------
<S> <C> <C>
1994
Quarter ended March 31................. $0.10 $ --
Quarter ended June 30.................. 0.10 0.25
Quarter ended September 30............. 0.10 --
Quarter ended December 31.............. 0.10 0.50(1)

1995
Quarter ended March 31................. 0.10 --
Quarter ended June 30.................. 0.10 0.27
Quarter ended September 30............. 0.10 --
Quarter ending December 31............. 0.29
(through December __)
</TABLE>

(1) Reflects the payment of a special dividend of $0.25 per share.

Management of ANB intends, subject to the earnings of the ANB
companies, their financial condition, liquidity and capital requirements,
applicable governmental regulations and policies, and other factors deemed
relevant by management, to recommend to the Board of Directors of ANB that the
regular semi-annual cash dividend payable per share of ANB Common Stock be
maintained at a rate not less than $.29.

The holders of ANB Common Stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor. Although ANB currently intends to continue to pay quarterly cash
dividends on the ANB Common Stock, there can be no assurance that ANB's dividend
policy will remain unchanged after completion of the Merger. The declaration and
payment of dividends thereafter will depend upon business conditions, operating
results, capital requirements, and the Board of Directors' consideration of
other relevant factors.

ANB is a legal entity separate and distinct from its
subsidiaries and its revenues depend in significant part on the payment
of dividends from American National. American National is subject to
certain legal restrictions on the amount of dividends that it is
permitted to pay. See "Supervision and Regulation--Payment of Dividends."

-47-

<PAGE>

PRO FORMA FINANCIAL INFORMATION

PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)

The following unaudited pro forma condensed combined balance sheet
presents the historical unaudited consolidated balance sheets of Mutual and ANB
at September 30, 1995, giving effect to the Merger accounted for as a pooling of
interests. For purposes of determining the pro forma effects on the condensed
balance sheets as of September 30, 1995, the pro forma adjustments and
eliminations have been made as if the transaction had occurred on September 30,
1995. The unaudited pro forma condensed combined balance sheet should be read in
conjunction with the historical consolidated financial statements of Mutual and
ANB, including the respective notes thereto, which, in the case of Mutual, are
attached to this Joint Proxy Statement, and in the case of ANB, are incorporated
by reference in, and attached to, this Joint Proxy Statement and the unaudited
consolidated historical and other pro forma financial information, including the
notes thereto, appearing elsewhere in this Joint Proxy Statement. See
"Incorporation of Certain ANB Information by Reference," "Summary--Comparative
Per Share Data," and "Index to Financial Statements." The pro forma condensed
combined balance sheet is not necessarily indicative of the results that
actually would have occurred had the Merger been consummated on the date
indicated or that may be obtained in the future.

<TABLE>
<CAPTION>
ANB Mutual Pro Forma Pro Forma
Historical Historical Adjustments Combination
---------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS

Cash and due from banks........... $ 11,436 $ 861 $12,297
Interest-bearing deposits
in other banks................. 112 1,167 1,279
Investment Securities............. 107,757 23,769 (500)(a) 131,026
Mortgage-backed securities........ -- 14,338 14,338
Loans receivable, net............. 171,360 39,870 211,230
Core deposit intangibles.......... 2,896 -- 2,896
Other assets...................... 8,939 3,391 12,330
---------- ---------- ----------- -----------
Total assets.................... $302,500 $83,396 ($500) $385,396
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------

LIABILITIES AND SHAREHOLDERS'
INVESTMENT

LIABILITIES

Deposits.......................... $259,936 $67,513 $327,449
Federal funds purchased and
repurchase agreements........... 6,882 -- 6,882
Accrued interest payable and other
liabilities..................... 2,164 1,096 1,074 (b)
965 (c) 5,299
---------- ---------- ----------- -----------
Total liabilities............... 268,982 68,609 2,039 339,630
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>

-48-

<PAGE>

<TABLE>
<CAPTION>
ANB Mutual Pro Forma Pro Forma
Historical Historical Adjustments Combination
---------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SHAREHOLDERS' INVESTMENT
Common Stock; $1.00 par, 2,400,000
actual shares issued and
outstanding, 3,213,640 pro forma
shares outstanding.............. $2,400 $1,154 $(1,154)(d)
814 (e) $3,214
Capital in excess of par value.... 5,400 4,226 (4,226)(d)
4,566 (e) 9,966
Net unrealized gain (loss)........ 181 (4) 177
Retained earnings................. 25,537 9,411 (1,074) (b)
(965) (c)
(500) (a) 32,409
---------- ---------- ----------- -----------
Total Shareholders'
Investment............. 33,518 14,787 (2,539) 45,766
---------- ---------- ----------- -----------
Total Liabilities and
Shareholders'
Investment............ $302,500 $83,396 ($500) $385,396
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------

Book value per common share(f).... $13.97 $12.81 $14.24

</TABLE>

(a) ANB's plans for certain Mutual securities are demonstrably
different from the plans that have served as the basis for Mutual's intention to
hold these securities to maturity. As such, American National intends to
classify these securities as available for sale. This adjustment is recorded to
present these securities at market value as of September 30, 1995.

(b) This adjustment reflects the estimated Federal tax liability
associated with prior untaxed loan loss reserves of Mutual. The impact of this
adjustment has not been reflected in the Pro Forma Condensed Statements of
Income.

(c) This adjustment reflects certain material, nonrecurring expenses
expected to be incurred in connection with the Merger. These charges include
such items as legal, accounting, printing and filing fees. The impact of these
expenses has not been reflected in the Pro Forma Condensed Statements of Income.

(d) These adjustments eliminate the outstanding shares of Mutual Common
Stock and related capital in excess of par value outstanding prior to the
Merger.

(e) Based on the exchange ratio of .705 of a share of ANB Common Stock
for each share of Mutual Common Stock, these adjustments reflect the issuance of
813,640 shares of ANB Common Stock in exchange for the 1,154,100 shares of
Mutual Common Stock outstanding on September 30, 1995.

(f) Pro forma book value per common share represents pro forma combined
total shareholders' investment divided by 3,213,640 pro forma shares
outstanding.

-49-

<PAGE>

PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)

The following table sets forth certain unaudited pro forma condensed
combined financial data for ANB giving effect to the Merger accounted for as a
pooling of interests. For a description of the pooling-of-interests accounting
with respect to the Merger, see "The Merger--Accounting Treatment." The
following information does not include any pro forma adjustments relating to
expected future reductions in expenses and revenue enhancements. This
information should be read in conjunction with the historical consolidated
financial statements of Mutual and ANB, including the respective notes thereto,
which, in the case of Mutual, are attached to this Joint Proxy Statement, and in
the case of ANB, are incorporated by reference in, and attached to, this Joint
Proxy Statement and the unaudited consolidated historical and other pro forma
financial information, including the notes thereto, appearing elsewhere in this
Joint Proxy Statement. Results for the nine months ended September 30, 1995 are
not necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. The pro forma financial data are not
necessarily indicative of results that actually would have occurred had the
Merger been consummated on the dates indicated or that may be obtained in the
future. See "Incorporation of Certain ANB Information by Reference,"
"Summary--Comparative Per Share Data," and "Index to Financial Statements."

<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
---------------------------- ------------------------------------------
1995 1994 1994 1993 1992
------------- ------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA

Total interest income.................. $18,716 $15,990 $21,721 $22,008 $23,925
Total interest expense................. 8,236 6,580 8,919 9,715 12,403
------------- ------------ ------------ ------------- -------------
Net interest income.................... 10,480 9,410 12,802 12,293 11,522
Provision for loan losses.............. 381 189 272 214 328
------------- ------------ ------------ ------------- -------------
Net interest income after provision for
loan losses......................... 10,099 9,221 12,530 12,079 11,194
Non-interest Income.................... 1,655 1,608 2,212 2,068 1,995
Non-Interest expenses ................. 6,048 5,978 8,082 7,549 6,923
------------- ------------ ------------ ------------- -------------
Income before taxes.................... 5,706 4,851 6,660 6,598 6,266
Income taxes........................... 1,792 1,568 2,151 2,033 1,719
------------- ------------ ------------ ------------- -------------
Net income............................. $3,914 $ 3,283 $ 4,509 $ 4,565 $ 4,547
------------- ------------ ------------ ------------- -------------
------------- ------------ ------------ ------------- -------------
PER SHARE DATA

Net Income Per Common Share(2)......... $1.20 $1.01 $1.39 $1.41 $1.40
Dividends per share(3)................. 0.20 0.19 0.56 0.35 0.49

</TABLE>

(1) ANB prepares annual financial statements based on a calendar year ending
on December 31, and Mutual prepares annual financial statements based on
a fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.

(2) The pro forma combined net income per common share data are based on
(i) combined historical income of Mutual and ANB assuming the Merger is
accounted for as a pooling of interests and (ii) pro

-50-

<PAGE>

forma combined equivalent common shares of Mutual (as adjusted for the
Exchange Ratio of .705 of a share of ANB Common Stock for each share of
Mutual Common Stock) and ANB.

(3) Represents the historical dividends paid by ANB divided by pro forma
shares outstanding as of the last date of the period which includes
Mutual shares multiplied by the Exchange Ratio of .705.

-51-

<PAGE>

SELECTED HISTORICAL FINANCIAL DATA OF ANB

The following table sets forth certain historical financial data of ANB
and is based on the consolidated financial statements of ANB, including the
respective notes thereto, which are included in this Joint Proxy Statement
and should be read in conjunction therewith. See "Management's Discussion and
Analysis of ANB," "Business of ANB," and "Index to Financial Statements."
Interim unaudited data for the nine months ended September 30, 1995 and 1994
reflect, in the opinion of management of ANB, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
such data. Results for the nine months ended September 30, 1995 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.

<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
----------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- ----------- --------- ------------ ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS DATA
Total interest income...... $14,158 $11,753 $16,057 $15,918 $17,349 $19,527 $19,404
Total interest expense..... 5,978 4,671 6,374 7,017 8,826 11,669 11,520
--------- ----------- --------- ------------ ---------- --------- ----------
Net interest income........ 8,180 7,082 9,683 8,901 8,523 7,858 7,884
Provision for loan losses.. 374 189 272 214 230 214 308
--------- ----------- --------- ------------ ---------- --------- ----------
Net interest income after
provision for loan losses 7,806 6,893 9,411 8,687 8,293 7,644 7,576
Non-interest income........ 1,492 1,328 1,886 1,871 1,728 1,383 1,137
Non-interest expenses...... 4,696 4,453 6,119 5,772 5,290 4,981 4,692
--------- ----------- --------- ------------ ---------- --------- ----------
Income before taxes ....... 4,602 3,768 5,178 4,786 4,731 4,046 4,021
Income taxes............... 1,431 1,194 1,645 1,483 1,237 994 922
--------- ----------- --------- ------------ ---------- --------- ----------
Net income................. $ 3,171 $ 2,574 $ 3,533 $ 3,303 $ 3,494 $ 3,052 $ 3,099
--------- ----------- --------- ------------ ---------- --------- ----------
--------- ----------- --------- ------------ ---------- --------- ----------
PER SHARE DATA(1)
Earnings per share......... $1.32 $1.07 $1.47 $1.38 $1.46 $1.27 $1.29
Dividends per share(2)..... 0.27 0.25 0.75 0.47 0.66 0.41 0.57
Book value per share....... 13.97 12.83 12.83 12.12 11.21 10.42 9.56

BALANCE SHEET DATA
Total assets............... $302,500 $253,768 $253,768 $247,706 $240,589 $228,033 $215,644
Investment securities...... 107,257 79,297 79,251 91,826 93,560 85,822 66,134
Loans receivable, net...... 171,360 151,126 151,126 137,877 127,940 121,686 125,455
Deposits................... 259,936 215,861 215,861 217,655 212,439 200,620 187,096
Shareholders' equity....... 33,518 30,785 30,786 29,082 26,907 24,997 22,929

</TABLE>

- ------------------
(1) Per share amounts are based on 2,400,000 shares of ANB Common Stock
outstanding and have been restated to retroactively reflect a 2 for 1
stock split declared on April 21, 1992.

(2) For years ended December 31, 1994, 1992, and 1990, dividend amount
includes special dividends of $0.25, $0.22, and $0.19 per share,
respectively.

- 52 -

<PAGE>

PERFORMANCE RATIOS(1)
Return on average assets... 1.69% 1.41% 1.43% 1.36% 1.48% 1.37% 1.52%
Return on average
shareholders' equity...... 13.19 11.44 11.64 11.96 13.50 12.93 14.12
Efficiency ratio(2)........ 49.03 53.45 53.39 53.91 51.92 54.25 52.38

ASSET QUALITY RATIOS
Net chargeoffs to average
loans(1).................. 0.11% 0.05% 0.05% 0.12% 0.11% 0.09% 0.12%
Nonperforming assets to
total assets.............. 0.03 0.06 0.07 0.19 0.27 0.30 0.37
Allowance for loan losses
to net loans............ 1.50 1.50 1.53 1.54 1.61 1.62 1.49
Allowance for loan losses
to nonperforming loans.. 31.33 X 14.11 X 13.76X 4.61 X 3.24 X 2.94 X 2.39 X

</TABLE>

- ------------------
(1) The ratios have been annualized for the nine months ended September 30,
1995, and 1994.

(2) General and administrative expenses divided by net interest income plus
fee-based income.

- 53 -

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF ANB

The following discussion and analysis is intended to assist in
understanding ANB's results of operations and changes in financial condition
for the periods indicated. This information should be read in conjunction
with the information included under "Selected Historical Financial Data of
ANB," "Business of ANB," and the consolidated financial statements and
related notes thereto, appearing elsewhere in this Joint Proxy Statement. See
"Index to Financial Statements."

FOR THE THREE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992

PERFORMANCE SUMMARY

On a per share basis of ANB Common Stock, net income was $1.47 in 1994,
$1.38 in 1993, and $1.46 in 1992. Return on average total assets was 1.43% in
1994, compared with 1.36% in 1993 and 1.48% in 1992. The return on average
shareholders' investment was 11.64% in 1994, 11.96% in 1993, and 13.50% in
1992.

Shareholders' equity was $30,785,672 at December 31, 1994, $29,081,632 at
December 31, 1993, and $26,906,892 at December 31, 1992. These represented
increases of 5.9% and 8.1%, respectively, over the two prior year ends. The
economic conditions of ANB's trade area have shown improvement during the
year 1994 as evidenced by a strong loan demand. ANB's net loans grew at a
rate of 10% during 1994. The weighted average yield on interest earning
assets and the weighted average cost of deposits declined for the year 1994
due to the lower market interest rates during most of the year. As a result
of ANB's asset and liability repricing strategy and increased loan demand,
ANB was able to increase its net interest income (interest income less
interest expense) by 8.8%.

During 1994 some shifting of funds in customer deposits occurred. Due to
increases in interest rates toward the end of 1994, this shift has been
primarily from short term demand deposits and savings accounts to longer term
certificates of deposit. Due to the recent rise in market interest rates,
this trend is now the reverse of the trend set in 1993 and 1992.

In April, 1993, American National replaced its data processing system
(hardware) and its application programs. The new system has provided American
National with greater efficiency and the ability to better serve its
customers. Additional expenses incurred in 1993 due to the conversion and
training were approximately $238,000. This included an increase of $137,000
in depreciation related to the new system for 1993. Depreciation associated
with the data processing system rose in 1994 by approximately $82,000.

The Federal Reserve has adopted regulations establishing relevant
capital requirements for banks. Under the regulations, a well capitalized
institution must have a Tier 1 risk-based capital ratio of at least 6.0%, a
total risk-based capital ratio of at least 10%, and a leverage ratio of at
least 5.0% and not be subject to a capital directive order. Under these
guidelines American National has always been and continues to be considered
well capitalized.

- 54 -

<PAGE>

NET INTEREST INCOME

Net interest income, the most significant component of earnings, is the
excess of interest income over interest expense. For analytical purposes, net
interest income is adjusted to a taxable equivalent basis to recognize the
income tax savings on tax-exempt assets, such as state and municipal securities.
A tax rate of 34% was used in adjusting interest on tax-exempt securities and
loans to a fully taxable equivalent basis for the years 1994, 1993, and 1992.

During 1994, taxable equivalent net interest income increased to
$9,958,000, up 7.9% from $9,226,000 in 1993. Taxable equivalent net interest
income for 1993 was up 2.7% from the $8,980,000 recorded in 1992. The $732,000
increase of taxable equivalent net interest income during 1994 consisted of
$514,000 due to increases in volume and $218,000 due to increases in rates. The
$246,000 increase in taxable equivalent net interest income during 1993 was the
net result of an increase of $681,000 due to volume and was partially offset by
a decrease of $435,000 due to declines in rate.

The following is an analysis of net interest income, on a taxable
equivalent basis.

<TABLE>
<CAPTION>
Average Balance Interest Income/Expense Average Yield/Rate
------------------------------ ---------------------------- ------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
---------- --------- --------- --------- -------- --------- ------- -------- -------
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Commercial................. $ 51,460 $ 43,664 $ 39,692 $ 3,939 $ 2,970 $ 2,887 7.65% 6.80% 7.27%
Mortgage................... 65,570 62,792 61,998 5,081 4,901 5,525 7.75 7.80 8.91
Installment................ 30,630 27,483 23,981 2,845 2,838 2,773 9.29 10.3 11.56
---------- --------- --------- --------- -------- ---------
Total Loans................ 147,660 133,939 125,671 11,865 10,709 11,185 8.04 8.00 8.90
---------- --------- --------- --------- -------- ---------
Investment securities
U.S. Government............ 68,058 69,315 64,815 3,204 3,710 4,164 4.71 5.35 6.42
Federal agencies........... 4,320 8,624 11,158 273 623 738 6.32 7.22 6.61
State and municipal........ 10,420 10,373 13,206 818 879 1,228 7.85 8.48 9.30
Other investments.......... 10 10 10 1 1 1 5.50 5.50 5.50
---------- --------- --------- --------- -------- ---------
Total investment
securities................ 82,808 88,322 89,189 4,296 5,213 6,131 5.19 5.90 6.87
---------- --------- --------- --------- -------- ---------

Federal funds sold and other.. 3,459 8,446 10,046 171 321 490 4.94 3.81 4.88
---------- --------- --------- --------- -------- ---------
Total interest-earning
assets.................... 233,927 230,707 224,906 16,332 16,243 17,806 6.98 7.04 7.92
--------- -------- ---------
Non-earning assets............ 12,854 12,229 11,096
---------- --------- ---------

Total assets............. $246,781 $242,936 $236,002
---------- --------- ---------
---------- --------- ---------

Interest expense
Deposits:
Demand..................... $30,918 $30,141 $27,841 752 797 960 2.43 2.64 3.45
Money market............... 19,736 21,755 21,271 510 591 734 2.58 2.72 3.45
Savings.................... 56,870 58,538 42,770 1,577 1,871 1,631 2.77 3.20 3.81
Time....................... 80,886 79,632 93,697 3,494 3,755 5,439 4.32 4.72 5.80
---------- --------- --------- --------- -------- ---------

Total deposits........... 188,410 190,066 185,579 6,333 7,014 8,764 3.36 3.69 4.72

</TABLE>

- 55 -

<PAGE>

Federal funds purchased....... $ 664 $ 106 $ 1,862 $ 29 $ 3 $ 62 4.37% 2.83% 3.33%
Repurchase agreements......... 370 -- -- 12 -- -- 3.24 --
---------- --------- --------- --------- -------- ---------
Total interest-bearing
liabilities............... 189,444 190,172 187,441 6,374 7,017 8,826 3.36 3.69 4.71
--------- -------- ---------

Demand deposits............... 25,235 23,375 20,653
Other liabilities............. 1,765 1,767 2,025
Shareholders' investment...... 30,337 27,622 25,883
---------- --------- ---------
Total liabilities and
shareholders' investment.. $246,781 $242,936 $236,002
---------- --------- ---------
---------- --------- ---------

Interest rate spread.......... 3.62% 3.35% 3.21%

Net interest income........... $9,958 $9,226 $8,980
--------- -------- ---------
--------- -------- ---------

Taxable equivalent adjustment. $ 275 $ 325 $ 456
--------- -------- ---------
--------- -------- ---------

Net yield on earning assets... 4.26% 4.00% 3.99%

</TABLE>

- 56 -

<PAGE>

CHANGES IN NET INTEREST INCOME (RATE/VOLUME ANALYSIS). Net interest
income is the product of the volume of average earning assets and the average
rates earned, less the volume of average interest-bearing liabilities and the
average rates paid. The portion of change relating to both rate and volume is
allocated to each of the rate and volume changes based on the relative change
in each category. The following table analyzes the changes in both rate and
volume components of net interest income on a taxable equivalent basis for
the past two years.

<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
-------------------------------------- -------------------------------------
Change Change
Interest Attributable to Interest Attributable to
Increase ------------------------ Increase -----------------------
(Decrease) Rate Volume (Decrease) Rate Volume
------------ ----------- ------------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Commercial................... $ 969 $ 400 $ 569 $ 83 $ (195) $ 278
Mortgage..................... 180 (35) 215 (624) (694) 70
Installment.................. 7 (301) 308 65 (315) 380
------- ------ -------- -------- -------- ------
Total loans................ 1,156 64 1,092 (476) (1,204) 728
------- ------ -------- -------- -------- ------

Investment securities:

U.S. Government.............. (506) (440) (66) (454) (729) 275
Federal agencies............. (350) (70) (280) (115) 64 (179)
State and municipal.......... (61) (65) 4 (349) (102) (247)
Other investments............ -- -- -- -- -- --
------- ------ -------- -------- -------- ------

Total investment securities. (917) (575) (342) (918) (767) (151)
------- ------ -------- -------- -------- ------

Federal funds sold and other.. (150) 77 (227) (169) (98) (71)
------- ------ -------- -------- -------- ------

Total interest income...... 89 (434) 523 (1,563) (2,069) 506
------- ------ -------- -------- -------- ------
Interest expense
Deposits:
Demand...................... (45) (65) 20 (163) (237) 74
Money market................ (81) (28) (53) (143) (159) 16
Savings..................... (294) (242) (52) 240 (294) 534
Time........................ (261) (319) 58 (1,684) (936) (748)
------- ------ -------- -------- -------- ------

Total deposits............. (681) (654) (27) (1,750) (1,626) (124)

Federal funds purchased..... 26 2 24 (59) (8) (51)
Repurchase agreements....... 12 0 12 -- -- --
------- ------ -------- -------- -------- ------

Total interest expense..... (643) (652) 9 (1,809) (1,634) (175)
------- ------ -------- -------- -------- ------

Net interest income............. $ 732 $ 218 $ 514 $ 246 $ (435) $ 681
------- ------ -------- -------- -------- ------
------- ------ -------- -------- -------- ------

</TABLE>

PROVISION AND RESERVE FOR LOAN LOSSES

The provision for loan losses is an amount added to the reserve against
which loan losses are charged. The amount of the provision is determined by
management based upon its assessment of the size and quality of the loan
portfolio and the adequacy of the reserve in relation to the risks inherent
within the loan portfolio.

- 57 -

<PAGE>

The 1994 provision for loan losses was $271,802 and compares with
$213,500 in 1993 and $229,650 in 1992.

The reserve for loan losses totaled $2,353,411 at December 31, 1994, an
increase of 9.2% over December 31, 1993. The increase in the reserve for loan
losses during 1994 of $198,640 consists of the provision of $271,802 less net
charge-offs of $73,162. The ratio of reserve to loans, less unearned
discount, was 1.53% at December 31, 1994 and 1.54% at December 31, 1993.

ANB's Loan Committee has responsibility for determining the level of the
reserve for loan losses, subject to the review of the Board of Directors. The
Loan Committee has taken economic factors, as well as any other external
events that may affect the value and collectibility of the loan portfolio,
into consideration when making its assessment and recommendation.

The methodology used to determine the level of the loan loss reserve on
a quarterly basis includes the identification of losses from a review of
ANB's loan "Watch" list. In addition to these identifiable potential losses,
an experience factor for each major category of loans is applied against the
remaining portion of the loans considered to have no more than a normal risk
of collectibility. Additional factors considered in determining the level of
the loan loss reserve are economic conditions, historical losses, trends, and
other external factors. The sum of these elements is the Loan Committee's
recommended level of the reserve for loan losses.

If the existing level of the loan loss reserve is below the Loan
Committee's recommended level of the reserve at the close of an interim
period, an increase sufficient to eliminate the deficiency is recorded in the
current period provision for loan losses. If the existing level of the
reserve exceeds the recommended level at the close of an interim period, no
adjustment is made to the provision for loan losses if loan growth is
expected.

LOAN LOSSES - ALLOCATION OF RESERVE. An analysis of the allocation
of the reserve for loan losses appears below.

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------------- --------------------- --------------------- --------------------- --------------------
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
each each each each each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
-------- ---------- --------- ---------- -------- ----------- -------- ----------- -------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
agricultural
loans............ $1,505 27.69% $1,378 25.45% $1,339 28.68% $1,280 29.23% $1,212 31.78%
Real estate
construction
loans........... 45 2.37 41 1.37 40 1.81 38 2.58 36 2.46
Real estate
mortgage loans... 253 45.54 232 50.64 225 47.77 215 47.55 204 43.01
Installment loans.. 471 24.40 431 22.54 419 21.74 400 20.64 379 22.75
Unallocated........ 79 -- 73 -- 71 -- 68 -- 64 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balance at end of
year.............. $2,353 100.00% $2,155 100.00% $2,094 100.00% $2,001 100.00% $1,895 100.00%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------

</TABLE>

- 58 -

<PAGE>

LOAN LOSSES - RATIOS.

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Reserve as percentage of outstanding loans, net of unearned income.......... 1.53% 1.54% 1.61%
Net charge-offs as percentage of reserve.................................... 3.11 7.07 6.55
Net charge-offs as percentage of average loans, net of unearned income...... 0.05 0.12 0.11
Provision as percentage of net charge-offs.................................. 371.51 140.12 167.41
Provision as percentage of average loan, net of unearned income............. 0.18 0.16 0.18
Reserve for loan losses to nonperforming loans.............................. 13.76X 4.61X 3.24X

</TABLE>

NON-INTEREST INCOME

Non-interest income was $1,885,858 in 1994, an increase of 1.0% from
1993. During 1993, non-interest income increased 8.0% from the 1992 level.
The increase in 1994 consisted primarily of a 9.0% increase in service
charges on deposit accounts due to adjustments in fee schedules, a 29%
increase in non-deposit fees and insurance commissions due to an increase in
volume of related loans, and a 65% increase in other income resulting from
dividends received from the FHLB. In 1994, trust department income decreased
5.0% as a result of the closing of several large estates.

The increase in non-interest income in 1993 included a 9.0% increase in
trust department income, a 22% increase in service charges on deposit
accounts, a 23% decrease in non-deposit fees and insurance commissions, and a
3.0% increase in other income. The increase in trust department income for
1993 was attributable to new business. The decrease in non-deposit fees and
insurance premiums was the result of weak demand for the type of loans that
normally carry insurance.

NON-INTEREST EXPENSE

Non-interest expense amounted to $6,118,952 in 1994, a 6.0% increase
over the $5,772,247 recorded in 1993. The 1993 non-interest expense increased
9.0% over the $5,289,847 recorded in 1992. The increase in 1994 included a
45% increase in pension and other employee benefits due primarily to
increases in pension cost, a 5.0% increase in occupancy and equipment
expense, a 3.0% increase in FDIC insurance expense, a 7.0% decrease in
postage and printing, and a 9.0% increase in other expenses. The level of
salaries expense was relatively unchanged from 1993.

The increase in 1993 included a 7.0% increase in salaries, a 32%
increase in pension and other employee benefits due to increased pension
cost, an 11% increase in occupancy and equipment expense, a 4.0% increase in
FDIC insurance expense, a 6.0% increase in postage and printing and a 6.0%
increase in other expenses.

INCOME TAXES

The provision for income taxes (total of current and deferred) was
$1,645,000 in 1994, compared with $1,483,000 in 1993, and $1,237,000 in 1992.
In each year, ANB was subject to a Federal tax rate of 34%. The major
difference between the statutory rate and the effective rate results from
income which is not taxable for Federal income tax purposes. The primary
non-taxable income is that of state and municipal securities and industrial
revenue bonds or loans.

The increase in the 1994 provision for income taxes, compared to the
1993 provision, results primarily from an increase in taxable income caused
by increases in pre-tax income and lower amounts of non-taxable income due to
limited availability of tax exempt investments.

- 59 -

<PAGE>

CAPITAL MANAGEMENT

Regulatory agencies issued risk-based capital guidelines which were
fully effective in 1992. The guidelines were established to more
appropriately consider the credit risk inherent in the assets and off-balance
sheet activities of a financial institution in the assessment of capital
adequacy.

Under the guidelines, total capital has been redefined as core (Tier 1)
capital and supplementary (Tier 2) capital. American National's Tier 1
capital consists primarily of shareholder's equity, while Tier 2 capital
consists of Tier 1 capital plus the reserve for loan losses. The definition
of assets has been modified to include items on and off the balance sheet,
with each item being assigned a "risk-weight" for the determination of the
ratio of capital to risk-adjusted assets.

The guidelines require that total capital (Tier 1 and Tier 2) of
8.0% be held against total risk-adjusted assets, at least half of which
(4.0%) must be Tier 1 capital.

At December 31, 1994, American National's Tier 1 and Total capital
ratios were 20.1% and 21.3%, respectively. At December 31, 1993, these ratios
were 21.0% and 22.3%, respectively. The ratios for both years were well in
excess of the regulatory requirements.

ANB's leverage ratios (shareholder's equity divided by year-end assets)
were 12.13% and 11.74% at December 31, 1994 and 1993, respectively. The
leverage ratio has a regulatory minimum of 3.0%, with most institutions
required to maintain a ratio 100 to 200 basis points above the 3.0% minimum
depending upon risk profiles and other factors.

ANB's 1994 capital formation rate (net income less dividends declared,
divided by average shareholders' investment) was 5.7%. This compares with
7.9% in 1993 and 7.4% in 1992. These ratios evidence ANB's attainment of its
goal of meeting future capital requirements by retaining a portion of
operating earnings while providing steadily increasing cash dividends.

On May 17, 1994, the Board of Directors declared a regular semi-annual
cash dividend of $.25 per share of ANB Common Stock payable on June 24, 1994.
On November 15, 1994, the Board of Directors declared a regular semi-annual
cash dividend of $.25 per share of ANB Common Stock and an extra cash
dividend of $.25 per share of ANB Common Stock, both payable on December 16,
1994. A total of $.75 per share was paid to shareholders in 1994.

Since 1989, regular cash dividends (excluding extra dividends) paid by
ANB have increased at a compounded annual rate of 6.8%. The Board of
Directors reviews ANB's dividend policy regularly and increases dividends
when justified by earnings after considering future capital needs.

LIQUIDITY

Liquidity is the measure of ANB's ability to generate sufficient funds
to meet customer demands for loans and the withdrawal of deposit balances.
ANB, in its normal course of business, maintains cash reserves and has an
adequate flow of funds from maturing loans and investment securities to meet
present liquidity needs.

Expansion of ANB's earning assets is based largely on the growth of
deposits from individuals and small and medium size businesses. These
deposits are more stable in number and size than large denomination
certificates of deposit. In addition, ANB's customers have relatively stable
requirements for funds.

- 60 -

<PAGE>

ANB's major source of funds and liquidity is its deposit base. The mix
of this deposit base has been shifting over the past few years. During 1992
and 1993 this shifting was primarily a result of the reduction of interest
rates. In the later part of 1994 this trend began to reverse itself due to
rising interest rates and at the close of 1994, the most notable changes in
the components of the deposit base during 1994 consisted of a 9.0% decrease
in savings deposits, a 7.0% increase in money market deposits, and a 3.0%
increase in certificates of deposit. Demand deposits (both interest bearing
and non-interest bearing) remained approximately the same.

ANB's consolidated statement of cash flows for the fiscal year ended
December 31, 1993, shows an increase in cash of $5,969,199 during the past
year. This increase was a combination of $4,061,836 provided by operating
activities, $2,510,611 provided by financing activities, and $603,248 used by
investing activities.

It is the policy of American National to schedule maturities of
investments through a laddered structure which provides sources of liquidity
on a periodic basis in each year. The cash provided by operating and
financing activities, in addition to the cash provided by maturing of
investments, more than adequately supplied ANB's liquidity needs at all times
during the year.

Liquidity strategies are implemented and monitored by ANB's Asset
Liability/Investment Committee on a day-to-day basis. The activities of the
committee are reported to and reviewed by the Board of Directors. The
committee uses a simulation model to assess the future liquidity needs of ANB
and manage the investment of funds and net interest income. ANB's ability to
reprice both assets and liabilities, as well as its policy to schedule
maturities of investments, give it flexibility in its control over liquidity
needs.

The following interest rate sensitivity table reflects ANB's assets and
liabilities on December 31, 1994 that will either be repriced in accordance
with market rates or mature within the periods indicated. ANB monitors and
manages its interest rate risk position with the objectives of increasing
earnings and minimizing adverse changes in net interest income. The
objectives are attained through a policy of maintaining a relatively balanced
interest-sensitive ratio. The optimum position for the least risk to ANB is a
ratio of 1.00. Although management attempts to maintain a ratio close to
1.00, in a declining interest rate market it is more desirable to have a
ratio below 1.00, permitting ANB to reprice more liabilities than assets. In
a rising interest rate market, however, it is more advantageous to have a
ratio greater than 1.00, allowing ANB to reprice a greater amount of assets
than liabilities.

Although all of the interest sensitive gaps shown below do not appear as
balanced, it should be recognized that ANB's interest-sensitive position
changes quickly as a result of management decisions and market conditions. No
prepayment assumptions are reflected in the table. The table shows the
sensitivity of ANB's balance sheet at one point in time and is not
necessarily indicative of its position on other dates.

- 61 -

<PAGE>

<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS

At December 31, 1994
-------------------------------------------------------------
Over 3 Over 6
3 Months Months Over 1
Months to 6 to 12 Year to Over 5
or Less Months Months 5 Years Years Total
-------- -------- -------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Interest bearing deposits with
other banks...................... $ 1,586 $ -- $ -- $ -- $ -- $ 1,586
Investment securities.............. 5,006 5,405 20,042 41,666 7,132 79,251
Commercial loans................... 34,665 3,604 8,900 4,758 600 52,527
Mortgage loans..................... 15,697 9,137 20,243 17,340 4,902 67,319
Consumer loans..................... 4,197 3,013 5,676 20,675 72 33,633
Federal funds sold................. 4,650 -- -- -- -- 4,650
-------- -------- -------- ------- ------- --------
Total interest sensitive assets 65,801 21,159 54,861 84,439 12,706 238,966
-------- -------- -------- ------- ------- --------
Interest sensitive liabilities:
NOW and savings deposits........... 85,802 -- -- -- -- 85,802
Money market deposits.............. 21,916 -- -- -- -- 21,916
Time deposits...................... 19,341 14,226 17,694 29,055 -- 80,316
-------- -------- -------- ------- ------- --------
Total interest sensitive
liabilities.................... 127,059 14,226 17,694 29,055 -- 188,034
-------- -------- -------- ------- ------- ---------

Interest sensitivity gap.............. $(61,258) 6,933 37,167 55,384 12,706 $ 50,932
======== -------- -------- ------- ------- ========
Cumulative interest sensitivity gap... $(54,325) $(17,158) $38,226 $50,932
======== ======== ======= =======
</TABLE>

Investment securities maturing within the time frame of "Over 1 year to
5 years" include one debt security in the amount of $2,793 designated as
"available for sale." Of the loans in the above table that either mature or
can be repriced in periods over 1 year, $13,643 have adjustable rates and
$34,704 have fixed rates.

INVESTMENT PORTFOLIO

The following table presents information on the book and market values,
maturities and taxable equivalent yields of investment securities at the end
of the last three years:

Federal Agencies:
Within 1 year... -- -- -- -- 2,000 2,033 6.25
1 or 5 years.... 2,568 2,383 5.21 7,875 7,951 7.12 6,582 6,807 7.75
After 10 years.. 241 237 8.27 331 354 8.27 452 480 8.27
------- ------- ------- ------- ------- -------
Total......... 2,809 2,620 5.47 8,206 8,305 7.13 9,034 9,320 7.44
------- ------- ------- ------- ------- -------
</TABLE>
- 62 -

<PAGE>

<TABLE>
<CAPTION>
1994 1993 1992
------------------------------- ------------------------------- -------------------------------
Taxable Taxable Taxable
Book Market Equivalent Book Market Equivalent Book Market Equivalent
Value Value Yield Value Value Yield Value Value Yield
------- ------- ---------- ------- ------- ---------- ------- ------- ----------
(IN THOUSANDS, EXCEPT YIELDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
States and
Municipal:
Within 1 year... $ 1,395 $ 1,397 9.08% $ 1,416 $ 1,442 10.08% $ 3,010 $ 3,055 11.80%
1 to 5 years.... 2,194 2,213 9.35 3,522 3,692 9.16 4,743 4,958 9.58
6 to 10 years... 6,221 6,029 8.50 4,201 4,468 8.73 2,818 3,018 10.30
After 10 years.. 670 653 8.87 1,137 1,191 8.37 1,548 1,682 10.68
------- ------- ------- ------- ------- -------
Total......... 10,480 10,292 8.78 10,276 10,793 9.03 12,119 12,713 10.44
------- ------- ------- ------- ------- -------
Other Investments:
1 to 5 years.... 10 10 5.50 10 10 5.50 10 10 5.50
------- ------- ------- ------- ------- -------
Total
portfolio..... $79,251 $77,231 5.54% $91,826 $92,799 5.38% $93,560 $95,374 6.55%
======= ======= ======= ======= ======= =======
</TABLE>

In 1994, U.S. Government securities maturing within one to five years
include one asset with a cost of $2,793,321 and a market value of $2,764,680
that is classified as "available for sale." At December 31, 1994, American
National recorded a net unrealized loss of $28,641 related to this security.

LOAN PORTFOLIO

Total loans increased $11,589,447 or 8.1% during 1994. The primary
increases in types of loans were real estate loans secured by one- to
four-family residential properties, real estate loans secured by construction
and land development, and commercial and industrial loans.

The loan portfolio is diversified and consists of 47.9% real estate
loans (28.0% one- to four-family residential, 17.0% nonfarm, nonresidential,
and 2.9% other real estate), 26.3% commercial and industrial loans, 22.9%
consumer loans, 1.4% nonrated industrial development obligations, and 1.5%
for all other loans.

Note 8 of the consolidated financial statements of ANB presents related
party loan activity. The majority of the loan additions and payments result
from floor plan activity by two automobile dealerships owned separately by
two of ANB's directors. See "Index to Financial Statements."

ANB does not participate in highly leveraged lending transactions, as
defined by the OCC and there are no loans of this nature recorded in the loan
portfolio. ANB has no foreign loans in its portfolio.

REAL ESTATE LOANS

Commercial real estate loans have received considerable attention in
recent years by American National's regulators and the news media. The
concerns have been in real estate values in certain areas of the country and
the quality of banks' commercial real estate portfolios. It is difficult to
measure commercial real estate values within ANB's trade area due to the
light sales activity. Commercial real estate values did not escalate to
levels seen in other areas of the state and country during the ten years
prior to the last recession and management of ANB has not detected a
significant change in values within ANB's trade area during 1994 or 1993.
Management of ANB has confined its real estate lending to its trade area and
has always taken a conservative approach in its lending practice to maintain
equity in real estate loans. American National has not experienced any
commercial real estate charge-offs in recent years.

- 63 -

<PAGE>

ANB is conforming to the real estate appraisal guidelines set forth by
the OCC. The total of outstanding real estate loans at December 31, 1994 was
$74,476,000. This consisted of $43,458,000 or 58% in loans secured by one- to
four-family residential properties, $26,412,000 or 36% in loans secured by
non-farm, non-residential properties, $3,684,000 or 5.0% in construction and
land development, $872,000 or 1.0% in loans secured by farmland, and $50,000
of other real estate loans.

Nonperforming real estate loans at December 31, 1994 and 1993 were
$22,000 and $138,000, respectively. There were no real estate loans on
accrual status and past due 90 days or more at December 31, 1994 or 1993.

ASSET QUALITY

ANB identifies specific credit exposures through its periodic analysis
of the loan portfolio and monitors general exposures from economic trends,
market values, and other external factors. ANB maintains a reserve for loan
losses, which is available to absorb losses inherent in the loan portfolio.
The reserve is increased by the provision for losses and by recoveries from
losses. Charge-offs decrease the reserve. The adequacy of the reserve for
loan losses is determined on a quarterly basis. Various factors as defined
under "--Provision and Reserve for Loan Losses" are considered in determining
the adequacy of the reserve.

Nonperforming assets include loans on which interest is no longer
accrued, loans classified as troubled debt restructurings, and foreclosed
properties. There were no foreclosed properties held at the close of 1994 and
1992. Foreclosed properties held at the close of 1993 were $17,500. Loans on
accrual status and past due 90 days or more have increased during 1994 by
$5,000 from $108,000 in 1993 to $113,000 in 1994. The increase occurred in
installment loans and revolving credit loans. Total nonperforming loans and
past due loans 90 days or more on an accrual status is considered very low by
industry standards.

The following table presents the year-end balances of loans, classified
by type:

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction and land development...... $ 3,684 $ 1,925 $ 2,416 $ 3,293 $ 3,244
Secured by farmland.................... 872 716 745 1,189 1,108
Secured by 1-4 family residential
properties........................... 43,458 42,194 39,985 37,098 35,102
Secured by multi-family (5 or more)
residential properties............... 50 63 76 87 97
Secured by nonfarm, nonresidential
properties........................... 26,412 27,946 23,094 22,210 20,300
Loans to commercial banks................. -- -- -- -- 3,000
Loans for purchasing or carrying
securities............................. -- -- 40 42 43
Loans to farmers.......................... 2,173 1,768 2,066 2,458 2,325
Commercial and industrial loans........... 40,865 31,337 32,629 30,329 31,788
Loans to individuals for personal
expenditures........................... 35,512 35,358 28,928 26,168 29,898
</TABLE>

- 64 -

<PAGE>

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans for nonrated industrial
development obligations.............. $ 2,155 $ 2,528 $ 3,666 $ 4,462 $ 4,717
All other loans........................... 255 11 121 87 2
-------- -------- -------- -------- ---------

Total loans.......................... $155,436 $143,846 $133,766 $127,423 $131,624
======== ======== ======== ======== ========
</TABLE>

There were no foreign loans outstanding during any of the above periods.

An analysis of the loan maturity and interest rates sensitivity is as
follows:

<TABLE>
<CAPTION>
Remaining Maturities or First Repricing Opportunities
-----------------------------------------------------
Over 1 Over
1 Year Year to Five
or Less 5 Years Years Total Percent
-------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Commercial, industrial, and
agricultural.................... $ 38,269 $ 4,624 $ 1,017 $ 43,910 28%
Real estate construction........... 3,684 -- -- 3,684 2
Real estate mortgage............... 45,078 17,340 9,657 72,075 47
Consumer........................... 13,606 21,858 48 35,512 23
Other.............................. 255 -- -- 255 0
-------- ------- ------- -------- ----
$100,892 $43,822 $10,722 $155,436 100%
======== ======= ======= ======== ====
Rate Sensitivity:
Pre-determined rate................ $ 24,772 $29,942 $ 5,939 $ 60,653 39%
Floating or adjustable rate........ 81,055 13,653 75 94,783 61
-------- ------- ------- -------- ----
$105,827 $43,595 $ 6,014 $155,436 100%
======== ======= ======= ======== ====

Percent............................ 68% 28% 4% 100%
======== ======= ======= ========
</TABLE>

Certain short term loans and demand loans within the commercial,
industrial, and agricultural classifications are anticipated to be curtailed
prior to any renewal. Normally these loans are expected to be paid within one
year and all such loans have been classified within the one year category.
Any rollovers allowed depend upon American National's loan policy after a
reappraisal of the borrower's creditworthiness at the date of maturity.

An analysis of the nonperforming loans and loans past due 90 days or
more is as follows:

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans:
Real estate...................... $ 22 $138 $129 $165 $227
Commercial....................... 40 73 185 364 156
---- ---- ---- ---- ----
Total nonaccruing loans........ 62 211 314 529 383
---- ---- ---- ---- ----
</TABLE>

- 65 -

<PAGE>

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Restructured loans:
Real estate...................... $ -- $ -- $ -- $ -- $ 89
Commercial....................... 109 256 332 152 322
---- ---- ---- ---- ----
Total restructured loans....... 109 256 332 152 411
---- ---- ---- ---- ----
Total nonperforming loans.... $171 $467 $646 $681 $794
==== ==== ==== ==== ====
Loans on accrual status past due
90 days or more:
Real Estate...................... $ -- $ -- $ 28 $ 85 $106
Installment...................... 112 108 61 235 123
Revolving credit................. 1 -- -- 2 13
Commercial....................... -- -- -- -- --
---- ---- ---- ---- ----
Total past due loans........... $113 $108 $ 89 $322 $242
==== ==== ==== ==== ====
Asset Quality Ratios:
Reserve for loan losses
to year-end net loans.......... 1.53% 1.54% 1.61% 1.62% 1.49%
Nonperforming loans to
year-end net loans............. 0.11 0.34 0.50 0.56 0.63
Reserve for loan losses
to nonperforming loans......... 13.76X 4.61X 3.24X 2.94X 2.39X
</TABLE>

For the year 1994, the gross amount of interest income that would have
been recorded on nonaccrual loans and restructured loans at December 31,
1994, if all such loans had been accruing interest at the original
contractual rate, was $20,000. No interest payments were recorded in 1994 as
interest income for all such nonperforming loans.

At December 31, 1994, American National had no loan concentrations
(loans to borrowers engaged in similar activities) which exceeded 10% of
total loans, other than as shown above.

The total of nonperforming loans and loans past due 90 days or more at
December 31, 1994 was $284,000, a decrease of $291,000 from the $575,000
shown at December 31, 1993. Total nonperforming loans and loans past due 90
days or more represent 0.2% of total loans at December 31, 1994 and 0.4% at
December 31, 1993. The sizable decline in nonperforming loans and loans past
due 90 days or more from 1993 to the close of 1994 was due primarily to two
large loans (one real estate and one commercial) that were returned to a
current payment status in 1994 and in compliance with the guidelines of the
OCC and American National's loan policy.

Management has in place an aggressive program to control loan
delinquencies and the level of past due loans and nonperforming loans is
considered to be within an acceptable range.

- 66 -

<PAGE>

SUMMARY OF LOAN LOSS EXPERIENCE. An analysis of the reserve for loan
losses is set forth in the following table:

<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $2,155 $2,094 $2,001 $1,895 $1,734
Charge-offs:
Commercial loans................. 5 80 24 7 75
Real estate loans................ 14 11 23 15 --
Installment loans................ 112 112 119 145 127
------ ------ ------ ------ ------
131 203 166 167 202
------ ------ ------ ------ ------
Recoveries:
Commercial loans................. -- -- -- 24 7
Real estate loans................ 4 -- -- -- --
Installment loans................ 53 50 29 35 48
------ ------ ------ ------ ------
57 50 29 59 55
------ ------ ------ ------ ------
Net charge-offs..................... 74 153 137 108 147
Provision for loan losses........... 272 214 230 214 308
------ ------ ------ ------ ------
Balance at end of period............ $2,353 $2,155 $2,094 $2,001 $1,895
====== ====== ====== ====== ======
Percent of net charge-offs to average
net loans outstanding during the
period........................... 0.05% 0.12% 0.11% 0.09% 0.12%
====== ====== ====== ====== ======
</TABLE>

The reserve for loan losses is based upon the quality of loans as
determined by management taking into consideration historical loan loss
experience, diversification of the loan portfolio, amount of secured and
unsecured loans, banking industry standards and averages, and general economic
conditions. At the time that collection of the outstanding balance of specific
loans together with related interest is considered doubtful, such loans are
placed in a nonaccruing status.

DEPOSITS. The following table presents the average amount of deposits
and the average rate paid on those deposits for the past three years:

<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------ -------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
-------- ------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits -
non-interest bearing... $ 25,236 --% $ 23,375 --% $ 20,653 --%
Demand deposits -
interest-bearing....... 30,918 2.43 30,141 2.64 27,841 3.45
Money market.............. 19,735 2.59 21,755 2.72 21,272 3.45
Savings................... 56,870 2.77 58,538 3.20 42,769 3.81
Time...................... 80,886 4.32 79,632 4.72 93,697 5.80
-------- -------- --------
$213,645 3.36% $213,441 3.69% $206,232 4.72%
======== ======== ========
</TABLE>

- 67 -

<PAGE>

CERTIFICATES OF DEPOSIT. Certificates of deposit at the end of 1994 in
amounts of $100,000 or more were classified by maturity as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 months or less................. $ 2,912
Over 3 through 6 months.......... 2,409
Over 6 through 12 months......... 3,476
Over 12 months................... 5,012
-------
$13,809
=======
</TABLE>

RETURN ON SHAREHOLDERS' INVESTMENT AND ASSETS. The following table
presents certain rates of return and percentages for the past three years:

<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Return on average assets........... 1.43% 1.36% 1.48%
Return on average
shareholders' investment........ 11.64 11.96 13.50
Dividend payout.................... 50.95 34.15 45.33

Average shareholders'
investment to average assets.... 12.29 11.37 10.97
</TABLE>

IMPACT OF INFLATION AND CHANGING PRICES

The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most industrial
companies that have significant investments in fixed assets. Due to this
fact, the effects of inflation on ANB's balance sheet are minimal, meaning
that there are no substantial increases or decreases in net purchasing power
over time. The most significant effect of inflation is on other expenses
which tend to rise during periods of general inflation.

Management feels that the most significant impact on financial results
is changes in interest rates and ANB's ability to react to those changes. As
discussed previously, management is attempting to maintain an essentially
balanced position between interest sensitive assets and liabilities in order
to protect against wide interest rate fluctuations.

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994

EARNINGS AND CAPITAL

ANB's net income for the third quarter of 1995 was $1,123,000, an
increase of 25% from the $898,000 earned in the third quarter of 1994. For
the nine-month period ended September 30, 1995, net income was $3,171,000, a
23% increase from the $2,574,000 reported in the same period of 1994.

Net income per share of ANB Common Stock was $0.47 for the third
quarter of 1995, compared to $0.37 recorded during the same period of 1994.
For the first nine months of 1995 and

- 68 -

<PAGE>

1994, net income per share of ANB Common Stock was $1.32 and $1.07,
respectively. Per share earnings for both periods have been computed on
2,400,000 weighted average shares of ANB Common Stock outstanding.

On an annualized basis, return on average total assets was 1.65% for
the third quarter of 1995 and 1.69% for the first nine months of 1995
compared to 1.47% for the third quarter of 1994 and 1.41% for the first nine
months of 1994.

Return on average common shareholders' equity was 13.69% for the third
quarter of 1995 and 13.19% for the first nine months of 1995 compared to
11.75% for the same quarter of 1994 and 11.44% for the first nine months of
1994.

TRENDS AND FUTURE EVENTS

ANB acquired the branch office of Crestar Bank located in Gretna, Virginia
on August 24, 1995. In addition to the branch facilities at Gretna, ANB
acquired $2,150,000 in loans and assumed deposits of $36,295,000. Without
regard to the purchased loans of the Gretna branch office, loans increased
$3,227,000 during the third quarter of 1995. This was an increase of 2.0%
during the quarter. During the first nine months of 1995, loans increased
(without the purchased Gretna branch loans) $18,084,000 or 12%. During the
third quarter of 1995, deposits (without regard to the assumed deposits of
the Gretna branch office) increased by $12,340,000 or 6.0%. Without regard to
the Gretna branch deposits, deposits of American National increased by
$7,780,000 or 4.0% during the first nine months of 1995.

The increase in loans during the nine-month period is the result of a
continued strong loan demand which management views as an indication of a
continuing strong local economy.

Funds received by American National from the assumption of deposits in
the Gretna transaction were used primarily to purchase investment securities.
Investment securities increased $28,506,000 during the first nine months of
1995.

During the month of May, 1995, the reserves of the Bank Insurance Fund
(the "BIF") held by the FDIC reached their legally-mandated level. This
allowed the FDIC to reduce the premiums charged to banks effective June 1,
1995. American National continues to meet the highest safety classification
set by the FDIC and its annual premium rate was reduced from $0.23 per $100
of deposits to $0.04 per $100 of deposits. More recently, on November 14,
1995, the FDIC announced that, beginning in 1996, it would further reduce the
deposit insurance premiums for the 92% of all BIF members that are in the
highest capital and supervisory categories to $2,000 per year, regardless of
deposit size. Based on deposits held at September 30, 1995, the decrease in
FDIC premiums will approximate $598,000 per year in future periods or until
such time the rate may be adjusted.

NET INTEREST INCOME

Net interest income is the excess of interest income over interest
expense. During the third quarter of 1995, net interest income increased by
$316,000 or 12.6% over the same quarter a year ago. For the first nine-month
period of 1995, net interest income increased $1,098,000 or 15.5% over the
same period of 1994. The increase for both periods was attributable to an
increase in the volume of both loans and investment securities. During the
second and third calendar quarters of 1995, market interest rates have
remained relatively steady showing only minor fluctuations.

- 69 -

<PAGE>

Taxable equivalent net yield on interest earning assets was 4.45% in
the third quarter of 1995, compared to 4.37% for the third quarter of 1994,
and 4.57% for the first nine months of 1995 compared to 4.13% for the first
nine months of 1994.

During the next 12 months, repricing opportunities in liabilities will
exceed repricing opportunities in assets by approximately $35,000,000 or 11%
of assets. This makes ANB slightly liability sensitive. At June 30, 1995, ANB
was asset-sensitive by 1.0% of assets. This change during the third quarter
is the result of assuming $36,295,000 in deposits and acquiring only
$2,150,000 in loans from the acquisition of the branch office of Crestar Bank
located in Gretna, Virginia on August 24, 1995. The funds received from
Crestar were primarily used to purchase securities with yields greater than
one year. Any increase in market interest rates during the next 12 months may
tend to decrease ANB's taxable equivalent net yield on interest earnings
assets. It should be recognized, however, that ANB's interest-sensitive
position changes quickly as a result of management decisions and market
conditions. In any event, this interest-sensitive position is not expected to
have a substantial effect upon the earnings of ANB during the next twelve
months.

ASSET QUALITY

Nonperforming assets include loans on which interest is no longer
accrued, loans classified as trouble debt restructurings, and foreclosed
properties. There were no foreclosed properties held during the reporting
period. Nonperforming assets were $83,000 at September 30, 1995 and $171,000
at December 31, 1994, a decrease of $88,000 during the first nine months of
1995.

For the nine months ended September 30, 1995, the gross amount of
interest income that would have been recorded on nonaccrual loans and
restructured loans at September 30, 1995, if all such loans had been accruing
interest at the original contractual rate, was $10,000. No interest payments
were recorded during the nine-month period of 1995 as interest income for all
such nonperforming loans.

Nonperforming assets as a percentage of net loans were 0.05% at
September 30, 1995 and .11% at December 31, 1994. Loans past due 90 days or
more and still accruing interest totaled $159,000 at September 30, 1995 and
$113,000 at December 31, 1994. This was an increase of $46,000 during the
first nine months of 1995.

Management does not anticipate any significant increase in nonperforming
assets in the foreseeable future.

PROVISION AND RESERVE FOR LOAN LOSSES

The provision for loan losses for the third quarter of 1995 was
$160,000 compared to $90,000 for the same quarter of 1994. The provision for
loan losses was $374,000 for the nine-month period ended September 30, 1995
and losses for both periods were primarily the result of increases in loans.

The reserve for loan losses was $2,600,000 at September 30, 1995 and
$2,353,000 at December 31, 1994. As a percentage of total loans (less
unearned income), the reserve for loan losses was 1.50% at September 30, 1995
and 1.53% at December 31, 1994. In management's opinion, the current reserve
for loan losses is adequate.

- 70 -

<PAGE>

NON-INTEREST INCOME

Non-interest income for the third quarter of 1995 was $525,000, an
increase of 24% from the $422,000 reported in the third quarter of 1994. The
increase in non-interest income during the quarter was primarily attributable
to a 28% increase in trust department income as a result of new business
booked and increased activity of existing accounts and a 28% increase in
service charges on deposit accounts from increased activity and an increased
volume of deposits from the acquisition of the Gretna branch office. It also
included a 31% decrease in fees and insurance premiums primarily due to a
decline in loans subject to such fees and premiums and a 10% increase in
other non-interest income.

For the first nine months of 1995, non-interest income was $1,492,000,
an increase of 12% from the $1,328,000 reported for the same period of 1994.
This included an increase of 10% in trust department income resulting from
new business booked and increased activity of existing accounts and an
increase of 33% in service charges on deposit accounts resulting from both
increased deposit account activity and new accounts. Fees and insurance
premiums for the nine months period decreased 18% due to a reduced volume of
loans subject to fees. Other non-interest income increased $16,000 or 20%.

NON-INTEREST EXPENSE

Non-interest expense for the third quarter of 1995 was $1,547,000, up
3.0% from the $1,496,000 reported in the third quarter of 1994. The increase
in non-interest expense for the quarterly period over 1994 included an 11%
increase in salaries, due in part to the additional employees of the Gretna
branch office, a 12% increase in pension and other employee benefits, also
due in part to the additional employees of the Gretna branch office, and a
5.0% decrease in occupancy and equipment expense. Also included was a 113%
decrease in FDIC premiums resulting from a refund in the amount of $131,000
from the FDIC which represents a decrease in FDIC premiums from June 1, 1995
through September 30, 1995. Also included was a 45% increase in postage and
printing due to increased postage rates and additional printing related to
the acquisition of the Gretna branch office and a 30% increase in other
expense primarily related to the acquisition of the Gretna branch office and
the use of consultants for training.

For the first nine months of 1995, non-interest expense was $4,696,000,
up 5.0% from the $4,453,000 reported for the same period of 1994. The
increase in non-interest expense for the first nine-month period of 1995 over
the same period of 1994 included a 9.0% increase in salaries, due in part to
additional personnel at the Gretna branch office, a 10% increase in pension
and other employee benefits due in part to the additional personnel at the
Gretna branch office, a 5.0% decrease in occupancy and equipment expense, a
38% decrease in FDIC premiums as previously mentioned, a 2.0% decrease in
postage and printing, and a 24% increase in other expense due primarily to
expenses related to the acquisition of the Gretna branch office and
consultant fees for personnel training.

INCOME TAX PROVISION

The income tax provision for the third quarter of 1995 was $513,000, an
increase of $73,000 from the $440,000 reported for the same period a year
earlier. The income tax provision for the nine-month period in 1995 was
$1,431,000, an increase of $237,000 from the $1,194,000 reported for the same
period of 1994. ANB's overall effective tax rates were 31.1% and 31.7% for
the nine-month period ended September 30, 1995 and 1994, respectively.
Changes in the income tax provision were primarily attributable to the
corresponding changes in taxable income.

- 71 -

<PAGE>

CAPITAL MANAGEMENT

At September 30, 1995, ANB had a ratio of 18.9% for Tier 1 and a
combined total ratio for Tier 1 and Tier 2 capital of 20.2%. At December 31,
1994 these ratios were 21.0% for Tier 1 and 22.3% for the combined total of
Tier 1 and Tier 2.

ANB's leverage ratios (shareholders' equity divided by assets at the
close of the reporting period) were 11.1% and 12.1% at September 30, 1995 and
December 31, 1994, respectively.

Cash dividends are normally declared during the second and fourth
calendar quarters and consequently no dividend was declared during the third
quarter ending September 30, 1995.

LIQUIDITY

ANB had a liquidity position with a ratio of 33% of net liquid assets
to net liabilities at September 30, 1995. At December 31, 1994, this ratio
was 34%.

Management constantly monitors and plans ANB's liquidity position for
future periods. Liquidity is provided from cash and due from banks, federal
funds sold, interest-bearing deposits in other banks, repayments from loans,
seasonal increases in deposits, lines of credit from two corespondent banks
and two federal agency banks and a planned structured continuous maturity of
investments. Management believes that these factors provide sufficient and
timely liquidity for the foreseeable future.

- 72 -

<PAGE>

BUSINESS OF ANB

GENERAL

ANB is a registered bank holding company under the BHC Act, which
serves as a holding company for American National, a national banking
association. Through American National, ANB provides a broad array of
financial services through seven offices in Danville and Gretna, Virginia. As
of September 30, 1995, ANB had total assets of approximately $303 million,
total deposits of approximately $260 million, total loans of approximately
$175 million, and total shareholders' equity of approximately $34 million.

ANB was organized under the laws of the Commonwealth of Virginia in
1984, and effective September 1, 1984, acquired all of the outstanding
capital stock of American National. American National was chartered in 1909
under the laws of the United States.

EMPLOYEES

At September 30, 1995, a total of 127 persons were employed by ANB, of
whom 12 were part-time employees. ANB considers relations with its employees
to be good.

COMPETITION

In its market area, ANB is subject to intense competition from a number
of local, regional, and superregional banking organizations, along with other
financial institutions and companies that offer financial services, such as
savings and loan associations, credit unions, industrial loan associations,
securities firms, insurance companies, small loan companies, finance
companies, mortgage companies, and other financial service enterprises.
Competition among financial institutions is based upon interest rates offered
on deposit accounts, interest rates charged on loans, and other credit and
service charges, the quality of services rendered, the convenience of banking
facilities, and, in the case of loans to large issuers and suppliers of U.S.
government securities, private debt obligations and other investment
alternatives for depositors. Many of ANB's non-bank competitors are not
subject to the same extensive federal regulations that govern federally
insured banks and state regulations governing state chartered banks. As a
result, such non-bank competitors may have certain advantages over ANB in
providing certain services.

Many of the financial organizations in competition with ANB have much
greater financial resources than ANB and are able to offer similar services
at varying costs with greater loan capacities.

PROPERTIES

The principal executive office of ANB as well as the principal
executive and banking office of American National is located at 628 Main
Street, Danville, Virginia. Five full service branches are located within the
City of Danville at 1013 South Main Street, 1081 Riverside Drive, 239 Nor-Dan
Drive, 1407 South Boston Road and 2016 West Main Street. One full service
branch is located at 109 Main Street, Gretna, Virginia. American National
owns and operates six automated teller machines (ATM). Four ATMs are located
on branch office properties. One ATM is located at Piedmont Mall, Piedmont
Drive in Danville and one ATM is located at the Express Mart, in
Tightsqueeze, Virginia. Both the land and building at 2016 West Main Street
are leased and the space occupied at Piedmont Mall and the space occupied at
the Express Mart are leased. American National also owns a parking lot for
its employees fronting on Ridge Street in close proximity to the

- 73 -

<PAGE>

main office. American National recently purchased approximately 2.5 acres of
land on Piedmont Drive opposite Piedmont Mall for future expansion of its
retail banking operations. There are no mortgages or liens against any
property of American National or ANB.

LEGAL PROCEEDINGS

ANB is a party to various legal proceedings in the ordinary course of
its business. Based on information presently available, and after
consultation with legal counsel, management believes that the ultimate
outcome in such proceedings, in the aggregate, will not have any material
adverse effect on the financial condition of ANB. The most siginificant of
these legal proceedings is described below.

On July 28, 1995, Charles A. Womack, Jr., Register Acquisition Corp.
and Andrew C. Boor, Trustee of an Employee Stock Ownership Plan to be Formed,
served American National with a Bill of Complaint. The suit was filed in the
Circuit Court of Pittsylvania County. The suit names as defendants American
National in its capacity as Executor under the Will of E. Stuart James Grant,
as Trustee of the E. Stuart James Grant Charitable Trust and American
National in its own capacity. The suit seeks to compel American National to
sell to plaintiffs the stock of the Register Publishing Company, the primary
asset of the Grant Estate. In the alternative, plaintiffs seek damages of
$10,000,000. Management believes the complaint is without merit and intends
to defend vigorously the allegations in this Bill of Complaint. A motion was
filed by American National to dismiss the suit and a hearing was held before
the court on October 10, 1995. By letter opinion dated November 17, 1995, the
court ruled that it would dismiss the suit.

The U.S. District Court for the Western District of Virginia dismissed
on July 14, 1995 (and reaffirmed its dismissal on November 1, 1995), another
suit seeking to compel the sale of the Register Publishing Company to
Trustees of the Register Publishing Company Employee Stock Ownership Plan
(ESOP). American National was named as a defendant in its capacity as
Executor and Trustee. On November 30, 1995, the Trustees of the ESOP noted an
appeal of the suit to the U.S. Court of Appeals for the Fourth Circuit.

In the opinion of management, the outcome of the above legal
proceedings will not have a material adverse effect on the financial position
of ANB.

MANAGEMENT

DIRECTORS. The following table sets forth, as of September 30, 1995,
the names of the directors and executive officers of ANB, their ages, a brief
description of their recent business experience, including present
occupations and employment, certain directorships held by each, the year in
which each became a director, and the year in which their terms as directors
of ANB expire. The table also sets forth the amount of ANB Common Stock and
the percentage thereof beneficially owned by each director and executive
officer and by all directors and executive officers as a group as of
September 30, 1995.

- 74 -

<PAGE>

AMOUNT OF ANB COMMON STOCK
NAME, PRINCIPAL DIRECTOR OWNED BENEFICIALLY AND PERCENT OF
OCCUPATION, AND (AGE) SINCE NATURE OF OWNERSHIP CLASS
- ----------------------------------------- -------- ----------------------------------- ----------
<S> <C> <C> <C>
DIRECTORS OF CLASS III TO CONTINUE IN OFFICE UNTIL 1996

Richard G. Barkhouser (64) 1980 82,412 - Direct (1) 3.4338%
President, Barkhouser Motors, Inc., 7,260 - Family Relationship (4) .3025
Danville, VA, automobile dealership

B. Carrington Bidgood (70) 1975 11,000 - Direct (1) .4583%
Retired Senior Vice President, 1,200 - Family Relationship (4) .0500
Dibrell Brothers, Inc., Danville,
VA, leaf tobacco

Lester A. Hudson, Jr. (56) 1984 3,492 - Direct .1455
Chairman, H&E Associates, Greenville,
SC, investments, since June, 1995;
prior thereto, Vice Chairman, Wunda
Weve Carpets, Inc., Greenville, SC,
carpet manufacturer, since June, 1993;
prior thereto, Chairman, Wunda Weve
Carpets, Inc., since Nov., 1991; prior
thereto, Chairman, President, and
Chief Executive Officer of Wunda Weve
Carpets, Inc.

Charles H. Majors (49) 1981 3,300 - Direct (1) .1375
President and Chief Executive 540 - Family Relationships (4) .0225
Officer of ANB and American
National since January 1, 1994; prior
thereto, President of ANB and American
National since January 1, 1993; prior
thereto, Clement & Wheatley,
Attorneys-at-Law, Danville, VA

DIRECTORS OF CLASS I TO CONTINUE IN OFFICE UNTIL 1997

Ben J. Davenport, Jr. (53) 1992 2,768 - Direct (1)(2) .1153
Chairman, First Piedmont Corp.,
Chatham, VA, waste management

James A. Motley (67) 1975 11,238 - Direct (1)(2) .4683
Retired Chairman and Chief 2,900 - Family Relationship (4) .1208
Executive Officer of ANB and
American National since January 1,
1994; prior thereto, Chairman and
Chief Executive Officer of ANB and
American National since January 1,
1993; prior thereto, President of ANB
and American National

</TABLE>

- 75 -

<PAGE>

<TABLE>
<CAPTION>
AMOUNT OF ANB COMMON STOCK
NAME, PRINCIPAL DIRECTOR OWNED BENEFICIALLY AND PERCENT OF
OCCUPATION, AND (AGE) SINCE NATURE OF OWNERSHIP CLASS
- ----------------------------------------- -------- ----------------------------------- ----------
<S> <C> <C> <C>
Landon R. Wyatt, Jr. (69) 1965 4,540 - Direct (1) .1892
President, Wyatt Buick Sales Co., 26,418 - Family Relationship (4) 1.1008
Danville, VA, automobile dealership

DIRECTORS OF CLASS II TO CONTINUE IN OFFICE UNTIL 1998

Fred A. Blair (49) 1992 1,482 - Direct (1) .0622%
President, Blair Construction, 225 - Family Relationship (3) .0094
Inc., Gretna, VA, commercial
building contractor

E. Budge Kent, Jr. (56) 1979 6,010 - Direct (1) .2504
Senior Vice President and Assistant 800 - Family Relationship (4) .0333
Secretary of ANB and Senior Vice
President and Trust Officer of
American National

Fred B. Leggett, Jr. (58) 1994 8,304 - Direct (1)(2) .3460
Chairman and Chief Executive
Officer, Leggett Stores, Danville,
VA, retail department stores, since
December, 1994; prior thereto,
Executive Vice President, Leggett
Stores

Claude B. Owen, Jr. (50) 1984 5,716 - Direct (1) .2382
Chairman, Chief Executive Officer, 2,100 - Family Relationships (4) .0875
DIMON Incorporated, Danville, VA, leaf
tobacco, since May, 1995; prior
thereto, Chairman, President & Chief
Executive Officer, Dibrell Brothers,
Inc., Danville, VA, leaf tobacco,
since July, 1993; prior thereto,
Chairman & Chief Executive Officer,
Dibrell Brothers, Inc.

All executive officers and directors, 161,300 - Direct (1)(2) 6.7208
including nominees and directors named 43,052 - Family Relationship (3)(4) 1.7938
above (14 in group)

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

(1) Individual exercises sole voting and investment power over shares held.

(2) Shared voting and investment power.

(3) Sole voting and investment power as custodian for minor children.

(4) Can exercise no voting or investment power.

There exist no family relationships between any director.

- 76 -

<PAGE>

Mr. Owen is a director of DIMON Incorporated and Richfood Holdings Inc.
Mr. Hudson is a director of American Electric Power Company, Inc. Mr. Motley and
Mr. Davenport are directors of Intertape Polymer Group Inc. The stock of these
corporations is registered with the SEC.

EXECUTIVE OFFICERS. Mr. Charles H. Majors and Mr. E. Budge Kent, Jr.,
together with the three senior vice presidents listed below, are the executive
officers of ANB and American National.

<TABLE>
<CAPTION>
Name Age Principal Occupations and Business Experience
-------------------- --- ---------------------------------------------------
<S> <C> <C>
David Hyler 62 Senior Vice President and Secretary and Treasurer
of ANB and Senior Vice President and Controller of
American National; Officer of American National
since 1969

Gilmer D. Jefferson 58 Senior Vice President and Assistant Treasurer of
ANB and Senior Vice President and Cashier of
American National; Officer of American National
since 1963

Carl T. Yeatts 56 Senior Vice President of ANB and Senior Vice
President and Senior Loan Officer of American
National; Officer of American National since 1964
</TABLE>

COMPARATIVE COMPANY PERFORMANCE

The following graph compares ANB's cumulative total return to its
shareholders with the returns of two indexes for the five-year period ended
December 31, 1994. The two indexes are the S&P 500 Total Return published by
Standard & Poor's Corporation and the Independent Community Bank Index,
consisting of 21 independent banks located in the states of Florida, Georgia,
North Carolina, South Carolina, Tennessee, and Virginia. The Independent
Community Bank Index is published by the Carson Medlin Company.

[Graphic Omitted]

1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
American National Bankshares Inc........ 100 96 111 178 201 217
Independent Bank Index - Weighted....... 100 89 99 136 160 193
S&P 500 Index........................... 100 97 127 136 150 152
</TABLE>

EXECUTIVE COMPENSATION

The Salary Committee of the Board of Directors (the "Committee"), which
is composed of four independent outside directors, Richard G. Barkhouser, B.
Carrington Bidgood, Lester A. Hudson, Jr., and Fred B. Leggett is responsible
for making recommendations to the Board of Directors concerning compensation.
The Salary Committee considered a variety of factors and criteria in arriving
at its recommendation for compensation of executive officers.

In making its recommendations regarding compensation, the Committee
attempts to align the interests of shareholders with those of American
National's executive officers. The Committee believes that increases in
dividends and net equity improve shareholder market value and,

- 77 -

<PAGE>

accordingly, compensation should be structured to enhance the long-term
profitability of American National.

Officer compensation generally consists of salary and participation in
American National's profit sharing plan. A description of the profit sharing
plan is included below in Note (1) under Executive Compensation. Certain key
executive officers are eligible to participate in the Executive Compensation
Continuation Plan described below under "Deferred Compensation Plan." All
compensation is paid by American National and no officer receives any
additional compensation from ANB. There are no stock options offered to
employees.

In considering officer compensation (other than the Chief Executive
Officer), the Committee receives and considers recommendations from the Chief
Executive Officer. The Chief Executive Officer's compensation is determined
by the Committee after consideration of American National's performance and
the resulting benefit to the shareholders.

<TABLE>
<CAPTION>
Restricted Stock Long-Term All Other
Name and Principal Bonus Other Annual Stock Options/ Incentive Compensation
Position Year Salary (1) Compensation Awards SARs Payouts (2)
- --------------------------- ---- -------- ------- ------------ ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles H. Majors 1994 $108,140 $23,095 N/A N/A N/A N/A $41,137
President and Chief 1993 100,641 19,426 N/A N/A N/A N/A 11,907
Executive Officer
(effective January 1, 1994)
</TABLE>

- -----------------------
(1) Includes payments in cash of profit-sharing (bonus) participations. The
profit-sharing (bonus) plan provides that an amount equal to 12.5% of
American National's net income (after taxes, but before deducting profit
sharing and its related tax effect) be paid to officers and employees who
are in American National's employ on December 31, 1994. The total expense
for the plan for the year 1994 amounted to $486,518.

(2) All Other Compensation includes amounts set aside or accrued by American
National for the Retirement Plan and Executive Compensation Continuation
Plan, each of which is described below.

American National provided hospitalization, disability, and life
insurance benefits for all officers and employees on a contributory basis and
the aggregate of personal benefits paid for by American National for all such
individuals did not exceed $5,000 each in 1994. Each non-officer director
received a monthly retainer fee of $500 and attendance fees of $100 for each
regular Board meeting and $400 for each committee meeting attended. The
aggregate total amount paid for the year 1994 was $100,200. Non-officer
directors are excluded from American National's retirement plan and,
therefore, do not qualify for pension benefits.

RETIREMENT PLAN. American National's retirement plan is a
non-contributory defined benefit pension plan which covers substantially all
employees of American National who are 21 years of age or older and who have
had at least one year of service. Advanced funding is accomplished by using
the actuarial cost method known as the collective aggregate cost method.

As of December 31, 1994, the normal retirement benefit formula was 1.0%
per year of service times compensation plus 0.65% per year of service times
compensation in excess of the integration level (not to exceed $9,000).
Effective January 1, 1995, the plan was amended to provide a normal
retirement benefit formula of 1.3% per year of service times compensation
plus 0.65% per year of service times compensation in excess of social
security covered compensation. At normal retirement, the monthly benefit is
calculated based on any consecutive five-year period

- 78 -

<PAGE>

which will produce the highest average rate of basic monthly compensation.
Bonuses are not included in the definition of compensation. Cash benefits
under the plan generally commence on retirement at age 65, death, or
termination of employment. Partial vesting of the retirement benefits under
the plan occurs after three years and full vesting occurs after seven years
of service with American National.

The estimated annual benefits at retirement for the five executive
officers as of December 31, 1994 were as follows:

<TABLE>
<CAPTION>
Estimated Annual
Name of Individual Benefit at Retirement
-------------------------------------------------- ---------------------
<S> <C>
Charles H. Majors, $ 28,836
President and Chief Executive Officer

E. Budge Kent, Jr. 32,424
Senior Vice President and Assistant Secretary

Carl T. Yeatts, 30,000
Senior Vice President

Gilmer D. Jefferson, 29,928
Senior Vice President and Assistant Treasurer

David Hyler, 25,956
Senior Vice President and Secretary and Treasurer
--------
$147,144
========
</TABLE>

401(K) PROFIT SHARING PLAN. Effective July 1, 1995, American National
adopted a 401(K) Profit Sharing Plan which covers substantially all employees
who are 21 years of age or older and who have had at least one year of
service. An employee may defer a portion of his or her entire compensation
(salary and bonus), not to exceed the lesser of 15% of compensation or
$9,240. American National will make a matching contribution in the amount of
50% of the first 6.0% of compensation so deferred.

DEFERRED COMPENSATION PLAN. The Board of Directors of American National
adopted the Executive Compensation Continuation Plan, a non-contributory
deferred compensation plan, in 1982. Under the plan, certain key executives
who, in the opinion of the Board, are making substantial contributions to the
overall growth and success of American National and who must be retained in
order to expand and continue satisfactory long term growth are eligible to
receive benefits afforded by the plan.

Under agreements with eligible key executives pursuant to this plan, if
any such executive dies or retires while employed by American National, such
executive or his designated beneficiary will receive annual payments
commencing at death or retirement and continuing for a period of ten years.
Charles H. Majors is entitled to an annual benefit of $50,000 under the plan.
E. Budge Kent, Jr., Gilmer D. Jefferson, Carl T. Yeatts, and David Hyler are
entitled to an annual benefit of $20,000 each under the plan, and executive
officers as a group (5) are entitled to annual benefits of $130,000 under the
plan. Based on reasonable actuarial assumptions, the related costs of the
plan are expected to be fully recovered through life insurance policies on
the key executives purchased by American National. Premiums in the aggregate
amount of $22,942 were paid in 1994.

- 79 -

<PAGE>

CERTAIN TRANSACTIONS WITH ANB

Some of the directors and officers of ANB and the companies with which
they are associated were customers of, and had banking transactions with,
American National in the ordinary course of American National's business
during 1994. All loans and commitments to loan included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and, in the opinion of the management of American National, do
not involve more than a normal risk of collectibility or present other
unfavorable features.

During the year 1994, the highest aggregate amount of outstanding
loans, direct and indirect, to the directors and officers was $12,825,425 or
42% of equity capital and this highest amount occurred on November 30, 1994.

OWNERSHIP OF ANB COMMON STOCK

As of September 30, 1995, the only two shareholders known to ANB to be
beneficial owners, as defined by the SEC, of 5.0% or more of the outstanding
shares of ANB Common Stock were Ambro and Company and The Alexander Berkeley
Carrington, Jr. and Ruth Simpson Carrington Charitable Trust, with respect to
whom beneficial ownership information has been set forth in the following
table.

<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- ----------------------------- ---------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock, $1.00 par value Ambro and Company (1) 632,381(1) 26.3492%
628 Main Street shares
Danville, Virginia 24541

Common Stock, $1.00 par value The Alexander Berkeley Carrington, 150,604(1) 6.2752
Jr. and Ruth Simpson Carrington shares
Charitable Trust (1)
628 Main Street
Danville, Virginia 24541
</TABLE>

- -----------------------
(1) Ambro and Company is the nominee name in which American National
registers securities it holds in a fiduciary capacity, and the total of
632,381 shares includes 150,604 shares (6.2752%) held for The Alexander
Berkeley Carrington, Jr. and Ruth Simpson Carrington Charitable Trust.

- 80 -

<PAGE>

SELECTED HISTORICAL FINANCIAL DATA OF MUTUAL

The following table sets forth certain historical financial data of
Mutual and is based on the consolidated financial statements of Mutual,
including the respective notes thereto, which are included in this Joint
Proxy Statement and should be read in conjunction therewith. See
"Management's Discussion and Analysis of Mutual," "Business of Mutual," and
"Index to Financial Statements."

At or for the Years Ended September 30,
-----------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS

Interest income.......................... $ 6,040 $ 5,664 $ 6,090 $ 6,576 $ 6,770
Interest expense......................... 2,920 2,545 2,698 3,577 4,330
------- ------- ------- ------- -------
Net interest income...................... 3,120 3,119 3,392 2,999 2,440
Provision for loan losses................ 8 -- -- 98 68
------- ------- ------- ------- -------
Net interest income after provision for
loan losses........................... 3,112 3,119 3,392 2,901 2,372
Noninterest income....................... 198 326 197 267 154
Noninterest expense...................... 1,830 1,963 1,777 1,633 1,567
------- ------- ------- ------- -------
Income before taxes...................... 1,480 1,482 1,812 1,535 959
Income taxes............................. 487 506 550 482 318
------- ------- ------- ------- -------
Net income............................... $ 993 $ 976 $ 1,262 $ 1,053 $ 641
======= ======= ======= ======= =======
BALANCE AT YEAR-END

Assets................................... $83,396 $83,586 $80,203 $81,378 $73,615
Interest-bearing deposits................ 1,167 770 2,074 1,608 747
Investment securities.................... 24,598 25,974 20,535 11,133 6,688
Mortgage-backed securities............... 14,338 16,334 14,957 22,298 17,557
Loans receivable, net.................... 39,870 36,908 39,253 42,816 45,069
Deposits................................. 67,513 66,931 65,668 67,497 60,723
Borrowed funds........................... -- 1,500 12 146 108
Stockholders' equity..................... 14,787 14,260 13,733 12,799 12,105

PER SHARE DATA

Net income............................... $ 0.82 $ 0.81 $ 1.06 $ 0.88 $ 0.54
Stockholders' equity..................... 12.81 12.36 11.90 11.09 10.49
Cash dividends declared.................. 0.40 0.40 0.40 0.39 0.37

SIGNIFICANT RATIOS

Return on average assets................. 1.20% 1.19% 1.56% 1.35% 0.87%
Return on average equity................. 6.77 6.90 9.48 8.39 5.45
Average equity to average assets......... 17.72 17.24 16.50 16.07 15.94
Interest rate spread..................... 3.23 3.40 3.79 3.22 2.48
Dividend payout ratio.................... 46.49 47.30 36.59 42.75 66.56
Regulatory Capital....................... 17.73 17.06 16.48 15.26 16.40

OTHER DATA

Full service offices..................... 2 1 1 1 1
Total offices............................ 4 4 4 4 4

</TABLE>

- 81 -

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF MUTUAL

The following discussion and analysis is intended to assist in
understanding Mutual's results of operations and changes in financial
condition for the periods indicated. This information should be read in
conjunction with the information included under "Selected Historical
Financial Data of Mutual," "Business of Mutual," and the consolidated
financial statements and related notes thereto, appearing elsewhere in this
Joint Proxy Statement. See "Index to Financial Statements."

INTEREST RATE SENSITIVITY

Mutual seeks to manage its assets and liabilities so as to provide a
positive and stable net interest income and to provide adequate liquidity and
capital. The major objective has been to reduce interest rate risk while
maintaining an acceptable net interest margin without increasing credit risk.
To accomplish this objective, Mutual continues to make almost all mortgage
loans for periods of greater than 15 years in the form of adjustable-rate
loans. Through the purchase of investments and the origination of mostly
adjustable-rate mortgage loans Mutual attempts to improve its gap position so
that its sensitivity to interest rate changes is diminished. The
adjustable-rate mortgage loans held in Mutual's loan portfolio at September
30, 1995 were 73.3% of all mortgage loans. Most of these loans adjust each 12
months and use the one year Treasury Bill Rate as an index. Mutual originates
primarily adjustable rate loans. At September 30, 1995, long term fixed
rate mortgages were 26.7% of Mutual's mortgage loan portfolio and had a
weighted average yield of 9.67%. Because of the average yields earned on
these loans, they will cause the earnings spread to decrease in periods of
higher interest rates which will decrease profits, and increase in periods of
lower interest rates which will increase profits. Mutual also offers a
variety of consumer loans.

These asset/liability management techniques promote a stabilization of
net interest income. Despite these techniques, Mutual's income is still
dependent upon the fluctuation of interest rates in general and a significant
increase in interest rates would have a negative effect upon the net interest
income of Mutual. During the current year, interest rates declined more
rapidly on loans and investments than on savings deposits. These changes
reduced the interest rate spread from 3.40% for fiscal year 1994 to 3.23% for
fiscal year 1995. It appears fiscal year 1996 may be one of a stable rate
environment. If this does not hold true, and rates rise, income may be
adversely affected as discussed below.

When interest rates are increasing, generally interest rates on loans
increase more slowly than interest rates on savings. In periods of declining
interest rates, the rates on adjustable mortgage loans will also decrease,
but generally more slowly than the interest rates on savings. These increases
and decreases in general interest rates will effectively increase and
decrease Mutual's interest income from mortgage loans and interest expense
for deposits and any borrowings. In a rising interest rate environment, a
savings bank with an excess of interest-bearing liabilities maturing or
otherwise repricing during a given period (a "negative gap") will generally
experience a greater increase in the cost of its liabilities than in the
yield of its assets. Conversely, the cost of funds to an institution with a
negative gap will generally decrease more than the yield of its assets in a
falling interest rate environment. Changes in interest rates will generally
have the opposite effect on a savings bank with an excess of interest-earning
assets maturing or otherwise repricing during a given period (a "positive
gap"). Accordingly, during a period of rising interest rates, a negative gap
would tend to affect income adversely while a positive gap would tend to
result in an increase in income. During a period of falling interest rates, a
negative gap would tend to result in an increase in income while a positive
gap would tend to affect income adversely. Mutual currently has a one-year
positive gap position.

-82-

<PAGE>

The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding as of September 30, 1995, which
are anticipated by Mutual, based upon certain assumptions, to reprice, decay
or mature during various time periods. Except as stated otherwise, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of the term to
repricing or the contractual term to maturity of the asset or liability. The
principal amount for each asset and liability is included in the period in
which it, respectively, matures or reprices. The interest rate sensitivity
"gap" refers to the difference between the amount of interest-earning assets
over (under) interest-bearing liabilities maturing within the same time
period. Mutual attempts to reduce its "gap" or exposure to interest rate risk
by use of one year adjustable rate loans and investments in short term
assets. Of Mutual's mortgage loan and mortgage-backed securities portfolio,
54.7% is in the adjustable rate category. While Mutual tries to manage its
"gap" position, it will continue to be affected by changes in the levels of
interest rates and economic conditions beyond its control.

The calculations used to produce the gap table were performed by the
FHLB-Atlanta based upon assumptions selected by the FHLB-Atlanta as of
September 30, 1995 and which management believes are indicative of the
experience of savings institutions generally. These assumptions do not
necessarily reflect Mutual's historical or future experience.

The table assumes annual prepayment rates for mortgages and
mortgage-backed securities and consumer loans as follows:

Weighted Average
Type Annual Prepayment Rate
- ------------------------------------------------------------------ ----------------------
<S> <C>
ARM loans and mortgage-backed securities by interest rate:
Less than 7%................................................. 17.22%
7-7.99%...................................................... N/A
8-8.99%...................................................... 20.76
Fixed-rate loan and mortgage-backed securities by interest rate:
Less than 8%................................................. 9.11
8-8.99%...................................................... 12.52
9-9.99%...................................................... 16.75
10-10.99%.................................................... 21.60
11-11.99%.................................................... 30.60
More than 12%................................................ 30.60
Consumer loans.................................................... 18.00

</TABLE>

Decay rates have been assumed for NOW accounts, passbook and money
market deposits and outstanding "cashiers" checks of Mutual and indicate the
annual rate at which an interest-bearing liability will be withdrawn or
repriced. Certificates of deposit are assumed to reprice generally based upon
contractual maturities.

<TABLE>
<CAPTION>
Annual Percentage Decay Rates
for Deposit Accounts
--------------------------------------------------
12 Months 13 to 36 37 Months More than 5
or Less Months to 5 Years Years
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Passbook............................. 17% 17% 16% 100%
NOW ................................. 37 32 17 100
Money Market......................... 79 31 31 100
Noninterest bearing deposits......... 12.54

</TABLE>

-83-

<PAGE>

INTEREST RATE SENSITIVITY ANALYSIS
AT SEPTEMBER 30, 1995

Less
Than 3-6 7-12 1-3 3-5 5-10 10-20 Over 20
3 Mos. Months Months Years Years Years Years Years Total
------- ------ ------ ----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Interest earning assets:
Loans and mortgage-backed
securities:
Adjustable Rate: 1-4 dwelling
units - current market index..... $8,080 $ 5,049 $11,977 $ 995 $ -- $ -- $ -- $ -- $26,101
Fixed rate: 1-4 dwelling units.... 1,332 1,179 2,114 6,596 4,345 5,174 1,854 92 22,686
Fixed rate: other residential
and all nonresidential........... 122 38 78 257 396 209 -- -- 1,000
Adjustable rate: other residential
and all nonresidential........... 1,194 402 499 650 -- -- -- -- 2,745
Consumer loans.................... 417 178 215 272 44 1 -- -- 1,127
Commercial loans.................. 670 17 5 20 11 -- -- -- 723
Investment securities............. 3,417 2,000 500 2,595 6,310 9,620 500 829 25,771
------- ------- ------- ------- ------ ------- ------- ------ -------
Total interest-earning assets... 15,232 8,863 15,388 11,385 11,106 15,004 2,354 921 80,253
------- ------- ------- ------- ------ ------- ------- ------ -------
Interest-bearing liabilities:
Deposits:
Fixed maturity deposits............ 6,081 9,974 11,364 12,630 3,624 -- -- 43,673
NOW................................ 355 317 533 1,103 295 396 217 40 3,256
Money market....................... 1,569 1,062 1,206 534 254 197 35 1 4,858
Passbook........................... 687 656 1,224 3,900 2,542 3,545 2,103 446 15,103
Non-interest deposits.............. 22 20 38 128 98 156 120 41 623
------- ------- ------- ------- ------ ------- ------- ------ -------
Total interest-bearing
liabilities.................. 8,714 12,029 14,365 18,295 6,813 4,294 2,475 528 67,513
------- ------- ------- ------- ------ ------- ------- ------ -------
Gap................................ $ 6,518 $(3,166) $ 1,023 $(6,910) $4,293 $10,710 $ (121) $393 $12,740
------- ------- ------- ------- ------ ------- ------- ------ -------
------- ------- ------- ------- ------ ------- ------- ------ -------
Cumulative gap..................... $ 6,518 $ 3,352 $ 4,375 $(2,535) $1,758 $12,468 $12,347 $12,740
------- ------- ------- ------- ------ ------- ------- ------
------- ------- ------- ------- ------ ------- ------- ------
</TABLE>

-84-

<PAGE>

NET PORTFOLIO ANALYSIS

The OTS adopted a final rule in August 1994 incorporating an interest
rate risk ("IRR") component into the risk-based capital rules. The IRR component
is a dollar amount that will be deducted from total capital for the purpose of
calculating an institution's risk-based capital requirement and is measured in
terms of the sensitivity of its net portfolio value ("NPV") to changes in
interest rates. NPV is the difference between incoming and outgoing discounted
cash flows from assets, liabilities, and off-balance sheet contracts. An
institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point (one basis point equals 0.01%) change in market
interest rates. A resulting change in NPV of more than 2.0% of the estimated
market value of its assets will require the institution to deduct from its
capital 50% of that excess change. For the present time, the OTS has deferred
implementation of the interest rate risk component. The following table presents
Mutual's NPV as of September 30, 1995, as calculated by the FHLB Atlanta, based
upon information taken from Mutual's Thrift Financial Reports and is consistent
with OTS methodology.

NPV NPV as % of Assets
---------------------------------- ------------------
Changes in Interest Rates
in Basis Points (Rate Shock) Amount $ Change % Change NPV Rate Change
- ---------------------------- ------ -------- -------- -------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
+400 bp $11,963 $(4,350) (27)% 15.09% -403 bp
+300 bp 13,258 (3,055) (19) 16.37 -275 bp
+200 bp 14,451 (1,862) (11) 17.50 -162 bp
+100 bp 15,485 (828) (5) 18.43 - 70 bp
0 bp 16,313 19.12
-100 bp 17,068 755 5 19.73 + 60 bp
-200 bp 18,040 1,727 11 20.50 +138 bp
-300 bp 19,193 2,881 18 21.41 +229 bp
-400 bp 20,476 4,163 26 22.39 +327 bp

</TABLE>

Set forth below is a breakout of Mutual's NPV as of September 30,
1995 by assets, liabilities and off-balance sheet items.

<TABLE>
<CAPTION>
NET
NET PORTFOLIO VALUE -400 BP -300 BP -200 BP -100 BP CHANGE +100 BP +200 BP +300 BP +400 BP
- ------------------- ------- ------- ------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Assets................$91,437 $89,640 $87,983 $86,522 $85,299 $84,026 $82,568 $80,967 $79,279
Less Liabilities...... 71,092 70,550 70,022 69,509 69,007 68,519 68,044 67,579 67,125
Plus off balance
sheet items.......... 130 103 79 55 21 (22) (73) (130) (191)
------- ------- ------- ------- ------- ------- ------ ------- -------
Net Portfolio.........$20,476 $19,193 $18,040 $17,068 $16,313 $15,485 $4,451 $13,258 $11,963
------- ------- ------- ------- ------- ------- ------ ------- -------
------- ------- ------- ------- ------- ------- ------ ------- -------
</TABLE>

ANALYSIS OF NET INTEREST INCOME

Net interest income, the primary contributor to earnings, represents
the difference between income on interest-earning assets and expense on
interest-bearing liabilities. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the interest
rate earned or paid on them.

-85-

<PAGE>

The following table sets forth certain information relating to
Mutual's average balance sheets and reflects the average yield on assets and
average cost of liabilities for the year ended September 30, 1995. Such
yields and rates are derived by dividing income or expense by the monthly
average balance of assets or liabilities, respectively, during the year.
Nonaccruing loans, if any, have been included in the average balances but not
in the corresponding interest income.

Year Ended September 30
----------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- --------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net.......................... $38,395 $3,343 8.71% $37,799 $3,062 8.10% $41,228 $3,502 8.49%
Mortgage-backed securities.......... 15,386 1,112 7.23 15,322 1,029 6.71 18,806 1,470 7.82
Investments......................... 25,720 1,585 6.16 25,430 1,573 6.19 17,306 1,118 6.46
------- ------ ----- ------- ------ ------- ------ -----
Total interest-earning assets......... 79,501 6,040 7.60 78,551 5,664 7.21 77,340 6,090 7.87
------- ------ ----- ------- ------ ------- ------ -----
Noninterest-earning assets............ 3,252 3,546 3,325
------- ------- -------
Total assets........................ $82,753 $82,097 $80,665
------- ------- -------
------- ------- -------
Interest-bearing liabilities:
Savings deposits.................... $66,346 2,888 4.35 $66,617 2,534 3.80 $66,068 2,691 4.07
Borrowed funds...................... 546 32 5.98 216 11 5.09 139 7 5.10
------- ------ ----- ------- ------ ------- ------ -----
Total interest-bearing liabilities.. 66,892 2,920 4.37 66,833 2,545 3.81 66,207 2,698 4.08
------- ------ ----- ------- ------ ------- ------ -----
Non-interest bearing liabilities 1,200 1,110 1,147
Stockholders' equity 14,661 14,154 13,311
------- ------- -------
Total liabilities and stockholders'
equity............................... $82,753 $82,097 $80,665
------- ------- -------
------- ------- -------
Net interest income................... $3,120 $3,119 $3,392
------ ------ ------
------ ------ ------
Interest rate spread.................. 3.23 3.40 3.79

Net yield on interest-earning assets.. 3.92 3.97 4.39

Ratio of interest-earning assets to
interest-bearing liabilities......... 1.19x 1.18x 1.17x

</TABLE>

-86-
<PAGE>

The following table presents, for the periods indicated, the change in
interest income and interest expense attributable to (i) changes in volume
(change in volume multiplied by prior year rate), (ii) changes in rate (change
in rate multiplied by prior year volume) and (iii) changes in rate/volume
(change in rates multiplied by the change in volumes). The rate/volume variances
which cannot be segregated have been allocated proportionately to the change due
to volume and the change due to rate.

<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------
1995 compared to 1994 1994 compared to 1993
----------------------------------- ---------------------------------------
Increase (decrease) due to Increase (decrease) due to
----------------------------------- ---------------------------------------
Rate/ Rate/
Rate Volume Volume Rate Volume Volume
----------- ---------- --------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans, net.......................... $230 $47 $4 $(162) $(291) $ 13
Mortgage-backed securities.......... 79 4 -- (209) (271) 39
Investments......................... (8) 20 -- (47) 524 (22)
----------- ---------- --------- ----------- ----------- -----------
Total............................ 301 71 4 (418) (38) 30
----------- ---------- --------- ----------- ----------- -----------
INTEREST-BEARING LIABILITIES:
Savings deposits.................... 365 (10) (1) (178) 22 (1)
Borrowed funds...................... 2 16 3 -- 4 --
----------- ---------- --------- ----------- ----------- -----------
Total............................ 367 6 2 (178) 26 (1)
----------- ---------- --------- ----------- ----------- -----------
Net change in net interest
income........................... $ (66) $65 $2 $(240) $ (64) $ 31
----------- ---------- --------- ----------- ----------- -----------
----------- ---------- --------- ----------- ----------- -----------
</TABLE>

CHANGES IN FINANCIAL CONDITION FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995

Total assets of Mutual at September 30, 1995 decreased $190,500, or
0.23%, to $83,396,000 from $83,586,500 at September 30, 1994 primarily due to
decreases in mortgage-backed securities of $1,996,200, or 12.22% , and
investment securities of $1,375,800, or 5.30% , which were offset in part by an
increase in loans of $2,961,500, or 8.02%. These changes were the result of
investment maturities and mortgage-backed securities repayments being used to
fund new mortgage lending during fiscal year 1995.

During fiscal year 1995, Mutual originated $11,827,000 permanent
mortgage loans for its own portfolio. All mortgage loans originated during the
year with terms greater than 15 years were one-year adjustable rate loans in
keeping with management's policy to control interest rate risk.

Total liabilities at September 30, 1995 decreased $717,700, to
$68,609,200 from $69,326,900, or 1.04%, at September 30, 1994 primarily due to
the repayment of $1,500,000 in FHLB Advances offset by an increase of $581,800,
or 0.87%, in savings deposits at September 30, 1995 to $67,512,500 as compared
with $66,930,700 at September 30, 1994. Advances from the FHLB Atlanta were used
occasionally during the year to meet temporary funding needs. Stockholders'
equity totaled $14,786,800 or 17.73% of total assets at September 30, 1995,
compared to $14,259,600, or 17.06% of total assets, at September 30, 1994. The
increase is due primarily to

-87-

<PAGE>

net income of $992,900 for the year ended September 30, 1995, offset by cash
dividends of $461,600.

The return on average assets increased to 1.20% in 1995 as compared to
1.19% in 1994 and 1.56% in 1993. The decrease for 1994 was the result of lower
net income combined with a higher average asset base. The return on average
equity was 6.77% in 1995 as compared to 6.90% in 1994 and 9.48% in 1993. Cash
dividends declared during fiscal years 1995, 1994, and 1993 totaled $0.40 per
share annually. The dividend payout ratio for 1995 was 46.49% compared to 47.30%
in 1994 and 36.59% in 1993.

COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED
SEPTEMBER 30, 1995, 1994 AND 1993

For the year ended September 30, 1995, Mutual had net income of
$992,900 compared with net income of $976,000 for 1994 and $1,261,800 for 1993.
Overall income for 1995 as compared to 1994 was stable. The decrease in 1994 as
compared to 1993 was due primarily to expenses relating to the abandoned merger
transaction with FNB Financial Services Corporation. The decrease in fiscal 1995
from 1993 was due to a reduction in net interest margin over the two year period
to 3.23% from 3.79% during fiscal 1993 together with a shift in the volume of
interest-earning assets from higher yielding assets (loans) to lower yielding
assets (investment securities).

NET INTEREST INCOME

Net interest income for the year ended September 30, 1995 was
$3,120,000, compared with $3,118,900 and $3,392,000 in 1994 and 1993,
respectively. Net interest income for 1995 remained stable as compared to 1994.
In 1994, Mutual changed its method of accounting for premium and discounts on
investments and mortgage-backed securities to a level yield method which reduced
interest income by $84,300. Also during 1994, interest rates declined more
rapidly on loans and investments than on savings deposits. These changes reduced
the interest rate spread and together with the increased provision for loan
losses in 1995 of $8,300 caused net interest income after provision for loan
losses to decline by $7,200 to $3,111,700 in 1995 from $3,118,900 in 1994 and by
$273,100 from $3,392,000 in 1993. The interest rate spread between
interest-earning assets and interest-bearing liabilities decreased to 3.23% in
fiscal year 1995 from 3.40% in 1994 and 3.79% in 1993.

INTEREST INCOME AND EXPENSE

Total interest income increased $376,600, or 6.65%, in the year ended
September 30, 1995 primarily as a result of an increase in the average yield on
loans and mortgage-backed securities to 8.71% and 7.23%, respectively, from 8.10
% and 6.71%, respectively, in fiscal 1994. Total interest income decreased
$426,500, or 7.0%, in the year ended September 30, 1994 primarily as a result of
a decrease in the average balances of loans to $37,799,000 from $41,228,000, and
mortgage-backed securities to $15,322,000 from 18,806,000 and a decrease in the
average rates to 8.10% and 6.71%, respectively, from 8.49 % and 7.82%,
respectively, in fiscal 1993, offset in part by an increase in the average
balance of investment securities of $8,124,000 to $25,430,000 during fiscal 1994
from 17,306,000 during fiscal 1993.

Total interest expense increased $375,600, or 14.76%, in the year ended
September 30, 1995 primarily as a result of an increase in the average rate of
savings deposits to 4.35% from 3.80% during fiscal 1994. Total interest expense
decreased $153,400, or 5.69%, in the year ended September 30, 1994 primarily as
a result of a decrease in the average rate of savings deposits to 3.80% from
4.07% during fiscal 1993.

-88-

<PAGE>

NONINTEREST INCOME AND EXPENSE

Total noninterest income for 1995 was $198,400, compared with $325,900
for 1994 and $197,300 for 1993. The increase for 1994 as compared to 1995 and
1993 was primarily the result of a $126,000 gain on the sale of real estate
owned by Mutual Service Corporation.

Total noninterest expense for 1995 was $1,830,100, compared with
$1,962,700 for 1994 and $1,777,700 for 1993. The increase in other expenses in
1994 as compared to 1995 and 1993 was due primarily to $259,000 in charges
relating to the abandoned merger plans with FNB Financial Services Corporation.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

Mutual has established an allowance for loan losses to provide for
estimated potential losses in its loan portfolio. Management determines the
level of reserves on a quarterly basis based on loan performance, the value of
the collateral, and previous experience. During 1995, $8,300 was added to the
provision for loan losses. No provision for loan losses was provided in 1994 or
1993 as management considered the allowance to be adequate.

INCOME TAXES

Income taxes amount to $487,000 for 1995 as compared to $506,200 for
1994 and $549,800 for 1993. The effective tax rate for 1995 was 33% as
compared to 34% for 1994 and 30% for 1993.

CAPITAL RESOURCES

Stockholders' equity increased to $12.81 per share at September 30,
1995 as compared to $12.36 and $11.90 at fiscal year end 1994 and 1993,
respectively. Equity growth was due entirely to the retention of net income,
after dividend payments made to stockholders.

The OTS requires institutions to meet three capital standards:
(i) tangible capital requirement, (ii) core capital requirement, and
(iii) risk-based capital requirement. As of September 30, 1995, Mutual
exceeded all three requirements as indicated by the following table.

<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-Based Capital
------------------------- ------------------------- -------------------------
Amount % Amount % Amount %
------------ ---------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Mutual................... $14,791 17.73% $14,791 17.73% $14,899 50.03%
OTS Requirement.......... 1,251 1.50 2,502 3.00 2,382 8.00
------------ ---------- ----------- ----------- ----------- ----------
Excess................... $13,540 16.23% $12,289 14.73% $12,517 42.03%
------------ ---------- ----------- ----------- ----------- ----------
------------ ---------- ----------- ----------- ----------- ----------
</TABLE>

LIQUIDITY

Liquidity represents the ability to meet funding requirements for
loans, withdrawal of customers' deposits and operating expenses. The principal
sources of liquidity for Mutual are

-89-

<PAGE>

customer deposits, principal and interest payments on loans and earnings on
investments, with minimal reliance on FHLB advances and other borrowings.
Mutual is required by the current OTS regulations to maintain a minimum
liquidity ratio of 5.0%. This ratio is represented by cash and eligible
investments as a percentage of net withdrawable savings and borrowings
payable within one year. Mutual's liquidity ratio at September 30, 1995 was
17.22%. Mutual has maintained a liquidity ratio well in excess of its
regulatory requirements and intends to continue to maintain a liquid position
in excess of that requirement to offset any potential adverse increases in
short-term rates and to meet customer demands.

Mutual's goal is to fund all customer loan demands while closely
monitoring its liquidity position in order to maintain sufficient liquidity to
satisfy reasonably foreseeable needs. At September 30, 1995, Mutual had credit
availability from the FHLB Atlanta in the amount of $12.6 million. Anticipated
loan and mortgage-backed securities repayments are also expected to be
sufficient to meet future loan demand. At September 30, 1995, commitments to
originate loans totaled $1.7 million. Mutual anticipates funding loan commitment
from normal operations.

EFFECTS OF INFLATION

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

The effect of changing prices on financial institutions is typically
different from other industries as Mutual's assets and liabilities are monetary
in nature. Interest rates are significantly impacted by inflation, but neither
the timing nor the magnitude of the changes are directly related to price level
indices. Impacts of inflation on interest rates, loan demands and deposits are
reflected in the consolidated financial statements.

-90-

<PAGE>

BUSINESS OF MUTUAL

GENERAL

Mutual received its charter from the Commonwealth of Virginia in 1907
and began operations in 1908. Mutual is a federally chartered savings bank which
converted from a state chartered mutual to a federal stock association in April
1987 and changed to a federal savings bank charter in February 1989. Mutual is
headquartered in Danville, Virginia where it has its main office and two branch
offices. Mutual also has a third branch office in Collinsville, Virginia.
Mutual's savings accounts are insured by the Savings Association Insurance Fund
("SAIF") of the FDIC and it is a member of the FHLB Atlanta.

Mutual's market area primarily consists of south central Virginia and
north central North Carolina. Business is conducted primarily in Danville,
Virginia through Mutual's main office and two branch offices. See "--Properties"
for information as to the location of all offices. Mutual does not have offices
in North Carolina; however, Mutual has customers who live in North Carolina.

Mutual is a savings institution in the business of attracting savings
deposits from the public and using such deposits together with borrowings and
other funds to originate loans secured by residential and other real estate,
particularly adjustable-rate loans, and to purchase investment and other
securities. Mutual also offers consumer loans and other financial services to
its customers. Mutual has a wholly owned subsidiary, Mutual Service Corporation,
involved in the sale of credit life insurance and trustee sales for the parent
company.

LENDING ACTIVITIES

GENERAL. Mutual, like most other thrift institutions, has traditionally
concentrated its lending activities on conventional first mortgage loans secured
by residential property, and to a much lesser extent, commercial property.
Mutual is a portfolio lender and has never sold loans through the secondary
market.

Mutual requires that its mortgagors carry insurance against fire and
casualty losses in property value. Mutual also carries a back-up master mortgage
policy to protect Mutual in the event the individual borrower fails to keep his
insurance current. Mutual would, in such event, pursue all remedies available to
it to require the mortgagor to reinstitute coverage. Mutual does not require
title insurance, but instead depends upon the professional liability insurance
of the attorney preparing the title. This has always been the practice of Mutual
and Mutual has never incurred a loss or experienced any problems due to this
practice. Mutual maintains files of letters certifying that they maintain
adequate professional liability insurance. Mutual requires physical damage
insurance for other types of collateral that secure loans and are insurable.

The following table sets forth information summarizing the composition
of Mutual's loan portfolio by dollar amounts and in percentages by type of loan
at the dates indicated:

-91-

<PAGE>

At September 30,
---------------------------------------------------------
1995 1994 1993
--------------- ------------- ---------------
Amount % Amount % Amount %
------- ----- ------- ----- ------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
1- to 4-family units......... $33,158 79.7% $31,623 83.5% $33,980 85.2%
Nonresidential............... 2,560 6.2 2,590 6.8 3,027 7.6
Land......................... 467 1.1 446 1.2 319 0.8
Multi-family units........... 622 1.5 468 1.3 63 0.2
Construction................. 2,933 7.1 1,295 3.4 930 2.3
------- ----- ------- ----- ------- -----
Total mortgage loans......... 39,740 95.6 36,422 96.2 38,319 96.1
------- ----- ------- ----- ------- -----

Consumer loans:
Auto......................... 500 1.2 201 0.5 166 0.4
Mobile home.................. 328 0.8 209 0.6 295 0.7
Other........................ 299 0.7 105 0.3 230 0.6
------- ----- ------- ----- ------- -----

Total consumer loans......... 1,127 2.7 515 1.4 691 1.7

Commercial loans................ 722 1.7 939 2.4 878 2.2
------- ----- ------- ----- ------- -----

Total loans receivable....... 41,589 100.0% 37,876 100.0% 39,888 100.0%
----- ----- -----
----- ----- -----
Deduct net items:

Undisbursed loan funds....... (1,449) (685) (362)
Deferred loan fees........... (162) (183) (172)
Allowance for loan losses.... (108) (101) (101)
------- ------- -------

Total loans receivable, net.. $39,870 $36,908 $39,253
------- ------- -------
------- ------- -------
</TABLE>

RESIDENTIAL MORTGAGE LOANS. As a savings bank, Mutual has authority to
make real estate loans throughout the United States. Mutual originates loans
primarily in its market area within south central Virginia and portions of north
central North Carolina, but also originates loans in other parts of Virginia and
in other states as opportunities in such areas arise. It is Mutual's policy to
originate and hold in its portfolio primarily adjustable-rate residential
mortgage loans ("ARMs") secured by first liens on single-family dwellings.
Interest rates and loan origination fees charged on loans originated by Mutual
are generally competitive with other financial institutions and mortgage
originators in its general market area. Mutual is authorized and qualified to
originate loans guaranteed by the Veterans Administration ("VA") or insured by
the Federal Housing Administration ("FHA"). Mutual obtains its loan originations
primarily through referrals from customers and other persons such as real estate
brokers and contractors.

The original contractual loan payment period for residential loans
originated by Mutual is normally up to 30 years. Mutual's experience is that
residential loans normally remain outstanding for an average period of 12 years
because borrowers usually prepay their loans.

All of Mutual's mortgage lending is subject to prescribed loan
origination and underwriting procedures designed to protect Mutual; detailed
loan applications are submitted and property

-92-

<PAGE>

valuations by approved appraisers are required. In addition, loans must be
approved by senior management and are subject to the final ratification of
the Board of Directors of Mutual.

Under the OTS regulations, a real estate loan may not exceed 100% of
the market value of the property at the time of origination. OTS regulations
require that loans on residential real property may not at the time of
origination exceed 90% of the value of the property unless the borrower supplies
private mortgage insurance. In recent years, the loan-to-value ratios of
residential loans made by Mutual have been predominantly 80% or less. In the
case of a loan made in excess of 80%, Mutual requires the borrower to obtain
private mortgage insurance to reduce Mutual's exposure on the original amount of
the loan.

Mutual's first mortgage loans customarily include "due-on-sale"
clauses, which are provisions giving Mutual the right to declare a loan
immediately due and payable in the event, among other things, that the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.

Federal legislation enacted on March 31, 1980 preempted all state usury
laws which would otherwise be applicable to first mortgage lending activities on
residential properties. The legislation provides that state legislatures may act
to override such preemption within three years of March 31, 1980. Virginia did
take action to override such preemption; however, the usury rate in Virginia is
higher than the Federal rate. Mutual may charge the higher rate (whether federal
or state) under federal legislation.

NONRESIDENTIAL AND MULTI-FAMILY MORTGAGE LOANS. Mutual also makes loans
on nonresidential real estate and multi-family units which include apartment
buildings of five units or more, farms, developed lots and land, and other
improved and unimproved real estate which is not for residential purposes. The
term of these loans generally will not exceed 20 years and the interest rate is
made on an adjustable basis. The amount of the loan generally is based on 75% of
the lesser of the current appraisal value or the cost.

RESIDENTIAL CONSTRUCTION LOANS. Mutual offers residential construction
mortgage loans to owner/occupants, to persons building residential properties
for permanent or seasonal use or for investment purposes and on a limited basis
to builders for inventory and sale. Mutual's residential construction loans are
made as "construction/permanent" loans, which provide for disbursement of loan
funds during construction and the automatic conversion to a long-term permanent
loan. The interest rate on construction/permanent loans is adjustable.

Construction loans to builders and owners of single-family residential
homes are made on a long-term adjustable-rate basis. The property and the
personal endorsement of the builder and spouse or owner and spouse are security
for construction loans. Inspection of construction is made periodically and the
loan is funded in proportion to the percent of completion. The application
process to obtain such loans from Mutual includes the same items which are
required for other residential mortgage loans, and also includes a submission to
Mutual of accurate plans, specifications, and costs of the property to be
constructed. These items are used as a basis to determine the appraised value of
the subject property. Appraisal reports are completed by approved appraisers.
Loans are generally made based on 75% of the lesser of the current appraised
value or the cost. If an inspection shows the house to be occupied, repayment
must begin immediately. During the year ended September 30, 1995, Mutual had an
average of $2.7 million in construction loans outstanding at all times to about
nine builders or owners who were constructing a total of 23 single family
residential houses. The average time to complete a house and convert it to a
permanent loan or sell it was six months. Most of the homes financed for
builders were pre-sold.

-93-

<PAGE>

CONSUMER LOANS. Federal regulations also permit federally-chartered
institutions to make secured and unsecured consumer loans for up to 35% of the
institution's assets. In addition, a federally-chartered institution has lending
authority above the 35% category for certain consumer loans, such as home equity
loans, property improvement loans, mobile home loans, and deposit account
secured loans.

Mutual makes various types of consumer loans, including property or
home improvement, education, mobile home loans, recreational vehicle and
automobile loans, and secured and unsecured personal loans.

NON-REAL ESTATE COMMERCIAL LOANS. Federal regulations allow federally
chartered institutions to make secured and unsecured commercial loans up to 10%
of the institution's assets. Mutual has adopted a commercial loan lending policy
which is in conformance with OTS regulations. This policy provides for the
granting of all sound, short-term local loans that Mutual's resources permit,
and as the opportunity arises. The policy contains strict tests of credit
soundness for each commercial loan, including requirements as to amount and form
of collateralization and restrictions on the term of certain loans. Personal
guarantees are required for some types of loans.

PURCHASE OF LOANS. Mutual from time to time purchases loans secured by
commercial properties, mobile homes, or automobiles located in other parts of
the state of Virginia and in other states. Loans are purchased primarily from
selected financial institutions which usually continue to service these loans
for a fee. All loan purchases are approved by the loan committee and ratified by
the Board of Directors of Mutual. The purchase of loans has enabled Mutual to
generate a more acceptable yield on its funds during the periods of rapid
savings growth or when Mutual's deposit flows exceed the demand for mortgage
loans in Mutual's market area. Mutual has not participated in selling loans in
the secondary market in the past but would consider originating loans for the
secondary market, if conditions were favorable. Mutual did not purchase any such
loans in 1994 and 1995.

MORTGAGE-BACKED SECURITIES. Mutual purchases mortgage-backed securities
guaranteed by the Government National Mortgage Association ("GNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") Participation Certificates, and Federal
National Mortgage Association ("FNMA"). Purchases of these types of investments
are normally made when loan demand is low in Mutual's market area.

All of Mutual's mortgage-backed securities are classified as held to
maturity. The following table sets forth Mutual's portfolio of mortgage backed
securities by type and dollar amount indicated:

<TABLE>
<CAPTION>
At September 30,
---------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-Backed Securities
Participation Certificates:
FHLMC......................................... $ 5,675 $ 6,685 $ 4,403
GNMA.......................................... 4,404 4,902 4,126
FNMA.......................................... 2,490 2,832 5,932
Collateralized Mortgage Obligations........... 1,769 1,915 496
------- ------- -------
Total...................................... $14,338 $16,334 $14,957
------- ------- -------
------- ------- -------
Fixed rate.................................... $13,582
Adjustable rate............................... 756

</TABLE>

-94-

<PAGE>

ORIGINATION OF LOANS. The following table sets forth Mutual's loan
activity for the periods indicated. This includes originations and prepayments
of real estate and other loans, net of loans in process.

<TABLE>
<CAPTION>
At September 30,
---------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage Loans (gross):
Loans at beginning of period....................... $36,422 $38,319 $41,167
New loans originated:
Construction.................................... 4,570 2,573 1,723
Permanent....................................... 7,257 4,566 5,189
Loan repayments:
Construction.................................... (2,923) (2,050) (2,278)
Permanent....................................... (5,586) (6,986) (7,482)
------- ------- -------
Loans at end of period............................... $39,740 $36,422 $38,319
------- ------- -------
------- ------- -------
Consumer and Commercial Loans (gross):
Loans at beginning of period......................... $ 1,454 $ 1,569 $ 2,521
New loans originated.............................. 2,928 2,374 2,774
Loan repayments................................... (2,533) (2,489) (3,726)
------- ------- -------
Loans at end of period............................... $ 1,849 $ 1,454 $ 1,569
------- ------- -------
------- ------- -------
</TABLE>

FEE INCOME FROM LENDING ACTIVITIES. Mutual generally charges loan
origination fees (excluding fees for private mortgage insurance) for first
mortgage loans secured by residential property or land. Mutual also charges fees
for builder's construction loans and home equity second mortgage loans.
Origination fees on commercial and multi-family residential property loans are
negotiated, along with other loan terms, for each loan. Loan application fees
and out-of-pocket costs of Mutual in reviewing loan applications, such as
appraisal or survey costs, are paid by the borrower. Mutual believes its loan
origination fees generally are competitive with those of other lenders in its
market area.

In addition to origination fees, Mutual charges fees for prepayments,
late payments, changes of property ownership and for miscellaneous services.
Income realized from these activities can vary significantly with the volume and
type of loans in the portfolio and in response to competitive factors.

LOAN MATURITY SCHEDULE. The following table sets forth certain
information at September 30, 1995 regarding the dollar amount of loans maturing
in Mutual's portfolio. Scheduled principal repayments are reported in the
maturity category in which the payment is due. Demand loans and loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less.

-95-

<PAGE>

<TABLE>
<CAPTION>
Due Due Due Due Due Due
Year Ended Year Ended Year Ended After After After After
September 30, September 30, September 30, 3 to 5 5 to 10 10 to 15 15
1996 1997 1998 Years Years Years Years Total
---------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Permanent...... $2,469 $2,433 $2,064 $4,202 $11,131 $8,477 $6,081 $36,857
Construction(1) 121 1,313 -- -- -- -- 1,434 1,434
Nonmortgage loans:
Commercial..... 343 358 10 11 -- -- -- 722
Consumer....... 264 428 164 261 10 -- -- 1,127
------ ------ ------ ------ ------- ------ ------ -------
Total........ $3,197 $4,532 $2,238 $4,474 $11,141 $8,477 $6,081 $40,140
------ ------ ------ ------ ------- ------ ------ -------
------ ------ ------ ------ ------- ------ ------ -------

Total adjustable rate loans due after one year.......................................... $25,019

Total fixed-rate loans due after one year............................................... 9,487

</TABLE>

- --------------
(1) Amount is net of loans in process of $1,449.

RISKS AND BENEFITS OF VARIOUS TYPES OF LOANS. Currently, Mutual
originates predominantly residential real estate loans and consumer loans, and
to a lesser extent residential construction loans and commercial loans. Most of
the loans being originated currently are either made to borrowers who reside
locally or are loans secured by real estate located in Mutual's normal lending
area. Historically, residential real estate loans offer the least risk of
default, but generally earn the least amount of interest when compared to other
types of loans such as consumer loans.

Residential construction loans are somewhat riskier but provide a
higher rate of return than permanent residential real estate loans; however,
Mutual attempts to minimize the risk by extending construction loans primarily
to established builders operating in Mutual's market area.

All residential mortgage loans currently originated by Mutual for terms
in excess of 15 years provide for periodic interest rate adjustments. The
adjustable-rate mortgage loans offered by Mutual provide for initial rates of
interest below the rates that would prevail were the market rate index used for
repricing applied initially. Loans which are discounted the first year will
adjust to the current index at the end of one year. Adjustable rate loans are
based on the monthly average yield on U.S. Treasury securities adjusted to a
constant maturity of one year. To compensate for this risk, Mutual uses more
restrictive underwriting standards when originating such loans, and qualifies
any borrowers based upon the fully adjusted rate for such a loan. Although the
introduction of adjustable-rate mortgage loans has been beneficial in helping
Mutual improve the interest rate sensitivity of its assets, such loans may pose
potential additional risks to Mutual, primarily because as interest rates rise,
the payments by the borrower rise, increasing the potential for delinquency or
default, while at the same time the marketability of the underlying property
securing the loan may be adversely affected.

Mutual's commercial and consumer loan portfolios comprise a very small
portion of the overall portfolio. Such loans, while carrying a higher degree of
risk than residential real estate loans, provide a greater rate of return.

-96-

<PAGE>

LOAN COMMITMENTS. Once a mortgage loan is approved, Mutual will
issue a commitment to the borrower. Mutual will guarantee the interest rate
and fees quoted at application for a period of 15 days from the commitment
date, so long as the loan is closed during that time. As of September 30,
1995, commitments of $1,707,300 were outstanding to finance real estate
acquisition and construction of which commitments of $106,200 were for fixed
rate loans and $1,601,100 were for adjustable rate loans.

NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES

NON-PERFORMING LOANS. The following table sets forth as to
non-performing loans in the loan portfolio the aggregate amount of loans
which are accounted for on a non-accrual basis, accruing loans which are
contractually past due 90 days or more as to principal or interest payments,
and loans not included in either of the previous two categories which are
"troubled debt restructurings" as defined by the Statement of Financial
Accounting Standards ("SFAS") No. 15 ("SFAS No. 15") at the dates shown.

<TABLE>
<CAPTION>
At September 30,
---------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accruing(1).............................. $278 $14 $306
Accruing, delinquent
for 90 days or more(2)...................... -- -- --
Restructured(3).............................. -- -- --
----- ----- -----
Total..................................... $278 $14 $306
===== ===== =====
</TABLE>

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

(1) The amount of interest included in net income for these loans for the
period ended September 30, 1995 was $0.00. For the period ended September
30, 1995, $23,874 in gross interest would have been recorded in the period
if these loans had been current in accordance with its original term and
had been outstanding throughout the period.

(2) Loans delinquent as to principal or interest payments.

(3) Loans not included in the other two categories which are defined as
"troubled debt restructurings" pursuant to SFAS No. 15.

Mutual's collection policy provides that all loans will receive a
payment request within 15 days after they become delinquent. When the loan is
30 days delinquent a second notice is mailed. After 60 days, a letter is
sent. In certain instances, Mutual may negotiate a payment schedule with
borrowers to allow them time to bring the loan current. If no arrangement is
made after 90 days, a notice of pending foreclosure is sent. Because of
Mutual's adequate collection procedure as well as the lower risks associated
with its loan portfolio of primarily residential real estate loans,
delinquent loans and foreclosures have not posed a serious problem for Mutual
in the past and are not anticipated to be a problem in the future. Whenever a
loan becomes 90 days or more past due or a potential loss is anticipated or
collection is doubtful, it is Mutual's policy to place all such loans in a
nonaccrual status. Once a loan becomes nonaccrual, interest previously
accrued is reversed out of income.

-97-
<PAGE>

REAL ESTATE OWNED. All property acquired as the result of foreclosure
or by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold or otherwise disposed of by Mutual. As of September 30,
1995, Mutual had no real estate owned.

CLASSIFIED ASSETS. The OTS requirements contain a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful" or "loss," depending on the presence
of certain characteristics.

When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for
loan losses in an amount deemed prudent by management. General allowances
represent loss allowances which have been established to recognize the
inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets. When an
insured institution classifies problem assets as "loss," it is required
either to establish a specific allowance for losses equal to 100% of the
amount of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the institution's
District Director, who can order the establishment of additional general or
specific loss allowances.

Mutual's Treasurer, being independent of loan management, reviews all
problem assets on a quarterly basis, setting up prudent valuation allowances
based on such classifications as needed. Mutual's Board of Directors reviews
the classified assets quarterly and the classification procedures annually.
All loans 90 days delinquent or more are automatically classified. As of
September 30, 1995, $278,453 in loans and other assets were classified as
substandard.

ALLOWANCE FOR LOAN LOSS. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes the
collectability of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing
loans that may become uncollectable, based on valuations of the
collectability of loans and prior loan loss experience. The evaluation by
management considers such factors as current economic conditions, loan
portfolio risks including the value of underlying collateral, and past loan
loss experience. The allowance is increased by charges to income and
decreased by net charge-offs. While management believes the allowance to be
adequate, there are no assurances that further increases in the allowance
will not be required in the future.

-98-

<PAGE>

Analysis of the Allowance for Loan Losses

<TABLE>
<CAPTION>
FOR PERIODS ENDED SEPTEMBER 30,
---------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....... $101 $101 $100 $ 3 $ 3
Charge offs:
Loans
Real estate-mortgage........... -- -- -- -- 67
Consumer loans to
individuals.................. 1 -- -- 1 1
Commercial..................... --
Recoveries:
Loans
Real estate-mortgage........... -- -- -- -- --
Consumer loans to individuals.. -- -- 1 -- --
Commercial..................... -- -- -- -- --
----- ------ ------ ----- ----
Net charge-offs...................... 1 -- (1) 1 68
Provision for loan losses............ 8 -- -- 98 68
------ ------ ------ ------ ----
Balance at end of period............. $108 $101 $101 $100 $ 3
====== ====== ====== ====== ====
Ratio of net charge-offs during
the period to average loans
outstanding during the period...... --% --% --% --% 0.14%
------ ------ ------ ------ ----
</TABLE>

The following table sets forth the allocation of the allowance for
losses by asset category at the dates indicated:

At September 30,
-----------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
% of Loans % of Loans % of Loans
in Category in Category in Category
of Total of Total of Total
Outstanding Outstanding Outstanding
Amount Loans Amount Loans Amount Loans
------ ----------- ------ ----------- ------ -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Loans:
One- to four-family residential
mortgage...................... $ 90 0.23% $ 83 0.22% $ 83 0.21%
Real estate construction:
Commercial and multi-
family real estate......... -- -- -- -- -- --
Consumer...................... 18 0.04 18 0.05 18 0.05
---- ---- ---- ---- --- ----
Total....................... 108 0.27% 101 0.27% 101 0.26%
---- ---- ---- ---- --- ----
---- ---- ----
Unallocated..................... -- -- --
---- ---- ---
Total....................... $108 $101 $101
---- ---- ---
---- ---- ---

</TABLE>

-99-
<PAGE>

At June 30,
---------------------------------------
1995 1994
------------------- -------------------
% of Loans % of Loans
in Category in Category
to Total to Total
Outstanding Outstanding
Amount Loans Amount Loans
------ ----------- ------ -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Loans:
One- to four-family residential
mortgage............................... $ 83 0.19% $-- --%
Real estate construction.................
Commercial and multi-family real estate..
Consumer................................. 17 0.04 3 0.01
---- ---- --- ----
Total 100 0.23% 3 0.01%
---- ----
---- ----
Unallocated .............................. -- --
---- ---
Total................................. $100 $ 3
---- ---
---- ---

</TABLE>

INVESTMENT ACTIVITIES

Federally chartered savings institutions have authority to invest in
various types of liquid assets, including short-term U.S. Treasury
obligations and securities of various federal agencies, certificates of
deposit at insured banks and savings and loan associations, bankers'
acceptances, federal funds, and certain commercial paper and corporate debt
securities. SAIF-insured savings institutions are required to maintain
minimum levels of liquid assets, which minimum is presently set at 5% of
savings deposits, but which may vary from time to time. Liquidity may
increase or decrease depending upon the availability of funds and comparative
yields on investments in relation to return on loans.

On September 30, 1995, the investment portfolio totaled $24.6 million
and had an overall yield of 5.83%. As economic conditions change, tactical
decisions as to current needs for liquidity levels, portfolio yield and
maturity structure will cause alteration in the composition of the investment
portfolio in an attempt to meet the goals of Mutual.

-100-

<PAGE>

All of the investment securities in Mutual's portfolio are classified as
held to maturity or available for sale. The following tables set forth the
composition of Mutual's investment portfolio at the dates indicated.

At September 30,
------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- ---------------------
Book % of Book % of Book % of
Value Portfolio Value Portfolio Value Portfolio
--------- ------------ -------- ------------ -------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Held for investment:
U.S. government and agency obligations.... $13,748 55.9% $18,736 72.1% $14,745 71.8%
Other investments......................... 4,794 19.5 6,409 24.7 4,981 24.3
FHLB Stock................................ 829 3.3 829 3.2 809 3.9
------- ----- ------- ----- ------- -----
Total held for investment.............. 19,371 78.7 25,974 100.0 20,535 100.0
------- ----- ------- ----- ------- -----
Available for sale:
U.S. government and agency obligations... 2,499 10.2 -- -- -- --
Other investments........................ 2,734 11.1 -- -- -- --
------- -----
Total available for sale............... 5,233 21.3 -- -- -- --
------- ----- ------- ----- ------- -----

Total investment securities............ $24,609 100.0% $25,974 100.0% $20,535 100.0%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----

Total market value......................... $24,011 $24,018 $21,133
------- ------- -------
------- ------- -------

</TABLE>

At September 30,
------------------------------------------------------------------------
Within 1 1 to 5 5 to 10 After 10
Year Years Years Years Total
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Held for investment:
U.S.government and agency obligations..... $ -- $7,997 $5,751 $ -- $13,748
Other investments......................... -- 698 3,619 1,306 5,623
----- ------ ------ ------ -------
Total.................................. $ -- $8,695 $9,370 $1,306 $19,371
----- ------ ------ ------ -------
----- ------ ------ ------ -------

Weighted Average Yield.................... --% 5.02% 6.22% 6.57% 5.70%

Available for sale:
U.S. government and agency obligations.... $499 $1,500 $ 500 $ -- $ 2,499
Other investments......................... 500 1,464 770 -- 2,734
----- ------ ------ ------ -------
Total.................................. $999 $2,964 $1,270 $ -- $5,233
----- ------ ------ ------ -------
----- ------ ------ ------ -------

Weighted Average Yield.................. 4.72% 6.30% 7.55% --% 6.30%

</TABLE>

-101-

<PAGE>

At September 30, 1994
------------------------------------------------------------------------
WITHIN 1 1 TO 5 5 TO 10 AFTER 10
YEAR YEARS YEARS YEARS TOTAL
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Held for investment:
U.S. government and agency obligations..... $500 $ 9,987 $ 7,249 $1,000 $18,736
Other investments.......................... -- 1,995 3,938 1,305 7,238
----- ------- ------- ------ -------
Total.................................... $500 $11,982 $11,187 $2,305 $25,974
----- ------- ------- ------ -------
----- ------- ------- ------ -------
Weighted Average Yield.................... 6.12% 5.79% 6.53% 7.32% 6.25%

</TABLE>

SOURCE OF FUNDS

GENERAL. Savings accounts and other types of deposits are the primary
source of funds for Mutual. In addition to deposits, Mutual obtains funds
from loan repayments, interest on investments, and other borrowed money.
These funds are invested primarily in residential real estate loans, consumer
loans and investments. As of September 30, 1995, approximately 4.0% of
Mutual's deposits came from out-of-state sources.

DEPOSITS. The ability of Mutual to attract and maintain deposits and
manage their associated costs has been and will continue to be, significantly
affected by changes in interest rates. It is the policy of Mutual to pay a
competitive rate of interest to attract savings accounts as long as the funds
can be invested for a profit. If the competitive rate of interest is so much
that an investment profit is not realizable, Mutual allows the competitors to
bid in the funds and Mutual obtains needed funds from repayment of loans or
borrowings. It is also the policy of Mutual to safeguard its net worth even
if it means shrinking in size.

-102-
<PAGE>

The following table sets forth the deposits of Mutual in dollar amounts
and as percentages of total deposits at the dates indicated:

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------------------
1995 1994 1993
-------------------------- ------------------------- ------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------ -------- -------- ------ -------- -------- ------ -------- --------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES AND RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and statement.... $15,103 22.4% 3.00% $24,386 36.4% 3.50% $23,577 35.9% 3.50%
Money market accounts..... 4,858 7.2 3.45 5,599 8.4 3.00 6,261 9.5 3.00
NOW checking.............. 3,635 5.4 2.44 3,280 4.9 2.47 3,126 4.8 2.54
Outstanding official
checks................... 243 0.3 -- 590 0.9 -- 320 0.5 --
-------- ----- ------- ----- ------- -----
Sub-Total............. 23,839 35.3 2.98 33,855 50.6 3.25 33,284 50.7 3.28
------- ----- ------- ----- ------- -----
Certificate:

3 mo. - 1 year.......... 27,420 40.6 5.45 22,819 34.1 4.14 22,391 34.1 4.19
1 - 3 year.............. 12,630 18.7 6.27 8,142 12.2 4.97 8,148 12.4 5.06
Due thereafter.......... 3,624 5.4 6.60 2,115 3.1 5.63 1,845 2.8 5.75
------- ----- ------- ----- ------- -----
Total Certificate
Accounts............. 43,674 64.7 5.78 33,076 49.4 4.44 32,384 49.3 4.50
------- ----- ------- ---- ------- -----
Total................. $67,513 100.0% 4.79 $66,931 100.0% 3.84 $65,668 100.0% 3.88
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----

</TABLE>

-103-
<PAGE>

The following table presents, by various interest rate categories, the amounts
of certificates of deposit at Mutual as of the dates indicated.

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------
1995 1994 1993
---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST RATE
Below 3.00%....................... $ 208 $ 239 $ 133
3.00 - 3.99%...................... 93 8,987 13,715
4.00 - 4.99%...................... 5,822 17,733 9,547
5.00 - 5.99%...................... 16,693 3,992 4,629
6.00 - 6.99%...................... 17,336 1,242 1,829
7.00 - 7.99%...................... 3,304 371 1,327
8.00 - 8.99%...................... 211 486 1,018
9.00 - 9.99%...................... 7 6 158
10.00 - and over.................... -- 20 28
------- -------- -------
Total.......................... $43,674 $33,076 $32,384
------- ------- -------
------- ------- -------
</TABLE>

The following table presents time certificates of deposits in amounts
of $100,000 or more at September 30, 1995, by maturity.

MATURITY AMOUNT
-------- --------------
(IN THOUSANDS)
<S> <C>
Less than 3 months $ 308
3 to 6 months 1,221
6 to 12 months 1,746
Over 12 months 1,803
------
Total $5,078
------
------
</TABLE>

BORROWINGS. A potential source of borrowings for Mutual is advances
from the FHLB Atlanta, which functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
Under current OTS regulations, there are no limitations on the amount of
borrowings which may be made by an institution. In recent years, because of
decreased permanent loan demand Mutual has generally not needed long-term
advances and has only occasionally borrowed overnight funds.

The following table sets forth certain information regarding short-term
borrowings and FHLB advances at the indicated dates. Note: The weighted average
rate was computed using the daily balance and total interest expense.

<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------
1995 1994 1993
---------- -------- ---------
(IN THOUSANDS, EXCEPT FOR RATES)
<S> <C> <C> <C>
Amount outstanding.............................. $-- $1,500 $12
Weighted average rate paid...................... --% 5.95% 5.10%

</TABLE>

-104-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
---------- -------- ---------
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C>
Maximum amount outstanding
at any month end period..................... $1,500 $1,500 $144
Approximate weighted average
rate paid ................................. 5.98% 5.09% 5.10%

</TABLE>

EMPLOYEES

On September 30, 1995, Mutual had 27 employees. Management believes
that its employee relations are excellent.

Mutual currently maintains a comprehensive employee benefit program
providing, among other benefits, a qualified pension plan, an ESOP plan,
hospitalization and major medical insurance, paid vacations, paid sick leave,
long-term disability insurance, life insurance and reduced loan rates for
employees who qualify. Mutual's employees are not represented by any collective
bargaining group.

SUBSIDIARIES

OTS regulations permit Mutual to invest up to 2.0% of its assets in
capital stock and secured and unsecured loans to subsidiary corporations of
service corporations and additional 1.0% of its assets when the additional funds
are utilized for community or inner-city purposes. In addition, under OTS
regulations, federally-chartered savings institutions may invest an amount not
to exceed the institution's total capital in conforming loans to service
corporations in which the lender owns or holds not more than 10% of the capital
stock. An institution which owns or holds more than 10% of the capital stock of
a service corporation may make conforming loans to the service corporation in an
amount not to exceed 50% of the institution's total capital.

Service corporation activities are conducted through Mutual's
wholly-owned subsidiary, Mutual Service Corporation ("MSC"). The principal
activity of this subsidiary had been the development of residential subdivisions
in the local Danville, Virginia, area. During fiscal 1995, all residential
subdivisions owned by the service corporation were sold. Commissions from the
sale of credit life provide additional income. MSC had total assets of $39,082
at September 30, 1995, as compared to $1,051,592 at September 30, 1994. Net
income for 1995 amounted to $16,135 as compared to $96,868 in 1994. Earnings for
fiscal 1995 primarily came from interest on time deposits and credit life
insurance commissions. Earnings for fiscal 1994 primarily came from the sale of
residential lots.

The net book value of Mutual's investment in and advances to MSC
(eliminated in consolidation) as of September 30, 1995, was approximately
$68,069, all of which is includable in Mutual's regulatory capital.

COMPETITION

Mutual faces strong competition both in attracting savings deposits
(its primary source of funds) and in originating loans. Its most direct
competition for savings deposits has historically come from other thrift
institutions, commercial banks and credit unions. Mutual also faces increasing
competition for investor funds from money market and mutual funds, the stock
market and

-105-
<PAGE>

governmental and corporate bonds. Mutual's competition for real
estate and other loans comes principally from other thrift institutions,
mortgage banking companies, commercial banks, credit unions, finance companies
and other institutional lenders. Interest rates charged on loans and paid on
deposits by Mutual are generally competitive with other financial institutions
and mortgage originators in its general market area.

Non-depository financial service institutions, primarily in the
securities and insurance industries, have become competitors for retail savings
and investments. Mortgage banking/brokerage firms compete for the residential
mortgage business. Removal of regulatory restrictions has enabled Mutual to
enter the highly competitive consumer lending business.

In addition to offering competitive interest rates, the principal
method used by Mutual to attract deposits includes the offering of a variety of
services, friendly courteous service and convenient office locations and
business hours. The primary factors in competing for loans are interest rates
and rate adjustment provisions, loan maturity, loan fees, and the quality of
service to borrowers and real estate brokers. Mutual has repeat business because
of the customers' trust in Mutual and because of its reputation of fair
dealings. Mutual has seven major competitors in its market area.

FEDERAL AND STATE TAXATION

GENERAL. Mutual reports its income on a fiscal year basis (October 1 to
September 30) using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly Mutual's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to Mutual. Mutual has been audited by the Internal Revenue Service ("IRS") up to
the tax year September 30, 1983.

TAX BAD DEBT RESERVES. Savings institutions such as Mutual which meet
certain definitional tests primarily relating to their assets and the nature of
their business ("qualifying thrifts") are permitted to establish a reserve for
bad debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income.
Mutual's deduction with respect to "qualifying loans," generally loans secured
by certain interests in real property, may be computed using an amount based on
Mutual's actual loss experience, or a percentage equal to 8.0% of Mutual's
taxable income. Use of the percentage of taxable income method of calculating
its deductible addition to its loss reserve has the effect of reducing the
marginal rate of federal tax on Mutual's income (exclusive of wholly-owned
service corporations), as compared to the generally applicable maximum corporate
federal income tax rate. Mutual's deduction with respect to non-qualifying loans
must be computed under the experience method which essentially allows a
deduction for actual charge-offs. Any deduction for an addition to the reserve
for non-qualifying loans reduces the addition to the reserve for qualifying real
property loans calculated under the percentage of taxable income method. Each
year Mutual selects the most favorable way to calculate the deduction with
respect to an addition to the tax bad debt reserve.

The amount of the addition to the reserve for losses on qualifying real
property loans under the percentage of taxable income method cannot exceed the
amount necessary to increase the balance of the reserve for losses on qualifying
real property loans at the close of the taxable year to 6.0% of the balance of
the qualifying real property loans outstanding at the end of the taxable year.
Also, if the qualifying thrift uses the percentage of the taxable income method,
then the qualifying thrift's aggregate addition to its reserve for losses on
qualifying real property loans cannot, when added to the addition to the reserve
for losses on nonqualifying loans, exceed the amount by which (i) 12% of the
amount that the total deposits or withdrawable accounts of depositors of the
qualifying

-106-
<PAGE>

thrift at the close of the taxable year exceeded (ii) the sum of the
qualifying thrift's surplus undivided profits and reserves at the beginning of
such year. At September 30, 1995, 12% of Mutual's deposits and withdrawable
accounts, less its surplus, undivided profits and reserves, did not exceed the
balance of its reserve for losses on qualifying real property loans. For the tax
year ended September 30, 1995, Mutual did not qualify for the special allowance
for bad debts of 8% of taxable income. As of September 30, 1995, Mutual's bad
debt reserve allowance was $3.2 million.

Mutual is also subject to taxation by the Commonwealth of Virginia. The
present Virginia tax rate on federal taxable income with certain modification is
6.0%. Tax regulations under Virginia law allow savings banks to utilize the bad
debt deduction method for the purpose of computing net income subject to state
law.

PROPERTIES

Mutual's main office is located at 103 Tower Drive, Danville, Virginia.
In addition to its main office, Mutual has three branch offices. The following
table sets forth the location and certain other information for each office of
Mutual as of September 30, 1995.

<TABLE>
<CAPTION>
YEAR OWNED OR NET BOOK
LOCATION ACQUIRED LEASED VALUE
-------- -------- -------- ---------
<S> <C> <C> <C>
MAIN OFFICE:
103 Tower Drive 1985 Owned $1,387,364
Danville, Virginia

BRANCHES:

625 Virginia Avenue 1984 Owned 187,931
Collinsville, Virginia

539 Arnett Boulevard 1968 Owned 118,564
Danville, Virginia

600 West Main Street 1970 Owned 46,086
Danville, Virginia

</TABLE>
-107-

<PAGE>

ELECTION OF DIRECTORS OF MUTUAL

The Mutual Board of Directors is presently composed of nine members
elected for terms of three years, one-third of whom stand for election each
year. Two directors are to be elected at the Mutual Annual Meeting to serve
until the 1999 annual meeting or until the proposed merger transaction is
consummated. The nominees, Willie G. Barker, Jr. and F. Neal Howard, Jr., are
both currently serving on the Board of Directors and are being nominated by the
Mutual Board of Directors for re-election. Mr. E. Ballou Bagby, whose term as a
director is expiring, will retire from the Mutual Board of Directors effective
on the date of the Mutual Annual Meeting. Mr. Bagby is to be commended for 35
years of faithful and valued service as a member of Mutual's Board of Directors.
The size of the Mutual Board of Directors will be reduced to eight members upon
Mr. Bagby's retirement. No person being nominated as a director is being
proposed for election pursuant to any agreement or understanding between any
person and Mutual. UNLESS DIRECTIONS ARE GIVEN TO THE CONTRARY, IT IS INTENDED
THAT THE PROXIES SOLICITED BY THE MUTUAL BOARD OF DIRECTORS WILL BE VOTED FOR
THE ELECTION OF SAID NOMINEES. If any nominee is unable to serve, the shares
represented by all valid proxies will be voted for the election of such
substitute as the Mutual Board of Directors may recommend. At this time, all
nominees have agreed to serve and the Mutual Board of Directors knows of no
reason why any nominee might be unavailable to serve. For the election of
directors, each shareholder is entitled to vote in person or by proxy, one vote
for each share owned by him or her.

INFORMATION AS TO MUTUAL NOMINEES AND CONTINUING DIRECTORS

The following table sets forth, as of the Mutual Record Date, the names
of the nominees and continuing directors as well as their age, a brief
description of their principal occupation or employment for the past five years,
the year first elected as a director of Mutual, and the year in which their
current term (or in the case of nominees, their proposed term) as a director
will expire. This table also sets forth the amount of Mutual Common Stock and
percent thereof beneficially owned by each director and by all directors and
executive officers as a group as of the Mutual Record Date.

EXPIRATION SHARES OF
NAME, PRINCIPAL DIRECTOR OF MUTUAL COMMON STOCK PERCENT OF
OCCUPATION, AND (AGE) SINCE TERM BENEFICIALLY OWNED (1) CLASS (2)
- ------------------------------------- ---------- ----------- ----------------------------- ------------
<S> <C> <C> <C> <C>
BOARD NOMINEES:

Willie G. Barker, Jr. (58) 1995 1999 3,000 (direct) 1.73%
Businessman; director and former 20,000 (indirect)
president and chief operating officer
of Dibrell Brothers Inc., a tobacco
processing company.

F. Neal Howard, Jr. (58) 1977 1999 3,080 (direct) 0.46
Professor of Mathematics at 2,202 (indirect)
Danville Community College until
retirement in June of 1992.

</TABLE>

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE ELECTION OF EACH NOMINEE

-108-

<PAGE>

NAME, PRINCIPAL EXPIRATION SHARES OF
OCCUPATION, AND (AGE) DIRECTOR OF MUTUAL COMMON STOCK PERCENT OF
SINCE TERM BENEFICIALLY OWNED (1) CLASS (2)
- ------------------------------------- ---------- ----------- ----------------------------- ------------
<S> <C> <C> <C> <C>

Roy L. Connor (77) 1964 1997 12,050 (direct) 3.68%
District sales manager of 400 (indirect)
Metropolitan Life Insurance Co. 30,000 (indirect) (3)
until retirement in 1975.

Russell Perkins (73) 1961 1997 32,160 (direct) 7.33
Chairman of the Board of Mutual; 36,800 (direct) (2)
and director and president of 30,000 (indirect) (3)
Mutual Service Corporation. 19,831 (indirect) (4)

L. Samuel Saunders (51) 1995 1997 3,000 (direct) 0.45
Certified public accountant with 2,200 (indirect)
the accounting firm of Harris,
Harvey, Neal and Company.

Phillip R. Blackmon (52) 1992 1998 4,000 (direct) 0.35
President of Retail Merchants
Association.

H. Dan Davis (58) 1972 1998 20,000 (direct) 8.85
President, Chief Executive Officer 500 (indirect)
and Director of Mutual and vice 29,900 (direct) (2)
president, treasurer and director 30,000 (indirect) (3)
of Mutual Service Corp. 23,443 (indirect) (4)

T. David Luther (54) 1995 1998 2,000 (direct) 0.52
President, Chief Executive Officer 4,000 (indirect) (5)
of Piedmont Broadcasting
Corporation; president of
Multi-Housing Management, Inc.;
general partner and limited partner
of Downtown Mall Enterprises; and
T. David Luther, T/A Manchester
Square.

RETIRING DIRECTOR:

E. Ballou Bagby (86) 1960 1996 3,000 (direct) 0.26
Served as chairman of the board and
president and chief executive officer
of the First National Bank of Danville
until retirement in 1976.

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

(1) Each person effectively exercises sole (or shared with spouse) voting and dispositive power as to shares reported as directly
held.

(2) Reflects shares which may be acquired pursuant to options which are exercisable.

(3) Reflects 30,000 shares held by the Mutual Pension Plan attributable to each of Messrs. Perkins, Davis and Connor because
they share voting power as trustees of plan.

(4) Reflects shares allocated in Mutual ESOP and over which the participants
share voting power.

(5) Shares are held by Piedmont Broadcasting Corporation.

</TABLE>

-109-

<PAGE>

MUTUAL BOARD OF DIRECTORS MEETINGS AND COMMITTEES

The Mutual Board of Directors conducts its business through board
meetings and the activities of its committees. During the fiscal year ended
September 30, 1995, the Mutual Board of Directors held 13 meetings. During such
period, no director attended fewer than 75% of the aggregate of the total number
of meetings of the Mutual Board of Directors and of the committees of which he
was a member. The following committees have been established by the Mutual Board
of Directors.

EXECUTIVE COMMITTEE. This committee has all the powers of the Mutual
Board of Directors between meetings of the Mutual Board of Directors. The
directors that serve on this committee are Messrs. Perkins, Davis, Blackmon,
Howard, and Bagby. Although the Executive Committee also has responsibility for
compensation policy, the Board has made all compensation decisions during the
last fiscal year. This committee held no meetings in fiscal 1995.

Mutual does not have standing nominating or audit committees.

MUTUAL DIRECTORS COMPENSATION

MUTUAL DIRECTORS FEES. Mutual Directors receive an annual retainer of
$3,000 plus a fee of $300 per Mutual Board meeting attended and $200 per
committee meeting attended. Mutual Services Corporation directors received a fee
of $75 for one meeting in fiscal year 1995. Mr. Perkins, the Chairman of the
Board, received a salary in the amount of $1,400 per month for a portion of the
fiscal year ending September 30, 1995, commencing on January 1, 1995.

MUTUAL EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table shows, for the fiscal
years ending September 30, 1995, 1994 and 1993, the cash compensation paid by
Mutual, as well as certain other compensation paid or accrued for those years,
to the Chief Executive Officer and those executive officers ("Named Executive
Officers") of Mutual, who received salary and bonus in excess of $100,000 in
fiscal 1995.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- ---------------------------------------
AWARDS PAYOUTS
--------------------------- --------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($)(1) ($) ($)(2) ($) SARS (#) ($)(3) SATION($)
- --------------------- ------ --------- ------ ------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell Perkins, 1995 $ 42,075 $ -- $ -- None None None $18,165(6)
Chairman of the 1994 101,975 -- -- None None None 4,644(6)
Board(4) 1993 99,980 9,000 -- None None None 43,882(6)

H. Dan Davis, President 1995 100,011 -- -- None None None 32,085(7)
and Chief Executive 1994 100,663 -- -- None None None 4,572(7)
Officer(5) 1993 95,509 8,644 -- None None None 42,769(7)

</TABLE>

-110-
<PAGE>

- -----------------------------
(1) Includes fees as director of Mutual, and compensation and fees for
service as officers and directors of MSC.

(2) For fiscal 1995, there were no (a) perquisites over the lesser of $50,000
or 10% of the individual's total salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred compensation;
(c) payments with respect to long term incentive plans prior to
settlement or maturation; (d) tax payment reimbursements; or (e)
preferential discounts on stock.

(3) Mutual does not maintain a long-term incentive plan.

(4) Mr. Perkins retired as Chief Executive Officer of Mutual effective
December 31, 1994.

(5) Mr. Davis was named Chief Executive Officer effective January 1, 1995.
Previously, Mr. Davis had served as President and
Chief Operating Officer.

(6) Mr. Perkins was allocated 4,809,387 and 1,211 shares under the Mutual
ESOP for 1993, 1994 and 1995, respectively. The Mutual ESOP allocation
had an estimated market value of $43,882, $4,644 and $18,165, at
September 30, 1993, 1994 and 1995, respectively. Mr. Perkins is 100%
vested in all allocated amounts.

(7) Mr. Davis was allocated 4,687,381 and 2,139 shares under the Mutual ESOP
for 1993, 1994 and 1995, respectively. The Mutual ESOP allocation had an
estimated market value of $42,769, $4,572 and $32,085, at September 30,
1993, 1994 and 1995, respectively. Mr. Davis is 100% vested in all
allocated amounts.

STOCK OPTION PLAN. Mutual's 1987 Stock Option Plan (the "Option Plan")
authorizes the granting to employees of Mutual of 115,000 options, as adjusted
for the 2 for 1 stock split on March 15, 1989, to purchase Mutual Common Stock.

The following table provides certain information with respect to the
number of shares of Mutual Common Stock represented by outstanding stock options
held by the Named Executive Officers as of September 30, 1995. Also reported are
the values for "in-the-money" options which represent the positive spread
between the exercise price of any such existing stock options and the year-end
price of Mutual Common Stock. No options were exercised by the Named Executive
Officers in fiscal 1995.

FISCAL YEAR END OPTION/SAR VALUES

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR END AT FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------- --------------------------- -----------------------------
<S> <C> <C>
Russell Perkins 36,800/0 $368,000/0

H. Dan Davis 29,900/0 299,000/0

</TABLE>
- ---------------
(1) The exercise price of the options is $5.00. As of September 30, 1995,
the average of the bid and ask price as determined from the most recent
trades was $15.00.

-111-

<PAGE>

EMPLOYMENT AGREEMENTS. H. Dan Davis, President and Chief Executive
Officer, has an employment agreement with Mutual that is intended to
maintain a stable and competent management base for Mutual.

Mr. Davis' agreement currently provides for a three (3) year term.
Commencing in 1989, on each anniversary date, the contract automatically renews
for an additional year so the remaining term will remain three years unless
notice is given to the contrary. The contract provides for a base salary,
participation in stock option plans and other fringe benefits otherwise
applicable to executive personnel. In the event Mutual chooses to terminate Mr.
Davis' employment for reasons other than for cause, or in the event of Mr.
Davis' resignation from Mutual upon: (i) failure to re-elect Mr. Davis as
president and director; (ii) a material change in his functions, duties or
responsibilities; (iii) liquidation, dissolution, consolidation, or merger of
Mutual or transfer of all or substantially all of its assets in which Mutual is
not the resulting institution and to which Mr. Davis does not consent; or (iv) a
breach of the agreement by Mutual, he or his beneficiary would be entitled to a
sum equal to the greater of (i) thirty-six (36) times the highest monthly
salary, or (ii) the payments owed for the remaining term of the contract. The
contract also provides that generally if termination results after a Change in
Control (as that term is defined in the agreement) of Mutual (other than as a
result of retirement), Mr. Davis would be entitled to a sum equal to thirty-six
(36) times the highest monthly salary paid under the contract. Based upon the
salary Mr. Davis received in fiscal 1995, Mr. Davis would be entitled to receive
$279,108 in the event of a Change in Control as defined under his agreement.

INDEBTEDNESS OF MANAGEMENT

Mutual has followed the policy of offering loans to its officers and
employees for the financing of their personal residences and, for the past
several years, for other personal reasons. Prior to the enactment of the
Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") in
August, 1989, these loans were made in the ordinary course of business and on
substantially the same terms and collateral, except for interest rates, as those
of comparable transactions prevailing at the time and did not involve more risk
of collectability or present other unfavorable features. After FIRREA, all loans
to directors and executive officers are made on substantially the same terms and
conditions, including interest rates, fees and collateral, as loans to the
general public.

Set forth below is certain information as of September 30, 1995,
relating to loans that in the aggregate exceed $60,000 made to officers of
Mutual, if any loan to such person was made with preferential treatment.

<TABLE>
<CAPTION>
Largest
Outstanding Balance
Balance Collected Rate at
Name Loan Type For 1994 at 9/30/95 9/30/95
- -------------------------- ---------------- ------------------- --------------------- --------------
<S> <C> <C> <C> <C>
H. Dan Davis First Mortgage $55,789 4.319%(V)(2) $52,102

James R. Jefferson(1) First Mortgage 94,206 4.319 (V)(2) 90,455

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

(1) James R. Jefferson is the Treasurer and Chief Financial Officer of Mutual.

(2) Interest rates for such loans are based upon Mutual's cost of funds at
March 1 of each year and are adjusted annually.
(V) indicates variable or adjustable rate.

</TABLE>
-112-

<PAGE>

COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended
requires Mutual's executive officers and directors, and persons who own more
than ten percent of a registered class of Mutual's equity securities, to file
reports of ownership and changes in ownership with the OTS. Executive officers,
directors, and greater than ten-percent shareholders are required by SEC
regulation to furnish Mutual with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, Mutual believes that, since September 30, 1994, all
filing requirements applicable to its executive officers, directors, and greater
than ten-percent beneficial owners were complied with except that Messrs.
Barker, Luther and Saunders failed to file a Form 3 reporting their beneficial
ownership of Mutual stock upon becoming board members. However, such holdings
were subsequently reported on the Form 5 by such directors for the fiscal year
ended September 30, 1995.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MUTUAL COMMON STOCK

Persons and groups owning in excess of 5.0% of Mutual Common Stock are
required to file certain reports regarding such ownership with Mutual and with
the OTS. Mutual is not aware of any person or group, other than the Mutual
Savings Bank, F.S.B. Employee Stock Ownership Plan ("Mutual ESOP"), Mr. Russell
Perkins and Mr. H. Dan Davis, that beneficially owns more than 5.0% of Mutual
Common Stock as of the Mutual Record Date. See "--Information as to Mutual
Nominees and Continuing Directors" herein for the ownership of Messrs. Perkins
and Davis.

The following table sets forth certain information, as of the Mutual
Record Date, as to those persons or groups known to management as having
reported beneficial ownership of more than 5% of Mutual Common Stock except for
Messrs. Perkins and Davis.

<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage of
of Beneficial Owner Ownership Class
--------------------------------------------- -------------------------- ---------------
<S> <C>
Mutual Savings Bank, F.S.B. 118,020(1) 10.23%
Employee Stock Ownership Plan
c/o William H. Smith, Trustee
Smith & Stowe
P.O. Box 190
Danville, Virginia 24543
- --------------------------

(1) All of the shares held by the Mutual ESOP are allocated to participants.
An administrative committee, consisting of Directors Russell Perkins, H.
Dan Davis, and Roy L. Connor, administers the Mutual ESOP. An unrelated
corporate trustee for the Mutual ESOP has been appointed (the "Mutual
ESOP Trustee"). The Mutual ESOP Trustee must vote all allocated shares
held in the Mutual ESOP in accordance with the instructions of the
participating employees. Allocated shares for which the Mutual ESOP
Trustee receives no instructions from participants are voted by the
Mutual ESOP Trustee in a manner calculated to most accurately reflect the
instructions received from participants regarding the allocated stock so
long as such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended (the "ERISA").

</TABLE>
-113-

<PAGE>

APPOINTMENT OF MUTUAL'S AUDITORS FOR FISCAL
YEAR ENDING SEPTEMBER 30, 1996

Mutual's independent auditors for the fiscal year ended September 30,
1995 were Manning, Perkinson, Floyd & Company. The Board of Directors plans to
renew Mutual's arrangements with Manning, Perkinson, Floyd & Company to be its
auditors for the fiscal year ending September 30, 1996 and is seeking
shareholder ratification of its decision. A representative of Manning,
Perkinson, Floyd & Company is expected to be present at the Mutual Annual
Meeting to respond to shareholder questions and will have the opportunity to
make a statement if he so desires.

THE BOARD OF DIRECTORS OF MUTUAL RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF MANNING, PERKINSON, FLOYD & COMPANY AS
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1996.

AUTHORITY TO ADJOURN MUTUAL'S ANNUAL MEETING

The Merger as described above, must be approved by the holders of
two-thirds of the outstanding shares of Mutual Common Stock. The form of
revocable proxy sent to shareholders with this Joint Proxy Statement sets forth
a proposal to permit the Board of Directors of Mutual to vote the proxy in favor
of an adjournment of the annual meeting for up to 29 days in order to solicit
further proxies voting in favor of the Merger. The proposal to authorize such
adjournment must be approved by a majority of the votes present in person or by
proxy at the annual meeting. In the event that a two-thirds vote has not been
achieved within the 29-day adjournment period, the Mutual Board of Directors may
elect to either re-solicit shareholders based on a new or revised
prospectus/proxy statement or, subject to the terms of the Agreement, allow the
Merger to terminate. MUTUAL'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE PROPOSAL AND REQUESTS SHAREHOLDERS CHECK THE BOX PERMITTING
ADJOURNMENT OF THE MUTUAL ANNUAL MEETING IN THE EVENT SUFFICIENT VOTES ARE NOT
CAST IN FAVOR OF THE MERGER.

AMENDMENT OF ANB'S
ARTICLES OF INCORPORATION

THE TEXT OF THE PROPOSED AMENDED ARTICLES OF INCORPORATION OF ANB,
REFLECTING THE PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION OF ANB TO BE
EFFECTED BY THE ARTICLES OF INCORPORATION AMENDMENT, IS ATTACHED AS APPENDIX V
TO THIS JOINT PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX V AND TO
THE PROVISIONS OF THE VSCA.

ANB currently is authorized to issue (i) 3,000,000 shares of ANB Common
Stock and (ii) 200,000 shares of $5.00 par value preferred stock ("ANB Preferred
Stock"). ANB's Board of Directors has unanimously approved a proposed amendment
to ANB's Articles of Incorporation which would increase the number of authorized
shares of ANB Common Stock from 3,000,000 to 10,000,000. Because the amendment
to ANB's Articles of Incorporation to increase the number of authorized shares
of ANB Common Stock is necessary to consummate the Merger, in the event that the
shareholders of ANB fail to approve the Articles of Incorporation Amendment by
the necessary vote, the Merger will not be consummated. However, in the event
the Merger is not consummated

-114-

<PAGE>

but the Articles of Incorporation Amendment is
approved, the proposed increase in the number of authorized shares of ANB Common
Stock will be effected.

As of September 30, 1995, there were 2,400,000 shares of ANB Common
Stock issued and outstanding. In connection with the Merger, ANB will issue up
to 814,000 shares of ANB Common Stock to the holders of Mutual Common Stock. As
a result, upon completion of the Merger, ANB will have approximately 3,214,000
shares of ANB Common Stock outstanding. Because the resulting number of
outstanding shares will exceed the number of shares currently authorized by the
ANB Articles of Incorporation, ANB must increase the number of authorized shares
of ANB Common Stock in order to complete the Merger as contemplated. In addition
to permitting ANB to consummate the Merger, the proposed increase in the number
of shares of ANB Common Stock will give the ANB Board flexibility to issue
additional shares of ANB Common Stock in connection with stock dividends and
stock splits, acquisitions, financings, employee benefits, and for other general
corporate purposes without the expense and delay of obtaining shareholder
approval of an amendment to the Articles of Incorporation increasing the number
of authorized shares at that time, unless required by applicable law or by the
rules of any stock exchange on which the ANB Common Stock then may be listed.

The affirmative vote of more than two-thirds of the votes entitled to
be cast at the ANB Special Meeting by holders of the issued and outstanding ANB
Common Stock is required to increase the number of authorized shares of ANB
Common Stock to 10,000,000. If the proposal is approved, officers of ANB
promptly will make appropriate filings in the Commonwealth of Virginia and take
any other action necessary to implement the amendment.

THE BOARD OF DIRECTORS OF ANB RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE ARTICLES OF INCORPORATION AMENDMENT.

-115-

<PAGE>

SUPERVISION AND REGULATION

GENERAL

ANB is a bank holding company, registered with the Federal Reserve
under the BHC Act. As such, ANB and its subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.

American National, ANB's national bank subsidiary, is a member of the
BIF administered by the FDIC, and as such, its deposits are insured by the FDIC
to the maximum extent provided by law. American National is also subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations, including the National Bank Act and regulations
adopted thereunder by the OCC. The OCC regularly examines the operations of
American National and is given authority to approve or disapprove mergers,
consolidations, the establishment of branches, and similar corporate actions.
The OCC also has the power to prevent the continuance or development of unsafe
or unsound banking practices or other violations of law.

Mutual, as a federally-chartered savings bank, is subject to the
regulation, supervision, and examination of the OTS, as well as the back-up
examination and supervision of the FDIC as its deposit insurer. Mutual is a
member of the SAIF of the FDIC, and its deposits are insured by the FDIC to the
maximum extent permitted by law. Mutual is also a member of the Federal Home
Loan Bank of Atlanta.

The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank; or (iii) it may merge or consolidate with any other bank
holding company.

The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977, as amended
(the "CRA"), both of which are discussed below. Similar federal statutes require
savings and loan holding companies and other companies to obtain the prior
approval of the OTS before acquiring direct or indirect ownership or control of
a savings association.

The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that ANB and any other bank holding company located
in Virginia may now acquire a bank located in any other state, and a bank
holding company located outside Virginia is able to acquire any Virginia-based
bank, regardless of state law to the contrary, in either

-116-

<PAGE>

case subject to certain
deposit percentage and other restrictions. The Interstate Banking Act also
generally provides that, after June 1, 1997, national and state-chartered banks
may branch interstate through acquisitions of banks in other states. By adopting
legislation prior to that date, a state has the ability either to "opt in" and
accelerate the date after which interstate branching is permissible or "opt out"
and prohibit interstate branching altogether. Virginia is among the 13 states
that have so opted in. Accordingly, were ANB to acquire a bank located in a
state other than Virginia that had also opted in, it would be able to
consolidate American National and the acquired bank into a single entity with
interstate branches following the acquisition. Mutual, as a federally-chartered
thrift, currently possesses the authority to establish and operate branch
offices in Virginia and anywhere else in the country, either through mergers
with other depository institutions, branch purchases, or DE NOVO branching.

The BHC Act generally prohibits ANB from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of such
an activity reasonably can be expected to produce benefits to the public, such
as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices. For example, factoring accounts receivable, acquiring or servicing
loans, leasing personal property, conducting discount securities brokerage
activities, performing certain data processing services, acting as agent or
broker in selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. The BHC Act does not place
territorial limitations on permissible nonbanking activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.

Under the HOLA, Mutual's ability to invest in certain types of loans
and other assets is subject to certain restrictions, including: (i) a limit of
400% of its capital on the aggregate amount of loans secured by nonresidential
real estate property; (ii) a limit of 10% of its assets on commercial loans; and
(iii) a limit of 35% of its assets on consumer loans and acquisitions of certain
debt securities. Mutual is also required by the HOLA to meet a qualified thrift
lender or "QTL" test, under which it must maintain at least 65% of its
"portfolio assets" in certain housing-related investments in at least nine
months out of every 12-month period. At September 30, 1995, Mutual maintained
74.31% of its portfolio assets in qualified thrift investments.

COMMUNITY REINVESTMENT

American National and Mutual are subject to the provisions of the CRA
and the federal banking agencies' implementing regulations. Under the CRA, all
financial institutions have a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs for their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions,
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's federal
regulator, in connection with its examination of the institution, to assess the

-117-

<PAGE>

institution's record in assessing and meeting the credit needs of the community
served by that institution, including low- and moderate-income neighborhoods.
The regulatory agency's assessment of the institution's record is made available
to the public. Further, such assessment is required of any institution which has
applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage
for a newly chartered institution; (iii) establish a new branch office that will
accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
Following their most recent CRA compliance examinations, American National and
Mutual each received "satisfactory" CRA ratings.

In December, 1993, the federal banking agencies proposed to revise
their CRA regulations in order to provide clearer guidance to depository
institutions on the nature and extent of their CRA obligations and the methods
by which those obligations would be assessed and enforced. In response to
widespread criticisms of the December, 1993 proposal, the agencies in September,
1994, issued a revised proposal, which was adopted substantially as proposed on
April 17, 1995. Under the new CRA regulations, which are scheduled to go into
effect starting on January 1, 1996, the current process-based CRA assessment
factors are to be replaced with a new evaluation system that would rate
institutions based on their actual performance in meeting community credit
needs. The evaluation system used to judge an institution's CRA performance will
consist of three tests: a lending test; an investment test; and a service test.
Each of these tests will be applied by the institution's federal regulator in an
assessment context that would take into account such factors as: (i) demographic
data about the community; (ii) the institution's capacity and constraints; (iii)
the institution's product offerings and business strategy; and (iv) data on the
prior performance of the institution and similarly-situated lenders. The new
lending test -- the most important of the three tests for all institutions other
than wholesale and limited purpose (e.g., credit card) banks -- will evaluate an
institution's lending activities as measured by its home mortgage loans, small
business and farm loans, community development loans, and, at the option of the
institution, its consumer loans. The institution's regulator will weigh each of
these lending categories to reflect its relative importance to the institution's
overall business and, in the case of community development loans, the
characteristics and needs of the institution's service area and the
opportunities available for this type of lending. Assessment criteria for the
lending test will include: (i) geographic distribution of the institution's
lending; (ii) distribution of the institution's home mortgage and consumer loans
among different economic segments of the community; (iii) the number and amount
of small business and small farm loans made by the institution; (iv) the number
and amount of community development loans outstanding; and (v) the institution's
use of innovative or flexible lending practices to meet the needs of
low-to-moderate income individuals and neighborhoods. At the election of an
institution, or if particular circumstances so warrant, the banking agencies
will take into account in making their assessments lending by the institution's
affiliates as well as community development loans made by the lending consortia
and other lenders in which the institution has invested. As part of the new
regulation, all financial institutions will be required to report data on their
small business and small farm loans as well as their home mortgage loans, which
are currently required to be reported under the Home Mortgage Disclosure Act.

The focus of the investment test will be the degree to which the
institution is helping to meet the needs of its service area through qualified
investments that (i) benefit low-to-moderate income individuals and small
businesses or farms, (ii) address affordable housing needs, or (iii) involve
donations of branch offices to minority or women's depository institutions.
Assessment of an institution's performance under the investment test will be
based upon the dollar amount of the institution's qualified investments, its use
of innovative or complex techniques to support community development
initiatives, and its responsiveness to credit and community development needs.
The

-118-

<PAGE>

service test will evaluate an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs, (ii) the
institution's record of opening and closing branch offices and ATMs, and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low-to-moderate income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test will be applied
to wholesale or limited purpose financial institutions.

Smaller institutions, those having total assets of less than $250
million, will be evaluated under more streamlined criteria. In addition, a
financial institution will have the option of having its CRA performance
evaluated based on a strategic plan of up to five years in length that it had
developed in cooperation with local community groups. In order to be rated under
a strategic plan, the institution will be required to obtain the prior approval
of its federal regulator.

The joint agency CRA regulation provides that an institution evaluated
under a given test will receive one of five ratings for that test: outstanding,
high satisfactory, low satisfactory, needs to improve, or substantial
non-compliance. An institution will then receive a certain number of points for
its rating on each test, and the points will be combined to produce an overall
composite rating of either outstanding, satisfactory, needs to improve, or
substantial noncompliance. Under the agencies' rating guidelines, an institution
that receives an "outstanding" rating on the lending test will receive an
overall rating of at least "satisfactory", and no institution can receive an
overall rating of "satisfactory" unless it receives a rating of at least "low
satisfactory" on its lending test. In addition, evidence of discriminatory or
other illegal credit practices would adversely affect an institution's overall
rating. Under the new regulations, an institution's CRA rating would continue to
be taken into account by its regulator in considering various types of
applications.

PAYMENT OF DIVIDENDS

ANB is a legal entity separate and distinct from American National and
its subsidiaries. The principal source of cash flow of ANB, including cash flow
to pay dividends to its shareholders, is dividends from American National. There
are statutory and regulatory limitations on the payment of dividends by American
National to ANB as well as ANB to its shareholders. Separate restrictions also
apply to the payment of dividends by Mutual to its shareholders.

As a national bank, American National is subject to the applicable
provisions of the National Bank Act and to the regulations of the OCC as to the
payment of dividends. Under the National Bank Act, a national bank may only pay
dividends from "net profits then on hand," which the OCC has defined as retained
earnings (including surplus in excess of required amounts that is derived from
and transferred back to retained earnings).

Mutual is subject to the OTS' regulations governing dividend payments
and other capital distributions. Under those regulations, a savings association
that is well capitalized is permitted to declare dividends of up to the greater
of (i) sum of 100% of its current net income plus one-half of its capital in
excess of the minimum regulatory requirements or (ii) 75% of its net income
during the most recent four-quarter period. Mutual is not permitted to pay
dividends if its shareholders' equity would be reduced below the amount required
for its Liquidation Account. Mutual's declaration of dividends is also dependent
upon tax considerations and general economic conditions.

In addition, under FDICIA, a national bank or federal savings bank may
not pay any dividend if payment would cause it to become undercapitalized or if
it already is undercapitalized. See "--Prompt Corrective Action." Moreover, the
Federal Reserve has issued a policy statement which

-119-

<PAGE>

provides that bank holding companies should generally pay dividends only out
of current operating earnings.

The payment of dividends by ANB, American National, and Mutual may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.

TRANSACTIONS WITH AFFILIATES

There are various restrictions on the extent to which ANB can borrow or
otherwise obtain credit from American National. American National (and its
subsidiaries) is limited in engaging in borrowing and other "covered
transactions" with nonbank or non-savings-bank affiliates to the following
amounts: (i) in the case of any such affiliate, the aggregate amount of covered
transactions of American National and its subsidiaries may not exceed 10% of the
capital stock and surplus of American National; and (ii) in the case of all
affiliates, the aggregate amount of covered transactions of American National
and its subsidiaries may not exceed 20% of the capital stock and surplus of
American National. "Covered transactions" are defined by statute to include a
loan or extension of credit, as well as a purchase of securities issued by an
affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve), the acceptance of securities issued by the affiliate as collateral for
a loan and the issuance of a guarantee, acceptance, or letter of credit on
behalf of an affiliate. Covered transactions are also subject to certain
collateralization requirements. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease, or sale of property or
furnishing of services.

CAPITAL ADEQUACY

ANB, American National, and Mutual are required to comply with the
capital adequacy standards established by the Federal Reserve in the case of
ANB, the OCC in the case of American National, and the OTS in the case of
Mutual. There are two basic measures of capital adequacy for bank holding
companies and insured depository institutions that have been promulgated by the
federal banking agencies: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company or a
depository institution to be considered in compliance.

The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among
depository institutions or their holding companies, to account for
off-balance-sheet exposure, and to minimize disincentives for holding liquid
assets. Assets and off-balance-sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.

The minimum guideline for the ratio ("Risk-Based Capital Ratio") of
total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of the Total Capital must be composed of common equity, undivided profits,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and, only for bank holding companies, a
limited amount of cumulative perpetual preferred stock, less goodwill and
certain other intangible assets ("Tier 1 Capital"). The remainder may consist of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. At September 30, 1995, the Risk-Based Capital Ratio was 20.16% for
both ANB and American National. Mutual's Risk-Based Capital Ratio was 50.03% at
September 30, 1995.

-120-

<PAGE>

In addition, the federal banking agencies have established minimum
leverage ratio guidelines for bank holding companies and depository
institutions. These guidelines provide for a minimum ratio of Tier 1 Capital to
average assets, less goodwill and certain other intangible assets (the "Leverage
Ratio"), of 3.0% for entities that meet certain specified criteria, including
having the highest regulatory rating. All other holding companies and depository
institutions generally are required to maintain a Leverage Ratio of at least
3.0%, plus an additional cushion of 100 to 200 basis points. At September 30,
1995, ANB's, American National's, and Mutual's Leverage Ratios were 11.08%,
11.08%, and 17.73%, respectively. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital
leverage ratio" (deducting all intangibles) and other indicators of capital
strength in evaluating proposals for expansion or new activities. Neither ANB,
American National, nor Mutual has been advised by any federal banking agency of
any specific minimum capital ratio requirement applicable to it.

Failure to meet capital guidelines could subject a depository
institution to a variety of enforcement remedies, including the termination of
deposit insurance by the FDIC, and to certain restrictions on its business.
See "--Prompt Corrective Action."

The federal regulators continue to indicate their desire to refine the
capital requirements applicable to depository institutions and bank holding
companies in order to more accurately reflect the risks other than credit risk
to which banks are subject. In this regard, the Federal Reserve and the OCC
have, pursuant to FDICIA, proposed an amendment to the Risk-Based Capital
standards which would calculate the change in an institution's net economic
value attributable to increases and decreases in market interest rates and would
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures. In the case of Mutual, the OTS has
already included an interest-rate risk component in its risk-based capital
guidelines for savings associations.

SUPPORT OF AMERICAN NATIONAL

Under Federal Reserve policy, ANB is expected to act as a source of
financial strength for, and to commit resources to support, American National.
This support may be required at times when, absent such Federal Reserve policy,
ANB may not be inclined to provide it. In addition, any capital loans by ANB to
American National are subordinate in right of payment to deposits and to certain
other indebtedness of American National. In the event of ANB's bankruptcy, any
commitment by ANB to a federal bank regulatory agency to maintain the capital of
American National will be assumed by the bankruptcy trustee and entitled to a
priority of payment.

PROMPT CORRECTIVE ACTION

FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in 1992, the federal banking regulators are required to establish five
capital categories ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized") and to take certain mandatory supervisory actions (and are
authorized to take other discretionary actions) with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the depository institution regulator to
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal regulatory agencies have specified by regulation
the relevant capital level for each category.

-121-

<PAGE>

Under the final agency rule implementing the prompt corrective action
provisions, an institution that (i) has a Risk-Based Capital ratio of 10% or
greater, a Tier 1 Risk-Based Capital ratio (i.e., the ratio of Tier 1 Capital to
risk-weighted assets) of 6.0% or greater, and a Leverage Ratio of 5.0% or
greater, and (ii) is not subject to any written agreement, order, capital
directive, or prompt corrective action directive issued by the appropriate
federal banking agency, is deemed to be "well capitalized." An institution with
a Risk-Based Capital ratio of 8.0% or greater, a Tier 1 Risk-Based Capital ratio
of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered to be
"adequately capitalized." A depository institution that has a Risk-Based Capital
ratio of less than 8.0%, a Tier 1 Risk-Based Capital ratio of less than 4.0%, or
a Leverage Ratio of less than 4.0% is considered to be "undercapitalized." A
depository institution that has a Risk-Based Capital ratio of less than 6.0%, a
Tier 1 Risk-Based Capital ratio of less than 3.0%, or a Leverage Ratio of less
than 3.0% is considered to be "significantly undercapitalized," and an
institution that has a tangible equity capital to assets ratio equal to or less
than 2.0% is deemed to be "critically undercapitalized." For purposes of the
regulation, the term "tangible equity" includes core capital elements counted as
Tier 1 Capital for purposes of the Risk-Based Capital standards plus the amount
of outstanding cumulative perpetual preferred stock (including related surplus),
minus all intangible assets with certain exceptions. A depository institution
may be deemed to be in a capitalization category that is lower than is indicated
by its actual capital position if it receives an unsatisfactory examination
rating.

An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal regulatory
agency. Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meet is capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets and the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of the
FDIC. In addition, the appropriate federal banking agency is given authority
with respect to any undercapitalized depository institution to take any of the
actions it is required to or may take with respect to a significantly
undercapitalized institution as described below if it determines "that those
actions are necessary to carry out the purpose" of FDICIA. For those
institutions that are significantly undercapitalized or undercapitalized and
either fail to submit an acceptable capital restoration plan or fail to
implement an approved capital restoration plan, the appropriate federal banking
agency must require the institution to take one or more of the following
actions: (i) sell enough shares, including voting shares, to become adequately
capitalized; (ii) merge with (or be sold to) another institution (or holding
company), but only if grounds exist for appointing a conservator or receiver;
(iii) restrict certain transactions with banking affiliates as if the "sister
bank" exception to the requirements of Section 23A of the Federal Reserve Act
did not exist; (iv) otherwise restrict transactions with bank or nonbank
affiliates; (v) restrict interest rates that the institution pays on deposits to
"prevailing rates" in the institution's "region"; (vi) restrict asset growth or
reduce total assets; (vii) alter, reduce, or terminate activities; (viii) hold a
new election of directors; (ix) dismiss any director or senior executive officer
who held office for more than 180 days immediately before the institution became
undercapitalized, provided that in requiring dismissal of a director or senior
officer, the agency must comply with certain procedural requirements, including
the opportunity for an appeal in which the director or officer will have the
burden of proving his or her value to the institution; (x) employ "qualified"
senior executive officers; (xi) cease accepting deposits from correspondent
depository institutions; (xii) divest certain nondepository affiliates which
pose a danger to the institution; or (xiii) be divested by a parent holding
company. In addition, without the prior approval of the appropriate federal
banking agency, a significantly undercapitalized institution may

-122-

<PAGE>

not pay any bonus to any senior executive officer or increase the rate of
compensation for such an officer without regulatory approval.

At September 30, 1995 American National and Mutual both had the
requisite capital levels to qualify as well capitalized.

BROKERED DEPOSITS

The FDIC has adopted regulations governing the receipt of brokered
deposits. Under the regulations, a depository institution cannot accept, roll
over, or renew brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A depository
institution that cannot receive brokered deposits also cannot offer
"pass-through" insurance on certain employee benefit accounts. Whether or not it
has obtained such a waiver, an adequately capitalized depository institution may
not pay an interest rate on any deposits in excess of 75 basis points over
certain prevailing market rates specified by regulation. There are no such
restrictions on a depository institution that is well capitalized. Because both
American National and Mutual had at September 30, 1995, the requisite capital
levels to qualify as well capitalized, the brokered deposits regulation will
have no material effect on the funding or liquidity of either institution.

FDIC INSURANCE ASSESSMENTS

Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system
for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The new system, which went into effect on January 1, 1994 and
replaces a transitional system that the FDIC had utilized for the 1993 calendar
year, assigns an institution to one of three capital categories: (i) well
capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These
three categories are substantially similar to the prompt corrective action
categories described above, with the "undercapitalized" category including
institutions that are undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action purposes. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator, information which the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance funds (which may include, if applicable, information
provided by the institution's state supervisor). An institution's insurance
assessment rate is then determined based on the capital category and supervisory
category to which it is assigned. Under the final risk-based assessment system,
as well as the prior transitional system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory subgroups)
to which different assessment rates are applied.

Assessment rates for the first half of 1995 for members of both the BIF
and the SAIF, as they had been during 1994, ranged from 23 basis points (0.23%
of deposits) for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.

Once the designated ratio for the BIF was reached, which appears to
have occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment rates
at such levels that would maintain a fund's reserve ratio at the designated
level. In August 1995, the FDIC adopted final regulations reducing the

-123-

<PAGE>

assessment rates for BIF members. Under the revised assessment schedule,
BIF-insured institutions, starting with the second half of 1995, will now pay
assessments ranging from 0.04% of deposits to 0.31% of deposits, with an average
assessment rate of 4.5 basis points. Refunds, with interest, will be paid for
assessments for the month(s) after the month in which the designated reserve
ratio for the BIF was reached, as well as for the quarterly payment made on
September 30, 1995, assuming that the designated reserve ratio was achieved
prior to June 30, 1995. At the same time, the FDIC elected to retain the
existing assessment range of 23 to 31 basis points for SAIF members for the
foreseeable future given the undercapitalized nature of that insurance fund.

On July 28, 1995, the FDIC, the Treasury Department, and the OTS
released statements outlining a proposed plan (the "Proposed Plan") to
recapitalize the SAIF. The Proposed Plan, which is pending before Congress both
as a stand-alone measure and as a part of the proposed budget reconciliation
legislation, would require all SAIF-member institutions to pay a special
assessment of approximately 85 basis points (0.85% of deposits) based on the
amount of SAIF-assessable deposits on March 31, 1995. The special assessment
would be payable on January 1, 1996, and would result in a significant
recapitalization of the SAIF so as to enable the fund to reach its designated
reserve ratio. The Proposed Plan would make other statutory changes that would
strengthen the SAIF fund: the assessment base for the payments on the FICO bonds
would be expanded to include the deposits of both BIF and SAIF insured
institutions; the unspent funds of the Resolution Trust Corporation (the "RTC")
would be made available to cover any extraordinary and unanticipated SAIF losses
until the BIF and SAIF were merged (a part of the Proposed Plan not supported by
the Treasury Department); and the BIF and SAIF would be merged as soon as
possible but no later than the beginning of 1998. The Proposed Plan would also
reduce the minimum average assessment rate required under the FDI Act for a fund
that is undercapitalized or has outstanding borrowings from the Treasury of the
Federal Financing Bank from 23 basis points to 8 basis points. The Proposed Plan
also includes special rules for undercapitalized institutions that could not pay
the special assessment without increasing the risk of losses to the SAIF. Other
legislative proposals made in connection with the Proposed Plan have included
combining the thrift and bank charters into a single unified charter, requiring
all thrifts to become banks or state-chartered savings banks.

As a member of the SAIF, Mutual would be required to pay a special
assessment on its deposits to the SAIF, while American National, as a BIF
member, currently would be exempt from any special assessments. However,
assuming the Merger occurred before September 30, 1996,, the approximate $67.5
million in Mutual deposit liabilities assumed by American National could
continue to be treated as SAIF-insured for assessment purposes. Accordingly, if
the Proposed Plan were adopted by Congress and the Merger were to take place
prior to the payment of any such assessment, American National would be required
to pay a special assessment of up to $574,000 on the deposits acquired from
Mutual. Various proposals have been made to reduce the assessment rate on
BIF-member banks that hold SAIF-assessed deposits. Consequently, the amount of
the special assessment that would be paid by American National could be somewhat
less, depending upon final special assessment provisions enacted into law.

Under the Federal Deposit Insurance Act ("FDI Act"), insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe and unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule,
order, or condition imposed by the FDIC.

-124-

<PAGE>

SAFETY AND SOUNDNESS STANDARDS

The FDI Act, as amended by the FDICIA, and the Riegle Community
Development and Regulatory Improvement Act of 1994 ("Community Development
Act"), requires the federal bank regulatory agencies, to prescribe standards, by
regulations or guidelines, relating to internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, interest
rate risk exposure, asset growth, asset quality, earnings, stock valuation and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The federal bank regulatory agencies
have adopted, effective August 9, 1995, a set of guidelines prescribing safety
and soundness standards pursuant to FDICIA as amended. The guidelines establish
general standards relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth and compensation, fees, and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal shareholder. The federal agencies determined that stock
valuation standards were not appropriate. In addition, the agencies adopted
regulations that authorize, but do not require, them to order an institution
that has been notified that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified, an
institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the agency must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association is
subject under the "prompt corrective action" provisions of FDICIA. See "--Prompt
Corrective Action." If an institution fails to comply with such an order, the
federal agency may seek to enforce such an order in judicial proceedings and to
impose civil money penalties. The federal bank regulatory agencies also proposed
guidelines for asset quality and earnings standards.

DEPOSITOR PREFERENCE

The Omnibus Budget Reconciliation Act of 1993 provides that deposits
and certain claims for administrative expenses and employee compensation against
an insured depository institution would be afforded a priority over other
general unsecured claims against such an institution in the "liquidation or
other resolution" of such an institution by any receiver.

OTHER

Because of concerns relating to the competitiveness and the safety and
soundness of the industry, the Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation, and competitive
relationships of the nation's financial institutions. Among such bills are
proposals to alter the statutory separation of commercial and investment banking
and to further expand the powers of depository institutions, bank holding
companies, and competitors of depository institutions. It cannot be predicted
whether or in what form any of these proposals will be adopted or the extent to
which the businesses of ANB, American National, or Mutual may be affected
thereby.

-125-
<PAGE>

DESCRIPTION OF ANB CAPITAL STOCK

In the event the Articles of Incorporation Amendment is effected, the
authorized capital stock of ANB will consist of (i) 10,000,000 shares of ANB
Common Stock and (ii) 2,000,000 shares of ANB Preferred Stock. Upon completion
of the Merger, based on the outstanding shares of Mutual Common Stock and ANB
Common Stock on the Mutual Record Date and the ANB Record Date, respectively,
approximately 3,214,000 shares of ANB Common Stock will be issued and
outstanding, and no shares of ANB Preferred Stock will be issued and
outstanding. ANB Common Stock will be listed for trading on the OTC Bulletin
Board under the symbol "AMNB." The following discussion is a brief summary of
the ANB capital stock and the relevant provisions of Virginia law and the
Amended Articles of Incorporation and Bylaws of ANB. The following summary does
not purport to be complete and is qualified in its entirety by reference to the
VSCA and to the Amended Articles of Incorporation, which are attached hereto as
Appendix V and are incorporated herein by reference, and the Bylaws of ANB.

ANB COMMON STOCK

VOTING RIGHTS. Each share of the ANB Common Stock has the same relative
rights and is identical in all respects with every other share of the ANB Common
Stock. The shareholders of ANB Common Stock possess exclusive voting rights in
ANB, except to the extent that shares of ANB Preferred Stock issued in the
future may have voting rights, if any. Each shareholder of ANB Common Stock is
entitled to one vote for each share held of record on all matters submitted to a
vote of holders of the ANB Common Stock. Holders of shares of ANB Common Stock
are not entitled to cumulate votes for the election of directors.

DIVIDENDS. Subject to such preferences as may be applicable to any
shares of ANB Preferred Stock which may be issued in the future, the holders of
ANB Common Stock are entitled to such dividends as the Board of Directors of ANB
may declare from time to time out of funds legally available therefor and will
be entitled to share pro rata in liquidating and other distributions to
shareholders. Dividends from ANB will depend upon the receipt by ANB of
dividends from American National because ANB will have no source of income other
than dividends from American National. See "Supervision and Regulation--Payment
of Dividends."

LIQUIDATION. In the event of the liquidation, dissolution, or winding
up of ANB, the holders of shares of ANB Common Stock are entitled to share
ratably in all assets remaining after payment of all debts and other liabilities
of ANB, subject to prior distribution rights of ANB Preferred Stock, if any,
then outstanding.

OTHER CHARACTERISTICS. Holders of ANB Common Stock do not have any
preemptive, conversion, or other subscription rights with respect to any
additional shares of ANB Common Stock that may be issued. Therefore, the Board
of Directors of ANB may sell shares of capital stock of ANB without first
offering it to existing shareholders. ANB Common Stock is not subject to any
redemption or sinking fund provisions. Upon completion of the Merger, the
outstanding shares of ANB Common Stock will be fully paid and non assessable.

TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for
ANB Common Stock is ANB.

-126-
<PAGE>

ANB PREFERRED STOCK

The ANB Preferred Stock may be issued from time to time by the Board of
Directors of ANB as shares of one or more classes or series. As provided by
Virginia law, the Board of Directors of ANB will be authorized by adopting
resolutions to establish the number of shares to be included in each class or
series and to fix the designations and relative powers, preferences, rights,
qualifications, and limitations or restrictions thereof, including the dividend
rate, terms of redemption, convertibility, voting rights, and any obligation to
retire the shares or series pursuant to a sinking fund. If and when issued, ANB
Preferred Stock is likely to rank prior to the ANB Common Stock as to dividend
rights, liquidation preferences, or both and may have full or limited voting
rights. The ANB Board of Directors has no present intention to issue any of the
ANB Preferred Stock. Because of its broad discretion with respect to the
creation and issuance of any series of ANB Preferred Stock without shareholder
approval, the ANB Board of Directors could affect adversely the voting power of
the holders of ANB Common Stock and by issuing shares of ANB Preferred Stock
with certain voting, conversion, and/or redemption rights, could discourage any
attempt to obtain control of ANB in any transaction not approved by ANB's Board
of Directors.

LEGAL MATTERS

Alston & Bird, counsel for ANB, has delivered its opinion to the effect
that ANB Common Stock to be issued to the holders of Mutual Common Stock in
connection with the Merger, when issued as contemplated in the Agreement, will
be validly issued, fully paid, and nonassessable. Alston & Bird has delivered
its opinion concerning the federal income tax consequences of the Merger. See
"The Merger--Certain Federal Income Tax Consequences." Certain other legal
matters in connection with the Merger will be passed upon for ANB by Alston &
Bird and for Mutual by Muldoon, Murphy & Faucette, counsel to Mutual.

EXPERTS

The consolidated financial statements of ANB incorporated in this Joint
Proxy Statement by reference from ANB's Annual Report on Form 10-K for the year
ended December 31, 1994, and attached to this Joint Proxy Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report, which is incorporated herein by reference and attached to this
Joint Proxy Statement, and are incorporated by reference herein and attached
hereto in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.

The consolidated financial statements of Mutual as of September 30,
1995, and 1994, and for each of the years in the three-year period ended
September 30, 1995, and attached to this Joint Proxy Statement, have been
included herein in reliance upon the report Manning, Perkinson, Floyd & Company,
independent public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

-127-
<PAGE>

OTHER MATTERS

MISCELLANEOUS

As of the date of this Joint Proxy Statement, the Board of Directors of
Mutual and the Board of Directors of ANB know of no matter which will be
presented for consideration at the Meetings other than as described in this
Joint Proxy Statement. However, if any other matter shall come before the Mutual
Annual Meeting or any adjournment or postponement thereof or the ANB Special
Meeting or any adjournment or postponement thereof and be voted upon, the
proposed proxy will be deemed to confer discretionary authority to the
individuals named as authorized herein to vote the shares represented by such
proxy as to any such matters.

SOLICITATION

In addition to solicitation by mail, proxies may be solicited by the
officers, directors, and employees of Mutual and ANB by telephone, telegram, or
in person. Such directors, officers, and employees will not be compensated
additionally for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward solicitation
materials to beneficial owners and will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection therewith. All other expenses
associated with soliciting proxies will be borne by the party incurring the
same, except for the expenses of printing, filing, and mailing this Joint Proxy
Statement, which will be shared equally by Mutual and ANB.

SHAREHOLDER PROPOSALS

If the Merger is consummated, it currently is anticipated that ANB will
hold its first annual meeting of shareholders following such consummation during
April, 1996. As disclosed in the proxy statement sent to shareholders in
connection with the 1995 Annual Meeting of Shareholders of ANB, shareholders
wishing to submit proposals for inclusion in the ANB proxy statement must submit
them to ANB on or before January 2, 1996 for consideration by ANB for possible
inclusion in such proxy materials.

If the Merger is not consummated, proposals of Mutual shareholders
intended to be presented at its 1997 Annual Meeting of Shareholders must be
received by Mutual at its principal executive offices on or before ___________,
1996, in order to be included in Mutual's proxy statement and form of proxy
relating to its 1997 Annual Meeting of Shareholders of Mutual.

-128-

<PAGE>

INDEX TO FINANCIAL STATEMENTS

AMERICAN NATIONAL BANKSHARES INC.

Report of Independent Public Accountants . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . F-3
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Shareholders' Investment
for the Years Ended December 31, 1994, 1993, and 1992 . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-7

Consolidated Condensed Balance Sheets as of September 30, 1995
and December 31, 1994 (Unaudited) . . . . . . . . . . . . . . . . . F-17
Consolidated Condensed Statements of Income for the Three Months
Ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . F-18
Consolidated Condensed Statements of Income for the Nine Months
Ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . F-19
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . F-20
Notes to Consolidated Condensed Financial Statements . . . . . . . . F-21

MUTUAL SAVINGS BANK, F.S.B.

Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Statements of Financial Condition as of
September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-23
Consolidated Statements of Operations for the Years Ended
September 30, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . F-24
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1995, 1994, and 1993. . . . . . . . . . . F-25
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . F-26
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-28

F-1

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF
AMERICAN NATIONAL BANKSHARES INC.:

We have audited the accompanying consolidated balance sheets of American
National Bankshares Inc. (a Virginia corporation) and Subsidiary as of
December 31, 1994 and 1993, and the related consolidated statements of income,
changes in shareholders' investment and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
National Bankshares Inc. and Subsidiary as of December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Greensboro, North Carolina,
January 13, 1995.

F-2

<PAGE>

CONSOLIDATED BALANCE SHEETS
American National Bankshares Inc. and Subsidiary

December 31,
---------------------------------------------
1994 1993
--------------------- ----------------------
<S> <C> <C>
ASSETS
Cash and Due from Banks (Notes 1 and 7) . . . . . . .. . . . $ 9,177,088 $ 6,307,888
Federal Funds Sold (Note 1) . . . . . . . . . . . . .. . . . 4,650,000 1,550,000
Interest-Bearing Deposits in Other Banks . . . . . . . . . . 1,585,961 3,499,087
Investment Securities (Notes 1 and 3):
U.S. Government. . . . . . . . . . . . . . . . . . . . . . 65,952,135 73,333,861
Federal agencies . . . . . . . . . . . . . . . . . . . . . 2,809,151 8,206,271
State and municipal. . . . . . . . . . . . . . . . . . . . 10,479,607 10,276,001
Other investments. . . . . . . . . . . . . . . . . . . . . 10,000 10,000
------------- -------------
Total investment securities (market value of $77,231,293
in 1994 and $92,798,939 in 1993) . . . . . . . . . . . . 79L,250,893 91,828,133
------------- -------------

Loans (Notes 1, 4, and 8) . . . . . . . . . . . .. . . . . . 155,435,934 143,846,487
Less--
Unearned income. . . . . . . . . . . . . . . . . . . . . (1,956,678) (3,814,927)
Reserve for loan losses. . . . . . . . . . . . . . . . . (2,353,411) (2,154,771)
------------- -------------
Net loans. . . . . . . . . . . . . . . . . . . . . . . 151,125,845 137,876,789
------------- -------------

Federal Reserve Stock, Federal Home Loan Bank Stock. . . . . 944,600 201,500
and Other, at cost
Bank Premises and Equipment, at cost, less accumulated . . . 3,401,759 3,233,279
depreciation of $4,239,886 in 1994 and $3,788,225
in 1993 (Note 1)
Accrued interest receivable and other assets . . . . . . . . 3,632,185 3,211,125
------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . . $253,768,331 $247,705,801
------------- -------------
------------- -------------

Liabilities and Shareholders' Investment
Liabilities:
Demand deposits -- non-interest bearing. . . . . . . . . . $27,827,503 $28,045,965
Demand deposits -- interest bearing. . . . . . . . . . . . 31,773,232 31,133,749
Money market deposits. . . . . . . . . . . . . . . . . . . 21,915,675 20,572,014
Savings deposits . . . . . . . . . . . . . . . . . . . . . 54,028,591 59,607,003
Time deposits (Note 5) . . . . . . . . . . . . . . . . . . 80,315,772 78,296,226
------------- -------------
Total deposits . . . . . . . . . . . . . . . . . . . . . 215,860,773 217,654,957
Repurchase agreements. . . . . . . . . . . . . . . . . . . 6,104,795 --
Accrued interest payable and other liabilities . . . . . . 1,017,091 969,212
------------- -------------
Total liabilities. . . . . . . . . . . . . . . . . . . . 222,982,659 218,624,169
------------- -------------

Shareholders' Investment (Notes 2 and 10):
Preferred stock, $5 par, 200,000 shares
authorized, none outstanding . . . . . . . . . . . . . . -- --
Common stock, $1 par, 3,000,000 shares authorized,
2,400,000 shares outstanding . . . . . . . . . . . . . . 2,400,000 2,400,000
Capital in excess of par value . . . . . . . . . . . . . . 5,400,000 5,400,000
Net unrealized loss (Note 3) . . . . . . . . . . . . . . . (28,641) --
Retained earnings. . . . . . . . . . . . . . . . . . . . . 23,014,313 21,281,632
------------- -------------
Total shareholders' investment . . . . . . . . . . . . . 30,785,672 29,081,632
------------- -------------
Total liabilities and shareholders' investment . . . . . $253,768,331 $247,705,801
------------- -------------
------------- -------------
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

F-3

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

American National Bankshares Inc. and Subsidiary

For the Years Ended December 31,
---------------------------------------------------------
1994 1993 1992
------------------- ------------------ ----------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (Note 4). . . . . . . . . . . . $11,797,860 $10,606,879 $11,039,406
Interest on federal funds sold and other . . . . . . . . . 171,167 321,534 489,724
Income on investment securities:
U.S. Government. . . . . . . . . . . . . . . . . . . . . . 3,203,707 3,710,226 4,164,471
Federal agencies . . . . . . . . . . . . . . . . . . . . . 272,729 622,617 737,971
State and municipal (tax-exempt) . . . . . . . . . . . . . 610,851 656,374 916,731
Other investments. . . . . . . . . . . . . . . . . . . . . 550 550 550
------------ ------------ ------------
Total interest income. . . . . . . . . . . . . . . . . . 16,056,864 15,918,180 17,348,853
------------ ------------ ------------

INTEREST EXPENSE:
Interest on deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . 751,388 796,821 959,667
Money market . . . . . . . . . . . . . . . . . . . . . . 510,267 591,229 733,877
Savings. . . . . . . . . . . . . . . . . . . . . . . . . 1,577,452 1,870,521 1,630,780
Time (Note 5). . . . . . . . . . . . . . . . . . . . . . 3,494,147 3,755,283 5,439,801
Interest on federal funds purchased and repurchase
agreements . . . . . . . . . . . . . . . . . . . . . . . 41,033 3,387 62,007
------------ ------------ ------------

Total interest expense . . . . . . . . . . . . . . . . 6,374,287 7,017,241 8,826,132
------------ ------------ ------------
Net Interest Income. . . . . . . . . . . . . . . . . . . . . 9,682,577 8,900,939 8,522,721
Provision for Loan Losses (Notes 1 and 4). . . . . . . . . . 271,802 213,500 229,650
------------ ------------ ------------

Net Interest Income After Provision for Loan Losses. . . . . 9,410,775 8,687,439 8,293,071
------------ ------------ ------------

NON-INTEREST INCOME:
Trust department income. . . . . . . . . . . . . . . . . . 1,396,072 1,469,727 1,351,057
Service charges on deposit accounts. . . . . . . . . . . . 278,807 256,071 209,319
Non-deposit fees and insurance commissions . . . . . . . . 103,713 80,090 104,545
Other income . . . . . . . . . . . . . . . . . . . . . . . 107,266 64,660 62,858
------------ ------------ ------------
Total non-interest income. . . . . . . . . . . . . . . . 1,885,858 1,870,548 1,727,779
------------ ------------ ------------

NON-INTEREST EXPENSE:
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . 2,767,447 2,753,944 2,563,488
Pension and other employee benefits (Note 9) . . . . . . . 683,386 472,440 357,313
Occupancy and equipment expense (Note 1) . . . . . . . . . 870,545 830,645 745,388
FDIC insurance expense . . . . . . . . . . . . . . . . . . 484,337 469,690 452,894
Postage and printing . . . . . . . . . . . . . . . . . . . 237,108 254,519 239,192
Other expenses . . . . . . . . . . . . . . . . . . . . . . 1,076,129 991,009 931,572
------------ ------------ ------------

Total non-interest expense . . . . . . . . . . . . . . . 6,118,952 5,772,247 5,289,847
------------ ------------ ------------

Income Before Income Tax Provision . . . . . . . . . . . . . 5,177,681 4,785,740 4,731,003
Income Tax Provision (Notes 1 and 6) . . . . . . . . . . . . 1,645,000 1,483,000 1,237,000
------------ ------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . $3,532,681 $3,302,740 $3,494,003
------------ ------------ ------------
------------ ------------ ------------
Net Income Per Common Share, based on 2,400,000 shares
outstanding (Note 10). . . . . . . . . . . . . . . . . . . . $ 1.47 $ 1.38 $ 1.48
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

F-4

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' INVESTMENT

American National Bankshares Inc. and Subsidiary

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

Capital in Net Total
Common Stock Excess of Unrealized Retained Shareholders'
----------------------------- Par Value Loss Earnings Investment
Shares Amount ----------- ----------- ------------- -----------
------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 . . . . . . . 1,200,000 $1,200,000 $5,400,000 $ -- $18,396,889 $24,996,889

Net income . . . . . . . . . . . . . . . -- -- -- -- 3,494,003 3,494,003

Cash dividends, at $.66 per share. . . . -- -- -- -- (1,584,000) (1,584,000)

Common stock issued pursuant to
a 2 for 1 stock split (Note 10). . . . 1,200,000 1,200,000 -- -- (1,200,000) --
---------- ---------- ---------- ---------- ----------- -----------

Balance, December 31, 1992 . . . . . . . 2,400,000 $2,400,000 $5,400,000 $ -- $19,106,892 $26,906,892

Net income . . . . . . . . . . . . . . . -- -- -- -- 3,302,740 3,302,740

Cash dividends, at $.47 per share. . . . -- -- -- -- (1,128,000) (1,128,000)
---------- ---------- ---------- ---------- ----------- -----------

Balance, December 31, 1993 . . . . . . . 2,400,000 $2,400,000 $5,400,000 $ -- $21,281,632 $29,081,632

Net income . . . . . . . . . . . . . . . -- -- -- -- 3,532,681 3,532,681

Cash dividends, at $.75 per share. . . . -- -- -- -- (1,800,000) (1,800,000)

Net unrealized loss. . . . . . . . . . . -- -- -- (28,641) -- (28,641)
---------- ---------- ---------- ---------- ----------- -----------

Balance, December 31, 1994 . . . . . . . 2,400,000 $2,400,000 $5,400,000 $(28,641) $23,014,313 $30,785,672
---------- ---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ---------- ----------- -----------

The accompanying notes to consolidated financial statements are an integral part of these statements.

</TABLE>

F-5

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

American National Bankshares Inc. and Subsidiary

For the Years Ended December 31,
-----------------------------------------------------

1994 1993 1992
----------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received. . . . . . . . . . . . . . . . $16,004,339 $16,392,487 $17,958,281
Fees and commissions received. . . . . . . . . . 1,826,504 2,105,099 1,440,224
Interest paid. . . . . . . . . . . . . . . . . . (6,359,202) (7,064,332) (9,253,296)
Cash paid to suppliers and employees . . . . . . (5,723,550) (5,388,813) (4,975,314)
Income taxes paid. . . . . . . . . . . . . . . . (1,686,255) (1,736,707) (1,160,897)
------------ ------------ ------------
Net cash provided by operating activities. . . . 4,061,836 4,307,734 4,008,998
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities . . 39,803,176 37,252,284 28,354,415
Purchase of investment securities and corporate
stock. . . . . . . . . . . . . . . . . . . . . (28,174,861) (35,815,616) (36,385,202)
Proceeds from maturing interest-bearing deposits
in other banks . . . . . . . . . . . . . . . . 2,000,000 -- 4,000,000
Interest-bearing deposits made in other banks. . (86,874) (1,498,725) (1,999,290)
Net increase in loans made to customers. . . . . (13,520,859) (10,150,260) (6,483,572)
Capital expenditures . . . . . . . . . . . . . . (623,829) (363,823) (885,356)
------------ ------------ ------------
Net cash used by investing activities. . . . . . (603,247) (10,576,140) (13,399,005)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, money market
and savings deposits . . . . . . . . . . . . . (3,813,729) 8,188,100 37,559,630
Net increase (decrease) in certificates of deposit 2,019,545 (2,972,016) (25,740,264)
Net increase (decrease) in repurchase agreements 6,104,795 -- (930,000)
Repayment of note payable. . . . . . . . . . . . -- -- (30,000)
Dividends paid . . . . . . . . . . . . . . . . . (1,800,000) (1,128,000) (1,584,000)
------------ ------------ ------------
Net cash provided by financing activities. . . . 2,510,611 4,088,084 9,275,366
------------ ------------ ------------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . 5,969,200 (2,180,322) (114,641)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . 7,857,888 10,038,210 10,152,851
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . $13,827,088 $ 7,857,888 $10,038,210
------------ ------------ ------------
------------ ------------ ------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $ 3,532,681 $ 3,302,740 $ 3,494,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 455,349 393,941 257,650
Provision for loan losses. . . . . . . . . . . 271,802 213,500 229,650
Provision (benefit) for deferred income taxes. (125,000) 40,525 (107,404)
Increase (decrease) in accrued interest receivable
and other assets . . . . . . . . . . . . . . (121,627) 630,592 348,979
Increase (decrease) in interest payable and other
liabilities. . . . . . . . . . . . . . . . . 48,631 (273,564) (213,880)
------------ ------------ ------------
Net cash provided by operating activities. . . . $ 4,061,836 $ 4,307,734 $ 4,008,998
------------ ------------ ------------
------------ ------------ ------------

The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

F-6

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 and 1992

American National Bankshares Inc. and Subsidiary

1. SUMMARY OF ACCOUNTING POLICIES:

CONSOLIDATION

The consolidated financial statements include the amounts and results of
operations of American National Bankshares Inc. (the Corporation) and its
wholly-owned subsidiary, American National Bank and Trust Company (the Bank).
All significant intercompany transactions and accounts are eliminated in
consolidation.

INVESTMENT SECURITIES

Management determines the appropriate classification of securities at the
time of purchase. Securities classified as held for investment are those
securities that management intends to hold to maturity, subject to continued
credit-worthiness of the issuer and the Bank has the ability to hold on a long-
term basis. Accordingly, these securities are stated at cost, adjusted for
amortization of premium and accretion of discount on the level yield method.
Gains or losses on sales of securities are recognized on a specific
identification method. In 1993, the Bank adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". During 1994 the Bank purchased and designated one issue of
debt securities as "available for sale". This security has been adjusted to its
market value at December 31, 1994.

LOANS

Commercial loans accrue interest on the unpaid balance of the loans.
Consumer installment loans made prior to April 1, 1994 earn interest on the
level yield method based on the daily outstanding balance. Consumer loans made
subsequent to April 1, 1994 accrue interest on the unpaid balance of the loans.
The net amount of nonrefundable loan origination fees and direct costs
associated with the lending process are deferred and amortized to interest
income over the contractual lives of the loans using the effective interest
method.

RESERVE FOR LOAN LOSSES

The reserve for loan losses is an estimate of losses inherent in the loan
portfolio as determined by management taking into consideration historical loan
loss experience, diversification of the loan portfolio, amount of secured and
unsecured loans, banking industry standards and averages, and general economic
conditions. Ultimate losses may vary from current estimates. These estimates
are reviewed periodically and as adjustments become necessary, they are reported
in earnings in the periods in which they become reasonably estimable.

BANK PREMISES AND EQUIPMENT

Additions and major replacements are added to bank premises and equipment
at cost. Maintenance and repair costs are charged to expense when incurred.
Premises and equipment are depreciated over their estimated useful lives using
primarily accelerated methods.

INCOME AND EXPENSE RECOGNITION

The Bank utilizes the accrual method of accounting in recognizing items of
income and expense.

F-7
<PAGE>

STATEMENT OF CASH FLOWS

Cash and cash equivalents include cash and amounts due from banks and
Federal funds sold. Generally, Federal funds are purchased and sold for one-day
periods.

INCOME TAXES

Deferred income taxes have been provided where different accounting methods
have been used for reporting income for income tax and for financial reporting
purposes.

UNADOPTED ACCOUNTING PRONOUNCEMENTS

Statements of Financial Accounting Standards Nos. 114 and 118, which
address accounting by creditors for loan impairment, are required to be adopted
by the Bank in 1995. The effect of adopting these accounting standards is not
expected to have a material impact on the Bank's financial position.

2. PARENT COMPANY FINANCIAL INFORMATION:

Condensed parent company financial information is as follows:

As of December 31,
-------------------------

Condensed Balance Sheets 1994 1993
- ------------------------ -------- --------
(IN THOUSANDS)

<S> <C> <C>
Assets
Investment in Subsidiary . . . . . . $30,761 $29,061
Other Assets . . . . . . . . . . . . 25 21
------- -------
Total Assets . . . . . . . . . . . $30,786 $29,082
------- -------
------- -------
Shareholders' Investment . . . . . . . . $30,786 $29,082
------- -------
------- -------
</TABLE>

For the Year Ended December 31,
Condensed Statements of Income 1994 1993 1992
- ------------------------------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Dividend from Subsidiary . . . . . . . . . . . . . . $1,805 $1,128 $1,584
Expenses . . . . . . . . . . . . . . . . . . . . . . (1) (1) (1)
------- ------- -------
Income Before Equity in Undistributed
Earnings of Subsidiary . . . . . . . . . . . . . 1,804 1,127 1,583
Equity in Undistributed Earnings of
Subsidiary . . . . . . . . . . . . . . . . . . . 1,729 2,176 1,911
------- ------- -------
Net Income . . . . . . . . . . . . . . . . . . . . . $3,533 $3,303 $3,494
------- ------- -------
------- ------- -------

</TABLE>

F-8

<PAGE>

For the Year Ended December 31,
Condensed Statements of Cash Flows 1994 1993 1992
---------------------------------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash provided by dividends received from Subsidiary. . . . $ 1,805 $ 1,128 $ 1,584
Cash used for payment of dividends . . . . . . . . . . . . (1,128) (1,584) (1,800)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1) (1)
--------- -------- --------
Net increase (decrease) in cash. . . . . . . . . . . . . . $ 4 $ (1) $ (1)
--------- -------- --------
--------- -------- --------
</TABLE>

3. INVESTMENT SECURITIES:

The book value and market value of investments in debt securities at
December 31, 1994 were as follows:

Book Gross Unrealized Market
----------------------
Type Value Gains Losses Value
-------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government . . . . . . . . . $65,952 $ 5 $(1,648) $64,309
Federal agencies. . . . . . . . . 2,809 -- (189) 2,620
State and municipal . . . . . . . 10,480 103 (291) 10,292
Other . . . . . . . . . . . . . . 10 -- -- 10
------- ------ ------- -------
$79,251 $ 108 $(2,128) $77,231
------- ------ ------- -------
------- ------ ------- -------

</TABLE>

The book value and market value of investments in debt securities at
December 31, 1993 were as follows:

Book Gross Unrealized Market
----------------------
Type Value Gains Losses Value
-------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>

U.S. Government . . . . . . . . . . $73,334 $ 480 $(123) $73,691
Federal agencies. . . . . . . . . . 8,206 112 (13) 8,305
State and municipal . . . . . . . . 10,276 540 (23) 10,793
Other . . . . . . . . . . . . . . . 10 -- -- 10
------- ------ ------- -------
$91,826 $1,132 $(159) $92,799
------- ------ ------- -------
------- ------ ------- -------

</TABLE>

F-9
<PAGE>

The book value and market value of investments in debt securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

Book Market
Value Value
------- -------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.................... $30,454 $29,987
Due after one year through five years...... 41,665 40,324
Due after five years through ten years..... 6,221 6,029
Due after ten years........................ 911 891
-------- --------
$79,251 $77,231
-------- --------
-------- --------
</TABLE>

At December 31, 1994, one U. S. Government security with a cost of
$2,793,321 and a market value of $2,764,680 was classified as "available for
sale". At December 31, 1994, a net unrealized holding loss of $28,641 was
recorded as a separate component of shareholders' investment.

Proceeds from calls exercised by the issuers of investments in debt
securities were $5,405,000 in 1994. There were no sales in 1994 or 1993.

Investment securities with a book value of approximately $14,974,000 at
December 31, 1994 were pledged to secure deposits of the U. S. Government, state
and political sub-divisions and for other purposes as required by law. Of this
amount, $6,996,000 was pledged to secure repurchase agreements.

4. LOANS:

Outstanding loans at December 31, 1994 and 1993 were composed of the
following:

1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans:
Construction and land development............... $ 3,684 $ 1,925
Secured by farmland............................. 872 716
Secured by 1-4 family residential properties.... 43,458 42,194
Security by multi-family (5 or more) residential
properties...................................... 50 63
Secured by nonfarm, nonresidential properties..... 26,412 27,946
Loans to farmers.................................. 2,173 1,768
Commercial and industrial loans................... 40,865 31,337
Loans to individuals for personal expenditures.... 35,512 35,358
Loans to nonrated industrial development
obligations..................................... 2,155 2,528
All other loans................................... 255 11
-------- --------
Total loans................................... $155,436 $143,846
-------- --------
-------- --------

</TABLE>

Loans, other than consumer, are generally placed on nonaccrual status when
any portion of principal or interest is 90 days past due or collectibility is
uncertain. Unless loans are in the process of collection, income recognized on
consumer loans is discontinued and the loans are charged off after a

F-10
<PAGE>

delinquency of 90 days. At December 31, 1994 and 1993, loans in a nonaccrual or
restructured status totaled approximately $171,000 and $467,000, respectively.

Interest income on nonaccrual loans, if recognized, is recorded on a cash
basis. For the years 1994 and 1993, the gross amount of interest income that
would have been recorded on nonaccrual loans and restructured loans at
December 31, if all such loans had been accruing interest at the original
contractual rate, was $20,000 and $59,000, respectively. No interest payments
were recorded in 1994 as interest income for all such nonperforming loans.

Under the Corporation's policy a nonaccruing loan may be restored to
accrual status when none of its principal and interest is due and unpaid and the
Corporation expects repayment of the remaining contractual principal and
interest or when it otherwise becomes well secured and in the process of
collection.

The loan portfolio is concentrated primarily in the immediate geographic
region which is the Corporation's trade area consisting of the City of Danville
and Pittsylvania County, Virginia. There were no concentrations of loans to any
individual, group of individuals, businesses or industry that exceeded 10% of
the outstanding loans at December 31, 1994.

An analysis of the reserve for possible loan losses is as follows:

1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year..................... $2,155 $2,094 $2,001
Provision for possible loan losses charged
to expense.................................. 272 214 230
Charge-offs.................................... (131) (203) (166)
Recoveries..................................... 57 50 29
------ ------ ------
Balance, end of year........................... $2,353 $2,155 $2,094
------ ------ ------
------ ------ ------
</TABLE>

5. TIME DEPOSITS:

Included in time deposits are certificates of deposit in denominations of
$100,000 or more totaling $13,809,000, $12,744,000 and $11,236,000 at
December 31, 1994, 1993 and 1992, respectively. Interest expense on such
deposits during 1994, 1993 and 1992 was $390,000, $395,000 and $701,000,
respectively.

6. INCOME TAXES:

The components of the Corporation's net deferred tax assets as of
December 31, 1994 and December 31, 1993, were as follows:

F-11
<PAGE>

December 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses......................... $596 $529
Deferred compensation........................... 144 139
Other........................................... 46 45
------ -----
786 713
Valuation allowance............................. (152) (214)
------ -----
634 499
Deferred tax liability............................ (121) (111)
------ -----
Net deferred tax asset.......................... $513 $388
------ -----
------ -----
</TABLE>

The provision for income taxes consists of the following:

For Years Ended December 31,
------------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax currently payable.......................... $1,770 $1,442 $1,344
Deferred tax provision (benefit)............... (125) 41 (107)
------ ------ ------
$1,645 $1,483 $1,237
------ ------ ------
------ ------ ------
</TABLE>

The effective rates of the provision differ from the statutory federal
income tax rates due to the following items:

1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate......................... 34.0% 34.0% 34.0%
Non-taxable interest income.................... (3.2) (5.4) (7.6)
Other.......................................... 1.0 2.4 (0.2)
----- ----- -----
31.8% 31.0% 26.2%
----- ----- -----
----- ----- -----
</TABLE>

7. COMMITMENTS AND CONTINGENT LIABILITIES:

The consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business to meet
the financing needs of customers. These include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
elements of credit, interest rate and liquidity risk in excess of the amount
recognized in the consolidated balance sheets. The extent of the Bank's
involvement in various commitments or contingent liabilities is expressed by the
contract or notional amounts of such instruments.

Commitments to extend credit, which amounted to $34,150,000 and $26,739,000
at December 31, 1994 and 1993, represent legally binding agreements to lend to a
customer with fixed expiration dates or other termination clauses. Since many
of the commitments are expected to expire without being funded, the total
commitment amounts do not necessarily represent future liquidity requirements.

F-12

<PAGE>

Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. At
December 31, 1994 and 1993 the Bank had $672,000 and $547,000 in outstanding
standby letters of credit.

Management and the Corporation's counsel are not aware of any pending
litigation against the Corporation and believe that there are no contingent
liabilities outstanding that will result in a material adverse effect on the
Corporation's consolidated financial position and results of operations.

The Bank is a member of the Federal Reserve System and is required to
maintain certain levels of its cash and due from bank balances as reserves based
on regulatory requirements. At December 31, 1994, this reserve requirement was
approximately $1,509,000.

8. RELATED PARTY TRANSACTIONS:

The Directors provide the Bank with substantial amounts of business, and
many are among its largest depositors and borrowers. The total amount of loans
outstanding to the executive officers, directors and their business interests
was $12,527,000, $8,908,000 and $7,985,000 at December 31, 1994, 1993 and 1992,
respectively. The maximum amount of loans outstanding to the officers,
directors and their business interests at any month-end during 1994, 1993 and
1992 was approximately 8.3% of gross loans. Management believes that all such
loans are made on substantially the same terms, including interest rates, as
those prevailing at the time for comparable loans to similar, unrelated
borrowers, and do not involve more than a normal risk of collectibility. As of
December 31, 1994, none of these loans were restructured, nor were any related
party loans charged off during 1994. An analysis of these loans for 1994 is as
follows:

<TABLE>
<CAPTION>
<S> <C>
BALANCE, BEGINNING OF YEAR...................... $ 8,908
ADDITIONS....................................... 21,532
REPAYMENTS...................................... (17,913)
---------
BALANCE, END OF YEAR............................ $ 12,527
---------
---------
</TABLE>

9. EMPLOYEE BENEFIT PLANS:

The Bank's retirement plan is a non-contributory defined benefit pension
plan which covers substantially all employees of the Bank who are 20 & 1/2 years
of age or older and who have had at least 1/2 year of service. Advanced funding
is accomplished by using the actuarial cost method known as the collective
aggregate cost method.

The following table sets forth the plan's funded status as of December 31,
1994 and 1993:

1994 1993
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,969 in 1994 and $2,457 in 1993. . . . $(1,986) $(2,467)
------- -------
Projected benefit obligation at December 31. . . . . . $(3,032) $(3,527)
Plan assets at fair value. . . . . . . . . . . . . . . 2,700 3,108
------- -------

F-13

<PAGE>

(CONTINUED) 1994 1993
----- -------
(IN THOUSANDS)

Plan assets less than projected benefit
obligation....................................... (332) (419)
Unrecognized net asset, at date of adoption,
being recognized over 16.4 years................. (103) (151)
Unrecognized net loss.............................. 698 825
-------- --------
Prepaid pension cost included in other assets...... $ 263 $ 255
-------- --------
-------- --------
</TABLE>

Net periodic pension cost for 1994 and 1993, based on the above valuation
included the following components:

1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
Service cost - benefits earned during the period... $127 $120
Interest cost on projected benefit obligation...... 164 185
Actual return (gain) loss on plan assets (56) 203
Net amortization and deferral...................... (85) (457)
---- -----
Net periodic pension cost.......................... $150 $ 51
---- -----
---- -----
</TABLE>

During 1994 and 1993, a rate of increase in future compensation levels of
4.0%, and a discount rate of 6.0% and 5.75%, respectively, were used in
determining the actuarial present value of the projected benefit obligation.
The expected long-term rate of return on assets was 6.25% in 1994 and 7.25% in
1993.

Pension plan cost (income) was $150,000, $51,000 and $(38,000) for years
1994, 1993 and 1992, respectively. Additional pension expense of $95,000 was
recognized in 1994 related to lump-sum settlements of accrued benefit
obligations.

Presently the Bank has no postretirement benefits that are not charged to
expense during the years that the employees render service.

A non-contributory deferred compensation plan was adopted in 1982 by the
Board of Directors of the Bank which covers certain key executives. This plan
is being funded by insurance and the expense is provided on a current basis.

10. DIVIDEND RESTRICTIONS AND CAPITAL:

The approval of the Comptroller of the Currency is required if the total of
all dividends declared by a national bank in any calendar year exceeds the
bank's net income, as defined, for that year combined with its retained net
income for the preceding two calendar years. Under this formula, the Bank can
distribute as dividends, without the approval of the Comptroller of the
Currency, $3,905,000 plus an additional amount equal to the Bank's net income
for 1995 up to the date of any dividend declaration.

The Bank is required by the Federal Reserve Board and the Comptroller of
the Currency to maintain certain capital to assets ratios. At December 31, 1994
and 1993 these ratios were above the minimums prescribed for holding companies
and banks.

F-14

<PAGE>

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The estimated fair values of the Corporation's financial instruments are as
follows:

<TABLE>
<CAPTION>
December 31, 1994
-----------------------------
Carrying Fair
Amount Value
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:

Cash and federal funds sold . . . . . . . . . . . . . $ 13,827 $ 13,827
Investment securities . . . . . . . . . . . . . . . . 79,251 77,231
Other . . . . . . . . . . . . . . . . . . . . . . . . 2,530 2,530
Loans, net. . . . . . . . . . . . . . . . . . . . . . 151,126 150,608

Financial liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . . . $(215,861) $(216,841)
Repurchase agreements . . . . . . . . . . . . . . . . (6,105) (6,100)

Unrecognized financial instruments:

Commitments to extend credit. . . . . . . . . . . . . $ (34,150) --
Standby letters of credit . . . . . . . . . . . . . . (672) (11)
</TABLE>

<TABLE>
<CAPTION>
December 31, 1993
-----------------------------
Carrying Fair
Amount Value
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and federal funds sold . . . . . . . . . . . . . $ 7,858 $ 7,858
Investment securities . . . . . . . . . . . . . . . . 91,826 92,799
Other . . . . . . . . . . . . . . . . . . . . . . . . 3,701 3,706
Loans, net. . . . . . . . . . . . . . . . . . . . . . 137,877 138,963

Financial liabilities:
Deposits. . . . . . . . . . . . . . . . . . . . . . . $(217,655) $(218,603)
Repurchase agreements . . . . . . . . . . . . . . . . -- --

Unrecognized financial instruments:

Commitments to extend credit. . . . . . . . . . . . . $ (26,739) --
Standby letters of credit . . . . . . . . . . . . . . (547) (9)
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to estimate
that value:

CASH AND FEDERAL FUNDS SOLD

For short-term instruments, the carrying amount is a reasonable estimate of
fair value.

INVESTMENT SECURITIES AND OTHER

For marketable securities held for investment purposes, fair values are
based on quoted market prices or dealer quotes. For other securities held as
investments, fair value equals market price, if available. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities.

F-15
<PAGE>

LOANS

Due to the repricing characteristics of revolving credit lines, home equity
loans and adjustable demand loans, the carrying amount of these loans is a
reasonable estimate of fair value. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. Prepayment rates are taken into consideration in the
calculation. The interest rates used to discount future cash flows are those in
effect at period-end or an average of such for the 10 working days surrounding
that date. The fair value of non-performing loans represents an estimate by
Management after considering the collectibility of each loan, taking into
account the financial position of the borrower, the value of supporting
collateral and the portion of the reserve for loan losses allocated to each of
these loans.

DEPOSITS

The fair value of demand deposits, savings deposits, and money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using the current rates at which similar deposit instruments would be
offered to depositors for the same remaining maturities at current rates.

REPURCHASE AGREEMENTS

The fair value of repurchase agreements is estimated by discounting the
future cash flows using the current rates at which similar repurchase agreements
would be offered to depositors for the same remaining maturities at current
rates.

UNRECOGNIZED FINANCIAL INSTRUMENTS

The fair value of commitments to extend credit is estimated using the fees
currently charged (if any) to enter into agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. At December 31, 1994 no fees were charged for commitments to
extend credit and all such commitments were subject to current market rates;
therefore, no fair value has been estimated for these commitments.

The fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.

F-16
<PAGE>

CONSOLIDATED CONDENSED BALANCE SHEETS
American National Bankshares Inc. and Subsidiary

<TABLE>
<CAPTION>
(Unaudited)
----------------------------
September 30, December 31,
1995 1994
------------- -------------
ASSETS (IN THOUSANDS)

<S> <C> <C>
CASH AND DUE FROM BANKS. . . . . . . . . . . . . . . . . . . . . $ 11,436 $ 9,177
FEDERAL FUNDS SOLD . . . . . . . . . . . . . . . . . . . . . . . -- 4,650
INTEREST-BEARING DEPOSITS IN OTHER BANKS . . . . . . . . . . . . 112 1,586
INVESTMENT SECURITIES: . . . . . . . . . . . . . . . . . . . . .
U.S. Government and federal agencies . . . . . . . . . . . . . 97,991 68,761
State and municipal. . . . . . . . . . . . . . . . . . . . . . 9,756 10,480
Other investments. . . . . . . . . . . . . . . . . . . . . . . 10 10
-------- --------
Total investment securities (market value $107,945)
at September 30, 1995 and $77,231 at
December 31, 1994) . . . . . . . . . . . . . . . . . . . 107,757 79,251
-------- --------
LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,920 155,436
Less: Unearned income . . . . . . . . . . . . . . . . . . (960) (1,957)
Reserve for loan losses . . . . . . . . . . . . . . (2,600) (2,353)
-------- --------
Net loans. . . . . . . . . . . . . . . . . . . . . . . . . 171,360 151,126
CORE DEPOSIT INTANGIBLES . . . . . . . . . . . . . . . . . . . . 2,896 --
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 8,939 7,978
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $302,500 $253,768
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' INVESTMENT

LIABILITIES:
Demand deposits--non-interest bearing. . . . . . . . . . . . . $ 37,009 $ 27,827
Demand deposits--interest bearing. . . . . . . . . . . . . . . 35,856 31,773
Money market deposits. . . . . . . . . . . . . . . . . . . . . 18,402 21,916
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . 51,857 54,029
Time deposits. . . . . . . . . . . . . . . . . . . . . . . . . 116,812 80,316
-------- --------
Total deposits . . . . . . . . . . . . . . . . . . . . . . 259,936 215,861
Federal funds purchased. . . . . . . . . . . . . . . . . . . . 800 --
Repurchase agreements. . . . . . . . . . . . . . . . . . . . . 6,082 6,105
Accrued interest payable and other liabilities . . . . . . . . 2,164 1,017
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 268,982 222,983
-------- --------

SHAREHOLDERS' INVESTMENT:
Common stock, $1 par, 3,000,000 shares authorized,
2,400,000 shares outstanding . . . . . . . . . . . . . . . . 2,400 2,400
Capital in excess of par value . . . . . . . . . . . . . . . . 5,400 5,400
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 25,537 23,014
Net unrealized appreciation (depreciation) . . . . . . . . . . 181 (29)
-------- --------
Total shareholders' investment . . . . . . . . . . . . . . 33,518 30,785
-------- --------
Total liabilities and shareholders' investment . . . . . . $302,500 $253,768
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-17
<PAGE>

CONSOLIDATED CONDENSED STATEMENTS OF INCOME
American National Bankshares Inc. and Subsidiary

<TABLE>
<CAPTION>
(Unaudited)
-------------------------
Three Months Ended
September 30,
-------------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans . . . . . . . . . . . . . . . . . . $3,884 $3,093
Interest on federal funds sold and other . . . . . . . . . . . 44 34
Income on investment securities: . . . . . . . . . . . . . . .
U.S. Government. . . . . . . . . . . . . . . . . . . . . . . 973 765
Federal Agencies . . . . . . . . . . . . . . . . . . . . . . 37 40
State and municipal (tax exempt) . . . . . . . . . . . . . . 131 149
------ ------
Total interest income. . . . . . . . . . . . . . . . . . . 5,069 4,081
------ ------

INTEREST EXPENSE:

Interest on deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 182
Money Market . . . . . . . . . . . . . . . . . . . . . . . . 122 117
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . 374 396
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,432 872
Interest on federal funds purchased and repurchase
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 78 12
------ ------
Total interest expense . . . . . . . . . . . . . . . . . . 2,251 1,579
------ ------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . 2,818 2,502
PROVISION FOR LOAN LOSSES. . . . . . . . . . . . . . . . . . . . 160 90
------ ------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . 2,658 2,412
------ ------

NON-INTEREST INCOME:
Trust revenue. . . . . . . . . . . . . . . . . . . . . . . . . 376 294
Service charges on deposit accounts. . . . . . . . . . . . . . 97 70
Fees and insurance premiums. . . . . . . . . . . . . . . . . . 20 29
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 29
------ ------
Total non-interest income. . . . . . . . . . . . . . . . . 525 422
------ ------

NON-INTEREST EXPENSE:
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 769 690
Pension and other employee benefits. . . . . . . . . . . . . . 182 162
Occupancy and equipment. . . . . . . . . . . . . . . . . . . . 208 220
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . (15) 120
Postage and printing . . . . . . . . . . . . . . . . . . . . . 74 51
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 253
------ ------
Total non-interest expense . . . . . . . . . . . . . . . . 1,547 1,496
------ ------

INCOME BEFORE INCOME TAX PROVISION . . . . . . . . . . . . . . . 1,636 1,338
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . 513 440
------ ------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,123 $ 898
------ ------
------ ------

NET INCOME PER COMMON SHARE, based on
2,400,000 shares outstanding . . . . . . . . . . . . . . . . . $0.47 $0.37

CASH DIVIDENDS PAID per common share . . . . . . . . . . . . . . $0.00 $0.00
</TABLE>

The accompanying notes are an integral part of these statements.

F-18
<PAGE>

CONSOLIDATED CONDENSED STATEMENTS OF INCOME
American National Bankshares Inc. and Subsidiary

<TABLE>
<CAPTION>
(Unaudited)
-----------------------
Nine Months Ended
September 30,
-----------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans . . . . . . . . . . . . . . . . . . $11,015 $ 8,562
Interest on federal funds sold and other . . . . . . . . . . . 73 124
Income on investment securities: . . . . . . . . . . . . . . .
U.S. Government. . . . . . . . . . . . . . . . . . . . . . . 2,527 2,369
Federal Agencies . . . . . . . . . . . . . . . . . . . . . . 113 234
State and municipal (tax exempt) . . . . . . . . . . . . . . 430 464
------- -------
Total interest income. . . . . . . . . . . . . . . . . . . 14,158 11,753
------- -------

INTEREST EXPENSE:
Interest on deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . 731 528
Money Market . . . . . . . . . . . . . . . . . . . . . . . . 372 353
Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,127 1,163
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,527 2,603
Interest on federal funds purchased and repurchase
agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 221 24
------- -------
Total interest expense . . . . . . . . . . . . . . . . . . 5,978 4,671
------- -------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . 8,180 7,082
PROVISION FOR LOAN LOSSES. . . . . . . . . . . . . . . . . . . . 374 189
------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . 7,806 6,893
------- -------

NON-INTEREST INCOME:
Trust revenue. . . . . . . . . . . . . . . . . . . . . . . . . 1,067 970
Service charges on deposit accounts. . . . . . . . . . . . . . 264 199
Fees and insurance premiums. . . . . . . . . . . . . . . . . . 66 80
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 79
------- -------
Total non-interest income. . . . . . . . . . . . . . . . . . 1,492 1,328
------- -------

NON-INTEREST EXPENSE:
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,245 2,054
Pension and other employee benefits. . . . . . . . . . . . . . 497 450
Occupancy and equipment. . . . . . . . . . . . . . . . . . . . 610 645
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . 227 364
Postage and printing . . . . . . . . . . . . . . . . . . . . . 183 186
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 934 754
------- -------
Total non-interest expense . . . . . . . . . . . . . . . . . 4,696 4,453
------- -------

INCOME BEFORE INCOME TAX PROVISION . . . . . . . . . . . . . . . 4,602 3,768
INCOME TAX PROVISION . . . . . . . . . . . . . . . . . . . . . . 1,431 1,194
------- -------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,171 $ 2,574
------- -------
------- -------

NET INCOME PER COMMON SHARE, based on
2,400,000 shares outstanding . . . . . . . . . . . . . . . . . $1.32 $1.07

CASH DIVIDENDS PAID per common share . . . . . . . . . . . . . . $0.27 $0.25
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
American National Bankshares Inc. and Subsidiary

<TABLE>
<CAPTION>
(Unaudited)
-----------------------
Nine Months Ended
September 30,
-----------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received. . . . . . . . . . . . . . . . . . . . . . . $ 13,083 $ 11,932
Fees and commissions received. . . . . . . . . . . . . . . . . 1,397 1,313
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . (5,584) (4,680)
Cash paid to suppliers and employees . . . . . . . . . . . . . (3,054) (3,827)
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . (1,303) (1,136)
-------- --------
Net cash provided by operating activities. . . . . . . . . . . 4,539 3,602
-------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of branch operations . . . . . . . . . . . . . . . 30,626 --
Proceeds from maturing investment securities . . . . . . . . . 17,820 32,376
Purchase of investment securities and corporate
stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,099) (20,738)
Proceeds from maturing interest bearing deposits
in other banks . . . . . . . . . . . . . . . . . . . . . . . 1,474 2,000
Interest bearing deposits in other banks . . . . . . . . . . . -- (73)
Net increase in loans made to customers. . . . . . . . . . . . (18,459) (12,544)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (322) (90)
-------- --------
Net cash (used) provided by investing activities . . . . . . . (14,960) 931
-------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, money market and
savings accounts . . . . . . . . . . . . . . . . . . . . . . (7,876) (2,361)
Net increase in certificates of deposit. . . . . . . . . . . . 15,777 2,550
Net increase in repurchase agreements and
federal funds purchased. . . . . . . . . . . . . . . . . . . 777 595
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (648) (600)
-------- --------
Net cash provided by financing activities. . . . . . . . . . . 8,030 184
-------- --------

NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . . . (2,391) 4,717
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,827 7,858
-------- --------
CASH EQUIVALENTS AT END OF PERIOD. . . . . . . . . . . . . . . . $11,436 $12,575
-------- --------
-------- --------

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $3,171 $2,574
Adjustments to reconcile net income to net cash
provided by operating activities:. . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 292 340
Provision for possible loan losses . . . . . . . . . . . . 374 189
Deferred income tax (benefit) provision. . . . . . . . . . (38) 4
Increase in accrued interest receivable and
other assets . . . . . . . . . . . . . . . . . . . . . . (513) (293)
Increase in accrued interest payable and other
liabilities. . . . . . . . . . . . . . . . . . . . . . . 1,253 788
-------- --------
Net cash provided by operating activities. . . . . . . . . . . . $ 4,539 $ 3,602
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these statements.

F-20
<PAGE>

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
American National Bankshares Inc. and Subsidiary

1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly American National Bankshares' financial position as of September 30,
1995, the results of its operations for the three and nine months periods and
its cash flows for the nine months period then ended. A summary of the
Corporation's significant accounting policies is set forth in Note 1 to the
Consolidated Financial Statements in the Corporation's Annual Report to
Shareholders for 1994.

2. INVESTMENT SECURITIES

Management determines the appropriate classification of securities at the
time of purchase. Securities classified as held for investment are those
securities that management intends to hold to maturity, subject to continued
credit-worthiness of the issuer, and that the Bank has the ability to hold on a
long-term basis. Accordingly, these securities are stated at cost, adjusted for
amortization of premium and accretion of discount on the level yield method.
Securities designated as available for sale have been adjusted to their
respective market values and a corresponding adjustment made to shareholder's
investment at September 30, 1995 and December 31, 1994.

3. COMMITMENTS AND CONTINGENCIES

The Bank has available to it a line of credit in the amount of $5,153,000
with the Federal Home Loan Bank of Atlanta. As of September 30, 1995 and
December 31, 1994, there were no borrowings outstanding under this line of
credit.

Commitments to extend credit, which amount to $35,930,000 at September 30,
1995 and $34,150,000 at December 31, 1994, represent legally binding agreements
to lend to a customer with fixed expiration dates or other termination clauses.
Since many of the commitments are expected to expire without being funded, the
total commitment amounts do not necessarily represent future liquidity
requirements.

Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. At
September 30, 1995 and December 31, 1994 the Bank had $630,000 and $672,000 in
outstanding standby letters of credit.

4. NEW ACCOUNTING PRONOUNCEMENTS

During the first quarter of 1995 the Bank adopted the provisions of
Statement of Financial Accounting Standards Nos. 114 and 118, which address
accounting by creditors for loan impairment. The effect of adopting these
standards did not have a material impact on the Bank's financial position or the
results of operations.

F-21
<PAGE>

[LETTERHEAD OF MANNING, PERKINSON, FLOYD & COMPANY]

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Mutual Savings Bank, F.S.B.
Danville, Virginia

We have audited the accompanying consolidated statements of financial
condition of Mutual Savings Bank, F.S.B. and subsidiary (the "Savings Bank") as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended
September 30, 1995, 1994 and 1993. These financial statements are the
responsibility of the Savings Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mutual
Savings Bank, F.S.B. and subsidiary as of September 30, 1995 and 1994, and the
results of their operations and their cash flows for the years ended
September 30, 1995, 1994, and 1993, in conformity with generally accepted
accounting principles.

/s/ Manning, Perkinson, Floyd & Company
---------------------------------------
Certified Public Accountants

Danville, Virginia
November 8, 1995

F-22
<PAGE>

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Mutual Savings Bank, F.S.B.

<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS

Cash and cash equivalents:
Non-interest-bearing deposits. . . . . . . . . . . . . . . . . $ 860,557 $ 853,238
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . 1,166,729 769,817
Investment securities, net (fair value of
$24,010,691 and $24,018,233, respectively)
(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,598,018 25,973,821
Mortgage-backed securities (fair value of
$14,478,093 and $15,843,922, respectively)
(Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,337,785 16,333,959
Loans receivable, net (Notes 4, 9 and 15). . . . . . . . . . . . 39,869,679 36,908,194
Office properties and equipment, net (Note 5). . . . . . . . . . 1,889,282 1,917,922
Accrued interest receivable (Note 7) . . . . . . . . . . . . . . 524,326 562,297
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . 149,608 267,244
----------- -----------

Total assets . . . . . . . . . . . . . . . . . . . . . . . $83,395,984 $83,586,492
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 8). . . . . . . . . . . . . . . . . . . . . . . $67,512,520 $66,930,704
Advances from Federal Home Loan Bank (Note 9). . . . . . . . . -- 1,500,000
Advance payments and deposits by borrowers . . . . . . . . . . 321,796 223,032
Accounts payable and other accrued liabilities . . . . . . . . 774,886 673,143
----------- -----------

Total liabilities. . . . . . . . . . . . . . . . . . . . . 68,609,202 69,326,879
----------- -----------

Commitments and Contingencies
(Notes 13, 15 and 19)

Stockholders' equity (Notes 10 and 11):
Preferred stock, par value $1.00 per share,
authorized 2,500,000 shares; outstanding,
none . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $1.00 share,
authorized 7,500,000 shares; 1,154,100
shares issued and outstanding. . . . . . . . . . . . . . . . 1,154,100 1,154,100
Additional paid-in capital . . . . . . . . . . . . . . . . . . 4,226,252 4,226,252
Retained earnings, substantially restricted. . . . . . . . . . 9,410,509 8,879,261
Net unrealized loss on securities available
for sale, net of taxes . . . . . . . . . . . . . . . . . . . (4,079) --
----------- -----------

Total stockholders' equity . . . . . . . . . . . . . . . . 14,786,782 14,259,613
----------- -----------

Total liabilities and stockholders' equity . . . . . . . . $83,395,984 $83,586,492
----------- -----------
----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-23
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
Mutual Savings Bank, F.S.B.

<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans. . . . . . . . . . . . . . . . . $3,342,920 $3,062,075 $3,501,880
Mortgage-backed securities . . . . . . 1,112,311 1,028,424 1,470,679
Investment securities. . . . . . . . . 1,542,213 1,534,228 1,077,515
Short-term investments and
bank deposits. . . . . . . . . . . . 43,053 39,135 40,307
---------- ---------- ----------
Total interest income. . . . . . . . . . 6,040,497 5,663,862 6,090,381
---------- ---------- ----------

Interest expense:
Deposits (Note 8). . . . . . . . . . . 2,887,887 2,533,926 2,691,268
Federal Home Loan Bank advances. . . . 32,658 10,848 --
Short-term borrowings. . . . . . . . . -- 162 7,069
---------- ---------- ----------
Total interest expense . . . . . . . . . 2,920,545 2,544,936 2,698,337
---------- ---------- ----------

Net interest income. . . . . . . . . . . 3,119,952 3,118,926 3,392,044

Provision for loan losses (Note 4) . . . 8,300 -- --
---------- ---------- ----------

Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . 3,111,652 3,118,926 3,392,044
---------- ---------- ----------

Noninterest income:
Service charges and fees on loans. . . 40,211 39,208 46,551
Other fees and service charges . . . . 105,296 100,401 84,295
Gain on sale of investments. . . . . . 45,564 42,673 51,898
Gain on sale of real estate owned. . . -- 126,029 --
Loss on revaluation of real estate
owned . . . . . . . . . . . . . . . -- -- (6,290)
Other. . . . . . . . . . . . . . . . . 7,283 17,581 20,832
---------- ---------- ----------
Total noninterest income . . . . . . . . 198,354 325,892 197,286
---------- ---------- ----------

Noninterest expense:
Compensation, payroll taxes, and
employee benefits (Note 12). . . . . 1,098,173 1,039,174 1,106,830
Occupancy and equipment. . . . . . . . 160,298 151,988 156,359
Federal deposit insurance premiums . . 153,584 152,649 135,446
Other (Note 14). . . . . . . . . . . . 418,056 618,898 379,106
---------- ---------- ----------
Total noninterest expense. . . . . . . . 1,830,111 1,962,709 1,777,741
---------- ---------- ----------

Income before income taxes . . . . . . . 1,479,895 1,482,109 1,811,589

Provision for income taxes (Note 13) . . 487,007 506,151 549,812
---------- ---------- ----------

Net income . . . . . . . . . . . . . . . $ 992,888 $ 975,958 $1,261,777
---------- ---------- ----------
---------- ---------- ----------

Earnings per share of common stock
(Note 10). . . . . . . . . . . . . . . $ 0.82 $ 0.81 $ 1.06
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-24
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Mutual Savings Bank, F.S.B.

<TABLE>
<CAPTION>
Net
Unrealized
Retained Loss on
Additional Earnings - Securities Stock Total
Common Paid-In Substantially Available For Acquired Stockholders'
Stock Capital Restricted Sale by ESOP Equity
---------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992. . . . . . . $1,154,100 $4,226,252 $7,564,806 $ -- $(145,759) $12,799,399

Net income . . . . . . . . . . . . . . . -- -- 1,261,777 -- -- 1,261,777
Cash dividends on common stock . . . . . -- -- (461,640) -- -- (461,640)
ESOP stock purchased . . . . . . . . . . -- -- -- -- -- --
ESOP loan payments . . . . . . . . . . . -- -- -- -- 133,369 133,369
---------- ---------- ---------- ------- --------- -----------
Balance, September 30, 1993. . . . . . . 1,154,100 4,226,252 8,364,943 -- (12,390) 13,732,905

Net income . . . . . . . . . . . . . . . -- -- 975,958 -- -- 975,958
Cash dividends on common stock . . . . . -- -- (461,640) -- -- (461,640)
ESOP loan payments . . . . . . . . . . . -- -- -- -- 12,390 12,390
---------- ---------- ---------- ------- --------- -----------
Balance, September 30, 1994. . . . . . . 1,154,100 4,226,252 8,879,261 -- -- 14,259,613

Net income . . . . . . . . . . . . . . . -- -- 992,888 -- -- 992,888
Cash dividends on common stock . . . . . -- -- (461,640) -- -- (461,640)
Cumulative effect of change in
accounting for securities
available for sale, net of income
taxes of $2,101. . . . . . . . . . . . -- -- -- (4,079) -- (4,079)
---------- ---------- ---------- ------- --------- -----------
Balance, September 30, 1995. . . . . . . $1,154,100 $4,226,252 $9,410,509 $(4,079) $ -- $14,786,782
---------- ---------- ---------- ------- --------- -----------
---------- ---------- ---------- ------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-25
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Mutual Savings Bank, F.S.B.

<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 992,888 $ 975,958 $1,261,777
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization. . . 63,535 57,843 59,870
Provision for loan losses. . . . . . . . . . . . 8,300 -- --
Provision for losses - REO . . . . . . . . . . . -- -- 6,290
Increase (decrease) in deferred loan fees. . . . (20,149) 10,602 1,378
Gain on sale of real estate owned. . . . . . . . -- (126,029) --
Gain on sale of investment securities held to
maturity and available for sale. . . . . . . . (45,564) (42,673) (51,898)
Amortization of premiums and (discounts) on
investment securities and mortgage-backed
securities . . . . . . . . . . . . . . . . . . (2,340) 96,219 (10,236)
Federal Home Loan Bank stock dividends . . . . . -- (10,300) (44,300)
Loss on sale of property and equipment . . . . . -- -- 5,493
Deferred income taxes. . . . . . . . . . . . . . (29,218) (8,869) (30,010)
(Increase) decrease in interest receivable . . . 37,971 (89,749) (51,009)
(Increase) decrease in prepaid and other assets. 127,161 21,213 (188,124)
Increase (decrease) in interest payable. . . . . 7,119 312 (3,060)
Increase (decrease) in accounts payable and
other liabilities. . . . . . . . . . . . . . . 220,715 138,025 (89,767)
------------ ------------ ------------

Net cash provided by operating activities. . . . 1,360,418 1,022,552 866,404
------------ ------------ ------------
Cash Flows From Investing Activities:
Investment securities held to maturity:
Purchases. . . . . . . . . . . . . . . . . . . . -- (10,003,865) (13,741,250)
Proceeds from sale . . . . . . . . . . . . . . . -- 542,673 51,898
Maturities . . . . . . . . . . . . . . . . . . . 2,116,320 2,666,842 3,904,711
Investment securities available for sale:
Purchases. . . . . . . . . . . . . . . . . . . . (2,733,960) -- --
Proceeds from sale . . . . . . . . . . . . . . . 2,041,440 -- --
Purchase of mortgage-backed securities . . . . . . -- (5,734,989) --
Principal collections on mortgage-backed
securities . . . . . . . . . . . . . . . . . . . 1,989,901 5,680,930 7,831,757
Net (increase)decrease in loans. . . . . . . . . . (2,949,636) 2,334,557 3,561,268
Purchase of property and equipment . . . . . . . . (34,894) (19,518) (585)
Proceeds from sale of real estate owned. . . . . . -- 194,500 --
Proceeds from sale of property and equipment . . . -- 40,000 15,000
------------ ------------ ------------

Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . 429,171 (4,298,870) 1,622,799
------------ ------------ ------------
</TABLE>

F-26

<PAGE>

<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1995 1994 1993
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts. . . . . . . . . $(10,015,477) $ 571,243 $ 3,518,876
Net increase (decrease) in certificates of deposit . 10,597,293 691,954 (5,348,756)
Advances from Federal Home Loan Bank . . . . . . . . 5,900,000 4,250,000 --
Repayment of Federal Home Loan Bank advances . . . . (7,400,000) (2,750,000) --

Net decrease in advance payments by borrowers
for taxes and insurance. . . . . . . . . . . . . . (5,534) (23,138) (22,412)
Cash dividends . . . . . . . . . . . . . . . . . . . (461,640) (461,640) (461,640)
------------ ------------- -------------

Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . (1,385,358) 2,278,419 (2,313,932)
------------ ------------- -------------

Increase (decrease) in cash and cash equivalents . . . 404,231 (997,899) 175,271
------------ ------------- -------------
Cash and cash equivalents:
Beginning. . . . . . . . . . . . . . . . . . . . . . 1,623,055 2,620,954 2,445,683
------------ ------------- -------------
Ending . . . . . . . . . . . . . . . . . . . . . . . 2,027,286 1,623,055 2,620,954

Supplemental Schedule of Cash and Cash
Equivalents:
Non-interest-bearing deposits. . . . . . . . . . . 860,557 853,238 547,284
Interest-bearing deposits. . . . . . . . . . . . . 1,166,729 769,817 2,073,670
------------ ------------- -------------
$ 2,027,286 $ 1,623,055 $ 2,620,954
------------ ------------- -------------
------------ ------------- -------------

Supplemental Disclosures of Cash Flow
Information:
Income taxes paid. . . . . . . . . . . . . . . . . $ 426,013 $ 576,000 $ 873,569

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

Interest paid. . . . . . . . . . . . . . . . . . . $ 2,913,426 $ 2,544,624 $ 2,701,397
------------ ------------- -------------
------------ ------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-27

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mutual Savings Bank, F.S.B.

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

The Savings Bank is primarily engaged in the business of obtaining savings
deposits and originating single-family residential loans within its primary
lending area, south central Virginia and north central North Carolina. The
Savings Bank's underwriting policies require such loans to be made at no
greater than 80% loan-to-value based upon appraised values unless private
mortgage insurance is obtained. These loans are secured by the underlying
properties.

A description of the significant accounting policies used in the preparation
of the accompanying consolidated financial statements follows:

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of Mutual Savings
Bank, F.S.B. and Mutual Service Corporation, its wholly-owned subsidiary.
All significant intercompany transactions and balances have been eliminated
in the consolidation.

CASH AND CASH EQUIVALENTS:

The Savings Bank considers all cash and amounts due from depository
institutions, and interest-bearing deposits in other banks to be cash
equivalents for purposes of the statements of cash flows.

INVESTMENT SECURITIES:

At October 1, 1994, the Savings Bank adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting For Certain
Investments in Debt and Equity Securities". SFAS No. 115 requires that debt
and equity securities be classified as either held to maturity, available
for sale, or trading.

Investment securities classified as "held to maturity" are stated at cost,
adjusted for amortization of premium and accretion of discount using a level
yield method and are not adjusted to the lower of cost or market, as the
Savings Bank has the intent and ability to hold such investments to
maturity. Gains or losses are recognized by use of the specific
identification method.

Securities classified as "available for sale" are stated at fair value with
unrealized holding gains and losses reported, net of related income taxes,
as a separate component of stockholders' equity until realized. Adjustment
to fair value, below amortized cost, that are other than temporary are
charged to earnings. Realized gains and losses are recognized by use of the
specific identification method.

The Savings Bank has not classified any debt or equity securities as
"trading".

F-28
<PAGE>

MORTGAGE-BACKED SECURITIES:

Mortgage-backed securities are stated at cost or unpaid principal balance,
adjusted for amortization of premiums and accretion of discounts using a
level yield method. The Savings Bank has the intent and ability to hold
such assets to maturity. Should any be sold, gains and losses are
recognized by use of the specific identification method.

LOANS RECEIVABLE:

Loans receivable are stated at unpaid principal balances net of undisbursed
loans in process, deferred loan fees, and allowances for loan losses.
Interest is accrued as earned unless the collectibility of the loan is in
doubt, at which time an allowance is provided.

The allowance for loan losses is based upon management's evaluation of the
loans receivable portfolio and is maintained at an amount considered
adequate by management. The evaluation by management considers such factors
as current economic conditions, loan portfolio risks including the value of
underlying collateral, and past loan loss experience. The allowance is
increased by charges to income and decreased by net charge-offs. While
management believes the allowance to be adequate, there are no assurances
that further increases in the allowance will not be required in the future.

LOAN ORIGINATION FEES AND COSTS:

Loan fees received less direct loan origination costs are deferred and
recognized by the interest method over the life of the related loan as an
adjustment of yield.

OFFICE PROPERTIES AND EQUIPMENT:

Office properties and equipment are stated at cost less accumulated
depreciation. Expenditures for major improvements are capitalized, while
the costs of maintenance and repairs, which do not improve or extend the
life of the existing assets, are expensed as incurred. For financial
reporting, depreciation and amortization are provided on the straight-line
method over the estimated useful lives of the assets, estimated to be 33 to
50 years for buildings, 5 to 10 years for furniture and equipment, and 4
years for automobiles.

REAL ESTATE OWNED:

Property acquired by foreclosure or deed in lieu of foreclosure is recorded
at the lower of cost, or fair value less estimated costs to sell, at date of
acquisition. Any improvements to property are capitalized, while costs of
holding property are expensed when incurred. Specific valuation allowances
are recorded through a charge to earnings if there is further deterioration
in fair value.

Real estate held for investment or development and sale is recorded at the
lower of cost or net realizable value. Losses are recognized when carrying
values exceed net realizable value, but gains are only recognized at the
time of sale.

INCOME TAXES:

In 1993, the Savings Bank adopted SFAS No. 109 "Accounting For Income
Taxes". SFAS No. 109 requires a change in the method of accounting and
reporting for deferred income taxes by use of an asset and liability method
of accounting for income taxes. Under the asset and

F-29
<PAGE>

liability method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of existing assets
and liabilities. The adoption of SFAS No. 109 had no material effect on the
financial statements in 1993.

RECLASSIFICATIONS:

Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 method of presentation. These
reclassifications had no effect on 1994 and 1993 net income or retained
earnings.

2. INVESTMENT SECURITIES

The amortized cost and fair value of investment securities at September 30
are summarized as follows:
<TABLE>
<CAPTION>

1995 1994
---------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and
Agency obligations. . . . . . . . . . $13,747,583 $13,147,098 $18,735,833 $17,072,253
Corporate securities. . . . . . . . . 2,503,555 2,509,216 4,000,763 3,802,182
Obligations of states and political
subdivisions . . . . . . . . . . . . 2,014,328 2,021,825 2,015,524 1,922,097
Other . . . . . . . . . . . . . . . . 275,980 275,980 392,301 392,301
------------ ------------ ------------ ------------
18,541,446 17,954,119 25,144,421 23,188,833
------------ ------------ ------------ ------------
Federal Home Loan Bank stock. . . . . 829,400 829,400 829,400 829,400
------------ ------------ ------------ ------------
19,370,846 18,783,519 25,973,821 24,018,233
------------ ------------ ------------ ------------
Available for sale:
U.S. Government and Agency
obligations. . . . . . . . . . . . . 2,499,642 2,459,841 -- --
Corporate securities. . . . . . . . . 1,753,401 1,783,046 -- --
Obligations of states and
political subdivisions . . . . . . . 980,309 984,285 --
Net unrealized loss . . . . . . . . . (6,180) -- -- --
------------ ------------ ------------ ------------
5,227,172 5,227,172 -- --
------------ ------------ ------------ ------------
$24,598,018 $24,010,691 $25,973,821 $24,018,233
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

F-30
<PAGE>

Investment securities had gross unrealized gains and losses at
September 30, 1995 and 1994 as follows:
<TABLE>
<CAPTION>

1995 1994
----------------------- -------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and
Agency obligations . . . . . . . . 1,521 $(602,006) 783 $(1,664,363)
Corporate securities. . . . . . . . 40,357 (34,696) 35,937 (234,518)
Obligations of states
and political subdivisions . . . . 15,404 (7,906) -- (93,427)
Other . . . . . . . . . . . . . . . -- -- -- --
--------- --------- -------- -----------
57,282 (644,608) 36,720 (1,992,308)
--------- --------- -------- -----------

Available for Sale:
U.S. Government and
Agency obligations . . . . . . . . 2,619 (42,420) -- --
Corporate securities. . . . . . . . 32,911 (3,266) -- --
Obligations of states
and political subdivisions . . . . 4,645 (669) -- --
--------- --------- -------- -----------
40,175 (46,355) -- --
--------- --------- -------- -----------
$ 97,457 $(690,963) $ 36,720 $(1,992,308)
--------- --------- -------- -----------
--------- --------- -------- -----------
</TABLE>

The amortized cost and fair value of debt securities at September 30, 1995, by
contractual maturity are shown below:

<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>

Held to Maturity:
Due in one year or less. . . . . . . . . . $ -- $ --
Due after one year through five years. . . 8,694,824 8,407,693
Due after five years through ten years . . 9,369,680 9,076,902
Due after ten years. . . . . . . . . . . . 476,942 469,524
. . . . . . . . . . . . . . . . . . . . ------------ ------------
18,541,446 17,954,119
------------ ------------
Available for Sale:
Due in one year or less. . . . . . . . . . 999,828 991,093
Due after one year through five years. . . 2,963,882 2,956,473
Due after five years through ten years . . 1,269,642 1,279,606
Unrealized gain (loss) . . . . . . . . . . (6,180) --
------------ ------------
5,227,172 5,227,172
------------ ------------
$ 23,768,618 $ 23,181,291
------------ ------------
------------ ------------
</TABLE>

F-31

<PAGE>

FHLB stock has been excluded from the maturity schedule above because it
does not have a contractual maturity. No ready market exists for this
stock; therefore, for presentation purposes, such stock is assumed to have
a fair value equal to cost.

Proceeds from sales of investments and gross gains and losses realized at
September 30 are as follows:

1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Proceeds from sales. . $ 2,041,440 $ 542,673 $ 51,898
------------ ------------ -----------
------------ ------------ -----------
Gross gains. . . . . . $ 61,337 $ 42,673 $ 51,898

Gross losses . . . . . 15,773 -- --
------------ ------------ -----------
Net realized. . . . $ 45,564 $ 42,673 $ 51,898
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

3. MORTGAGED-BACKED SECURITIES

The amortized cost and fair value of mortgage-backed securities at
September 30 are summarized as follows:

1995 1994
-------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation. . . . . . . . $ 5,674,952 $ 5,666,348 $ 6,685,398 $ 6,446,449
Government National
Mortgage Association. . . . . . . . 4,404,176 4,516,456 4,901,517 4,839,315
Federal National Mortgage
Association . . . . . . . . . . . . 2,489,980 2,526,438 2,831,658 2,781,271
Collateralized Mortgage
Obligations . . . . . . . . . . . . 1,768,677 1,768,851 1,915,386 1,776,887
----------- ----------- ----------- -----------
$14,337,785 $14,478,093 $16,333,959 $15,843,922
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

The effective yield on collateralized mortgage obligations at September 30,
1995 was 6.07%.

Mortgaged-backed securities had gross unrealized gains and losses at
September 30, 1995 and 1994 as follows:
<TABLE>
<CAPTION>

1995 1994
------------------------- ---------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation . . . $ 65,921 $ (74,525) $23,376 $(262,325)
Government National Mortgage Association . . 135,232 (22,952) 61,860 (124,062)
Federal National Mortgage Association. . . . 49,851 (13,393) 14,617 (65,004)
Collateralized Mortgage Obligations. . . . . 15,886 (15,712) - (138,499)
--------- --------- ------- ---------
$ 266,890 $(126,582) $99,853 $(589,890)
--------- --------- ------- ---------
--------- --------- ------- ---------
</TABLE>

F-32

<PAGE>

The amortized cost and fair value of mortgage-backed securities at
September 30, 1995 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
prepayment penalties.

Amortized Fair
Cost Value
------------- -------------
<S> <C> <C>
Due in one year or less. . . . . . . . . . . $ 192,928 $ 194,118
Due after one year through five years. . . . 652,644 651,017
Due after five years through ten years . . . 2,038,706 2,038,485
Due after ten years. . . . . . . . . . . . . 11,453,507 11,594,473
------------- -------------

$14,337,785 $14,478,093
------------- -------------
------------- -------------
</TABLE>

No mortgage-backed securities were sold in years ended September 30, 1995,
1994 or 1993.

4. LOANS RECEIVABLE

Loans receivable at September 30 are summarized as follows:

1995 1994
----------- -----------
<S> <C> <C>
MORTGAGE LOANS. . . . . .
1 to 4 family . . . . . $35,784,427 $32,917,810
Multi-family. . . . . . 621,974 468,288
Non-residential . . . . 2,866,754 2,590,792
Land. . . . . . . . . . 466,750 445,574
----------- -----------
39,739,905 36,422,464
Commercial. . . . . . . 722,241 938,736
Consumer and other. . . 1,127,127 515,200
----------- -----------
41,589,273 37,876,400
----------- -----------
Less: . . . . . . . . . .
Undisbursed loan funds. 1,449,201 684,664
Deferred loan fees. . . 162,393 182,542
ALLOWANCE FOR LOAN LOSSES 108,000 101,000
----------- -----------
1,719,594 968,206
----------- -----------
$39,869,679 $36,908,194
----------- -----------
----------- -----------
</TABLE>

The following is an analysis of allowance for loan losses:

1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance beginning . . . $101,000 $101,000 $100,000
Amounts charged off . . (1,300) -- --
Recoveries. . . . . . . -- -- 1,000
Provision charged . . . 8,300 -- --
-------- -------- --------
Balance ending. . . . . $108,000 $101,000 $101,000
-------- -------- --------
-------- -------- --------
</TABLE>

F-33

<PAGE>

The allowance for loan losses consists of the following:

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Real estate and commercial loans. . . . $ 90,000 $ 83,300
Consumer loans. . . . . . . . . . . . . 18,000 17,700
--------- ---------
$108,000 $101,000
--------- ---------
--------- ---------
</TABLE>

Nonaccrual loans for which interest has been reduced totaled approximately
$278,453 and $13,600 at September 30, 1995 and 1994, respectively.
Interest income that would have been recorded under the original terms of
such loans and has been foregone amounted to $23,874, $415 and $8,854 for
the years ended September 30, 1995, 1994 and 1993, respectively. The
Savings Bank is not committed to lend additional funds to customers whose
loans are classified as non-performing at September 30, 1995.

In the ordinary course of business, the Savings Bank has made loans to
officers, directors, and related interest aggregating $260,745 and
$276,100 at September 30, 1995 and 1994, respectively.

5. OFFICE PROPERTIES AND EQUIPMENT

Office properties and equipment at September 30 are summarized by major
classifications as follows:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land and improvements . . . . . . . . . $ 335,237 $ 335,237
Buildings and building improvements . . 2,137,060 2,137,060
Furniture, fixtures and equipment . . . 402,594 391,235
Automobiles . . . . . . . . . . . . . . 32,862 9,327
----------- -----------
2,907,753 2,872,859

Less accumulated depreciation
and amortization. . . . . . . . . . . 1,018,471 954,937
----------- -----------
$ 1,889,282 $ 1,917,922
----------- -----------
----------- -----------
</TABLE>

Depreciation expense amounted to $63,535, $57,843, and $59,870, for the
years ended September 30, 1995, 1994 and 1993, respectively.

6. REAL ESTATE OWNED

Real estate acquired in settlement of loans constitutes restructured debt
and produces no interest income for the Savings Bank. Interest foregone on
real estate sold prior to 1995 was estimated to be $-0-, $-0- and $300 for
the years ended September 30, 1995, 1994 and 1993, respectively.

F-34

<PAGE>

7. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable at September 30 is summarized as follows:
<TABLE>
<CAPTION>

1995 1994
--------- ---------
<S> <C> <C>
Investment securities . . . . . . . $ 368,587 $ 412,292
Mortgage-backed securities. . . . . 104,011 119,648
Loans receivable. . . . . . . . . . 51,728 30,357
--------- ---------
$ 524,326 $ 562,297
--------- ---------
--------- ---------
</TABLE>

8. DEPOSITS

Deposits at September 30 are summarized as follows:

Weighted
Average
Rate 1995 1995 1994
---------- ------------------------ -------------------------
Amount Percent Amount Percent
------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Outstanding official
checks . . . . . . . . . . . $ 242,608 0.36% $ 589,628 0.88%
NOW accounts . . . . . . . . . 2.44% 3,635,441 5.38 3,279,995 4.90
Money market accounts. . . . . 3.45 4,858,450 7.20 5,598,96 28.37
PASSBOOK ACCOUNTS. . . . . . . 3.00 15,102,693 22.37 24,386,084 36.43
------ ----------- ------
23,839,192 35.31 33,854,669 50.58
----------- ------ ----------- ------

Certificates of deposit:
Less than 3% . . . . . . . . 207,811 0.31 238,920 0.36
3.00% to 3.99% . . . . . . . 93,172 0.14 8,987,349 13.43
4.00% to 4.99% . . . . . . . 5,822,238 8.62 17,733,369 26.49
5.00% to 5.99% . . . . . . . 16,693,182 24.73 3,991,37 75.96
6.00% to 6.99% . . . . . . . 17,335,441 25.68 1,242,280 1.86
7.00% to 7.99% . . . . . . . 3,304,146 4.89 370,857 0.55
8.00% to 8.99% . . . . . . . 210,692 0.31 485,803 0.73
9.00% to 9.99% . . . . . . . 6,646 0.01 6,080 0.01
10.00% AND OVER . . . . . . . -- 0.00 20,000 0.03
----------- ------ ----------- ------
5.78 43,673,328 64.69 33,076,035 49.42
----------- ------ ----------- ------

$67,512,520 100.00% $66,930,704 100.00%
----------- ------ ----------- ------
----------- ------ ----------- ------
Weight average cost of
savings deposits 4.79% 3.84%

</TABLE>

Certificates of deposit with balances of $100,000 or more at September 30,
1995 and 1994 were $5,078,411 and $2,763,500, respectively.

F-35

<PAGE>

Scheduled maturities of certificates of deposit at September 30, 1995 are
as follows:
<TABLE>
<CAPTION>

Less Than
One Year 1-2 Years 2-3 Years Over 3 Years Total
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Less than 3.00% . . . $ 207,811 $ -- $ -- $ -- $ 207,811
3.00% to 3.99%. . . . 93,122 50 -- -- 93,172
4.00% to 4.99%. . . . 5,003,649 818,589 -- -- 5,822,238
5.00% to 5.99%. . . . 14,016,993 1,096,175 872,456 707,558 16,693,182
6.00% to 6.99%. . . . 7,804,200 6,901,654 1,423,379 1,206,208 17,335,441
7.00% to 7.99%. . . . 98,584 -- 1,495,643 1,709,919 3,304,146
8.00% to 8.99%. . . . 188,977 21,715 -- -- 210,692
9.00% to 9.99%. . . . 6,646 -- -- -- 6,646
10.00% and over . . . -- -- -- -- --
----------- ----------- ----------- ----------- -----------

$27,419,982 $ 8,838,183 $3,791,478 $3,623,685 $43,673,328
----------- ----------- ----------- ----------- -----------
----------- ---------- ---------- ---------- ----------
</TABLE>

Interest paid on depositor accounts for the years ended September 30
consists of the following:

1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
NOW and money market accounts. . $ 243,124 $ 257,180 $ 278,522
Passbook and statement accounts. 647,229 867,175 769,761
Certificate accounts . . . . . . 2,009,412 1,413,858 1,651,346
------------ ------------ ------------
2,899,765 2,538,213 2,699,629

Less penalties for early
withdrawal . . . . . . . . . . 11,878 4,287 8,361
------------ ------------ ------------
Net interest expense on
deposits . . . . . . . . . . . $ 2,887,887 $ 2,533,926 $ 2,691,268
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

9. ADVANCES FROM FEDERAL HOME LOAN BANK

Advances from the Federal Home Loan Bank are summarized below by maturity
date:

1995 1994
---------------------- ----------------------
Due in year ending Interest Interest
September 30 Amount Rate Amount Rate
------------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C>
1995. . . . . . . . $ -- -- $1,500,000 5.95%
</TABLE>

At September 30, 1994, under a blanket floating lien with the FHLB, the
Savings Bank had pledged all of its stock in the FHLB and all residential
(1-4 units) first mortgage loans as collateral for advances. These
advances were drawn on a $5,000,000 line of credit that the Savings Bank
had established with FHLB at that time.

The Federal Home Loan Bank has established a credit availability program
and is phasing out the line of credit program. Credit availability allows
members of FHLB to request credit by completing an application. Credit
availability is based on financial and operating conditions and

F-36

<PAGE>

is subject to continued creditworthiness, compliance with conditions of the
application, and the pledging of eligible collateral. The credit
availability for the Savings Bank is $12.6 million.

10. STOCKHOLDERS' EQUITY

In 1987, the Board of Directors adopted an incentive stock option plan to
attract and retain management and key employees. The plan provided for the
granting of options to purchase 57,500 shares of common stock at fair
market value on the date of grant and a term of 10 years in which to
exercise the options:

Stock option activity was as follows:

Option
Number Price
of Shares Per Share
--------- ---------
<S> <C> <C>
Options outstanding at September 30, 1993 105,500 $5.00
Options surrendered 4,600 --
------- ------
Options outstanding at September 30, 1994 100,900 5.00
Options surrendered 6,900 --
------- ------
Options outstanding at September 30, 1995 94,000 $5.00
------- ------
------- ------
</TABLE>

All options were eligible to be exercised at September 30, 1995. The
number of shares and the option price per share have been adjusted to
reflect the effect of a 2 for 1 stock split in March 1989.

In lieu of normal redemption of the stock options, under the terms of the
Plan, the optionholders may present their options to the Option Committee
of the Board of Directors and receive, at the discretion of the Option
Committee, either common stock of the Savings Bank or cash or a combination
of cash and stock, an amount equal to the appreciation of the value of the
common stock from the date of grant (i.e., the difference between the
strike price of the option ($5) and the current market price of the common
stock). This settlement of the options is equivalent to a stock
appreciation rights (SAR) feature.

In February 1992, the Option Committee implemented a policy to provide for
the accrual of SAR's on all options then outstanding in anticipation of the
potential future exercise of these options. As of September 30, 1995, the
Savings Bank had accrued $400,700. The Option Committee resolved to
discontinue accruing any greater amount for exercising SAR's and to limit
any grants of SAR's to the amount currently accrued (a $400,700 cap). Such
amount will be available to grant SAR's requests, if any, during the
remaining term of the plan from the optionees and will be granted on a pro
rata basis.

At the time of conversion from mutual to a stock association, a liquidation
account was established in an amount equal to the net worth as of the
latest date of the financial statements contained in the final prospectus
used to sell the stock in the conversion. The liquidation account will be
maintained for the benefit of eligible account holders who continue to
maintain their accounts after conversion. In the event of a complete
liquidation (and only in such an event), each eligible account holder will
be entitled to receive a liquidation distribution from the liquidation
account, in the proportionate amount of the then current adjusted balance
for accounts then held, before any liquidation distribution may be made
with respect to the stockholders. Except for the repurchase of stock and
payment of dividends by the Savings

F-37
<PAGE>

Bank, the existence of the liquidation account will not restrict the use or
application of such net worth.

The Board of Directors declared cash dividends during fiscal year 1995
totaling $0.40 per share, which amount to $461,640.

Earnings per share for the year ended September 30, 1995, 1994 and 1993 are
based on the weighted average number of common and common equivalent shares
outstanding. Stock options are treated as common stock equivalents using
the treasury stock method in each period in which the effect is dilutive.
The weighted average number of common and common equivalent shares used to
compute earnings per share for years ended 1995, 1994, and 1993 were
1,213,732, 1,206,788, and 1,194,299, respectively.

Earnings per share for the years ended 1994 and 1993 have been restated to
provide for inclusion of the common stock equivalents then outstanding.

Retained earnings at September 30, 1995 and 1994, include allocations of
income to bad debt reserves for tax purposes. Earnings appropriated to bad
debt reserves and deducted for federal income tax purposes are not
available for payment of cash dividends or other distributions to
stockholders, including distributions on redemption, dissolutions, or
liquidation, without payment of such taxes on the amount of such earnings
removed from the reserves for such distribution at the then current tax
rate. At September 30, 1995, the Savings Bank had $3,158,439 of such
appropriated reserves (see also Note 13).

11. REGULATORY CAPITAL

Regulations of the Office of Thrift Supervision ("OTS") require
institutions to meet three minimum capital standards: a 1.5% of tangible
capital ratio, a 3% core capital ratio and an 8% risk-based capital ratio.
As of September 30, 1995, the Savings Bank exceeded all three capital
requirements as indicated in the following tabulation:

Actual Required Excess over Actual Required
Capital Capital Required Percent Percent
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tangible capital. . . . . . $14,790,861 $1,251,001 $13,539,860 17.73% 1.50%
Core capital. . . . . . . . 14,790,861 2,502,002 12,288,859 17.73 3.00
Risk-based capital. . . . . 14,898,861 2,382,243 12,516,618 50.03 8.00

</TABLE>

OTS regulations impose limitations upon all capital distributions such as
dividends, stock repurchases, and cash-out mergers by savings institutions.
The rule establishes three tiers of institutions and the prerequisites as
to how each tier institution can make distributions. As of September 30,
1995, the Savings Bank qualified as a Tier 1 institution; therefore,
capital distributions can be made, after prior notice but without OTS
approval, equal to the greater of: (1) 100% of net income plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of
the year; or (2) 75% of its net income for the previous four quarters. Any
additional capital distributions would require prior regulatory approval.

In addition to the above capital requirements, the Savings Bank is required
to maintain an average daily balance of specified liquid assets equal to a
monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement is currently 5%. OTS regulations also require each member
institution to

F-38

<PAGE>

maintain an average daily balance of short-term liquid assets at a
specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and borrowings payable in one year or less. The Savings
Bank's liquidity and short-term liquidity ratios for September 30, 1995
were 17.22% and 3.42% respectively.

12. EMPLOYEE BENEFIT PLANS

The Savings Bank has a non-contributory defined benefit pension plan which
covers substantially all employees. The plan uses the final average salary
benefit formula with benefits based on years of accrued service. The
Savings Bank's policy is to contribute annually the amount required by the
plan. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in
the future.

The following table sets forth the plan's funded status and amounts
recognized in the statements of financial condition at September 30, 1995
and 1994. Certain amounts as shown for 1994 have been restated to provide
new valuation data from the actuary:

1995 1994
------------ -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits obligation of $1,193,128 and $1,051,322,
respectively. . . . . . . . . . . . . . . . . . . $ 1,251,311 $ 1,108,852
------------ -----------
------------ -----------
Projected benefit obligation for
service rendered to date. . . . . . . . . . . . . $(1,323,744) $(1,207,655)
Plan assets at fair value; Mutual Savings
Bank common stock and short-term investments. . . 1,313,355 1,128,025
------------ -----------
Funded status. . . . . . . . . . . . . . . . . . . (10,389) (79,630)
Unrecognized net obligation being recognized
over 17 years . . . . . . . . . . . . . . . . . . 305,410 335,206

Unrecognized net (gain) or loss. . . . . . . . . . (475,774) (425,323)
------------ -----------
Accrued pension cost . . . . . . . . . . . . . . . $ (180,753) $ (169,747)
------------ -----------
------------ -----------
</TABLE>

Net periodic pension cost for years ended September 30 included the
following components:

1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Service cost - benefits earned
during the period. . . . . . . . $ 66,518 $ 73,632 $64,868
Interest cost on projected
benefit obligation . . . . . . . 82,249 85,883 42,058
Return on plan assets . . . . . . (138,193) (69,175) (74,623)
Net amortization and deferral . . 75,432 22,079 15,002
---------- ---------- ---------
Net periodic pension cost . . . . $ 86,006 $112,419 $47,305
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

The discount rate used to determine the actuarial present value of the
projected benefit obligation was 7% for both 1995 and 1994, respectively.
The expected long-term rate of return on plan assets used in determining
net pension expense was 7% for both 1995 and 1994, respectively. The
assumed rate of increase in future compensation levels was 4% for both 1995
and 1994, respectively.

F-39

<PAGE>

As of September 30, 1995, the plan had no additional liability and no
intangible asset.

The Savings Bank also has an Employee Stock Ownership Plan ("ESOP"). The
plan covers substantially all employees. At September 30, 1995, the ESOP
held 118,020 shares of the Savings Bank's common stock all of which had
been allocated to the participants as of that date. As of September 30,
1995, the market value of plan assets was $1,804,497.

Contributions, which include interest, to the ESOP plan for years ended
September 30, 1995, 1994 and 1993 were $57,925, $36,712, and $166,236,
respectively. Contributions are made based upon 10% of annual compensation
plus a discretionary amount as determined by the Board of Directors, not to
exceed 25% of the participants' compensation.

The Savings Bank does not provide any benefits that are subject to the
provisions of SFAS No. 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 112, "Employers Accounting for
Postemployment Benefits".

13. INCOME TAXES

Under the Internal Revenue Code, the Savings Bank is allowed a special bad
debt deduction related to additions to tax bad debt reserves established
for the purposes of absorbing losses. A deduction for bad debts of 8% of
taxable income is allowable. The Savings Bank is also subject to state
income taxes. The state allows a deduction for bad debts of 40% of taxable
income. The Savings Bank did not qualify for the special allowance for bad
debt deduction in 1995 and 1994.

Deferred income taxes have not been provided on bad debt reserves since the
Savings Bank does not intend to use the reserves for purposes other than to
absorb losses.

The Savings Bank estimates that approximately $1,074,000 of income tax
would be payable on the tax bad debt reserves if these amounts are used for
purposes other than bad debt losses.

Provision for income taxes for the years ended September 30 is summarized
as follows:

1995 1994 1993
---------- ---------- ---------
Current . . . . . . . . . . . . . $516,225 $515,020 $579,822
Deferred. . . . . . . . . . . . . (29,218) (8,869) (30,010)
---------- ---------- ---------

$487,007 $506,151 $549,812
---------- ---------- ---------
---------- ---------- ---------

F-40

<PAGE>

A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:

1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Statutory federal income tax rate. . . . 34% 34% 34%
Increase (decrease) in taxes
resulting from: . . . . . . . . . . . .
Tax bad debt deduction . . . . . . . . -- -- ( 3)
Tax exempt interest and dividends. . . ( 2) ( 1) ( 1)
State income taxes . . . . . . . . . . 2 2 1
Other, net . . . . . . . . . . . . . . ( 1) ( 1) ( 1)
--------- -------- -------
33% 34% 30%
--------- -------- -------
</TABLE>

The sources of temporary differences and their deferred tax effect are as
follows:
<TABLE>
<CAPTION>

1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
Deferred loan fees . . . . . . . . $ 6,850 $ (3,605) $ (468)
Depreciation . . . . . . . . . . . 13,067 9,900 9,531
Pension expense. . . . . . . . . . (3,742) (102) (16,084)
Federal Home Loan Bank
stock dividends . . . . . . . . . 479 16,245 12,646
Stock appreciation rights. . . . . (45,390) (32,028) (35,292)
Other, net . . . . . . . . . . . . (482) 721 (343)
--------- -------- -------
$(29,218) $ (8,869) $(30,010)
--------- -------- -------
--------- -------- -------
</TABLE>

The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at September 30, are as follows:

1995 1994
----------- ----------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees. . . . . . . . . . . . . $ 55,214 $ 62,064
Pension expense . . . . . . . . . . . . . . 61,456 57,714
Provision for stock appreciation rights . . 136,238 90,848
Unrealized loss on securities available
for sale. . . . . . . . . . . . . . . . . . 2,101 -
OTHER 623 141
--------- ---------
TOTAL GROSS DEFERRED TAX ASSETS. . . . . . 255,632 210,767
--------- ---------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . 195,572 182,505
Federal Home Loan Bank stock dividends. . . 50,535 50,056
--------- ---------
Total gross deferred tax liabilities. . . 246,107 232,561
--------- ---------
Net deferred tax assets (liability) . . . $ 9,525 $ (21,794)
--------- ---------
--------- ---------
</TABLE>

With respect to the realization of total gross deferred tax assets, the
Savings Bank believes that a valuation allowance is not necessary.

F-41

<PAGE>

APPENDIX I

AGREEMENT AND PLAN OF REORGANIZATION

BY AND BETWEEN

MUTUAL SAVINGS BANK, F.S.B.

AND

AMERICAN NATIONAL BANKSHARES INC.

Dated as of September 26, 1995

I-1

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Parties. . . . . . . . . . . . . . . . . . . . . . . . . I-6
Preamble . . . . . . . . . . . . . . . . . . . . . . . . I-6

ARTICLE ONE - TRANSACTIONS AND TERMS OF MERGER . . . . . I-6

1.1 Merger. . . . . . . . . . . . . . . . . . . . . I-6
1.2 Time and Place of Closing . . . . . . . . . . . I-7
1.3 Effective Time. . . . . . . . . . . . . . . . . I-7

ARTICLE TWO - TERMS OF MERGER. . . . . . . . . . . . . . I-7

2.1 Business of Resulting Association . . . . . . . I-7
2.2 Assumption of Rights. . . . . . . . . . . . . . I-7
2.3 Assumption of Liabilities . . . . . . . . . . . I-8
2.4 Articles of Association . . . . . . . . . . . . I-8
2.5 Bylaws. . . . . . . . . . . . . . . . . . . . . I-8
2.6 Directors and Officers. . . . . . . . . . . . . I-8

ARTICLE THREE - MANNER OF CONVERTING SHARES. . . . . . . I-8

3.1 Conversion of Shares. . . . . . . . . . . . . . I-8
3.2 Anti-Dilution Provisions. . . . . . . . . . . . I-9
3.3 Shares Held by Mutual or ANB. . . . . . . . . . I-9
3.4 Dissenting Shareholders . . . . . . . . . . . . I-9
3.5 Fractional Shares . . . . . . . . . . . . . . . I-9
3.6 Conversion of Stock Options . . . . . . . . . . I-9

ARTICLE FOUR - EXCHANGE OF SHARES. . . . . . . . . . . . I-11

4.1 Exchange Procedures . . . . . . . . . . . . . . I-11
4.2 Rights of Former Mutual Shareholders. . . . . . I-11

ARTICLE FIVE - REPRESENTATIONS AND WARRANTIES OF MUTUAL I-12

5.1 Organization, Standing, and Power . . . . . . . I-12
5.2 Authority; No Breach By Agreement . . . . . . . I-12
5.3 Capital Stock . . . . . . . . . . . . . . . . . I-13
5.4 Mutual Subsidiaries . . . . . . . . . . . . . . I-14
5.5 Financial Statements. . . . . . . . . . . . . . I-14
5.6 Absence of Undisclosed Liabilities. . . . . . . I-15
5.7 Absence of Certain Changes or Events. . . . . . I-15
5.8 Adequacy of Reserves. . . . . . . . . . . . . . I-15
5.9 Tax Matters . . . . . . . . . . . . . . . . . . I-16
5.10 Assets. . . . . . . . . . . . . . . . . . . . . I-16
5.11 Environmental Matters . . . . . . . . . . . . . I-17
5.12 Compliance With Laws. . . . . . . . . . . . . . I-18
5.13 Labor Relations . . . . . . . . . . . . . . . . I-18
</TABLE>

I-2

<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.14 Employee Benefit Plans. . . . . . . . . . . . . I-18
5.15 Material Contracts. . . . . . . . . . . . . . . I-21
5.16 Legal Proceedings . . . . . . . . . . . . . . . I-21
5.17 Reports . . . . . . . . . . . . . . . . . . . . I-21
5.18 Statements True and Correct . . . . . . . . . . I-22
5.19 Accounting, Tax, and Regulatory Matters . . . . I-22
5.20 Charter Provisions. . . . . . . . . . . . . . . I-23
5.21 Support Agreements. . . . . . . . . . . . . . . I-23

ARTICLE SIX - REPRESENTATIONS AND WARRANTIES OF ANB. . . I-23

6.1 Organization, Standing, and Power . . . . . . . I-23
6.2 Authority; No Breach By Agreement . . . . . . . I-23
6.3 Capital Stock . . . . . . . . . . . . . . . . . I-24
6.4 ANB Subsidiaries. . . . . . . . . . . . . . . . I-24
6.5 Financial Statements. . . . . . . . . . . . . . I-25
6.6 Absence of Undisclosed Liabilities. . . . . . . I-25
6.7 Absence of Certain Changes or Events. . . . . . I-26
6.8 Adequacy of Reserves. . . . . . . . . . . . . . I-26
6.9 Assets. . . . . . . . . . . . . . . . . . . . . I-27
6.10 Compliance With Laws. . . . . . . . . . . . . . I-27
6.11 Legal Proceedings . . . . . . . . . . . . . . . I-27
6.12 Reports . . . . . . . . . . . . . . . . . . . . I-28
6.13 Statements True and Correct . . . . . . . . . . I-28
6.14 Authority of American National. . . . . . . . . I-29
6.15 Accounting, Tax, and Regulatory Matters . . . . I-29

ARTICLE SEVEN - CONDUCT OF BUSINESS PENDING
CONSUMMATION. . . . . . . . . . . . . . . . . . . . . I-29

7.1 Covenants of Both Parties . . . . . . . . . . . I-29
7.2 Covenants of Mutual . . . . . . . . . . . . . . I-29
7.3 Covenants of ANB. . . . . . . . . . . . . . . . I-32
7.4 Adverse Changes in Condition. . . . . . . . . . I-32
7.5 Reports . . . . . . . . . . . . . . . . . . . . I-32

ARTICLE EIGHT - ADDITIONAL AGREEMENTS. . . . . . . . . . I-32

8.1 Registration Statement; Joint Proxy Statement;
Shareholder Approval . . . . . . . . . . . . . I-32
8.2 Applications. . . . . . . . . . . . . . . . . . I-33
8.3 Agreement as to Efforts to Consummate . . . . . I-33
8.4 Investigation and Confidentiality . . . . . . . I-34
8.5 Press Releases. . . . . . . . . . . . . . . . . I-34
8.6 Certain Actions . . . . . . . . . . . . . . . . I-34
8.7 Tax Matters . . . . . . . . . . . . . . . . . . I-35
8.8 Agreements of Affiliates. . . . . . . . . . . . I-35
8.9 Employee Benefits and Contracts . . . . . . . . I-35
8.10 Indemnification . . . . . . . . . . . . . . . . I-36
8.11 Organization of Mortgage Subsidiary . . . . . . I-37
</TABLE>

I-3

<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.12 Certain Director and Officer Positions. . . . . I-37
8.13 Certain Modifications . . . . . . . . . . . . . I-38

ARTICLE NINE - CONDITIONS PRECEDENT TO OBLIGATIONS TO
CONSUMMATE. . . . . . . . . . . . . . . . . . . . . . I-38

9.1 Conditions to Obligations of Each Party . . . . I-38
9.2 Conditions to Obligations of ANB. . . . . . . . I-39
9.3 Conditions to Obligations of Mutual . . . . . . I-40

ARTICLE TEN - TERMINATION. . . . . . . . . . . . . . . . I-42

10.1 Termination . . . . . . . . . . . . . . . . . . I-42
10.2 Effect of Termination . . . . . . . . . . . . . I-43
10.3 Non-Survival of Representations and Covenants . I-43

ARTICLE ELEVEN - MISCELLANEOUS . . . . . . . . . . . . . I-43

11.1 Definitions . . . . . . . . . . . . . . . . . . I-43
11.2 Expenses. . . . . . . . . . . . . . . . . . . . I-51
11.3 Brokers and Finders . . . . . . . . . . . . . . I-52
11.4 Entire Agreement. . . . . . . . . . . . . . . . I-52
11.5 Amendments. . . . . . . . . . . . . . . . . . . I-52
11.6 Waivers . . . . . . . . . . . . . . . . . . . . I-52
11.7 Assignment. . . . . . . . . . . . . . . . . . . I-53
11.8 Notices . . . . . . . . . . . . . . . . . . . . I-53
11.9 Governing Law . . . . . . . . . . . . . . . . . I-54
11.10 Counterparts. . . . . . . . . . . . . . . . . . I-54
11.11 Captions. . . . . . . . . . . . . . . . . . . . I-54
11.12 Severability. . . . . . . . . . . . . . . . . . I-54

Signatures . . . . . . . . . . . . . . . . . . . . . . . I-54
</TABLE>

I-4

<PAGE>

LIST OF EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<C> <S>
1. Form of Plan of Merger and Combination between
Mutual and American National. (Sections 1.1, 11.1).

2. Form of Support Agreement. (Section 5.22).

3. Form of Affiliate Agreement. (Section 8.8).

4. Form of Employment Agreement. (Section 8.12(c)).

5. Matters as to which Muldoon, Murphy & Faucette
will opine. (Section 9.2(e)).

6. Matters as to which Alston & Bird will opine.
(Section 9.3(d)).

</TABLE>

I-5

<PAGE>

AGREEMENT AND PLAN OF REORGANIZATION

THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of September 26, 1995, by and between MUTUAL SAVINGS
BANK, F.S.B. ("Mutual"), a federal stock savings bank organized and existing
under the Laws of the United States, with its principal office located in
Danville, Virginia; and AMERICAN NATIONAL BANKSHARES INC. ("ANB"), a
corporation organized and existing under the Laws of the Commonwealth of
Virginia, with its principal office located in Danville, Virginia.

PREAMBLE

The Boards of Directors of Mutual and ANB are of the opinion that the
transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the acquisition of
Mutual by ANB pursuant to the merger (the "Merger") of Mutual with and into
American National Bank and Trust Company ("American National"), a national
banking association and a wholly owned subsidiary of ANB. At the effective
time of the Merger, the outstanding shares of the common stock of Mutual
shall be converted into shares of the common stock of ANB (except as provided
herein). As a result, shareholders of Mutual shall become shareholders of
ANB, and the business and operations of Mutual shall be conducted through,
and as a part of, American National. The transactions described in this
Agreement are subject to the approvals of the shareholders of Mutual and ANB,
the Office of the Comptroller of the Currency, appropriate state regulatory
authorities, and the satisfaction of certain other conditions described in
this Agreement. It is the intention of the parties to this Agreement that the
Merger (i) for federal income tax purposes shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, and that the exchange of Mutual common stock, to the extent exchanged
for ANB common stock, will not give rise to gain or loss to the holders of
Mutual common stock with respect to such exchange, and (ii) for accounting
purposes shall be accounted for as a "pooling of interests."

Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.

NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows:

ARTICLE ONE
TRANSACTIONS AND TERMS OF MERGER

1.1 MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, Mutual shall be merged with and into American National in
accordance with and with the effect provided in 12 U.S.C. Sections 215c,
1815(d)(3), and 1828(c). American National shall be

I-6

<PAGE>

the Resulting Association resulting from the Merger and shall be a
wholly-owned, first tier Subsidiary of ANB and shall continue to be governed
by the Laws of the United States. The Merger shall be consummated pursuant to
the terms of this Agreement, which has been approved and adopted by the
respective Boards of Directors of Mutual and ANB, and the Plan of Merger,
which has been approved by the respective Boards of Directors of Mutual and
American National.

1.2 TIME AND PLACE OF CLOSING. The Closing will take place at 9:00 A.M.
on the date that the Effective Time occurs (or the immediately preceding day
if the Effective Time is earlier than 9:00 A.M.), or at such other time as
the Parties, acting through their chief executive officers or chief financial
officers, may mutually agree. The place of Closing shall be at the offices of
ANB, or such other place as may be mutually agreed upon by the Parties.

1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
this Agreement shall become effective on the date and at the time of issuance
of the Certificate of Merger by the OCC or on such other date and at such
other time as the OCC declares the Merger effective (the "Effective Time").
Subject to the terms and conditions hereof, unless otherwise mutually agreed
upon in writing by the chief executive officers or chief financial officers
of each Party, the Parties shall use their reasonable efforts to cause the
Effective Time to occur on the first business day following the last to occur
of (i) the effective date (including expiration of any applicable waiting
period) of the last required Consent of any Regulatory Authority having
authority over and approving or exempting the Merger, and (ii) the date on
which the shareholders of Mutual and ANB approve this Agreement and the Plan
of Merger to the extent such approval is required by applicable Law; or such
later date within thirty (30) days of such date as may be mutually agreed
upon by Mutual and ANB.

ARTICLE TWO
TERMS OF MERGER

2.1 BUSINESS OF RESULTING ASSOCIATION. The business of the Resulting
Association from and after the Effective Time shall continue to be that of a
national banking association organized under the Laws of the United States.
The business shall be conducted from its main office located in Danville,
Virginia, and at its legally established branches, which shall also include
the main office and all branches of Mutual, whether in operation or approved
but unopened, at the Effective Time.

2.2 ASSUMPTION OF RIGHTS. At the Effective Time, the separate
existence and corporate organization of Mutual shall be merged into and
continued in the Resulting Association. All rights, franchises, and interests
of both Mutual and American National in and to every type of property (real,
personal, and mixed), and all choses in action of both Mutual and American
National shall be transferred to and vested in the Resulting Association
without any deed or other transfer. The Resulting Association, upon
consummation of the Merger and without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of

I-7

<PAGE>

estates, assignee, receiver, and committee of estates of incompetent persons,
and in every other fiduciary capacity, in the same manner and to the same
extent as such rights, franchises, and interests were held or enjoyed by
either Mutual or American National at the Effective Time.

2.3 ASSUMPTION OF LIABILITIES. All liabilities and obligations of both
Mutual and American National of every kind and description (including without
limitation the liquidation account established by Mutual in connection with
its conversion to the stock form of organization, as in existence at the
Effective Time) shall be assumed by the Resulting Association, and the
Resulting Association shall be bound thereby in the same manner and to the
same extent that Mutual and American National were so bound at the Effective
Time.

2.4 ARTICLES OF ASSOCIATION. The Articles of Association of American
National in effect immediately prior to the Effective Time shall be the
Articles of Association of the Resulting Association until otherwise amended
or repealed.

2.5 BYLAWS. The Bylaws of American National in effect immediately prior
to the Effective Time shall be the Bylaws of the Resulting Association until
otherwise amended or repealed.

2.6 DIRECTORS AND OFFICERS. The directors of American National in
office immediately prior to the Effective Time, together with such additional
persons as may thereafter be elected, shall serve as the directors of the
Resulting Association from and after the Effective Time in accordance with
the Bylaws of the Resulting Association. The officers of American National in
office immediately prior to the Effective Time, together with such additional
persons as may thereafter be elected pursuant to Section 8.12 of this
Agreement or otherwise, shall serve as the officers of the Resulting
Association from and after the Effective Time in accordance with the Bylaws
of the Resulting Association.

ARTICLE THREE
MANNER OF CONVERTING SHARES

3.1 CONVERSION OF SHARES. Subject to the provisions of this Article
Three, at the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof, the shares of the constituent
corporations or associations shall be converted as follows:

(a) Each share of ANB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.

(b) Each share of American National Common Stock issued and
outstanding at the Effective Time shall remain issued and outstanding
from and after the Effective Time.

(c) Each share of Mutual Common Stock (excluding shares held
by any Mutual Company or by any ANB Company, which shares shall be
canceled as provided in

I-8

<PAGE>

Section 3.3 of this Agreement, in each case other than in a
fiduciary capacity or in satisfaction of debts previously contracted)
issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for .705 of a
share of ANB Common Stock (the "Exchange Ratio").

3.2 ANTI-DILUTION PROVISIONS. In the event Mutual or ANB changes the
number of shares of Mutual Common Stock or ANB Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, or similar recapitalization with respect to such stock
and the record date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted.

3.3 SHARES HELD BY MUTUAL OR ANB. Each of the shares of Mutual Common
Stock held by any Mutual Company or by any ANB Company, in each case other
than in a fiduciary capacity or in satisfaction of debts previously
contracted, shall be canceled and retired at the Effective Time, and no
consideration shall be issued in exchange therefor.

3.4 DISSENTING SHAREHOLDERS. Any holder of shares of Mutual Common
Stock who perfects such holder's dissenters' rights of appraisal in
accordance with and as contemplated by 12 C.F.R. Section 552.14 shall be
entitled to receive the value of such shares in cash as determined pursuant
to such provision of Law; provided, however, that no such payment shall be
made to any dissenting shareholder unless and until such dissenting
shareholder has complied with the applicable provisions of 12 C.F.R. Section
552.14 and surrendered to the Resulting Association the certificate or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting shareholder of Mutual fails
to perfect, or effectively withdraws or loses, such holder's right to
appraisal and of payment for such holder's shares, ANB shall issue and
deliver the consideration to which such holder of shares of Mutual Common
Stock is entitled under this Article Three (without interest) upon surrender
by such holder of the certificate or certificates representing shares of
Mutual Common Stock held by such holder. Mutual will establish an escrow
account with an amount sufficient to satisfy the maximum aggregate payment
that may be required to be paid to dissenting shareholders. Upon satisfaction
of all claims of dissenting shareholders, the remaining escrowed amount,
reduced by payment of the fees and expenses of the escrow agent, will be
returned to the Resulting Association.

3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Mutual Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of ANB Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of ANB Common
Stock multiplied by $30.50.

3.6 CONVERSION OF STOCK OPTIONS.

I-9

<PAGE>

whether or not exercisable, shall be converted into and become rights with
respect to ANB Common Stock, and ANB shall assume each Mutual Option, in
accordance with the terms of the Mutual Stock Plan and stock option agreement
by which it is evidenced, except that from and after the Effective Time, (i)
the Board of Directors of Mutual Mortgage Company shall be substituted for
Mutual and the Committee of Mutual's Board of Directors (including, if
applicable, the entire Board of Directors of Mutual) administering such
Mutual Stock Plan, (ii) each Mutual Option assumed by ANB may be exercised
solely for shares of ANB Common Stock (or cash in the case of stock
appreciation rights), (iii) the number of shares of ANB Common Stock subject
to such Mutual Option shall be equal to the number of shares of Mutual Common
Stock subject to such Mutual Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, and (iv) the per share exercise price under
each such Mutual Option shall be adjusted by dividing the per share exercise
price under each such Mutual Option by the Exchange Ratio and rounding up to
the nearest cent. Notwithstanding the provisions of clause (iii) of the
preceding sentence, ANB shall not be obligated to issue any fraction of a
share of ANB Common Stock upon exercise of Mutual Options and any fraction of
a share of ANB Common Stock that otherwise would be subject to a converted
Mutual Option shall represent the right to receive a cash payment equal to
the product of such fraction and the difference between the market value of
one share of ANB Common Stock and the per share exercise price of such
option. The market value of one share of ANB Common Stock shall be the
average of the closing bid and asked prices of such common stock as quoted on
the Nasdaq System or, if not reported thereby, any other authoritative source
selected by ANB) on the last trading day preceding the exercise of the
option. In addition, notwithstanding the provisions of clauses (iii) and (iv)
of the first sentence of this Section 3.6, each Mutual Option which is an
"incentive stock option" shall be adjusted as required by Section 424 of the
Internal Revenue Code, and the regulations promulgated thereunder, so as not
to constitute a modification, extension, or renewal of the option, within the
meaning of Section 424(h) of the Internal Revenue Code.

(b) At or prior to the Effective Time, ANB shall take all
corporate action necessary to reserve for issuance sufficient shares of ANB
Common Stock for delivery upon exercise of Mutual Options assumed by it in
accordance with this Section 3.6. As soon as reasonably practicable after the
Effective Time, ANB shall file a registration statement on Form S-3 or Form
S-8, as the case may be (or any successor or other appropriate forms), with
respect to the shares of ANB Common Stock subject to such options and shall
use its reasonable efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding. With
respect to those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, ANB shall administer the Mutual Option Plan assumed pursuant to
this Section 3.6 in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act to the extent the Mutual Option Plan complied with such rule
prior to the Merger.

(c) All restrictions or limitations on transfer with respect to
Mutual Common Stock awarded under the Mutual Stock Plans or any other plan,
program, or arrangement of any Mutual Company, to the extent that such
restrictions or limitations shall not have already lapsed, and except as
otherwise expressly provided in such plan, program, or arrangement, shall
remain in

I-10

<PAGE>

full force and effect with respect to shares of ANB Common Stock into which
such restricted stock is converted pursuant to Section 3.1 of this Agreement.

ARTICLE FOUR
EXCHANGE OF SHARES

4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, ANB shall
cause the exchange agent selected by it (the "Exchange Agent") to mail to the
former shareholders of Mutual appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of Mutual Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent).
After the Effective Time, each holder of shares of Mutual Common Stock (other
than shares to be canceled pursuant to Section 3.3 of this Agreement) issued
and outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall
promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 of this Agreement, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2 of this Agreement. To the extent
required by Section 3.5 of this Agreement, each holder of shares of Mutual
Common Stock issued and outstanding at the Effective Time also shall receive,
upon surrender of the certificate or certificates representing such shares,
cash in lieu of any fractional share of ANB Common Stock to which such holder
may be otherwise entitled (without interest). ANB shall not be obligated to
deliver the consideration to which any former holder of Mutual Common Stock
is entitled as a result of the Merger until such holder surrenders such
holder's certificate or certificates representing the shares of Mutual Common
Stock for exchange as provided in this Section 4.1. The certificate or
certificates of Mutual Common Stock so surrendered shall be duly endorsed as
the Exchange Agent may require. Any other provision of this Agreement
notwithstanding, neither ANB, the Resulting Association, nor the Exchange
Agent shall be liable to a holder of Mutual Common Stock for any amounts paid
or property delivered in good faith to a public official pursuant to any
applicable abandoned property Law.

I-11

<PAGE>

Stock in accordance with the provisions of this Agreement. Whenever a
dividend or other distribution is declared by ANB on the ANB Common Stock,
the record date for which is at or after the Effective Time, the declaration
shall include dividends or other distributions on all shares of ANB Common
Stock issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of ANB Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Mutual Common Stock issued and outstanding
at the Effective Time until such holder surrenders such certificate for
exchange as provided in Section 4.1 of this Agreement. However, upon
surrender of such Mutual Common Stock certificate, both the ANB Common Stock
certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered cash payments to be paid
for fractional share interests (without interest) shall be delivered and paid
with respect to each share represented by such certificate.

ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF MUTUAL

Mutual hereby represents and warrants to ANB as follows:

5.1 ORGANIZATION, STANDING, AND POWER. Mutual is a federal stock
savings bank duly organized, validly existing, and in good standing under the
Laws of the United States, and has the corporate power and authority to carry
on its business as now conducted and to own, lease, and operate its Assets.
Mutual is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of
its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual. Mutual is an "insured institution" as defined in
the Federal Deposit Insurance Act and applicable regulations thereunder, and
the deposits in which are insured by the Savings Association Insurance Fund.

5.2 AUTHORITY; NO BREACH BY AGREEMENT.

(a) Mutual has the corporate power and authority necessary to
execute, deliver, and perform its obligations under, this Agreement and the
Plan of Merger and to consummate the trans actions contemplated hereby and
thereby, subject to the approval of this Agreement and the Plan of Merger by
the requisite vote of the holders of Mutual Common Stock. The execution,
delivery, and performance of this Agreement and the Plan of Merger and the
consummation of the transactions contemplated herein and therein, including
the Merger, have been or will be duly and validly authorized by all necessary
corporate action in respect thereof on the part of Mutual subject to the
approval of this Agreement and the Plan of Merger by the holders of
two-thirds of the outstanding shares of Mutual Common Stock. Subject to such
requisite approval, this Agreement and the Plan of Merger represent legal,
valid, and binding obligations of Mutual enforceable against Mutual in
accordance with their respective terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,

I-12

<PAGE>

reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally or the rights of creditors of a federal savings
bank, the deposits in which are insured by the FDIC, and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).

(b) Neither the execution and delivery of this Agreement and the
Plan of Merger by Mutual nor the consummation by Mutual of the transactions
contemplated hereby or thereby, nor compliance by Mutual with any of the
provisions hereof or thereof, will (i) conflict with or result in a breach of
any provision of Mutual's Charter or Bylaws, or (ii) constitute or result in
a Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of any Mutual Company under, any Contract
or Permit of any Mutual Company, or (iii) subject to receipt of the requisite
approvals referred to in Section 9.1(b) of this Agreement, violate any
material Law or Order applicable to any Mutual Company or any of their
respective Assets.

(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from and notices to be
filed with Regulatory Authorities, and other than notices to or filings with
the Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents, filings, or
notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Mutual
no notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by Mutual of the Merger and the other
transactions contemplated by this Agreement and the Plan of Merger.

5.3 CAPITAL STOCK.

(a) The authorized capital stock of Mutual consists of (i)
7,500,000 shares of Mutual Common Stock, of which 1,154,100 shares are issued
and outstanding as of the date of this Agreement and not more than 1,248,100
shares will be issued and outstanding at the Effective Time, and (ii)
2,500,000 shares of Mutual Preferred Stock, of which no shares are issued and
outstanding. All of the issued and outstanding shares of Mutual Common Stock
are duly and validly issued and outstanding and are fully paid and
nonassessable. None of the outstanding shares of Mutual Common Stock has been
issued in violation of any preemptive rights of the current or past
shareholders of Mutual. Mutual has reserved 94,000 shares of Mutual Common
Stock for issuance under the Mutual Stock Plans, pursuant to which options to
purchase no more than 94,000 shares of Mutual Common Stock are outstanding.

(b) Except as set forth in Section 5.3(a) of this Agreement, or
as disclosed in Section 5.3(b) of the Mutual Disclosure Memorandum, there are
no shares of capital stock or other equity securities of Mutual outstanding
and no outstanding options, warrants, scrip, rights to subscribe to, calls,
or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of
Mutual or contracts, commitments, understandings, or arrangements by which
Mutual is or may be bound to issue

I-13

<PAGE>

additional shares of Mutual capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.

5.4 MUTUAL SUBSIDIARIES. Mutual has disclosed in Section 5.4 of the
Mutual Disclosure Memorandum all of the Mutual Subsidiaries as of the date of
this Agreement. Except as disclosed, Mutual or one of its Subsidiaries owns
all of the issued and outstanding shares of capital stock of each Mutual
Subsidiary. No equity securities of any Mutual Subsidiary are or may become
required to be issued (other than to a Mutual Company) by reason of any
options, warrants, scrip, rights to subscribe to, calls, or commitments of
any character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of the capital stock of any such Subsidiary,
and there are no Contracts by which any Mutual Subsidiary is bound to issue
(other than to a Mutual Company) additional shares of its capital stock or
options, warrants, or rights to purchase or acquire any additional shares of
its capital stock or by which any Mutual Company is or may be bound to
transfer any shares of the capital stock of any Mutual Subsidiary (other than
to a Mutual Company). There are no Contracts relating to the rights of any
Mutual Company to vote or to dispose of any shares of the capital stock of
any Mutual Subsidiary. All of the shares of capital stock of each Mutual
Subsidiary held by any Mutual Company are duly authorized, validly issued,
and fully paid and nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are
owned by the Mutual Company free and clear of any Lien. Each Mutual
Subsidiary is a corporation, and is duly organized, validly existing, and in
good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate power and authority necessary for it to
own, lease, and operate its Assets and to carry on its business as now
conducted. Each Mutual Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or
the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Mutual.

5.5 FINANCIAL STATEMENTS. Mutual has disclosed in Section 5.5 of the
Mutual Disclosure Memorandum, and has delivered to ANB, copies of, all Mutual
Financial Statements prepared for periods ended prior to the date hereof and
will deliver to ANB copies of all Mutual Financial Statements prepared
subsequent to the date hereof. The Mutual Financial Statements (as of the
dates thereof and for the periods covered thereby) (i) are or, if dated after
the date of this Agreement, will be in accordance with the books and records
of the Mutual Companies, which are or will be, as the case may be, complete
and correct and which have been or will have been, as the case may be,
maintained in accordance with good business practices, and (ii) present or
will present, as the case may be, fairly the consolidated financial position
of the Mutual Companies as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows of the
Mutual Companies for the periods indicated, in accordance with GAAP (subject
to any exceptions as to consistency specified therein or as may be indicated
in the notes thereto or, in the case of interim financial statements, to
normal recurring year-end adjustments that are not material).

I-14

<PAGE>

5.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Knowledge of Mutual no
Mutual Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Mutual as of June 30, 1995 included in the Mutual Financial
Statements or reflected in the notes thereto. Except as disclosed in Section
5.6 of the Mutual Disclosure Memorandum, no Mutual Company has incurred or
paid any Liability since June 30, 1995, except for such Liabilities incurred
or paid in the ordinary course of business consistent with past business
practice and which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Mutual.

5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1995, except
as disclosed in the Mutual Financial Statements filed with the OTS after such
date and prior to the date of this Agreement, (i) there have been no events,
changes, or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual and
(ii) the Mutual Companies have not taken any action, or failed to take any
action, prior to the date of this Agreement, which action or failure, if
taken after the date of this Agreement, would represent or result in a
material breach or violation of any of the covenants and agreements of Mutual
provided in Section 7.2(a), (b), (c), (g), (h), or (i) of this Agreement.

5.8 ADEQUACY OF RESERVES.

(a) The allowance for possible loan or credit losses (the
"Allowance") shown on the consolidated balance sheets of Mutual included in
the most recent Mutual Financial Statements dated prior to the date of this
Agreement was, and the Allowance shown on the consolidated balance sheets of
Mutual included in the Mutual Financial Statements as of dates subsequent to
the execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the loan and
lease portfolios (including accrued interest receivables) of the Mutual
Companies and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the Mutual Companies as of the
dates thereof.

(b) The reserve for losses on real estate owned ("REO Reserve")
shown on the consolidated balance sheets of Mutual included in the most
recent Mutual Financial Statements dated prior to the date of this Agreement
was, and the REO Reserve shown on the consolidated balance sheets of Mutual
included in the Mutual Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the other real
estate owned portfolios of the Mutual Companies as of the dates thereof.

(c) The reserves for losses in respect of Litigation ("Litigation
Reserves") shown on the consolidated balance sheets of Mutual included in the
most recent Mutual Financial Statements dated prior to the date of this
Agreement was, and the Litigation Reserves shown on the consolidated balance
sheets of Mutual included in the Mutual Financial Statements as of dates
subsequent to the execution of this Agreement will be, as of the dates
thereof, adequate (within

I-15

<PAGE>

the meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for losses relating to or arising out of Litigation of the Mutual
Companies as of the dates thereof.

5.9 TAX MATTERS.

(a) All Tax returns required to be filed by or on behalf of any
of the Mutual Companies have been timely filed, or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before September 30, 1994, and on or before the date of the most recent
fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on Mutual and all such returns filed
are complete and accurate in all material respects. All Taxes shown on filed
returns have been paid. There is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on Mutual except to the extent reserved against in the Mutual
Financial Statements dated prior to the date of this Agreement. All Taxes and
other Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid.

(b) None of the Mutual Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any
Tax due (excluding such statutes that relate to years currently under
examination by the Internal Revenue Service or other applicable Taxing
authorities) that is currently in effect.

(c) Adequate provision for any Taxes due or to become due for any
of the Mutual Companies for the period or periods through and including the
date of the respective Mutual Financial Statements has been made and is
reflected on such Mutual Financial Statements.

5.10 ASSETS. Except as disclosed or reserved against in the Mutual
Financial Statements, the Mutual Companies have to the extent material or
applicable, good and marketable title, free and clear of all Liens, to all of
their respective Assets that are material to the business of the Mutual
Companies. All material tangible properties used in the businesses of the
Mutual Companies are in good condition, reasonable wear and tear excepted,
and are usable in the ordinary course of business consistent with Mutual's
past practices. All Assets which are material to the business of the Mutual
Companies and held under leases or subleases by any of the Mutual Companies,
are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting
the enforcement of creditors' rights generally and the rights of creditors of
a federal savings bank, the deposits in which are insured by the FDIC, and
except that the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of the court before which
any proceedings may be brought), and each such Contract is in full force and
effect.

I-16

<PAGE>

5.11 ENVIRONMENTAL MATTERS.

(a) Except as disclosed in Section 5.11 of the Mutual Disclosure
Memorandum, to the Knowledge of Mutual each Mutual Company, its Participation
Facilities, and its Loan Properties are, and have been, in compliance with
all Environmental Laws, except for violations which are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Mutual.

(b) To the Knowledge of Mutual there is no Litigation pending or
threatened before any court, governmental agency, or authority, or other
forum in which any Mutual Company or any of its Participation Facilities has
been or, with respect to threatened Litigation, may be named as a defendant
(i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material (as defined below) or oil, whether or not occurring at,
on, under, or involving a site owned, leased, or operated by any Mutual
Company or any of its Participation Facilities, except for such Litigation
pending or threatened that is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Mutual.

(c) To the Knowledge of Mutual there is no Litigation pending or
threatened before any court, governmental agency, or board, or other forum in
which any of its Loan Properties (or Mutual in respect of such Loan Property)
has been or, with respect to threatened Litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under, or involving a Loan Property, except for such
Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual.

(d) To the Knowledge of Mutual there is no reasonable basis for
any Litigation of a type described in subsections (b) or (c), except such as
is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Mutual.

(e) To the Knowledge of Mutual during the period of (i) any
Mutual Company's ownership or operation of any of their respective current
properties, (ii) any Mutual Company's participation in the management of any
Participation Facility, or, (iii) any Mutual Company's holding of a security
interest in a Loan Property, there have been no releases of Hazardous
Material or oil in, on, under, or affecting such properties, except such as
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Mutual. Prior to the period of (i) any Mutual
Company's ownership or operation of any of their respective current
properties, (ii) any Mutual Company's participation in the management of any
Participation Facility, or (iii) any Mutual Company's holding of a security
interest in a Loan Property, to the Knowledge of Mutual there were no
releases of Hazardous Material or oil in, on, under, or affecting any such
property, Participation Facility, or Loan Property, except such as are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual.

I-17

<PAGE>

5.12 COMPLIANCE WITH LAWS. Each Mutual Company has in effect all
Permits necessary for it to own, lease, or operate its Assets and to carry on
its business as now conducted, except for those Permits the absence of which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Mutual and there has occurred no Default under any
such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual. None
of the Mutual Companies:

(a) Is in violation of any Laws, Orders, or Permits applicable
to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Mutual; and

(b) Has received any notification or communication from any agency
or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any
Mutual Company is not in compliance with any of the material Laws or
material Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Mutual (ii) threatening to revoke any material Permits the revocation
of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Mutual or (iii) requiring any
Mutual Company (x) to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment, or
memorandum of understanding, or (y) to adopt any Board resolution or
similar undertaking which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its
management, or the payment of dividends.

5.13 LABOR RELATIONS. No Mutual Company is the subject of any
Litigation asserting that it or any other Mutual Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act
or comparable state law) or seeking to compel it or any other Mutual Company
to bargain with any labor organization as to wages or conditions of
employment, nor is any Mutual Company a party to or bound by any collective
bargaining agreement, contract, or other agreement or understanding with a
labor union or labor organization, nor is there any strike or other labor
dispute involving any Mutual Company, pending or threatened, or to its
Knowledge, is there any activity involving any Mutual Company's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.

5.14 EMPLOYEE BENEFIT PLANS.

(a) Mutual has disclosed in Section 5.14 of the Mutual
Disclosure Memorandum, and has delivered or made available to ANB prior to
the execution of this Agreement correct and complete copies in each case of,
all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs or agreements, all medical, vision,
dental, or other health plans, all life insurance plans, and all other
employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans" as that term is defined in Section 3(3)
of ERISA, currently or previously adopted, maintained by, sponsored in whole
or in

I-18

<PAGE>

part by, or contributed to by any Mutual Company for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries and under which employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries are
eligible to participate (collectively, the "Mutual Benefit Plans"). Any of
the Mutual Benefit Plans which is an "employee welfare benefit plan," as that
term is defined in Section 3(l) of ERISA, or an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "Mutual ERISA Plan." Each Mutual ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code or Section 3(35) of ERISA) is referred to herein as a "Mutual Pension
Plan." On or after September 26, 1980, neither Mutual nor any Mutual Company
has had an "obligation to contribute" (as defined in ERISA Section 4212) to a
"multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)).

(b) Mutual has delivered or made available to ANB prior to the
execution of this Agreement correct and complete copies of the following
documents: (i) all trust agreements or other funding arrangements for such
Mutual Benefit Plans (including insurance contracts), and all amendments
thereto, (ii) with respect to any such Mutual Benefit Plans or amendments,
all determination letters, rulings, opinion letters, information letters, or
advisory opinions issued by the Internal Revenue Service, the United States
Department of Labor, or the Pension Benefit Guaranty Corporation after
December 31, 1974, (iii) annual reports or returns, audited or unaudited
financial statements, actuarial valuations and reports, and summary annual
reports prepared for any Mutual Benefit Plan with respect to the most recent
three plan years, and (iv) the most recent summary plan descriptions and any
material modifications thereto.

(c) All Mutual Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Mutual.
Except as disclosed in Section 5.14(c) of the Mutual Disclosure Memorandum,
each Mutual ERISA Plan which is intended to be qualified under Section 401(a)
of the Internal Revenue Code has received a favorable determination letter
from the Internal Revenue Service, and Mutual is not aware of any
circumstances which will or could result in revocation of any such favorable
determination letter. Except as disclosed in Section 5.14(c) of the Mutual
Disclosure Memorandum, each trust created under any Mutual ERISA Plan has
been determined to be exempt from Tax under Section 501(a) of the Internal
Revenue Code and Mutual is not aware of any circumstance which will or could
result in revocation of such exemption. With respect to each Mutual Benefit
Plan, except as disclosed in Section 5.14(c) of the Mutual Disclosure
Memorandum, no event has occurred which will or could give rise to a loss of
any intended Tax consequences under the Internal Revenue Code or to any Tax
under Section 511 of the Internal Revenue Code. There is no material pending
or threatened Litigation relating to any Mutual ERISA Plan. Except as
disclosed in Section 5.14(c) of the Mutual Disclosure Memorandum, no Mutual
Company has engaged in a transaction with respect to any Mutual Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any Mutual Company to a tax or penalty imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA
in amounts which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Mutual.

I-19

<PAGE>

(d) No Mutual Pension Plan has any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market
value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Mutual Pension Plan, (ii) no change in the
actuarial assumptions with respect to any Mutual Pension Plan, and (iii) no
increase in benefits under any Mutual Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual or
materially adversely affect the funding status of any such plan. Neither any
Mutual Pension Plan nor any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any Mutual
Company, or the single-employer plan of any entity which is considered one
employer with Mutual under Section 4001 of ERISA or Section 414 of the
Internal Revenue Code or Section 302 of ERISA (whether or not waived) (an
"ERISA Affiliate") has an "accumulated funding deficiency" within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is
reasonably likely to have a Material Adverse Effect on Mutual. No Mutual
Company has provided, or is required to provide, security to a Mutual Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Internal Revenue Code.

(e) Except as disclosed in Section 5.14(e) of the Mutual
Disclosure Memorandum, no liability under Title IV of ERISA has been or is
expected to be incurred by any Mutual Company with respect to any defined
benefit plan currently or formerly maintained by any of them or by any entity
which is considered an ERISA Affiliate.

(f) Except as disclosed in Section 5.14(f) of the Mutual
Disclosure Memorandum, no defined benefit plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA and no
ERISA Affiliate has an outstanding funding waiver. No Mutual Company has
provided, or is required to provide, security to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue
Code.

(g) Except as disclosed in Section 5.14(g) of the Mutual
Disclosure Memorandum, no Mutual Company has any obligations for retiree
health and life benefits under any of the Mutual Benefit Plans.

(h) Except as disclosed in Section 5.14(h) of the Mutual
Disclosure Memorandum, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, or otherwise) becoming due to any director or
any employee of any Mutual Company from any Mutual Company under any Mutual
Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under
any Mutual Benefit Plan, or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.

I-20

<PAGE>

(i) No oral or written representation or communication with
respect to any aspect of the Mutual Benefit Plans has been made to employees
of any of the Mutual Companies prior to the date hereof which is not in
accordance with the written or otherwise preexisting terms and provisions of
such plans. All Mutual Benefit Plan documents and annual reports or returns,
audited or unaudited financial statements, actuarial valuations, summary
annual reports, and summary plan descriptions issued with respect to the
Mutual Benefit Plans are correct and complete and there have been no changes
in the information set forth therein.

5.15 MATERIAL CONTRACTS. Except as disclosed in Section 5.15 of the
Mutual Disclosure Memorandum, none of the Mutual Companies, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement Contract providing for aggregate
payments to any Person in any calendar year in excess of $50,000, (ii) any
Contract relating to the borrowing of money by any Mutual Company or the
guarantee by any Mutual Company of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, and Federal Home Loan Bank advances, trade payables,
and Contracts relating to borrowings or guarantees made in the ordinary
course of business), (iii) any Contracts between or among Mutual Companies;
and (iv) any other Contract or amendment thereto that would be required to be
filed as an exhibit to a Form 10-K filed by Mutual with the OTS as of the
date of this Agreement that has not been filed as an exhibit to Mutual's Form
10-K filed for the fiscal year ended September 30, 1994 or in an SEC Document
and identified to ANB, (together with all Contracts referred to in Sections
5.10 and 5.14(a) of this Agreement, the "Mutual Contracts"). None of the
Mutual Companies is in Default under any Mutual Contract which, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect
on Mutual.

5.16 LEGAL PROCEEDINGS. Except to the extent specifically reserved
against in the Mutual Financial Statements dated prior to the date of this
Agreement, there is no Litigation instituted or pending, or, to the Knowledge
of Mutual threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an
unfavorable outcome) against any Mutual Company, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual nor are
there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any Mutual Company, that are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual. Mutual has disclosed in Section 5.16 of the Mutual
Disclosure Memorandum all Litigation pending or, to the Knowledge of Mutual
threatened, as of the date of this Agreement where there are claims against
Mutual.

5.17 REPORTS. Since January 1, 1990, or the date of organization if
later, each Mutual Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that
it was required to file with (i) the OTS, including, but not limited to,
Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii) other
Regulatory Authorities, and (iii) any applicable state securities or banking
authorities (except, in the case of state securities authorities, failures to
file which are not reasonably likely to have,

I-21

<PAGE>

individually or in the aggregate, a Material Adverse Effect on Mutual). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all
material respects with all applicable Laws. As of its respective date, each
such report and document did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.

5.18 STATEMENTS TRUE AND CORRECT. To the Knowledge of Mutual, no
statement, certificate, instrument, or other writing furnished or to be
furnished by any Mutual Company or any Affiliate thereof to ANB pursuant to
this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. None
of the information supplied or to be supplied by any Mutual Company or any
Affiliate thereof for inclusion in the Registration Statement to be filed by
ANB with the SEC will, when the Registration Statement becomes effective, be
false or misleading with respect to any material fact, or contain any untrue
statement of a material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by any Mutual
Company or any Affiliate thereof for inclusion in the Joint Proxy Statement
to be mailed to Mutual's and ANB's shareholders in connection with the
Shareholders' Meetings, and any other documents to be filed by any Mutual
Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and with respect to the Joint
Proxy Statement, when first mailed to the shareholders of Mutual and ANB be
false or misleading with respect to any material fact, or contain any
misstatement of material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case
of the Joint Proxy Statement as amended or supplemented, at the time of the
Shareholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated thereunder or
necessary to correct any material statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meetings. All
documents that any Mutual Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.

5.19 ACCOUNTING, TAX, AND REGULATORY MATTERS. No Mutual Company or
any Affiliate thereof has taken any action, or agreed to take any action, or
has any Knowledge of any fact or circumstance that is reasonably likely to
(i) prevent the transactions contemplated hereby, including the Merger, from
qualifying for pooling-of-interests accounting treatment or treatment as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) of this Agreement. To
the Knowledge of Mutual there exists no fact, circumstance, or reason why the
requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without imposition of any condition of the type
described in the second sentence of such Section 9.1(b).

I-22

<PAGE>

5.20 CHARTER PROVISIONS. Each Mutual Company has taken or will take
all action so that the entering into of this Agreement and the Plan of Merger
and the consummation of the Merger and the other transactions contemplated by
this Agreement and the Plan of Merger do not and will not result in the grant
of any rights to any Person (other than an ANB Company or as contemplated by
Section 3.4 of this Agreement) under the Charter, Bylaws, or other governing
instruments of any Mutual Company or restrict or impair the ability of ANB to
vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of any Mutual Company that may be acquired or controlled by it.

5.21 SUPPORT AGREEMENTS. Each of the directors and executive officers
of Mutual has executed and delivered to ANB an agreement in substantially the
form of Exhibit 2 to this Agreement.

ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF ANB

ANB hereby represents and warrants to Mutual as follows:

6.1 ORGANIZATION, STANDING, AND POWER. ANB is a corporation duly
organized, validly existing, and in good standing under the Laws of the
Commonwealth of Virginia, and has the corporate power and authority to carry
on its business as now conducted and to own, lease, and operate its Assets.
ANB is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of
its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB.

6.2 AUTHORITY; NO BREACH BY AGREEMENT.

(a) ANB has the corporate power and authority necessary to
execute, deliver, and perform its obligations under, this Agreement and to
consummate the transactions contemplated hereby, subject to the approval of
the Articles of Incorporation Amendment by the requisite vote of the holders
of ANB Common Stock. The execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of ANB. This Agreement
represents a legal, valid, and binding obligation of ANB, enforceable against
ANB in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought).

I-23

<PAGE>

(b) Neither the execution and delivery of this Agreement by ANB,
nor the consummation by ANB of the transactions contemplated hereby, nor
compliance by ANB with any of the provisions hereof, will (i) subject to the
approval of the Articles of Incorporation Amendment by the requisite vote of
the holders of ANB Common Stock, conflict with or result in a breach of any
provision of ANB's Articles of Incorporation or Bylaws, or (ii) constitute or
result in a Default under, or require any Consent pursuant to, or result in
the creation of any Lien on any Asset of any ANB Company under, any Contract
or Permit of any ANB Company, or (iii) subject to receipt of the requisite
approvals referred to in Section 9.1(b) of this Agreement, violate any Law or
Order applicable to any ANB Company or any of their respective Assets.

(c) Other than in connection or compliance with the provisions of
the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from and notices to be
filed with Regulatory Authorities, and other than notices to or filings with
the Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans and other than Consents, filings, or
notifications which, if not obtained or made, is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on ANB, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by ANB or American National of the Merger and
the other transactions contemplated in this Agreement and the Plan of Merger.

6.3 CAPITAL STOCK.

(a) The authorized capital stock of ANB consists of (i) 3,000,000
shares of ANB Common Stock, of which 2,400,000 shares were issued and
outstanding as of June 30, 1995 and (ii) 200,000 shares of ANB Preferred
Stock, of which none is outstanding. All of the issued and outstanding shares
of ANB Common Stock are, and all of the shares of ANB Common Stock to be
issued in exchange for shares of Mutual Common Stock upon consummation of the
Merger, when issued in accordance with the terms of this Agreement, will be,
duly and validly issued and outstanding and fully paid and nonassessable
under the Virginia SCA. None of the outstanding shares of ANB Common Stock
has been, and none of the shares of ANB Common Stock to be issued in exchange
for shares of Mutual Common Stock upon consummation of the Merger will be,
issued in violation of any preemptive rights of the current or past
shareholders of ANB.

(b) Except as set forth in Section 6.3(a) of this Agreement,
there are no shares of capital stock or other equity securities of ANB
outstanding and no outstanding options, warrants, scrip, rights to subscribe
to, calls, or commitments of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of ANB or contracts, commitments, understandings, or
arrangements by which ANB is or may be bound to issue additional shares of
ANB capital stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock.

6.4 ANB SUBSIDIARIES. ANB has no Subsidiaries other than American
National as of the date of this Agreement. ANB or one of its Subsidiaries
owns all of the issued and outstanding shares of capital stock of each ANB
Subsidiary. No equity securities of any ANB

I-24

<PAGE>

Subsidiary are or may become required to be issued (other than to an ANB
Company) by reason of any options, warrants, scrip, rights to subscribe to,
calls, or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock
of any such Subsidiary, and there are no Contracts by which any ANB
Subsidiary is bound to issue (other than to an ANB Company) additional shares
of its capital stock or options, warrants, or rights to purchase or acquire
any additional shares of its capital stock or by which any ANB Company is or
may be bound to transfer any shares of the capital stock of any ANB
Subsidiary (other than to an ANB Company). There are no Contracts relating to
the rights of any ANB Company to vote or to dispose of any shares of the
capital stock of any ANB Subsidiary. All of the shares of capital stock of
each ANB Subsidiary held by an ANB Company are duly authorized, validly
issued, and fully paid and (except pursuant to 12 U.S.C. Section 55, in the
case of national banks) nonassessable under the applicable corporation Law of
the jurisdiction in which such Subsidiary is incorporated or organized and
are owned by the ANB Company free and clear of any Lien. Each ANB Subsidiary
is either a bank or a corporation, and is duly organized, validly existing,
and in good standing under the Laws of the jurisdiction in which it is
incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each ANB Subsidiary is duly qualified or licensed
to transact business as a foreign corporation in good standing in the States
of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to
be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on ANB. Each ANB Subsidiary that
is a depository institution is an "insured institution" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder, and the
deposits in which are insured by the Bank Insurance Fund.

6.5 FINANCIAL STATEMENTS. ANB has disclosed in Section 6.5 of the ANB
Disclosure Memorandum and has delivered to Mutual copies of all ANB Financial
Statements and certain SEC Documents prepared for periods ended prior to the
date hereof and will deliver to Mutual copies of all ANB Financial Statements
prepared subsequent to the date hereof. The ANB Financial Statements (as of
the dates thereof and for the periods covered thereby) (i) are or, if dated
after the date of this Agreement, will be in accordance with the books and
records of the ANB Companies, which are or will be, as the case may be,
complete and correct and which have been or will have been, as the case may
be, maintained in accordance with good business practices, and (ii) present
or will present, as the case may be, fairly the consolidated financial
position of the ANB Companies as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows of the
ANB Companies for the periods indicated, in accordance with GAAP (subject to
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).

6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No ANB Company has any
Liabilities (including Liabilities relating to matters contemplated by
Sections 5.9, 5.11, and 5.14 of this Agreement applying such sections to ANB)
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ANB, except Liabilities which are accrued or

I-25

<PAGE>

reserved against in the consolidated balance sheets of ANB as of June 30,
1995 included in the ANB Financial Statements or reflected in the notes
thereto. Except as disclosed in Section 6.6 of the ANB Disclosure Memorandum,
no ANB Company has incurred or paid any Liability since June 30, 1995, except
for such Liabilities incurred or paid in the ordinary course of business
consistent with past business practice and which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on ANB.

6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1995, except
as disclosed in the ANB Financial Statements filed with the SEC after such
date and prior to the date of this Agreement or in Section 6.7 of the ANB
Disclosure Memorandum, (i) there have been no events, changes, or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on ANB and (ii) the ANB Companies have
not taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any
of the covenants and agreements of ANB provided in Article Seven of this
Agreement.

6.8 ADEQUACY OF RESERVES.

(a) The allowance for possible loan or credit losses (the
"Allowance") shown on the consolidated balance sheets of ANB included in the
most recent ANB Financial Statements dated prior to the date of this
Agreement was, and the Allowance shown on the consolidated balance sheets of
ANB included in the ANB Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the loan and
lease portfolios (including accrued interest receivables) of the ANB
Companies and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the ANB Companies as of the
dates thereof.

(b) The reserve for losses on real estate owned ("REO Reserve")
shown on the consolidated balance sheets of ANB included in the most recent
ANB Financial Statements dated prior to the date of this Agreement was, and
the REO Reserve shown on the consolidated balance sheets of ANB included in
the ANB Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of
GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the other real estate owned portfolios of
the ANB Companies as of the dates thereof.

(c) The reserves for losses in respect of Litigation ("Litigation
Reserves") shown on the consolidated balance sheets of ANB included in the
most recent ANB Financial Statements dated prior to the date of this
Agreement was, and the Litigation Reserves shown on the consolidated balance
sheets of ANB included in the ANB Financial Statements as of dates subsequent
to the execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or arising out of Litigation of
the ANB Companies as of the dates thereof.

I-26

<PAGE>

6.9 ASSETS. Except as disclosed or reserved against in the ANB
Financial Statements, the ANB Companies have to the extent material or
applicable, good and marketable title, free and clear of all Liens, to all of
their respective Assets that are material to the business of the ANB
Companies. All material tangible properties used in the businesses of the ANB
Companies are in good condition, reasonable wear and tear excepted, and are
usable in the ordinary course of business consistent with ANB past practices.
All Assets which are material to the business of the ANB Companies and held
under leases or subleases by any of the ANB Companies, are held under valid
Contracts enforceable in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganiza tion, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect.

6.10 COMPLIANCE WITH LAWS. ANB is duly registered as a bank holding
company under the BHC Act. Each ANB Company has in effect all Permits
necessary for it to own, lease, or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB, and there has occurred no Default under any such
Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on ANB. None of
the ANB Companies:

(b) Has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any ANB
Company is not in compliance with any of the material Laws or
material Orders which such governmental authority or Regulatory
Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
ANB, (ii) threatening to revoke any Permits, the revocation of which
are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ANB, or (iii) requiring any ANB Company
(x) to enter into or consent to the issuance of a cease and desist
order, formal agreement, directive, commitment, or memorandum of
understanding, or (y) to adopt any Board resolution or similar
undertaking which restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its management, or
the payment of dividends.

6.11 LEGAL PROCEEDINGS. Except to the extent specifically reserved
against in the ANB Financial Statements dated prior to the date of this
Agreement, there is no Litigation instituted or pending, or, to the Knowledge
of ANB, threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an
unfavorable outcome) against any ANB Company, or against any Asset, interest,
or right of any of them, that is reasonably likely to have, individually or
in the aggregate, a Material Adverse

I-27

<PAGE>

Effect on ANB, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any ANB Company,
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ANB.

6.12 REPORTS. Since January 1, 1990, or the date of organization if
later, ANB has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q,
Forms 8-K, and proxy statements, (ii) other Regulatory Authorities, and (iii)
any applicable state securities or banking authorities (except, in the case
of state securities authorities, failures to file which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect
on ANB). As of their respective dates, each of such reports and documents,
including the financial statements, exhibits, and schedules thereto, complied
in all material respects with all applicable Laws. As of its respective date,
each such report and document did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

6.13 STATEMENTS TRUE AND CORRECT. To the Knowledge of ANB, no
statement, certificate, instrument, or other writing furnished or to be
furnished by any ANB Company or any Affiliate thereof to Mutual pursuant to
this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. None
of the information supplied or to be supplied by any ANB Company or any
Affiliate thereof for inclusion in the Registration Statement to be filed by
ANB with the SEC, will, when the Registration Statement becomes effective, be
false or misleading with respect to any material fact, or contain any untrue
statement of a material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by any ANB
Company or any Affiliate thereof for inclusion in the Joint Proxy Statement
to be mailed to Mutual's and ANB's shareholders in connection with the
Shareholders' Meetings, and any other documents to be filed by any ANB
Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and with respect to the Joint
Proxy Statement, when first mailed to the shareholders of Mutual and ANB be
false or misleading with respect to any material fact, or contain any
misstatement of material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case
of the Joint Proxy Statement as amended or supplemented, at the time of the
Shareholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated thereunder or
necessary to correct any statement in any earlier communication with respect
to the solicitation of any proxy for the Shareholders' Meetings. All
documents that any ANB Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.

I-28

<PAGE>

6.14 AUTHORITY OF AMERICAN NATIONAL. American National has the
corporate power and authority necessary to execute, deliver, and perform its
obligations under the Plan of Merger and to consummate the transactions
contemplated thereby. The execution, delivery, and performance of the Plan of
Merger and the consummation of the transactions contemplated therein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of American National. The
Plan of Merger represents a legal, valid, and binding obligation of American
National, enforceable against American National in accordance with its terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).

6.15 ACCOUNTING, TAX, AND REGULATORY MATTERS. No ANB Company or any
Affiliate thereof has taken any action, or agreed to take any action, or has
any Knowledge of any fact or circumstance that is reasonably likely to (i)
prevent the transactions contemplated hereby, including the Merger, from
qualifying for pooling-of-interests accounting treatment or treatment as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) of this Agreement. To
the Knowledge of ANB, there exists no fact, circumstance, or reason why the
requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without imposition of any condition of the type
described in the second sentence of such Section 9.1(b).

ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION

7.1 COVENANTS OF BOTH PARTIES. Unless the prior written consent of
the other Party shall have been obtained, and except as otherwise expressly
contemplated herein, each Party shall and shall cause each of its
Subsidiaries to (i) operate its business only in the usual, regular, and
ordinary course, (ii) preserve intact its business organizations and Assets
and maintain its rights and franchises, and (iii) take no action which would
materially adversely affect the ability of any Party to (a) obtain any
Consents required for the transactions contemplated hereby, or (b) perform
its covenants and agreements under this Agreement in all material respects
and to consummate the Merger; provided, that the foregoing shall not prevent
any ANB Company from discontinuing or disposing of any of its Assets or
business, or from acquiring or agreeing to acquire any other Person or any
Assets thereof, if such action is, in the reasonable judgment of ANB,
desirable in the conduct of the business of ANB and its Subsidiaries and such
discontinuance or disposition would not represent a material portion of the
Assets of the ANB Companies.

7.2 COVENANTS OF MUTUAL. Except as specifically contemplated or
permitted by this Agreement, from the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Mutual
covenants and agrees that it will not do or agree or commit

I-29

<PAGE>

to do, or permit any of its Subsidiaries to do or agree or commit to do, any
of the following without the prior written consent of the chief executive
officer or chief financial officer of ANB:

(a) amend the Charter, Bylaws, or other governing instruments
of any Mutual Company; or

(b) incur, guarantee, or otherwise become responsible for, any
additional debt obligation or other obligation for borrowed money
(other than indebtedness of a Mutual Company to another Mutual
Company) in excess of an aggregate of $50,000 (for the Mutual
Companies on a consolidated basis) except in the ordinary course of
the business of Mutual Companies consistent with past practices
(which shall include, for Mutual creation of deposit liabilities,
purchases of federal funds, advances from the Federal Home Loan Bank
or the Federal Reserve Bank, and entry into repurchase agreements
fully secured by U.S. government or agency securities), or forgive
any such indebtedness of any Person to any Mutual Company (in excess
of an aggregate of $25,000), or impose, or suffer the imposition, on
any share of stock held by any Mutual Company of any Lien or permit
any such Lien to exist; or

(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit
plans or in their capacity as transfer agent), directly or
indirectly, any shares, or any securities convertible into any
shares, of the capital stock of any Mutual Company, or declare or pay
any dividend or make any other distribution in respect of any Mutual
Common Stock; provided that Mutual may (to the extent legally able to
do so), but shall not be obligated to, declare and pay regular
quarterly cash dividends on the shares of Mutual Common Stock at a
rate not in excess of $ .10 per share with usual and regular record
and payment dates in accordance with past practice disclosed in
Section 7.2(c) of the Mutual Disclosure Memorandum; PROVIDED FURTHER,
that any dividend declared or payable on the shares of Mutual Common
Stock for the quarter during which the Effective Time occurs shall,
unless otherwise agreed upon in writing by ANB and Mutual, be
declared only if the record date for payment of the quarterly
dividend to holders of ANB Common Stock for the quarter in which the
Effective Time occurs is prior to the Effective Time; and PROVIDED
FURTHER, that in the event ANB declares a special cash dividend prior
to the Effective Time, Mutual may (to the extent legally able to do
so), but shall not be obligated to, declare and pay a cash dividend
on the shares of Mutual Common Stock at a rate per share of Mutual
Common Stock equivalent, taking into account the Exchange Ratio, to
the special dividend paid by ANB on each share of ANB Common Stock; or

(d) except pursuant to the exercise of stock options outstanding
as of the date hereof and pursuant to the terms thereof in existence
on the date hereof, issue, sell, pledge, encumber, authorize the
issuance of, enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Mutual Common Stock, Mutual
Preferred Stock, or any other capital stock of any Mutual Company, or
any stock appreciation rights, or any option, warrant,

I-30

<PAGE>

conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or

(e) adjust, split, combine, or reclassify any capital stock
of any Mutual Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Mutual
Common Stock or sell, lease, mortgage, or otherwise dispose of or
otherwise encumber any shares of capital stock of any Mutual
Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another Mutual Company) or any Assets other than in
the ordinary course of business for reasonable and adequate
consideration; or

(f) acquire direct or indirect control over, or invest in
equity securities of, any Person, other than in connection with (i)
foreclosures in the ordinary course of business, or (ii) acquisitions
of control by Mutual in its fiduciary capacity; or

(g) grant any increase in compensation or benefits to the
employees or officers of any Mutual Company except in the ordinary
course of business or as disclosed in Section 7.2(g) of the Mutual
Disclosure Memorandum or as required by Law; pay any bonus except in
the ordinary course of business or pursuant to the provisions of any
applicable program or plan adopted by its Board of Directors prior to
the date of this Agreement and disclosed in Section 7.2(g) of the
Mutual Disclosure Memorandum; enter into or amend any severance
agreements with officers of any Mutual Company except as disclosed in
Section 7.2(g) of the Mutual Disclosure Memorandum; or grant any
increase in fees or other increases in compensation or other benefits
to directors of any Mutual Company; or

(h) enter into or amend any employment Contract between any
Mutual Company and any Person (unless such amendment is required by
Law) that the Mutual Company does not have the unconditional right to
terminate without Liability (other than Liability for services
already rendered), at any time on or after the Effective Time; or

(i) adopt any new employee benefit plan or program of any
Mutual Company or make any material change in or to any existing
employee benefit plans or programs of any Mutual Company other than
any such change that is required by Law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or

(j) make any significant change in any accounting methods,
principles, or practices or systems of internal accounting controls,
except as may be necessary to conform to changes in regulatory
accounting requirements or GAAP; or

(k) commence or settle any Litigation other than in accordance
with past practice; provided that, except to the extent specifically
reserved against in the Mutual Financial Statements dated prior to
the date of this Agreement, no Mutual Company shall settle any
Litigation involving any Liability of any Mutual Company for money
damages in excess of $25,000 or restrictions upon the operations of
any Mutual Company; or

I-31

<PAGE>

(l) except in the ordinary course of business, enter into or
terminate any material Contract or make any change in any material
lease or Contract, other than renewals of leases and Contracts
without material adverse changes of terms.

7.3 COVENANTS OF ANB. From the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement, ANB covenants and
agrees that it shall (i) continue to conduct its business and the business of
its Subsidiaries in the usual, regular, and ordinary course, (ii) take no
action which would materially adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentences of Section 9.1(b) or 9.1(c) of this Agreement, and (iii) not,
except as contemplated by this Agreement, amend the Articles of Incorporation
or Bylaws of ANB, in each case, in any manner which is adverse to, and
discriminates against, the holders of Mutual Common Stock.

7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on it or (ii) is reasonably likely
to cause or constitute a material breach of any of its representations,
warranties, or covenants contained herein, and to use its reasonable efforts
to prevent or promptly to remedy the same.

7.5 REPORTS. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of
this Agreement and the Effective Time and shall deliver to the other Party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, in the case
of ANB, or the OTS, in the case of Mutual, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods
then ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material).
As of their respective dates, such reports filed with the SEC or the OTS, as
the case may be, will comply in all material respects with the Securities
Laws and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Any financial statements contained in any other
reports to another Regulatory Authority shall be prepared in accordance with
Laws applicable to such reports.

ARTICLE EIGHT
ADDITIONAL AGREEMENTS

8.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT; SHAREHOLDER
APPROVALS. As soon as reasonably practicable after the execution of this
Agreement, ANB shall file the Registration Statement with the SEC, provided
Mutual has provided, on a reasonably timely basis, all information concerning
Mutual necessary for inclusion in the Registration Statement, and shall

I-32

<PAGE>

use its reasonable efforts to cause the Registration Statement to become
effective under the 1933 Act as soon as reasonably practicable after the
filing thereof and take any action required to be taken under the applicable
state Blue Sky or securities Laws in connection with the issuance of the
shares of ANB Common Stock upon consummation of the Merger. Mutual shall
promptly furnish all information concerning it and the holders of its capital
stock as ANB may reasonably request in connection with such action. Mutual
shall call a Shareholders' Meeting, to be held as soon as reasonably
practicable after the Registration Statement is declared effective by the
SEC, for the purpose of voting upon approval of (i) this Agreement and the
Plan of Merger and (ii) such other related matters as it deems appropriate.
ANB shall call a Shareholders' Meeting, to be held as soon as reasonably
practicable after the Registration Statement is declared effective by the
SEC, for the purpose of voting upon approval of (i) the Articles of
Incorporation Amendment, and (ii) such other related matters as it deems
appropriate. In connection with the Shareholders' Meetings, (i) Mutual and
ANB shall file the Joint Proxy Statement (which shall be included in the
Registration Statement) with the OTS and the SEC, respectively, and mail it
to their respective shareholders, (ii) the Parties shall furnish to each
other all information concerning them that they may reasonably request in
connection with such Joint Proxy Statement, (iii) the Board of Directors of
Mutual and ANB shall recommend (subject to compliance with their fiduciary
duties) to their respective shareholders the approval of the matters
submitted for consideration and approval by such shareholders, and (iv) the
Board of Directors and officers of Mutual and ANB shall use their reasonable
efforts to obtain such shareholders' approval (subject to compliance with
their fiduciary duties as advised in writing by counsel to such Board).

8.2 APPLICATIONS. As soon as reasonably practicable after execution
of this Agreement, ANB shall prepare and file, and Mutual shall cooperate in
the preparation and, where appropriate, filing of, applications with all
Regulatory Authorities having jurisdiction over the transactions contemplated
by this Agreement and the Plan of Merger seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement and
the Plan of Merger. ANB shall use all reasonable efforts to obtain the
requisite Consents of all Regulatory Authorities as soon as reasonably
practicable after the filing of the appropriate applications.

8.3 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement and the Plan of Merger, including, without
limitation, using its reasonable efforts to lift or rescind any Order
adversely affecting its ability to consummate the transactions contemplated
herein and therein and to cause to be satisfied the conditions applicable to
such Party referred to in Article Nine of this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its reasonable efforts
to obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement and the Plan of Merger.

I-33

<PAGE>

8.4 INVESTIGATION AND CONFIDENTIALITY.

(a) Prior to the Effective Time, each Party will keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause
to be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the
other Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unreasonably with normal operations. No investigation by a Party
shall affect the representations and warranties of the other Party.

(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to it
by the other Party concerning its and its Subsidiaries' businesses,
operations, and financial positions and shall not use such information for
any purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Time, each
Party shall promptly return or destroy all documents and copies thereof, and
all work papers containing confidential information received from the other
Party and shall not use such information in a manner detrimental to the other
Party and its Affiliates.

(c) Mutual shall use its reasonable efforts to exercise its
rights under confidentiality agreements entered into with Persons which were
considering an acquisition transaction with Mutual to preserve the
confidentiality of the information relating to Mutual provided to such
parties.

8.5 PRESS RELEASES. Prior to the Effective Time, Mutual and ANB shall
consult with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this
Section 8.5 shall be deemed to prohibit any Party from making any disclosure
which its counsel advises as necessary or advisable in order to satisfy such
Party's disclosure obligations imposed by Law.

8.6 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, no Mutual Company nor any Affiliate thereof
nor any investment banker, attorney, accountant, or other representative
(collectively, "Representatives") retained by any Mutual Company shall
directly or indirectly solicit any Acquisition Proposal by any Person. Except
to the extent necessary to comply with the fiduciary duties of Mutual's Board
of Directors, no Mutual Company or any Affiliate or Representative thereof
shall furnish any non-public information that it is not legally obligated to
furnish, negotiate with respect to, or enter into any Contract with respect
to, any Acquisition Proposal, and shall direct and use its reasonable efforts
to cause all of its Representatives not to engage in any of the foregoing,
but Mutual may communicate information about such an Acquisition Proposal to
its shareholders if and to the extent that it is required to do so in order
to comply with its legal obligations. Mutual shall promptly notify ANB orally
and in writing in the event that it receives any inquiry or proposal relating
to any such transaction. Mutual shall immediately cease and cause to be
terminated as of

I-34

<PAGE>

the date of this Agreement any existing activities, discussions, or
negotiations with any Persons conducted heretofore with respect to any of the
foregoing.

8.7 TAX MATTERS. The Parties agree to use their reasonable efforts to
obtain a written opinion of Alston & Bird to the effect that (i) the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) the exchange in the Merger of Mutual Common Stock
for ANB Common Stock will not give rise to gain or loss to the shareholders
of Mutual with respect to such exchange (except to the extent of any cash
received), and (iii) each of Mutual, ANB, and American National will be a
party to that reorganization within the meaning of Section 368(b) of the
Internal Revenue Code ("Tax Opinion"). In rendering such Tax Opinion, Alston
& Bird shall be entitled to rely upon representations of officers of Mutual
and ANB reasonably satisfactory in form and substance to such counsel. Each
of the Parties undertakes and agrees to use its reasonable efforts to cause
the Merger, and to take no action which would cause the Merger not, to
qualify for treatment as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for Federal income tax purposes.

8.8 AGREEMENTS OF AFFILIATES. Mutual has disclosed in Section 8.8 of
the Mutual Disclosure Memorandum all Persons whom it reasonably believes is
an "affiliate" of Mutual for purposes of Rule 145 under the 1933 Act. Mutual
shall use its reasonable efforts to cause each such Person to deliver to ANB
not later than thirty (30) days prior to the Effective Time, a written
agreement, substantially in the form of Exhibit 3 to this Agreement,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of Mutual Common Stock held by such Person except as
contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of ANB Common Stock to
be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder (and ANB shall be entitled to place restrictive
legends upon certificates for shares of ANB Common Stock issued to affiliates
of Mutual pursuant to this Agreement to enforce the provisions of this
Section 8.8). ANB shall not be required to maintain the effectiveness of the
Registration Statement under the 1933 Act for the purposes of resale of ANB
Common Stock by such affiliates.

8.9 EMPLOYEE BENEFITS AND CONTRACTS. As of the Effective Time, the
ANB Companies shall offer employment to all employees of Mutual with no
reduction in base salary. Following the Effective Time, ANB shall provide
generally to officers and employees of the Mutual Companies employee benefits
under employee benefit plans, on terms and conditions which when taken as a
whole are substantially the same as those currently provided by the ANB
Companies to their similarly situated officers and employees; provided that
ANB shall not be required to, but may, permit the officers and employees of
the Mutual Companies to participate in the Cash Profit Sharing Bonus Plan of
American National. For purposes of participation and vesting (but not benefit
accrual) under such employee benefit plans, the service of the employees of
the Mutual Companies prior to the Effective Time shall be treated as service
with an ANB Company participating in such employee benefit plans. Any
vacation and sick leave accrued for the then current year but not taken prior
to the Effective Time will carry over and be available until the end of such
year. ANB also shall cause the Resulting Association and its Subsidiaries to

I-35

<PAGE>

honor in accordance with their terms all provisions for vested benefits or
other vested amounts earned or accrued through the Effective Time under the
Mutual Benefit Plans. In addition, ANB agrees not to terminate, except for
"cause" as determined under the employee policies of ANB, any employee of
Mutual who becomes an employee of ANB at the Effective Time for a period of
one year after the Effective Time.

8.10 INDEMNIFICATION.

(a) Subject to the conditions set forth in paragraph (b) below,
for a period of six (6) years after the Effective Time, ANB shall, and shall
cause the Resulting Association to, indemnify, defend, and hold harmless each
person entitled to indemnification from a Mutual Company (each, an
"Indemnified Party") against all Liabilities arising out of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the same
extent and subject to the conditions set forth in applicable regulations of
the OTS (including all official interpretations thereof) and Mutual's Charter
and Bylaws, in each case as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation. Without limiting the foregoing, in any case in which approval by
the Resulting Association is required to effectuate any indemnification, ANB
shall cause the Resulting Association to direct, at the election of the
Indemnified Party, that the determination of any such approval shall be made
by independent counsel mutually agreed upon between ANB and the Indemnified
Party.

(b) ANB shall, or shall cause the Resulting Association to, use
its reasonable efforts (and Mutual shall cooperate prior to the Effective
Time in these efforts) to maintain in effect for a period of one (1) year
after the Effective Time, Mutual's existing directors' and officers'
liability insurance policy (provided that ANB may substitute therefor (i)
policies of at least the same coverage and amounts containing terms and
conditions which are substantially no less advantageous or (ii) with the
consent of Mutual given prior to the Effective Time, any other policy) with
respect to claims arising from facts or events which occurred prior to the
Effective Time and covering persons who are currently covered by such
insurance.

(c) Any Indemnified Party wishing to claim indemnification under
paragraph (a), upon learning of any such Liability or Litigation, shall
promptly notify ANB thereof. In the event of any such Litigation (whether
arising before or after the Effective Time), (i) ANB or the Resulting
Association shall have the right to assume the defense thereof and ANB shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if ANB or the
Resulting Association elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues which raise
conflicts of interest between ANB or the Resulting Association and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory
to them, and ANB or the Resulting Association shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that ANB shall be
obligated pursuant to this paragraph (c) to pay for only one (1) firm of
counsel for all Indemnified Parties in any jurisdiction (assuming there are
no conflicts), (ii) the Indemnified Parties will cooperate in the defense of
any such

I-36

<PAGE>

Litigation, and (iii) ANB shall not be liable for any settlement effected
without its prior written consent; and provided further that the Resulting
Association shall not have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction shall determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by
applicable Law.

(d) If ANB or the Resulting Association or any of its successors
or assigns shall consolidate with or merge into any other Person and shall
not be the continuing or surviving Person of such consolidation or merger or
shall transfer all or substantially all of its Assets to any Person, then in
each case, proper provision shall be made so that the successors and assigns
of ANB or the Resulting Association shall assume the obligations set forth in
this Section 8.10.

8.11 ORGANIZATION OF MORTGAGE SUBSIDIARY. ANB agrees to organize as a
subsidiary of ANB or American National, as soon as reasonably practicable
after the Effective Time and subject to receipt of all necessary Consents
from Regulatory Authorities, a mortgage banking subsidiary, containing
sufficient capital, personnel, and other resources, to be named "Mutual
Mortgage Company."

8.12 CERTAIN DIRECTOR AND OFFICER POSITIONS.

(a) ANB agrees to cause two (2) members of Mutual's Board of
Directors, which members shall be nominated by Mutual and approved by ANB and
willing so to serve (subject to any applicable legal restrictions) ("Former
Mutual Directors") and shall include Mr. H. Dan Davis, to be elected or
appointed as directors of ANB and American National at the first meetings of
the Boards of Directors of ANB and American National held after the Effective
Time. At the first annual meeting of shareholders of ANB after the Effective
Time, ANB shall take all corporate action necessary to, and shall, renominate
such two (2) Former Mutual Directors for election as directors of ANB and
shall recommend that the ANB shareholders vote for the election of such
individuals as directors.

(b) ANB also agrees to establish a Board of Directors for Mutual
Mortgage Company, which shall be composed of all individuals who are serving
as members of Mutual's Board of Directors at the Effective Time (other than
the outside Former Mutual Director who is elected a director of ANB), and
which Board shall receive fees for such service as directors of Mutual
Mortgage at the same rate as Mutual's Board as of the date of this Agreement.

(c) ANB agrees to elect or appoint all individuals of Mutual who
are serving as officers of Mutual at the Effective Time as officers of either
American National or Mutual Mortgage Company taking into account the prior
positions and experience of such officers with Mutual in designating such
officer positions. Specifically, ANB shall appoint Mr. H. Dan Davis as (i)
Executive Vice President of ANB and Senior Vice President of American
National at the Effective Time and (ii) President and Chief Executive Officer
of Mutual Mortgage Company at the time of its organization. In addition, at
the Effective Time, ANB shall offer to enter into an employment agreement
with Mr. Davis, substantially in the form of Exhibit 4 to this Agreement.

I-37

<PAGE>

8.13 CERTAIN MODIFICATIONS.

(a) Mutual and ANB shall consult with respect to their loan,
litigation, and real estate valuation policies and practices (including loan
classifications and levels of reserves) and Mutual shall make such
modifications or changes to its policies and practices, if any, prior to the
Effective Time, as may be mutually agreed upon. Mutual and ANB shall also
consult with respect to the character, amount, and timing of restructuring
and merger-related expense charges to be taken by each of the Parties in
connection with the transactions contemplated by this Agreement and the Plan
of Merger and shall take such charges in accordance with GAAP, prior to the
Effective Time, as may be mutually agreed upon by the Parties. Neither
Parties' representations, warranties, and covenants contained in this
Agreement shall be deemed to be inaccurate or breached in any respect as a
consequence of any modifications or charges undertaken solely on account of
this Section 8.13.

(b) During the first full quarter after the Effective Time,
management of ANB agrees, subject to the earnings of the ANB Companies, their
financial condition, liquidity and capital requirements, applicable
governmental regulations and policies, and other factors deemed relevant by
management, to recommend to the Board of Directors of ANB that the regular
semi-annual cash dividend payable per share of ANB Common Stock be increased
to a rate not less than $.2837.

ARTICLE NINE
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE

9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:

(a) SHAREHOLDER APPROVAL. The shareholders of Mutual shall
have approved (i) this Agreement and the Plan of Merger and (ii) the
consummation of the transactions contemplated hereby and thereby,
including the Merger, as and to the extent required by Law or by the
provisions of any governing instruments. The shareholders of ANB
shall have approved the Articles of Incorporation Amendment, as and
to the extent required by Law or by the provisions of any governing
instruments.

(b) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law shall have expired. No Consent so obtained which is
necessary to consummate the transactions as contemplated hereby shall
be conditioned or restricted in a manner which in the reasonable good
faith judgment of the Board of Directors of ANB or Mutual would so
materially adversely impact the economic benefits of the transaction as

I-38

<PAGE>

contemplated by this Agreement so as to render inadvisable the
consummation of the Merger.

(c) CONSENTS AND APPROVALS. Each Party shall have obtained
any and all other Consents required for consummation of the Merger
(other than those referred to in Section 9.1(b) of this Agreement) or
for the preventing of any Default under any Contract or Permit of
such Party which, if not obtained or made, is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
such Party.

(d) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether
temporary, preliminary, or permanent) or taken any other action which
prohibits, restricts, or makes illegal consummation of the
transactions contemplated by this Agreement.

(e) REGISTRATION STATEMENT. The Registration Statement shall
be effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued,
no action, suit, proceeding, or investigation by the SEC to suspend
the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities Laws
or the 1933 Act or 1934 Act relating to the issuance of the shares of
ANB Common Stock issuable pursuant to the Merger shall have been
received.

(f) TAX MATTERS. Each Party shall have received a copy of the
Tax Opinion referred to in Section 8.7 of this Agreement. Each Party
shall have delivered to the other a certificate, dated as of the
Effective Time, signed by its chief executive officer and chief
financial officer, to the effect that, to the best knowledge and
belief of such officers, the statement of facts and representations
made on behalf of the management of such Party, presented to the
legal counsel delivering the Tax Opinion were at the date of such
presentation, true, correct, and complete, and are on the date of
such certificate, to the extent contemplated by the presentation,
true, correct, and complete, as though such presentation had been
made on the date of such certificate.

9.2 CONDITIONS TO OBLIGATIONS OF ANB. The obligations of ANB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by ANB pursuant to Section 11.6(a) of this
Agreement:

(a) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of
Mutual set forth in this Agreement shall be assessed as of the date
of this Agreement and as of the Effective Time with the same effect
as though all such representations and warranties had been made on
and as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as
of such date). The representations and warranties of Mutual set forth
in Section 5.3 of this Agreement shall be true and correct (except for

I-39
<PAGE>

inaccuracies which are de minimus in amount). The representations
and warranties of Mutual set forth in Sections 5.19, 5.20, 5.21, and
5.22 of this Agreement shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations
and warranties of Mutual set forth in this Agreement (including the
representations and warranties set forth in Sections 5.3, 5.19, 5.20,
5.21, and 5.22) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a Material Adverse Effect on
Mutual; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" shall be deemed not to
include such qualifications.

(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all
of the agreements and covenants of Mutual to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Effective Time shall have been duly
performed and complied with in all material respects.

(c) CERTIFICATES. Mutual shall have delivered to ANB (i) a
certificate, dated as of the Effective Time and signed on its behalf
by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in
Sections 9.2(a) and 9.2(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by Mutual's Board
of Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery, and
performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as
ANB and its counsel shall request.

(d) POOLING LETTER. ANB shall have received a letter from
Arthur Andersen LLP, dated as of the Effective Time, to the effect
that the Merger will qualify for pooling-of-interests accounting
treatment under Accounting Principles Board Opinion No. 16 if closed
and consummated in accordance with this Agreement.

(e) LEGAL OPINION. ANB shall have received a written opinion,
dated as of the Effective Time, of counsel to Mutual in form
reasonably satisfactory to ANB, which shall cover the matters set
forth in Exhibit 5 to this Agreement.

(f) FAIRNESS OPINION. ANB shall have received from Scott &
Stringfellow, Inc., a letter, dated not more than ten (10) business
days prior to the date of the Joint Proxy Statement, to the effect
that, in the opinion of such firm, the Exchange Ratio is fair, from a
financial point of view, to the shareholders of ANB.

9.3 CONDITIONS TO OBLIGATIONS OF MUTUAL. The obligations of Mutual to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by Mutual pursuant to Section 11.6(b) of this
Agreement:

I-40

<PAGE>

(a) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of
ANB set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and
as of the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as
of such date). The representations and warranties of ANB set forth in
Section 6.3 of this Agreement shall be true and correct (except for
inaccuracies which are de minimus in amount). The representations and
warranties of ANB set forth in Section 6.13 of this Agreement shall
be true and correct in all material respects. There shall not exist
inaccuracies in the representations and warranties of ANB set forth
in this Agreement (including the representations and warranties set
forth in Sections 6.3 and 6.13) such that the aggregate effect of
such inaccuracies has, or is reasonably likely to have, a Material
Adverse Effect on ANB; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by
references to "material" or "Material Adverse Effect" shall be deemed
not to include such qualifications.

(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of ANB to be performed and complied
with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Effective Time shall have been duly
performed and complied with in all material respects.

(c) CERTIFICATES. ANB shall have delivered to Mutual (i) a
certificate, dated as of the Effective Time and signed on its behalf
by its chief executive officer and its chief financial officer, to
the effect that the conditions of its obligations set forth in
Sections 9.3(a) and 9.3(b) of this Agreement have been satisfied, and
(ii) certified copies of resolutions duly adopted by ANB's Board of
Directors and American National's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize
the execution, delivery, and performance of this Agreement and the
Plan of Merger, and the consummation of the transactions contemplated
hereby, all in such reasonable detail as Mutual and its counsel shall
request.

(d) LEGAL OPINION. Mutual shall have received a written
opinion, dated as of the Effective Time, of counsel to ANB, in form
reasonably satisfactory to Mutual which shall cover the matters set
forth in Exhibit 6 to this Agreement.

(e) FAIRNESS OPINION. Mutual shall have received from
Baxter Fentriss and Company, a letter, dated not more than ten (10)
business days prior to the date of the Joint Proxy Statement, to the
effect that, in the opinion of such firm, the Exchange Ratio is fair,
from a financial point of view, to the shareholders of Mutual.

I-41

<PAGE>

ARTICLE TEN
TERMINATION

10.1 TERMINATION. Notwithstanding any other provision
of this Agreement, and notwithstanding the approval of this
Agreement by the shareholders of Mutual or ANB, this Agreement
may be terminated and the Merger abandoned at any time prior to
the Effective Time:

(a) By mutual consent of the Board of Directors of ANB and
the Board of Directors of Mutual; or

(b) By the Board of Directors of either Party (provided
that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(a) of this Agreement in
the case of Mutual and Section 9.3(a) in the case of ANB or in
material breach of any covenant or other agreement contained in this
Agreement) in the event of an inaccuracy of any representation or
warranty of the other Party contained in this Agreement which cannot
be or has not been cured within thirty (30) days after the giving of
written notice to the breaching Party of such inaccuracy and which
inaccuracy would provide the terminating Party the ability to refuse
to consummate the Merger under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of Mutual and Section
9.3(a) of this Agreement in the case of ANB; or

(c) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of
any representation or warranty contained in this Agreement
under the applicable standard set forth in Section 9.2(a) of
this Agreement in the case of Mutual and Section 9.3(a) in
the case of ANB or in material breach of any covenant or
other agreement contained in this Agreement) in the event of
a material breach by the other Party of any covenant or
agreement contained in this Agreement which cannot be or has
not been cured within thirty (30) days after the giving of
written notice to the breaching Party of such breach; or

(d) By the Board of Directors of either Party in the event
(i) any Consent of any Regulatory Authority required for consummation
of the Merger and the other transactions contemplated hereby shall
have been denied by final nonappealable action of such authority or
if any action taken by such authority is not appealed within the time
limit for appeal, (ii) the shareholders of Mutual fail to vote their
approval of this Agreement and the transactions contemplated hereby
as required by the HOLA and the regulations of the OTS at the Mutual
Shareholders' Meeting where the transactions were presented to such
shareholders for approval and voted upon, or (iii) the shareholders
of ANB fail to vote their approval of the Articles of Incorporation
Amendment as required by the Virginia SCA at the ANB Shareholders'
Meeting or any adjournment thereof where the amendment was presented
to such shareholders for approval and voted upon; or

I-42

<PAGE>

(e) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated by July 31, 1996, in
each case only if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any
breach of this Agreement by the Party electing to terminate pursuant
to this Section 10.1(e); or

(f) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard
set forth in Section 9.2(a) of this Agreement in the case of Mutual
and Section 9.3(a) in the case of ANB or in material breach of any
covenant or other agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such Party
to consummate the Merger (other than as contemplated by Section
10.1(d) of this Agreement) cannot be satisfied or fulfilled by the
date specified in Section 10.1(e) of this Agreement.

10.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 10.1 of this Agreement, this Agreement shall
become void and have no effect, except that (i) the provisions of this
Section 10.2 and Article Eleven and Section 8.4(b) of this Agreement shall
survive any such termination, and (ii) a termination pursuant to Sections
10.1(b), 10.1(c), or 10.1(f) of this Agreement shall not relieve the
breaching Party from Liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.

10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles Two, Three, Four, and Eleven and Sections 8.9, 8.10, 8.11, and 8.12
of this Agreement.

ARTICLE ELEVEN
MISCELLANEOUS

11.1 DEFINITIONS. Except as otherwise provided herein, the
capitalized terms set forth below (in their singular and plural forms as
applicable) shall have the following meanings:

"ACQUISITION PROPOSAL" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or the
acquisition of a substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its Subsidiaries.

"AFFILIATE" of a Person shall mean (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by, or under common control with such Person,
(ii) any officer, director, partner, employer, or direct or indirect
beneficial owner of any ten percent (10%) or greater equity or voting
interest of such Person, or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.

I-43

<PAGE>

"AGREEMENT" shall mean this Agreement and Plan of
Reorganization, including the Plan of Merger and the other Exhibits
delivered pursuant hereto and incorporated herein by reference.

"ALLOWANCE" shall have the meaning provided in Section 5.8 of
this Agreement.

"AMERICAN NATIONAL COMMON STOCK" shall mean the $10.00 par
value common stock of American National.

"ANB COMMON STOCK" shall mean the $1.00 par value common stock
of ANB.

"ANB COMPANIES" shall mean, collectively, ANB and all ANB
Subsidiaries.

"ANB DISCLOSURE MEMORANDUM" shall mean the written information
entitled "American National Bankshares Inc. Disclosure Memorandum"
delivered prior to the date of this Agreement to Mutual describing in
reasonable detail the matters contained therein and, with respect to
each disclosure made therein, specifically referencing each Section
of this Agreement under which such disclosure is being made.
Information disclosed with respect to one Section shall not be deemed
to be disclosed for purposes of any other Section not specifically
referenced with respect thereto.

"ANB FINANCIAL STATEMENTS" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if
any) of ANB as of June 30, 1995, and as of December 31, 1994 and
1993, and the related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if
any) for the six months ended June 30, 1995, and each of the three
years ended December 31, 1994, 1993, and 1992, as filed by ANB in SEC
Documents and (ii) the consolidated statements of condition of ANB
(including related notes and schedules, if any) and related
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to June 30,
1995.

"ANB PREFERRED STOCK" shall mean the $5.00 par value preferred
stock of ANB.

"ANB SUBSIDIARIES" shall mean the Subsidiaries of ANB which
shall include the ANB Subsidiaries described in Section 6.4 of this
Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of ANB in the future and owned
by ANB at the Effective Time.

"ARTICLES OF INCORPORATION AMENDMENT" shall mean the amendment
to the Articles of Incorporation of ANB increasing the number of
authorized shares of ANB Common Stock by an amount which will permit
completion of the transactions contemplated by this Agreement.

I-44

<PAGE>

"ASSETS" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature,
character, and description, whether real, personal, or mixed,
tangible or intangible, accrued or contingent, or otherwise relating
to or utilized in such Person's business, directly or indirectly, in
whole or in part, whether or not carried on the books and records of
such Person, and whether or not owned in the name of such Person or
any Affiliate of such Person and wherever located.

"BHC ACT" shall mean the federal Bank Holding Company Act of
1956, as amended.

"BUSINESS COMBINATION" shall mean an acquisition of, merger or
combination with, share exchange involving any class of voting stock
of, sale of more than twenty-five percent (25%) of the consolidated
assets by, or other business combination involving, or tender offer
for or sale or issuance of any equity securities involving an
acquisition by a third-party of more than twenty-five percent (25%)
of the voting stock of, Mutual.

"CERTIFICATE OF MERGER" shall mean the Certificate of Merger or
other order to be issued by the OCC approving the Merger.

"CLOSING" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this Agreement.

"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.

"CONTRACT" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice, restriction,
understanding, or undertaking of any kind or character, or other
document to which any Person is a party or that is binding on any
Person or its capital stock, Assets, or business.

"DEFAULT" shall mean (i) any breach or violation of or default
under any Contract, Order, or Permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both
would constitute a breach or violation of or default under any
Contract, Order, or Permit, or (iii) any occurrence of any event that
with or without the passage of time or the giving of notice would
give rise to a right to terminate or revoke, change the current terms
of, or renegotiate, or to accelerate, increase, or impose any
Liability under, any Contract, Order, or Permit, except those
Defaults which do not have a Material Adverse Effect on a Party.

"EFFECTIVE TIME" shall mean the date and time at which the
Merger becomes effective as defined in Section 1.3 of this Agreement.

I-45

<PAGE>

"ENVIRONMENTAL LAWS" shall mean all Laws which are
administered, interpreted, or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over pollution or protection of the environment.

"ERISA PLAN" shall have the meaning provided in Section 5.14 of
this Agreement.

"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.

"EXCHANGE AGENT" shall have the meaning provided in Section 4.1
of this Agreement.

"EXCHANGE RATIO" shall have the meaning provided in Section
3.1(c) of this Agreement.

"EXHIBITS" 1 through 6, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits
are hereby incorporated by reference herein and made a part hereof,
and may be referred to in this Agreement and any other related
instrument or document without being attached hereto.

"FDIC" shall mean the Federal Deposit Insurance Corporation.

"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.

"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C.
SECTION 9601 ET SEQ., or any similar federal, state, or local Law.

"HOLA" shall mean the Home Owners' Loan Act of 1933, as amended.

"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated
thereunder.

"JOINT PROXY STATEMENT" shall mean the joint proxy statement
used by Mutual and ANB to solicit the approval of their respective
shareholders of the transactions contemplated by this Agreement and
the Plan of Merger as and to the extent required by Law or by the
provisions of any governing instruments, and shall include the
prospectus of ANB relating to the shares of ANB Common Stock to be
issued to the shareholders of Mutual.

"KNOWLEDGE" as used with respect to a Person shall mean to the
best of the knowledge of the chairman, president, chief financial
officer, chief accounting officer, chief

I-46

<PAGE>

credit officer, general counsel, any assistant or deputy general
counsel, or any senior or executive vice president of such Person.

"LAW" shall mean any code, law, ordinance, regulation,
reporting, or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities, or business, including, without
limitation, those promulgated, interpreted, or enforced by any of the
Regulatory Authorities.

"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost, or
expense (including, without limitation, costs of investigation,
collection, and defense), claim, deficiency, guaranty, or endorsement
of or by any Person (other than endorsements of notes, bills, checks,
and drafts presented for collection or deposit in the ordinary course
of business) of any type, whether accrued, absolute, or contingent,
liquidated or unliquidated, matured or unmatured, or otherwise.

"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reserva tion, restriction,
security interest, title retention, or other security arrangement, or
any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet due
and payable, (ii) for depository institutions, pledges to secure
deposits and other Liens incurred in the ordinary course of the
banking business, and (iii) Liens which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
a Party.

"LITIGATION" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, governmental
examination, investigation, hearing, inquiry, administrative
proceeding, or notice (written or oral) by any Person alleging the
aforesaid, but shall not include regular, periodic examinations of
depository institutions and their Affiliates by Regulatory
Authorities.

"LOAN PROPERTY" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only
with respect to such property.

"MATERIAL ADVERSE EFFECT" on a Party shall mean an event,
change, or occurrence which, individually or together with any other
event, change, or occurrence, has a material adverse impact on (i)
the financial position, business, or results of operations of such
Party and its Subsidiaries, taken as a whole, or (ii) the ability of
such Party to perform its obligations under this Agreement or to
consummate the Merger or the other transactions contemplated by this
Agreement, provided that "material adverse effect" shall not be
deemed to include the impact of (a) changes in banking and similar
Laws of general applicability or interpretations thereof by courts or
governmental authorities, or (b) changes in GAAP or regulatory
accounting principles generally applicable to banks and savings

I-47

<PAGE>

associations and their holding companies, (c) actions and omissions
of a Party (or any of its Subsidiaries) taken with the prior informed
consent of the other Party in contemplation of the transactions
contemplated hereby, or (d) the Merger and compliance with the
provisions of this Agreement on the operating performance of the
Parties.

"MATERIAL" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.

"MERGER" shall mean the merger of Mutual with and into American
National referred to in Section 1.1 of this Agreement.

"MUTUAL BENEFIT PLANS" shall have the meaning set forth in
Section 5.14 of this Agreement.

"MUTUAL COMMON STOCK" shall mean the $1.00 par value common
stock of Mutual.

"MUTUAL COMPANIES" shall mean, collectively, Mutual and all
Mutual Subsidiaries.

"MUTUAL DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Mutual Savings Bank, F.S.B. Disclosure
Memorandum" delivered prior to the date of this Agreement to ANB
describing in reasonable detail the matters contained therein and,
with respect to each disclosure made therein, specifically
referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one
Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.

"MUTUAL FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of
Mutual as of June 30, 1995, and as of September 30, 1994 and 1993,
and the related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if
any) for the nine months ended June 30, 1995, and for each of the
three fiscal years ended September 30, 1994, 1993, and 1992, as
disclosed by Mutual in the Mutual Disclosure Memorandum, and (ii) the
consolidated balance sheets of Mutual (including related notes and
schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) with respect to periods ended subsequent to June
30, 1995.

"MUTUAL PREFERRED STOCK" shall mean the $1.00 par value
preferred stock of Mutual.

"MUTUAL STOCK PLANS" shall mean Mutual Savings Bank, F.S.B.
1987 Stock Option Plan.

I-48

<PAGE>

"MUTUAL SUBSIDIARIES" shall mean the Subsidiaries of Mutual
which shall include the Mutual Subsidiaries described in Section 5.4
of this Agreement and any corporation, bank, savings association, or
other organization acquired as a Subsidiary of Mutual in the future
and owned by Mutual at the Effective Time.

"NASD" shall mean the National Association of Securities
Dealers, Inc.

"1933 ACT" shall mean the Securities Act of 1933, as amended.

"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.

"OCC" shall mean Office of the Comptroller of the Currency.

"ORDER" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or
award, ruling, or writ of any federal, state, local, or foreign or
other court, arbitrator, mediator, tribunal, administrative agency,
or Regulatory Authority.

"OTS" shall mean the Office of Thrift Supervision (including
its predecessor, the Federal Home Loan Bank Board).

"PARTICIPATION FACILITY" shall mean any facility in which the
Party in question or any of its Subsidiaries participates in the
management and, where required by the context, includes the owner or
operator or such property, but only with respect to such property.

"PARTY" shall mean either Mutual or ANB and "Parties" shall
mean both Mutual and ANB.

"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of
any Person or its securities, Assets, or business.

"PERSON" shall mean a natural person or any legal, commercial,
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in
concert, or any person acting in a representative capacity.

"PLAN OF MERGER" shall mean the Plan of Merger and Combination,
in substantially the form of Exhibit 1 to this Agreement, to be
entered into by Mutual and American National setting forth the terms
of the Merger.

I-49

<PAGE>

"REGISTRATION STATEMENT" shall mean the Registration Statement
on Form S-4, or other appropriate form, filed with the SEC by ANB
under the 1933 Act in connection with the transactions contemplated
by this Agreement.

"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board
of the Governors of the Federal Reserve System, the OTS, the OCC, the
FDIC, all state regulatory agencies having jurisdiction over the
Parties and their respective Subsidiaries, the NASD, and the SEC.

"RESULTING ASSOCIATION" shall mean American National as the
surviving association resulting from the Merger.

"SEC DOCUMENTS" shall mean all reports and registration
statements filed, or required to be filed, by a Party or any of its
Subsidiaries with any Regulatory Authority pursuant to the Securities
Laws.

"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors
Act of 1940, as amended, the Trust Indenture Act of 1939, as amended,
and the rules and regulations of any Regulatory Authority promulgated
thereunder including the regulations of the OTS included in 12 C.F.R.
Part 563g.

"SHAREHOLDERS' MEETINGS" shall mean the respective meetings of
the shareholders of Mutual and ANB to be held pursuant to Section 8.1
of this Agreement, including any adjournment or adjournments thereof.

"SUBSIDIARY" OR COLLECTIVELY "SUBSIDIARIES" shall mean all
those corporations, banks, associations, or other entities of which
the entity in question owns or controls fifty percent (50%) or more
of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which fifty percent (50%) or
more of the outstanding equity securities is owned directly or
indirectly by ANB; provided, however, there shall not be included any
such entity acquired through foreclosure or any such entity the
equity securities of which are owned or controlled in a fiduciary
capacity.

"TAX" OR "TAXES" shall mean any federal, state, county, local
or foreign income, profits, franchise, gross receipts, payroll,
sales, employment, use, property, withholding, excise, occupancy, and
other taxes, assessments, charges, fares, or impositions, of any
nature whatsoever, including interest, penalties, and additions
imposed thereon or with respect thereto.

"VIRGINIA SCA" shall mean the Virginia Stock Corporation Act.

I-50

<PAGE>

11.2 EXPENSES.

(a) Except as otherwise provided in this Section 11.2, each of
the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration, and application fees, printing fees, and fees
and expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that ANB shall bear and pay the filing fees
payable in connection with the Registration Statement and the Joint Proxy
Statement and printing costs incurred in connection with the printing of the
Registration Statement and the Joint Proxy Statement.

(b) Notwithstanding the foregoing, if, after the date of this
Agreement and within twelve (12) months following:

(1) any termination of this Agreement

(i) by ANB pursuant to Sections 10.1(b) (but only
in the case of a willful breach by Mutual of a
representation or warranty), 10.1(c), or 10.1(f) (but
only on the basis of the failure to satisfy any of the
conditions enumerated in Sections 9.1(a) (but only in the
case of Mutual shareholder approval) and (d) or 9.2(a)
(but only in the case of a willful breach by Mutual of a
representation or warranty), (b), (c), (d), or (f)) of
this Agreement, or

(ii) by Mutual pursuant to Section 10.1(f) (but only
on the basis of the failure to satisfy any of the
conditions enumerated in Section 9.1(a) (but only in the
case of Mutual shareholder approval) or (d) or 9.3(e)) of
this Agreement, or

(iii) by either Party pursuant to Section 10.1(d)(ii)
(but only in the case of Mutual shareholder approval) of
this Agreement, or

(2) failure to consummate the Merger by reason of any
failure to satisfy the conditions enumerated in Sections 9.1(a)
(but only in the case of Mutual shareholder approval) or (d),
9.2(a) (but only in the case of a willful breach by Mutual of a
representation or warranty), (b), (c), (d), or (f) or 9.3(e) of
this Agreement,

Mutual covenants, acknowledges, and agrees that it shall be a specific,
absolute, and unconditional binding condition to Mutual's entering into a
letter of intent, agreement in principle, or definitive agreement (whether or
not considered binding, non-binding, or conditional) with respect to, or
recommending shareholder acceptance of, any Business Combination with any
third-party, that such third-party that is a party to the Business
Combination shall pay to ANB, prior to the time the Business Combination is
announced to the public by press release or otherwise,, an amount in cash
equal to $1,000,000, which sum represents the direct costs and expenses
(including, without limitation, fees and expenses of ANB's financial or other
consultants, printing costs, investment bankers, accountants, and counsel)
incurred by ANB in negotiating and carrying out the transactions contemplated
by this Agreement, and the indirect costs and expenses

I-51

<PAGE>

incurred by ANB in connection with the transactions contemplated by this
Agreement including ANB's management time devoted to negotiation and
preparation for such transaction. In the event such third-party shall refuse
to pay such amounts, the amounts shall be an obligation of Mutual and shall
be paid by Mutual promptly upon notice to Mutual by ANB.

(c) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.

11.3 BROKERS AND FINDERS. Except for Baxter Fentriss and Company as
to Mutual and Scott & Stringfellow, Inc. as to ANB, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees,
brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by Mutual or ANB, each of Mutual
and ANB, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.

11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this
Agreement, expressed or implied, is intended to, or shall, confer upon any
Person, other than the Parties or their respective successors, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
other than as provided in Sections 8.10 and 8.12 of this Agreement.

11.5 AMENDMENTS. To the extent permitted by Law, this Agreement may
be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties; provided,
however, that after any such approval by the holders of Mutual Common Stock,
there shall be made no amendment decreasing the consideration to be received
by Mutual shareholders without the further approval of such shareholders.

11.6 WAIVERS.

(a) Prior to or at the Effective Time, ANB, acting through its
Board of Directors, chief executive officer, or other authorized officer,
shall have the right to waive on behalf of it and American National any
Default in the performance of any term of this Agreement by Mutual to waive
or extend the time for the compliance or fulfillment by Mutual of any and all
of its obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of ANB under this Agreement, except
any condition which, if not satisfied, would result in the violation of any
Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of ANB.

I-52

<PAGE>

(b) Prior to or at the Effective Time, Mutual acting through its
Board of Directors, chief executive officer, or other authorized officer,
shall have the right to waive any Default in the performance of any term of
this Agreement by ANB, to waive or extend the time for the compliance or
fulfillment by ANB or American National of any and all of their obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of Mutual under this Agreement, except any condition which,
if not satisfied, would result in the violation of any Law. No such waiver
shall be effective unless in writing signed by a duly authorized officer of
Mutual.

11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests, or obligations hereunder
shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the Parties and their respective
successors and assigns.

11.8 NOTICES. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered by
hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so received:

Mutual: Mutual Savings Bank, F.S.B.
103 Tower Drive
Danville, Virginia 24543-1001
Telecopy Number: (804) 791-0249

Attention: H. Dan Davis
President and Chief Executive Officer

Copy to Counsel: Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20016
Telecopy Number: (202) 966-9409

Attention: Leslie A. Murphy and John R. Hall

ANB: American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541
Telecopy Number: (804) 792-5681

Attention: Charles H. Majors
President and Chief Executive Officer

I-53

<PAGE>

Copy to Counsel: Alston & Bird
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004
Telecopy Number: (202) 508-3333

Attention: Frank M. Conner III

11.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the Laws of the Commonwealth of Virginia, without regard
to any applicable conflicts of Laws, except to the extent that the federal
Laws of the United States may apply to the Merger.

11.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.

11.11 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.

11.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.

ATTEST: MUTUAL SAVINGS BANK, F.S.B.

By: /s/ Barbara N. Hobgood By: /s/ H. Dan Davis
-------------------------- ----------------------------
Barbara N. Hobgood H. Dan Davis
Corporate Secretary President and Chief Executive Officer

[CORPORATE SEAL]

I-54

<PAGE>

ATTEST: AMERICAN NATIONAL BANKSHARES INC.

By: /s/ David Hyler By: /s/ Charles H. Majors
-------------------------- ----------------------------
David Hyler Charles H. Majors
Corporate Secretary President and Chief Executive Officer

[CORPORATE SEAL]

I-55

<PAGE>

APPENDIX II

PLAN OF MERGER

MUTUAL SAVINGS BANK, F.S.B.

WITH AND INTO

AMERICAN NATIONAL BANK AND TRUST COMPANY

This PLAN OF MERGER (this "Plan of Merger") is made and entered into as
of September 26, 1995, by and between MUTUAL SAVINGS BANK, F.S.B., a
federally chartered stock savings bank organized and existing under the laws
of the United States, with its main office located in Danville, Virginia
("Mutual"), and AMERICAN NATIONAL BANK AND TRUST COMPANY, a national banking
association organized and existing under the laws of the United States, with
its main office located in Danville, Virginia ("American National").

American National is a wholly-owned subsidiary of American National
Bankshares Inc., a corporation organized and existing under the laws of the
Commonwealth of Virginia, with its principal office located in Danville,
Virginia ("ANB"). Concurrently with the execution and delivery of this Plan
of Merger, Mutual and ANB are entering into an Agreement and Plan of
Reorganization (the "Agreement") pursuant to which Mutual would merge with
and into American National. The Boards of Directors of Mutual and American
National are of the opinion that the best interests of their respective
institutions would be served if Mutual is merged with and into American
National on the terms and conditions provided in this Plan of Merger.

NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, Mutual and American National hereby make, adopt, and
approve this Plan of Merger in order to set forth the terms and conditions
for the merger of Mutual with and into American National.

ARTICLE ONE
DEFINITIONS

Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:

"AGREEMENT" shall mean the Agreement and Plan of Reorganization, dated
as of September 26, 1995, by and between Mutual and ANB.

"AMERICAN NATIONAL COMMON STOCK" shall mean the $10.00 par value
common stock of American National.

"ANB COMMON STOCK" shall mean the $1.00 par value common stock of ANB.

II-1

<PAGE>

"ANB COMPANIES" shall mean, collectively, ANB and all ANB Subsidiaries.

"ANB SUBSIDIARIES" shall mean the subsidiaries of ANB which shall include
the ANB Subsidiaries described in Section 6.4 of the Agreement and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of ANB in the future and owned by ANB at the Effective Time.

"EFFECTIVE TIME" shall mean the date and time at which the Merger
becomes effective as defined in Section 5.3 of this Plan of Merger.

"EXCHANGE AGENT" shall have the meaning provided in Section 4.1 of
this Plan of Merger.

"EXCHANGE RATIO" shall have the meaning provided in Section 2.2(b) of
this Plan of Merger.

"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended.

"MERGER" shall refer to the merger of Mutual with and into American
National as provided in Section 2.1 of this Plan of Merger.

"MUTUAL COMMON STOCK" shall mean the $1.00 par value common stock of Mutual.

"MUTUAL COMPANIES" shall mean, collectively, Mutual and all Mutual
Subsidiaries.

"MUTUAL SUBSIDIARIES" shall mean the subsidiaries of ANB which shall
include the ANB Subsidiaries described in Section 5.4 of the Agreement and
any corporation, bank, savings association, or other organization acquired
as a Subsidiary of ANB in the future and owned by ANB at the Effective
Time.

"OCC" shall mean the Office of the Comptroller of the Currency.

"RESULTING ASSOCIATION" shall mean American National upon and after the
Effective Time.

ARTICLE TWO
TERMS OF MERGER

2.1 MERGER. Subject to the terms and conditions set forth in this Plan
of Merger, at the Effective Time, Mutual shall be merged with and into
American National under the Articles of Association and Bylaws of American
National pursuant to the provisions of and with the effect

II-2

<PAGE>

provided in 12 U.S.C. Sections 215c, 1815(d), and 1828(c). American National
shall be the Resulting Association and receiving association resulting from
the Merger and shall continue to conduct its business under the name
"American National Bank and Trust Company." The Merger shall be consummated
pursuant to the terms of this Plan of Merger, which has been approved and
adopted by the respective Boards of Directors of Mutual and American National.

2.2 METHOD OF CONVERTING SHARES. Subject to the provisions of this
Article Two, at the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, the shares of the constituent
corporations or associations shall be converted as follows:

(a) Each share of American National Common Stock issued and outstanding at
the Effective Time shall remain issued and outstanding from and after the
Effective Time.

(b) Each share of Mutual Common Stock (excluding shares held by any
Mutual Company or by any ANB Company, which shares shall be canceled as
provided in Section 2.4 of this Plan of Merger, in each case other than in a
fiduciary capacity or in satisfaction of debts previously contracted) issued
and outstanding at the Effective Time shall cease to be outstanding and shall
be converted into and exchanged for .705 of a share of ANB Common Stock (the
"Exchange Ratio").

2.3 ANTI-DILUTION PROVISIONS. In the event Mutual or ANB changes the
number of shares of Mutual Common Stock or ANB Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, or similar recapitalization with respect to such stock
and the record date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted.

2.4 SHARES HELD BY MUTUAL OR ANB. Each of the shares of Mutual Common
Stock held by any Mutual Company or by any ANB Company, in each case other
than in a fiduciary capacity or in satisfaction of debts previously
contracted, shall be canceled and retired at the Effective Time, and no
consideration shall be issued in exchange therefor.

2.5 DISSENTING SHAREHOLDERS. Any holder of shares of Mutual Common Stock
who perfects such holder's dissenters' rights of appraisal in accordance with
and as contemplated by 12 C.F.R. Section 552.14 shall be entitled to receive
the value of such shares in cash as determined pursuant to such provision of
Law; provided, however, that no such payment shall be made to any dissenting
shareholder unless and until such dissenting shareholder has complied
with the applicable provisions of 12 C.F.R. Section 552.14 and surrendered to
the Resulting Association the certificate or certificates representing the
shares for which payment is being made. In the event that after the
Effective Time a dissenting shareholder of Mutual fails to perfect, or
effectively withdraws or loses, such holder's right to appraisal and of
payment for such holder's shares, ANB shall issue and deliver the
consideration to which such holder of shares of Mutual Common Stock is
entitled under this Article Two (without interest) upon surrender by such
holder of the certificate or certificates representing shares of Mutual
Common Stock held by such holder. Mutual will establish an escrow account
with an amount sufficient to satisfy the maximum aggregate payment that
may be required to be paid to dissenting shareholders. Upon satisfaction

II-3

<PAGE>

of all claims of dissenting shareholders, the remaining escrowed amount,
reduced by payment of the fees and expenses of the escrow agent, will be
returned to the Resulting Association.

2.6 FRACTIONAL SHARES. Notwithstanding any other provision of this Plan
of Merger, each holder of shares of Mutual Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of ANB Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of ANB Common
Stock multiplied by $30.50.

2.7 CONVERSION OF STOCK OPTIONS.

(a) At the Effective Time, each option or other right to purchase shares
of Mutual Common Stock pursuant to stock options or stock appreciation rights
("Mutual Options") granted by Mutual under the Mutual Stock Plans (as defined
in the Agreement) which are outstanding at the Effective Time, whether or not
exercisable, shall be converted into and become rights with respect to ANB
Common Stock, and ANB shall assume each Mutual Option, in accordance with the
terms of the Mutual Stock Plan and stock option agreement by which it is
evidenced, except that from and after the Effective Time, (i) the Board of
Directors of Mutual Mortgage Company shall be substituted for Mutual and the
Committee of Mutual's Board of Directors (including, if applicable, the
entire Board of Directors of Mutual) administering such Mutual Stock Plan,
(ii) each Mutual Option assumed by ANB may be exercised solely for shares of
ANB Common Stock (or cash in the case of stock appreciation rights), (iii)
the number of shares of ANB Common Stock subject to such Mutual Option shall
be equal to the number of shares of Mutual Common Stock subject to such
Mutual Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, and (iv) the per share exercise price under each such Mutual
Option shall be adjusted by dividing the per share exercise price under each
such Mutual Option by the Exchange Ratio and rounding up to the nearest cent.
Notwithstanding the provisions of clause (iii) of the preceding sentence, ANB
shall not be obligated to issue any fraction of a share of ANB Common Stock
upon exercise of Mutual Options and any fraction of a share of ANB Common
Stock that otherwise would be subject to a converted Mutual Option shall
represent the right to receive a cash payment equal to the product of such
fraction and the difference between the market value of one share of ANB
Common Stock and the per share exercise price of such option. The market
value of one share of ANB Common Stock shall be the average of the closing
bid and asked prices of such common stock as quoted on the Nasdaq System or,
if not reported thereby, any other authoritative source selected by ANB) on
the last trading day preceding the exercise of the option. In addition,
notwithstanding the provisions of clauses (iii) and (iv) of the first
sentence of this Section 2.7, each Mutual Option which is an "incentive stock
option" shall be adjusted as required by Section 424 of the Internal Revenue
Code, and the regulations promulgated thereunder, so as not to constitute a
modification, extension, or renewal of the option, within the meaning of
Section 424(h) of the Internal Revenue Code.

(b) All restrictions or limitations on transfer with respect to Mutual
Common Stock awarded under the Mutual Stock Plans or any other plan, program,
or arrangement of any

II-4

<PAGE>

Mutual Company, to the extent that such restrictions or limitations shall not
have already lapsed, and except as otherwise expressly provided in such plan,
program, or arrangement, shall remain in full force and effect with respect
to shares of ANB Common Stock into which such restricted stock is converted
pursuant to Section 2.2 of this Plan of Merger.

ARTICLE THREE
EFFECT OF MERGER

3.1 BUSINESS OF THE RESULTING ASSOCIATION. From and after the Effective
Time, the business of the Resulting Association shall continue to be that of
a national banking association. The Resulting Association's business shall be
conducted from its main office located in Danville, Virginia and at its
legally established branches, which shall also include the main office and
all branches, the addresses of which are listed in Exhibit A to this Plan of
Merger, whether in operation or approved but unopened, of Mutual at the
Effective Time.

3.2 ASSUMPTION OF RIGHTS. At the Effective Time, the separate existence
and corporate organization of Mutual shall be merged into and continued in
the Resulting Association. All rights, franchises, and interests of both
Mutual and American National in and to every type of property (real,
personal, and mixed), and all choses in action of both Mutual and American
National shall be transferred to and vested in the Resulting Association
without any deed or other transfer. The Resulting Association, upon
consummation of the Merger and without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of incompetent persons, and in every other
fiduciary capacity, in the same manner and to the same extent as such rights,
franchises, and interests were held or enjoyed by either Mutual or American
National at the Effective Time.

3.3 ASSUMPTION OF LIABILITIES. All liabilities and obligations of both of
Mutual and of American National of every kind and description (including
without limitation the liquidation account established by Mutual in
connection with its conversion to the stock form of organization, as in
existence at the Effective Time) shall be assumed by the Resulting
Association by virtue of the Merger, and the Resulting Association shall be
bound thereby in the same manner and to the same extent that either of Mutual
or American National was so bound at the Effective Time.

3.4 SAVINGS ACCOUNTS AND DEPOSITS. All savings accounts and deposits of
Mutual and American National shall be and continue to be savings accounts and
deposits of the Resulting Association, without change in their respective
terms, maturity, minimum required balances, or withdrawal value. As of the
Effective Time, each savings account or deposit of Mutual or American
National shall be considered for dividend or interest purposes as a savings
account or deposit of the Resulting Association from the time said savings
account or deposit was opened in Mutual and American National and at all
times thereafter until such account or deposit ceases to be a savings account
or deposit of the Resulting Association until otherwise amended or repealed.

II-5

<PAGE>

3.5 ARTICLES OF ASSOCIATION AND BYLAWS. The Articles of Association and
Bylaws of American National, as in effect immediately prior to the Effective
Time, shall continue in full force and effect as the Articles of Association
and Bylaws of the Resulting Association.

3.6 OFFICERS, EMPLOYEES, AND DIRECTORS. The officers and employees of the
Resulting Association immediately following the Effective Time shall include
the officers and employees of American National, together with such
additional persons as may thereafter be elected. The Board of Directors of
the Resulting Association immediately following the Effective Time shall
include the directors of American National, together with such additional
persons as may thereafter be elected.

3.7 CAPITAL STOCK OF THE RESULTING ASSOCIATION. The capital stock of the
Resulting Association upon completion of the Merger shall be $3.0 million,
consisting of 300,000 issued and outstanding shares of common stock of a par
value of $10.00 per share. In addition, the Resulting Association shall have
a surplus of approximately $8,380,352 and undivided profits, including
capital reserves, of approximately $35,548,014 adjusted, however, for, among
other adjustments, earnings and expenses between June 30, 1995 and the
Effective Time. The capital structures of Mutual and American National are
set forth in Exhibit B to this Plan of Merger.

ARTICLE FOUR
EXCHANGE OF SHARES

4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, ANB shall
cause the exchange agent selected by it (the "Exchange Agent") to mail to the
former shareholders of Mutual appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of Mutual Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent).
After the Effective Time, each holder of shares of Mutual Common Stock (other
than shares to be canceled pursuant to Section 2.4 of this Plan of Merger)
issued and outstanding at the Effective Time shall surrender the certificate
or certificates representing such shares to the Exchange Agent and shall
promptly upon surrender thereof receive in exchange therefor the
consideration provided in Section 2.2 of this Plan of Merger, together with
all undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2 of this Plan of Merger. To the
extent required by Section 2.6 of this Plan of Merger, each holder of shares
of Mutual Common Stock issued and outstanding at the Effective Time also
shall receive, upon surrender of the certificate or certificates representing
such shares, cash in lieu of any fractional share of ANB Common Stock to
which such holder may be otherwise entitled (without interest). ANB shall not
be obligated to deliver the consideration to which any former holder of
Mutual Common Stock is entitled as a result of the Merger until such holder
surrenders such holder's certificate or certificates representing the shares
of Mutual Common Stock for exchange as provided in this Section 4.1. The
certificate or certificates of Mutual Common Stock so surrendered shall be
duly endorsed as the Exchange Agent may require. Any other provision of the
Agreement notwithstanding, neither ANB, the Resulting Association, nor the
Exchange Agent shall be liable

II-6

<PAGE>

to a holder of Mutual Common Stock for any amounts paid or property delivered
in good faith to a public official pursuant to any applicable abandoned
property Law.

4.2 RIGHTS OF FORMER MUTUAL SHAREHOLDERS. At the Effective Time, the
stock transfer books of Mutual shall be closed as to holders of Mutual Common
Stock immediately prior to the Effective Time, and no transfer of Mutual
Common Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Plan of Merger, each certificate theretofore representing shares of
Mutual Common Stock (other than shares to be canceled pursuant to Section 2.4
of this Plan of Merger or as to which the holder thereof has perfected
dissenters' rights of appraisal as contemplated by Section 2.5 of this Plan
of Merger) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 2.2 and 2.6
of this Plan of Merger in exchange therefor. To the extent permitted by Law,
former shareholders of record of Mutual shall be entitled to vote after the
Effective Time at any meeting of ANB shareholders the number of whole shares
of ANB Common Stock into which their respective shares of Mutual Common Stock
are converted, regardless of whether such holders have exchanged their
certificates representing Mutual Common Stock for certificates representing
ANB Common Stock in accordance with the provisions of this Plan of Merger.
Whenever a dividend or other distribution is declared by ANB on the ANB
Common Stock, the record date for which is at or after the Effective Time,
the declaration shall include dividends or other distributions on all shares
of ANB Common Stock issuable pursuant to the Agreement, but no dividend or
other distribution payable to the holders of record of ANB Common Stock as of
any time subsequent to the Effective Time shall be delivered to the holder of
any certificate representing shares of Mutual Common Stock issued and
outstanding at the Effective Time until such holder surrenders such
certificate for exchange as provided in Section 4.1 of this Plan of Merger.
However, upon surrender of such Mutual Common Stock certificate, both the ANB
Common Stock certificate (together with all such undelivered dividends or
other distributions without interest) and any undelivered cash payments to be
paid for fractional share interests (without interest) shall be delivered and
paid with respect to each share represented by such certificate.

ARTICLE FIVE
EFFECTIVENESS

5.1 CONDITIONS PRECEDENT. Consummation of the Merger is conditioned upon
the approval of the Merger by the shareholders of Mutual and by the sole
shareholder of American National as to the extent provided by law, and the
receipt of the requisite regulatory approvals as set forth in the Agreement.
The Merger shall not be consummated unless and until notification is given to
the OTS pursuant to 12 C.F.R. section 563.22(b). Additionally, consummation
of the Merger is conditioned on the fulfillment of the conditions precedent
set forth in Article Nine of the Agreement or the waiver of such conditions
as provided in Section 11.6 of the Agreement.

II-7

<PAGE>

5.2 TERMINATION. This Plan of Merger may be terminated at any time prior
to the Effective Time by the parties hereto after termination of the
Agreement in accordance with the provisions of Section 10.1 thereof.

5.3 EFFECTIVE TIME. The Merger and other transactions contemplated by the
Agreement shall become effective on the date and at the time of issuance of
the Certificate of Merger by the OCC or on such other date and at such other
time as the OCC declares the Merger effective (the "Effective Time").

ARTICLE SIX
MISCELLANEOUS

6.1 AMENDMENT. To the extent permitted by law, this Plan of Merger may be
amended by a subsequent written instrument upon the approval of the Boards of
Directors of each of the parties hereto and upon execution of such instrument
by the duly authorized officers of each and by a majority of the Boards of
Directors of each of the Parties; provided, however, that after any such
approval by the holders of Mutual Common Stock, there shall be made no
amendment decreasing the consideration to be received by Mutual shareholders
without the further approval of such shareholders, and provided further, that
no amendment to this Plan of Merger shall modify the requirements of
regulatory approval required for the transactions contemplated by this Plan
of Merger.

6.2 GOVERNING LAW. This Plan of Merger shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia, except to the
extent that the federal laws of the United States of America apply to
consummation of the Merger.

6.3 HEADINGS. The headings in this Plan of Merger are for convenience
only and shall not affect the construction or interpretation of this Plan of
Merger.

6.4 COUNTERPARTS. This Plan of Merger may be executed in two or more
counterparts, each of which shall be deemed an original instrument, but all
of which together shall constitute one and the same instrument.

II-8

<PAGE>

IN WITNESS WHEREOF, each of Mutual and American National has caused this
Plan of Merger to be executed on its behalf by its officers thereunto duly
authorized and by a majority of its Board of Directors, all as of the day and
year first above written.

ATTEST: MUTUAL SAVINGS BANK, F.S.B.

By: /s/ Barbara N. Hobgood By: /s/ H. Dan Davis
--------------------------- ----------------------
Barbara N. Hobgood H. Dan Davis
CorporateSecretary President and Chief
Executive Officer

[SAVINGS BANK SEAL]

A Majority of the Entire
Board of Directors of Mutual Savings Bank, F.S.B.

-------------------------- --------------------------
E. Ballou Bagby F. Neal Howard, Jr.

-------------------------- --------------------------
W.G. Barker, Jr. T. David Luther

-------------------------- --------------------------
Phillip R. Blackmon Russell Perkins

-------------------------- --------------------------
Roy L. Connor L. Samuel Saunders

--------------------------
H. Dan Davis

II-9

<PAGE>

ATTEST: AMERICAN NATIONAL BANK
AND TRUST COMPANY

By: /s/ David Hyler By: /s/ Charles H. Majors
--------------------------- ----------------------
David Hyler Charles H. Majors
Secretary President and Chief
Executive Officer

[ASSOCIATION SEAL]

A Majority of the Entire
Board of Directors of American National Bank
and Trust Company

-------------------------- --------------------------
Richard G. Barkhouser Charles H. Majors

-------------------------- --------------------------
B. Carrington Bidgood James A. Motley

-------------------------- --------------------------
Fred A. Blair Claude B. Owen, Jr.

-------------------------- --------------------------
Ben J. Davenport, Jr. Landon R. Wyatt, Jr.

-------------------------- --------------------------
Lester A. Hudson, Jr. Fred B. Leggett, Jr.

--------------------------
E. Budge Kent, Jr.

II-10

<PAGE>

EXHIBIT A

Main Office:
628 Main Street
Danville, Virginia 24541

Branches:

Nor-Dan Office
239 Nor-Dan Drive
Danville, Virginia 24540

Riverside Office
1081 Riverside Drive
Danville, Virginia 24540

South Main Office
1013 South Main Street
Danville, Virginia 24541

West Main Office
2016 West Main Street
Danville, Virginia 24541

South Boston Road Office
1407 South Boston Road
Danville, Virginia 24540

103 Tower Drive
Danville,Virginia, 24543

625 Virginia Avenue
Collinsville, Virginia, ____

539 Arnett Boulevard
Danville, Virginia, ____

600 West Main Street
Danville, Virginia, ____

II-11

<PAGE>

EXHIBIT B

Capital Structures of Mutual
and
American National
(as of June 30, 1995)

<TABLE>
<CAPTION>
Mutual American National
------ -----------------
<S> <C> <C>
Equity Securities 7,500,000 shares common 300,000 shares common
Authorized $1.00 par value $10.00 par value
2,500,000 shares preferred
$1.00 par value

Outstanding Equity 1,154,100 shares common 300,000 shares common
Securities $1.00 par value $10.00 par value

Capital $1.154 million $3.000 million

Surplus $4.226 million $3.000 million

Unrealized Gain $(15) thousand $89 thousand
(Loss) on Investment
Securities and
Investment
Securities Held for
Sale

Undivided Profits $9.283 million $26.191 million

Total Stockholders'
Equity $14.648 million $32.280 million

</TABLE>

II-12
<PAGE>

APPENDIX III

December __, 1995

The Board of Directors
Mutual Savings Bank, F.S.B.
103 Tower Drive
Danville, Virginia 24540

Dear Members of the Board:

Mutual Savings Bank, F.S.B., Danville, Virginia ("Mutual")
and American National Bankshares Inc., Danville, Virginia ("ANB") have
entered into an Agreement and Plan of Reorganization (the "Agreement")
dated as of September 26, 1995, providing for the acquisition of
Mutual by ANB ("Acquisition"). The terms of the Acquisition are set
forth in the Agreement.

The terms of the Acquisition provide that, with the possible exception
of those shares as to which dissenter's rights may be perfected, each share
of common stock of Mutual will be converted into 0.705 of a share of common
stock of ANB (the "Exchange Ratio").

You have asked our opinion as to whether the Exchange Ratio is fair,
from a financial point of view, to the shareholders of Mutual.

In rendering our opinion, we have evaluated the consolidated financial
statements of Mutual available to us from published sources. In addition, we
have, among other things; (i) to the extent deemed relevant, analyzed
selected public information of certain other financial institutions and
compared Mutual and ANB from a financial point of view to the other financial
institutions; (ii) considered the historical market price of the common
stock of Mutual and ANB; (iii) compared the terms of the Acquisition and the
terms of certain other comparable transactions to the extent information
concerning such acquisitions was publicly available; (iv) reviewed the
Agreement and related documents; and (v) made such other analyses and
examinations as we deemed necessary. We also met with various senior officers
of Mutual and ANB to discuss the foregoing as well as other matters that may
be relevant.

We have not independently verified the financial and other information
concerning Mutual or ANB or other data which we have considered in our
review. We have assumed the accuracy and completeness of all such
information; however, we have no reason to believe that such information is
not accurate and complete. Our conclusion is rendered on the basis of
securities market conditions prevailing as of the date hereof and on the
conditions and prospects, financial and otherwise, of Mutual and ANB as they
exist and are known to us as of September 30, 1995.

We have acted as financial advisor to Mutual in connection with the
Acquisition and will receive from Mutual a fee for our services, a
significant portion of which is contingent upon the consummation of the
Acquisition.

It is understood that this opinion may be included in its entirety in
any communication by Mutual or the Board of Directors to the stockholders of
Mutual. The opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.

III-1

<PAGE>

Based on the foregoing, and subject to the limitations described above,
we are of the opinion that the Exchange Ratio is fair, from a financial point
of view, to the shareholders of Mutual.

Very truly yours,

----------------------------------------
Baxter Fentriss and Company

III-2

<PAGE>
APPENDIX IV

December __, 1995

Board of Directors
American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541

Gentlemen:

You have asked Scott & Stringfellow, Inc. to render our opinion relating
to the fairness, from a financial point of view, to the shareholders of
American National Bankshares Inc. ("ANB") of the "Exchange Ratio" (as defined
herein) provided for under the terms of the Agreement and Plan of
Reorganization, dated as of September 26, 1995, by and between ANB and Mutual
Savings Bank, Inc. ("Mutual") and a related Plan of Merger (collectively, the
"Merger Agreement"). Under the terms of the Merger Agreement, each share of
common stock of Mutual which is issued and outstanding immediately prior to
consummation shall be exchanged for 0.705 of a share ("Exchange Ratio") of
ANB common stock ("ANB Common Stock"). In addition, the Merger contemplates
that, at the effective time, all rights with respect to Mutual Common Stock
pursuant to stock options granted by Mutual and outstanding at the effective
time (the "Mutual Options"), whether or not exercisable, will be converted
into and become rights with respect to ANB Common Stock. The number of
Mutual Options and the exercise price of such options shall be subject to
adjustment for the Exchange Ratio. Accordingly, after the effective time,
the Mutual Options will become options to purchase ANB Common Stock on a
basis adjusted to reflect the Exchange Ratio, as contemplated in the Merger
Agreement.

In developing our opinion, we have, among other things, reviewed and
analyzed: (i) the Merger Agreement; (ii) the Form S-4 Registration Statement
filed with the Securities and Exchange Commission in connection with the
Merger; (iii) Mutual's audited financial statements for the three years ended
September 30, 1994; (iv) Mutual's unaudited interim financial statements for
the nine months ended June 30, 1994 and 1995 and other internal information
relating to Mutual prepared by Mutual's management; (v) information regarding
the trading market for the common stocks of Mutual and ANB and the price
ranges within which the respective stocks have traded; (vi) the relationship
of prices paid to relevant financial data such as net worth, loans, deposits
and earnings in certain thrift merger and acquisition transactions in
Virginia in recent years; (vii) ANB's annual reports to shareholders and its
financial statements for the three years ended December 31, 1994; and (viii)
ANB's unaudited financial statements for the nine months ended September 30,
1994 and 1995, and other internal information relating to ANB prepared by
ANB's management. We have discussed with members of management of Mutual and
ANB the background to and reasons and basis for the Merger and the business
and future prospects of Mutual and ANB individually and as a combined entity.
Finally, we have conducted such other studies, analyses and investigations,
particularly of the banking industry, and considered such other information
as we deemed appropriate.

In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished
to us by or on behalf of Mutual and ANB. We have not attempted independently
to verify such information, nor have we made any independent appraisal of the
assets or assets of Mutual or ANB. We have taken into account our assessment
of general economic, financial market and industry conditions as they exist
and can be evaluated at the date hereof, as well as our experience in
business valuation in general.

IV-1

<PAGE>

Our firm, as part of its investment banking business, is actively
involved in the valuation of securities as related to public underwritings,
private placements, mergers and acquisitions, recapitalizations and other
purposes.

On the basis of our analyses and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof, the
Exchange Ratio is fair, from a financial point of view, to the holders of ANB
Common Stock.

Very truly yours,

SCOTT & STRINGFELLOW, INC.

IV-2
<PAGE>

APPENDIX V

PROPOSED AMENDED
ARTICLES OF INCORPORATION(1)
OF
AMERICAN NATIONAL BANKSHARES INC.

1. NAME. The name of the Corporation is

AMERICAN NATIONAL BANKSHARES INC.

2. PURPOSE. The purpose of the Corporation is to transact any or all
lawful business not required to be specifically stated in these Articles of
Incorporation for which corporations may be incorporated under the Virginia
Stock Corporation Act.

3. AUTHORIZED STOCK. The Corporation shall have authority to issue
200,000 shares of Preferred Stock, par value $5 per share, and 10,000,000
shares of Common Stock, par value $1 per share.

A. PREFERRED STOCK. Authority is expressly vested in the Board of
Directors to divide the Preferred Stock into series and, within the following
limitations, to fix and determine the relative rights and preferences of the
shares of any series so established and to provide for the issuance thereof.
Each series shall be so designated as to distinguish the shares thereof from
the shares of all other series and classes. All shares of Preferred Stock
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different series:

(i) The rate of dividend, the time of payment and
the dates from which dividends shall be cumulative, and the
extent of participation rights, if any;

(ii) Any right to vote with holders of shares of
any other series or class and any right to vote as a class,
either generally or as a condition to specified corporate action;

(iii) The price at and the terms and conditions on
which shares may be redeemed;

(iv) The amount payable upon shares in event of
involuntary liquidation;

(v) The amount payable upon shares in event of
voluntary liquidation;

_______________________________
(1) Reflects the proposed increase from 3,000,000 to
10,000,000 shares of Common Stock of the Corporation.

V-1

<PAGE>

(vi) Sinking fund provisions for the redemption or
purchase of shares; and

(vii) The terms and conditions on which shares may
be converted, if the shares of any series are issued with the
privilege of conversion.

Prior to the issuance of any shares of a series of Preferred Stock,
the Board of Directors shall establish such series by adopting a resolution
setting forth the designation and number of shares of the series and the
relative rights and preferences thereof to the extent that variations are
permitted by the provisions hereof.

All series of Preferred Stock shall rank on a parity as to
dividends and assets with all other series according to the respective
dividend rates and amounts distributable upon any voluntary or involuntary
liquidation of the Corporation fixed for each such series and without
preference or priority of any series over any other series; but all shares of
Preferred Stock shall be preferred over shares of Common Stock as to both
dividends and amounts distributable upon any voluntary or involuntary
liquidation of the Corporation. All shares of any one series shall be
identical.

B. COMMON STOCK. The holders of Common Stock shall, to the
exclusion of the holders of any other class of stock of the Corporation, have
the sole and full power to vote for the election of directors and for all
other purposes without limitation except only (i) as otherwise provided in
the certificate of serial designation for a particular series of Preferred
Stock, and (ii) as otherwise expressly provided by the then existing statutes
of Virginia. The holders of Common Stock shall have one vote for each share
of Common Stock held by them.

Subject to the provisions of articles of serial designation for each
series of Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive dividends if, when and as declared by the Board of
Directors out of funds legally available therefor and to the net assets
remaining after payment of all liabilities upon any voluntary or involuntary
liquidation of the Corporation.

4. PREEMPTIVE RIGHTS. Stockholders of the Corporation shall not have
the preemptive right to acquire unissued shares of any class of the
Corporation.

5. CUMULATIVE VOTING. Stockholders of the Corporation shall not have
cumulative voting rights.

6. A. To the full extent that the Virginia Stock Corporation Act, as
it exists on the date hereof or may hereafter be amended, permits the
limitation or elimination of the liability of directors or officers, a
Director or officer of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages.

V-2

<PAGE>

B. To the full extent permitted and in the manner prescribed by the
Virginia Stock Corporation Act and any other applicable law, the Corporation
shall indemnify a Director or officer of the Corporation who is or was a
party to any proceeding by reason of the fact that he is or was such a
Director or officer or is or was serving at the request of the Corporation as
a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. The Board
of Directors is hereby empowered, by majority vote of a quorum of
disinterested Directors, to contract in advance to indemnify any Director or
officer.

C. The Board of Directors is hereby empowered, by majority vote of
a quorum of disinterested Directors, to cause the Corporation to indemnify or
contract in advance to indemnify any person not specified in Section B of
this Article who was or is a party to any proceeding, by reason of the fact
that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, to the same extent as if such person were
specified as one to whom indemnification is granted in Section B.

D. The Corporation may purchase and maintain insurance to indemnify
it against the whole or any portion of the liability assumed by it in
accordance with this Article and may also procure insurance, in such amounts
as the Board of Directors may determine, on behalf of any person who is or
was a Director, officer, employee, or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, against any liability asserted against or
incurred by such person in any such capacity or arising from his status as
such, whether or not the Corporation would have power to indemnify him
against such liability under the provisions of this Article.

E. In the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act or
omission with respect to which indemnification is claimed, any determination
as to indemnification and advancement of expenses with respect to any claim
for indemnification made pursuant to Section A of this Article 6 shall be
made by special legal counsel agreed upon by the Board of Directors and the
proposed indemnitee. If the Board of Directors and the proposed indemnitee
are unable to agree upon such special legal counsel, the Board of Directors
and the proposed indemnitee each shall select a nominee, and the nominees
shall select such special legal counsel.

F. The provisions of this Article 6 shall be applicable to all
actions, claims, suits, or proceedings commenced after the adoption hereof,
whether arising from any action taken or failure to act before or after such
adoption. No amendment, modification, or repeal of this Article shall
diminish the rights provided hereby or diminish the right to indemnification
with respect to any claim, issue, or matter in any then pending

V-3

<PAGE>

or subsequent proceeding that is based in any material respect or any alleged
action or failure to act prior to such amendment, modification, or repeal.

G. Reference herein to Directors, officers, employees, or agents
shall include former Directors, officers, employees, and agents and their
respective heirs, executors, and administrators.

7. REGISTERED OFFICE. The Corporation's initial registered office
shall be located in the City of Danville at 400 Masonic Building, Danville,
Virginia 24541. The Corporation's initial registered agent shall be
Charles H. Majors, whose address is the same as the Corporation's registered
office and who is a resident of Virginia and a member of the Virginia State
Bar.

8. DIRECTORS. The number of Directors shall be as stated in the
Corporation's bylaws but the number of directors set forth in the bylaws
cannot be increased by more than two during any 12-month period except by the
affirmative vote of holders of 80% of all shares of voting stock of the
Corporation. In the absence of a bylaw, the number of Directors shall be
three. The Corporation's initial Board of Directors shall consist of three
individuals whose names and addresses are as follows:

Name Address
---- -------
<S> <C>
James A. Motley 175 Acorn Lane
Danville, Virginia 24541

E. Budge Kent, Jr. 292 Dogwood Drive
Danville, Virginia 24541

Charles H. Majors 415 Chadwyck Drive
Danville, Virginia 24541
</TABLE>

Commencing with the 1984 Annual Meeting of Stockholders, the Board of
Directors shall be divided into three classes -- Class I, Class II and Class
III -- as nearly equal in number as possible. At the 1984 Annual Meeting of
Stockholders, directors of the first class (Class I) shall be elected to hold
office for a term expiring at the 1985 Annual Meeting of Stockholders;
directors of the second class (Class II) shall be elected to hold office for
a term expiring at the 1986 Annual Meeting of Stockholders; and directors of
the third class (Class III) shall be elected to hold office for a term
expiring at the 1987 Annual Meeting of Stockholders. At each annual meeting
of stockholders after 1984, the successors to the class of directors whose
term shall then expire shall be identified as being of the same class as the
directors they succeed and elected to hold office for a term expiring at the
third succeeding annual meeting of stockholders. When the number of directors
is changed, any newly-created directorships or any decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly
equal in number as possible.

V-4

<PAGE>

Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any vacancy occurring in the Board of Directors, including
a vacancy resulting in an increase by not more than two in the number of
directors, may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors, and
directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which they have
been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.

Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director may be removed, with or without cause, but
only by the affirmative vote of the holders of at least 80% of the
outstanding shares of Common Stock.

9. VOTING REQUIREMENTS FOR CERTAIN BUSINESS COMBINATIONS. (1) The
affirmative vote of the holders of 80% of all shares of stock of the
Corporation entitled to vote on any business combination (as hereinafter
defined) considered for the purposes of this ARTICLE 9 as one class (herein
called "voting stock"), shall be required for the adoption or authorization
of such business combination with any other entity (as hereinafter defined)
if, as of the record date for the determination of stockholders entitled to
notice thereof and to vote thereon, such other entity is the beneficial
owner, directly or indirectly, of more than 25% of the voting stock of the
Corporation; provided that such 80% voting requirement shall not be
applicable if:

(a) The cash, or fair market value of the property,
securities or other consideration to be received per share by
common stockholders of the Corporation in such business
combination:

(i) is not less than the highest per share
price (including brokerage commissions and/or soliciting dealers'
fees) paid by such other entity in acquiring any of its holdings
of the Corporation's Common Stock;

(ii) bears the same or a greater percentage
relationship to the market price of the Corporation's Common
Stock immediately prior to the public announcement of such
business combination as the highest per share price (including
brokerage commissions and/or soliciting dealers' fees) that such
other entity has theretofore paid for any of the shares of the
Corporation's Common Stock already owned by it bears to the
market price of the Common Stock of the Corporation immediately
prior to the public announcement or commencement of the tender
offer or market acquisition of the Corporation's Common Stock by
such other entity; and

(iii) if the public announcement of such
business combination occurs more than one year after the
transaction which resulted in such other entity having a 25%
interest, is not less than the earnings per share of

V-5

<PAGE>

Common Stock of the Corporation for the four full consecutive
fiscal quarters immediately preceding the record date for
solicitation of votes on such business combination, multiplied by
the price-earnings multiple represented by the price referred to
in paragraph (i) in relation to the earnings per share of Common
Stock of the Corporation for the four full consecutive fiscal
quarters immediately preceding the transaction which resulted in
such other entity having a 25% interest;

(b) After such other entity has acquired a 25% interest and
prior to the consummation of such business combination:

(i) the Corporation's Board of Directors shall have
included at all times representation by continuing director(s)
(as hereinafter defined) proportionate to the voting stock of the
Corporation not held by such other entity (with a continuing
director to occupy any resulting fractional board position);

(ii) such other entity shall not have acquired any
newly issued or treasury shares of stock, directly or indirectly,
from the Corporation (except upon conversion of convertible
securities acquired by it prior to obtaining a 25% interest or as
a result of a pro rata stock dividend or stock split); and

(iii) such other entity shall not have acquired any
additional shares of the Corporation's outstanding Common Stock
or securities convertible into Common Stock except as a part of
the transaction which results in such other entity having a 25%
interest;

(i) received the benefit, directly or indirectly (except
proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial assistance provided by the
Corporation, or

(ii) made any major change in the Corporation's business or
capital structure without the unanimous approval of the
directors, in either case prior to the consummation of such
business combination; and

(d) A proxy statement responsive to the requirements of
the Securities Exchange Act of 1934 shall be mailed to public
stockholders of the Corporation for the purpose of soliciting
stockholder approval of such business combination and shall
contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the
business combination which the continuing directors, or any of
them, may choose to state and, if deemed advisable by a majority
of the continuing directors, an opinion of a reputable investment

V-6

<PAGE>

banking firm as to the fairness (or not) of the terms of such
business combination, from the point of view of the remaining
public stockholders of the Corporation (such investment banking
firm to be selected by a majority of the continuing directors and
to be paid a reasonable fee for its services by the Corporation
upon receipt of such opinion).

The provisions of this ARTICLE 9 shall also apply to a business
combination with any other entity which at any time has been the beneficial
owner, directly or indirectly, of more than 25% of the outstanding shares of
voting stock of the Corporation, notwithstanding the fact that such other
entity has reduced its shareholdings below 25% if, as the record date for
the determination of stockholders entitled to notice of and to vote on the
business combination, such other entity is an "affiliate" of the Corporation
(as hereinafter defined).

(2) For the purposes of this ARTICLE 9,

(a) the term "other entity" shall include any corporation,
person or other entity and other entity with which it or its
"affiliate" or "associate" (as defined below) has any agreement,
arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of stock of
the Corporation, or which is its "affiliate" or "associate" as
those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 as in
effect on January 1, 1984, together with the successors and
assigns of such persons in any transaction or series of
transactions not involving a public offering of the Corporation's
stock within the meaning of the Securities Act of 1933;

(b) another entity shall be deemed to be the beneficial
owner of any shares of stock of the Corporation which the other
entity (as defined above) has the right to acquire pursuant to
any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise;

(c) the outstanding shares of any class of stock of the
Corporation shall be deemed to include shares deemed owned
through application of clause (b) above but shall not include any
other shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights, warrants or options or
otherwise;

(d) the term "business combination" shall include
(i) any merger or consolidation of the Corporation or any
Subsidiary with or into any other entity; (ii) any statutory
stock exchange for cash, property, securities or obligations of
any other entity; (iii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of all or substantially all
of the property and assets of the Corporation or any Subsidiary
to any other entity; (iv) the issuance or transfer by the
Corporation or any Subsidiary of any securities having an
aggregate fair market value greater than $1,000,000; (v) the
adoption of any plan or proposal for the

V-7

<PAGE>

liquidation or dissolution of the Corporation; or (vi) any
reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries, or
any other transaction which has the effect, directly or
indirectly, of increasing the proportion of any class of
securities of the Corporation or any Subsidiary directly or
indirectly owned by any other entity who, prior to such
transaction, owned 00% of the voting stock of the Corporation;

(e) the term "continuing director" shall mean a person who
was a member of the Board of Directors of the Corporation prior
to the time that such other entity acquired in excess of 25% of
the voting stock of the Corporation, or a person designated
(whether before or after election as a director) to be a
continuing director by a majority of continuing directors;

(f) the "fair market value" of property, securities or
other consideration shall be as determined in good faith by the
Board of Directors of the Corporation and concurred in by a
majority of continuing directors;

(g) in the event of a business combination in which the
Corporation is the surviving corporation, the term "other
consideration to be received" as used in paragraph 9(a) shall
mean Common Stock of the Corporation retained by its existing
public stockholders;

(h) a "Subsidiary" is any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by
the Corporation.

(3) A majority of the continuing directors shall have the power
and duty to determine for the purposes of this ARTICLE 9, on the basis of
information known to them, whether (a) such other entity beneficially owns
more than 25% of the outstanding shares of voting stock of the
Corporation, (b) another entity is an "affiliate" or "associate" of
another, (c) another entity has an agreement, arrangement or understanding
with another, or (d) the assets being acquired by the Corporation, or
any subsidiary thereof, have an aggregate fair market value of less than
$1,000,000.

(4) Nothing contained in this ARTICLE 9 shall be construed to
relieve any other entity from any fiduciary obligation imposed by law. The
voting requirements of this Article 9 shall be in addition to the voting
requirements imposed by law or other provisions of these Articles of
Incorporation in favor of certain classes of stock.

10. VOTING REQUIREMENTS FOR CERTAIN AMENDMENTS. No amendment to
the Articles of Incorporation of the Corporation shall change, repeal
or make inoperative any of the provisions of ARTICLE 5, ARTICLE 8 or
ARTICLE 9, unless such amendment receives the affirmative vote of the
holders of 80% of all shares of voting stock of the Corporation, provided
that this Article 10 shall not apply to, and such 80% vote shall not be
required for, any such amendment unanimously recommended to the
stockholders by the Board of

V-8

<PAGE>

Directors of the Corporation (a) at a time when no other entity
beneficially owns or to the knowledge of any director proposes to acquire 25%
or more of the Corporation's voting stock, or (b) if all such
directors are "continuing directors" within the meaning of paragraph (2) of
ARTICLE 9.

11. VOTING REQUIREMENTS FOR CERTAIN OTHER AMENDMENTS. Except as
expressly otherwise required in these Articles of Incorporation, an
amendment or restatement of these Articles other than an amendment or
restatement that amends or affects the shareholder vote required by the
Virginia Stock Corporation Act to approve a merger, statutory share
exchange, sale of all or substantially all of the Corporation's
assets or the dissolution of the Corporation shall be approved by a majority
of the votes entitled to be cast by each voting group that is entitled to
vote on the matter.

V-9
<PAGE>
APPENDIX VI
DISSENTER AND APPRAISAL RIGHTS

Dissenter and appraisal rights for holders of stock in a federal stock
savings bank are governed by Section 552.14 of Title 12 of the Code of
Federal Regulations, the text of which is reproduced below.

SECTION 552.14 DISSENTER AND APPRAISAL RIGHTS.

(a) RIGHT TO DEMAND PAYMENT OF FAIR OR APPRAISED VALUE. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with section 552.13 of this part shall
have the right to demand payment of the fair or appraised value of his stock:
PROVIDED, That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.

(b) EXCEPTIONS. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section
to demand payment of the stock's fair or appraised value, if such stock was
listed on a national securities exchange or quoted on the National
Association of Securities Dealers' Automated Quotation System ("NASDAQ") on
the date of the meeting at which the combination was acted upon or
stockholder action is not required for a combination made pursuant to
Section 552.13(h)(2) of this part. "Qualified consideration" means cash,
shares of stock of any association or corporation which at the effective date
of the combination will be listed on a national securities exchange or quoted
on NASDAQ or any combination of such shares of stock and cash.

(1) NOTICE. Each constituent Federal stock association shall notify
all stockholders entitled to rights under this section, not less that twenty
days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and
may be part of the management's proxy solicitation for such meeting.

(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to
made a demand under this section shall deliver to the Federal Stock
association, before voting on the combination, a writing identifying himself
or herself and stating his or her intention thereby to demand appraisal of
and payment for his or her shares. Such demand must be in addition to and
separate from any proxy or vote against the combination by the stockholder.

(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten
days after the effective date of the combination, the resulting association
shall;

(i) Given written notice by mail to stockholders of
constituent Federal stock associations who have complied with the
provisions of paragraph (c)(2) of this section and have not voted in
favor of the combination, of the effective date of the combination;

(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting association
to be the fair value thereof; and

VI-1

<PAGE>
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of this section (set
out in the notice) must be satisfied.

The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the date
of notice and offer, together with the latest available interim financial
statements.

(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within
ninety days of the effective date of the combination.

(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file
a petition with the Office, with a copy by registered or certified mail to
the resulting association, demanding a determination of the fair market value
of the stock of all such stockholders. A stockholder entitled to file a
petition under this section who fails to file such petition within sixty days
of the effective date of the combination shall be deemed to have accepted the
terms offered under the combination.

(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment
under this section shall submit to the transfer agent his certificates of
stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his stock certificates for such notation
shall no longer be entitled to appraisal rights under this section and shall
be deemed to have accepted the terms offered under the combination.

(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal
and to accept the terms offered upon the combination.

(8) VALUATION AND PAYMENT. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate Staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination.
Appropriate staff of the Office shall review and provide an opinion on
appraisals prepared by independent persons as to the suitability of the
appraisal methodology and the adequacy of the analysis and supportive data.
The Director after consideration of the appraisal report and the advice of
the appropriate staff shall, if he or she concurs in the valuation of the
shares, direct payment by the resulting association of the appraised fair
market value of the shares, upon surrender of the certificates representing
such stock. Payment shall be made, together with interest from the effective
date of the combination, at a rate deemed equitable by the Director.

(9) COSTS AND EXPENSES. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section.

VI-2

<PAGE>

(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) or this section shall thereafter
neither be entitled to vote such stock for any purpose nor be entitled to the
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to, or a vote to be taken by stockholders of
record at a date which is on or prior to, the effective date of the
combination): PROVIDED, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and
accepts or is deemed to have accepted the terms offered upon the combination,
such stockholder shall thereupon be entitled to vote and receive the
distributions described above.

(11) STATUS. Shares of the resulting association into which shares of the
stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.

VI-3
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Sections 13.1-697 through 13.1-704 of the VSCA generally permit a
corporation to indemnify its officers and directors in connection with civil
and criminal actions if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation. Such indemnification is permitted in connection with
shareholders' derivative actions, but only if such persons are not adjudged
liable for negligence or misconduct, or upon court order. The statute
permits a corporation to provide further indemnity, upon approval by the
shareholders before or after the event, except indemnity against gross
negligence or willful misconduct. Article 6 of ANB's Articles of
Incorporation contains indemnification provisions relating to directors and
officers of ANB.

Under Article 6, each director and officer is indemnified by ANB
against liabilities, fines, penalties, and claims imposed upon or
asserted against such director or officer (including amounts paid in
settlement) by reason of having been such a director or officer,
whether or not then continuing to be so, and against all expenses
(including counsel fees) reasonably incurred by him or her in connection
therewith, except in relation to matters as to which he or she shall have
been finally adjudged to be liable by reason of having been guilty of gross
negligence or willful misconduct in the performance of his or her duties as
such director or officer. In the event of any other judgment against
such director or officer or in the event of a settlement, the
indemnification will be made only if ANB is advised, if none of the
persons involved is or was a director of ANB, by the Board of Directors, and
otherwise by independent counsel to be appointed by the Board of Directors,
that in its or his or her opinion such director or officer was not guilty
of gross negligence or willful misconduct in the performance of his or her
duties, and, in the event of a settlement, that such settlement was, or
if still to be made is, in the best interests of ANB. If the
determination is to be made by the Board of Directors, it may, as to all
questions of law, rely on the advice of independent counsel. Every
reference herein to director or officer includes every director or officer
or former director or officer of ANB and every person who may have served
at its request as a director or officer of another corporation in which ANB
owned shares of stock or of which it is a creditor or, in the case of a
nonstock corporation, to which ANB contributes and, in all of such cases,
his or her executors or administrators. The right of indemnification
provided is not exclusive of any other rights to which any director or
officer may be entitled by Virginia law or otherwise.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following are exhibits to this Registration Statement:

2.1 Agreement and Plan of Reorganization, dated as of
September 26, 1995, by and between Mutual Savings Bank, F.S.B. and
American National Bankshares Inc. (Included as Appendix I to
the Joint Proxy Statement/Prospectus included in this Registration
Statement.)

2.2 Plan of Merger, dated as of September 26, 1995, by and between of
Mutual Savings Bank, F.S.B. and American National Bank and Trust
Company. (Included as Appendix II to the Joint Proxy Statement/
Prospectus included in this Registration Statement.)

II-1

<PAGE>

3.1 Articles of Incorporation of American National Bankshares Inc.
(Incorporated by reference from Exhibit III to ANB's Registration
Statement on Form S-14 filed on April 4, 1985.)

3.2 Bylaws of American National Bankshares Inc. (Incorporated by
reference from Exhibit III to ANB's Registration Statement on
Form S-14 filed on April 4, 1985.)

3.3 Proposed Amended Articles of Incorporation of American National
Bankshares Inc. (Included as Appendix V to the Joint Proxy
Statement/Prospectus included in this Registration Statement.)

5 Form of opinion of Alston & Bird regarding the legality of the
securities being issued.

8 Form of opinion of Alston & Bird regarding certain tax matters.

10.1 Agreement between American National Bank and Trust Company and
James A. Motley, dated August 26, 1982, as amended August 11, 1987.
(Incorporated by reference from Exhibit 4a to ANB's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.)

10.2 Agreement between American National Bank and Trust Company and
Charles H. Majors, dated February 22, 1993. (Incorporated by
reference from Exhibit 4b to ANB's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.)

10.3 Agreement between American National Bank and Trust Company and
E. Budge Kent, Jr., dated August 31, 1982, as amended August 11,
1987. (Incorporated by reference from Exhibit 4c to ANB's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.)

10.4 Agreement between American National Bank and Trust Company and
David Hyler, dated August 31, 1982, as amended August 11, 1987.
(Incorporated by reference from Exhibit 4d to ANB's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.)

10.5 Agreement between American National Bank and Trust Company and
Gilmer D. Jefferson, dated August 25, 1982, as amended August 11,
1987. (Incorporated by reference from Exhibit 4e to ANB's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.)

10.6 Agreement between American National Bank and Trust Company and
Carl T. Yeatts, dated August 26, 1982, as amended August 11, 1987.
(Incorporated by reference from Exhibit 4f to ANB's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.)

23.1 Consent of Arthur Andersen LLP

23.2 Consent of Manning, Perkinson, Floyd & Company

23.3 Consent of Baxter Fentriss and Company

23.4 Consent of Scott & Stringfellow, Inc.

II-2

<PAGE>

24 Power of Attorney (Included on page II-5 of this Registration
Statement.)

99.1 Form of Proxy for American National Bankshares Inc.

99.2 Form of Proxy for Mutual Savings Bank, F.S.B.

ITEM 22. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(a) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933 (the "Securities Act");

(b) To reflect in the prospectus any facts or events arising
after the effective Time of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and

(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;

PROVIDED, HOWEVER, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934.

The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration

II-3

<PAGE>

Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.

The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is
used in connection with an offering of securities subject to Rule 415, will
be filed as part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act 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 Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
or receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective Time of the
Registration Statement through the date of responding to the request.

The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the Registration Statement when it became effective.

II-4

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, American
National Bankshares Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Danville, Commonwealth of Virginia, on the 6th day of December, 1995.

AMERICAN NATIONAL BANKSHARES INC.
(Registrant)

By: /s/ Charles H. Majors
------------------------------------
Charles H. Majors
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles H. Majors and David Hyler
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place,
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, to file the same, with all exhibits thereto,
and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICERS:

/s/ Charles H. Majors President and Chief December 6, 1995
- --------------------------------------- Executive Officer
Charles H. Majors

/s/ David Hyler Senior Vice President December 6, 1995
- --------------------------------------- and Treasurer
David Hyler (Principal Accounting Officer)
</TABLE>

II-5

<PAGE>
<TABLE>
<S> <C> <C>
DIRECTORS:

/s/ Richard G. Barkhouser Director December 6, 1995
- ---------------------------------------
Richard G. Barkhouser

/s/ B. Carrington Bidgood Director December 6, 1995
- ---------------------------------------
B. Carrington Bidgood

/s/ Fred A. Blair Director December 6, 1995
- ---------------------------------------
Fred A. Blair

/s/ Ben J. Davenport Director December 6, 1995
- ---------------------------------------
Ben J. Davenport

/s/ Lester A. Hudson, Jr. Director December 6, 1995
- ---------------------------------------
Lester A. Hudson, Jr.

/s/ E. Budge Kent, Jr. Director December 6, 1995
- ---------------------------------------
E. Budge Kent, Jr.

/s/ Fred B. Leggett, Jr. Director December 6, 1995
- ---------------------------------------
Fred B. Leggett, Jr.

/s/ Charles H. Majors Director December 6, 1995
- ---------------------------------------
Charles H. Majors

/s/ James A. Motley Director December 6, 1995
- ---------------------------------------
James A. Motley

/s/ Claude B. Owen, Jr. Director December 6, 1995
- ---------------------------------------
Claude B. Owen, Jr.

/s/ Landon R. Wyatt, Jr. Director December 6, 1995
- ---------------------------------------
Landon R. Wyatt, Jr.
</TABLE>

II-6

<PAGE>

EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED PAGE
------- -------------
<S> <C> <C>
5 Form of opinion of Alston & Bird regarding the legality
of the securities being issued.............................

8 Form of opinion of Alston & Bird regarding certain
tax matters................................................

23.1 Consent of Arthur Andersen LLP.............................

23.2 Consent of Manning, Perkinson, Floyd & Company.............

23.3 Consent of Baxter Fentriss and Company.....................

23.4 Consent of Scott & Stringfellow, Inc. .....................

99.1 Form of proxy for American National Bankshares Inc. .......

99.2 Form of proxy for Mutual Savings Bank, F.S.B. .............
</TABLE>

<PAGE>
EXHIBIT 5

ALSTON & BIRD
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004-2601

202-508-3300
Fax: 202-508-3333

Frank M. Conner III Direct Dial: 202-508-3303

December __, 1995

American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541

Gentlemen:

This opinion is given in connection with the filing by American National
Bankshares Inc., a corporation organized and existing under the laws of the
Commonwealth of Virginia ("ANB"), with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, of a Registration Statement on
Form S-4 ("Registration Statement") with respect to the shares of the $1.00
par value common stock of ANB ("ANB Common Stock") to be issued in connection
with the proposed merger of Mutual Savings Bank, F.S.B. ("Mutual"), with and
into American National Bank and Trust Company, a wholly owned subsidiary of
ANB (the "Merger").

The Merger is intended to be effected pursuant to an Agreement and Plan
of Reorganization, dated as of September 26, 1995 (the "Merger Agreement"),
by and between ANB and Mutual pursuant to which each outstanding share of the
$1.00 par value common stock of Mutual ("Mutual Common Stock") (excluding
shares held by Mutual or any of its subsidiaries or by ANB or any of its
subsidiaries, in each case other than in a fiduciary capacity or as a result
of debts previously contracted) will be converted into and exchanged for the
right to receive .705 of a share of ANB Common Stock.

In rendering this opinion, we have examined such corporate records and
documents, including the Merger Agreement, as we have deemed relevant and
necessary as the basis for the opinion set forth herein.

Based upon the foregoing, it is our opinion that the shares of ANB
Common Stock included in the Registration Statement, when issued to the
holders of Mutual Common Stock in connection with the Merger as provided in
the Merger Agreement, have been duly authorized by all requisite actions on
the part of ANB and, upon consummation of the Merger, and the issuance of
such shares, such shares will be validly issued, fully paid, and
non-assessable under the Virginia Stock Corporation Act.

One Atlantic Center, 1201 West Peachtree Street
Atlanta, Georgia 30309-3424

<PAGE>

American National Bankshares, Inc.
December __, 1995
Page 2

We hereby consent to the use of this opinion and to the reference made
to the firm under the caption "Legal Matters" in the Joint Proxy
Statement/Prospectus constituting part of the Registration Statement.

Very truly yours,

ALSTON & BIRD

By: __________________________
Frank M. Conner III

FMC:sbw

<PAGE>
EXHIBIT 8

ALSTON & BIRD
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004-2601

202-508-3300
Fax: 202-508-3333

Philip C. Cook Direct Dial: 404-881-7491

[FORM OF OPINION]

December __,1995

American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541

Mutual Savings Bank, F.S.B.
103 Tower Drive
Danville, Virginia 24543-1001

Re: PROPOSED AGREEMENT AND PLAN OF REORGANIZATION INVOLVING MUTUAL
SAVINGS BANK, F.S.B., AMERICAN NATIONAL BANKSHARES INC., AND
AMERICAN NATIONAL BANK AND TRUST COMPANY

Ladies and Gentlemen:

We have served as counsel to American National Bankshares Inc.
("ANB") in connection with the proposed reorganization of Mutual Savings Bank,
F.S.B. ("Mutual") pursuant to the Agreement and Plan of Reorganization, dated
as of September 26, 1995 (the "Agreement"), which provides for the merger of
Mutual with and into American National Bank and Trust Company ("American
National"), a wholly owned subsidiary of ANB. In our capacity as counsel to
ANB, our opinion has been requested with respect to certain of the federal
income tax consequences of the Merger.

In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury Regulations, (ii) the
legislative history of applicable sections of the Code, and (iii) appropriate
Internal Revenue Service and court decisional authority. In addition, we have
relied upon certain assumptions as more fully described below. All terms used
herein without definition shall have the respective meanings specified in the
Agreement, and unless otherwise specified, all section references herein are to
the Code.

One Atlantic Center, 1201 West Peachtree Street
Atlanta, Georgia 30309-3424

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 2

INFORMATION RELIED UPON

In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:

(1) The Agreement;

(2) The Registration Statement on Form S-4 filed by American
National Bankshares Inc. with the Securities and Exchange Commission under the
Securities Act of 1933, on December __, 1995, including the Joint Proxy
Statement/Prospectus for meetings of the shareholders of American National and
Mutual; and

(3) Such additional documents as we have considered relevant.

In our examination of the documents, we have assumed with your
consent that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.

We have also obtained such additional information and representations
as we have deemed relevant and necessary through consultation with various
officers and representatives of Mutual and ANB and through certificates
provided by the management of Mutual and the management of ANB.

You have advised us that the proposed transaction will enable the
Resulting Association to realize certain economies of scale, yield a wider
array of banking and banking-related services to consumers and businesses, and
provide for a stronger market position and for greater financial resources to
meet competitive challenges within the Danville, Virginia market area. To
achieve these goals, the following will occur pursuant to the Agreement:

(1) Subject to the terms and conditions of the Agreement, at the
Effective Time, Mutual shall be merged with and into American National in
accordance with and with the effect provided in 12 U.S.C. Sections 215c,
1815(d)(3), and 1828(c). American National shall be the Resulting Association
resulting from the Merger and shall be a wholly-owned, first-tier subsidiary of
ANB and shall continue to be governed by the Laws of the United States. The
Merger shall be consummated pursuant to the terms of the Agreement, which has
been approved and adopted by the respective Boards of Directors of Mutual and
ANB, and the Plan of Merger which has been approved by the respective Boards of
Directors of Mutual and American National.

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 3

(2) At the Effective Time, by virtue of the Merger, and without any
action on the part of the holders thereof, the shares of the constituent
corporations shall be converted as follows:

(a) Each share of ANB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.

(b) Each share of American National Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.

(c) Each share of Mutual Common Stock (excluding shares held by
any Mutual Company or by any ANB Company, which shares shall be canceled as
provided in Section 3.3 of the Agreement, in each case other than in a
fiduciary capacity or in satisfaction of debts previously contracted) issued
and outstanding at the Effective Time shall cease to be outstanding and shall
be converted into and exchanged for .705 of a share of ANB Common Stock (the
"Exchange Ratio"). In the event Mutual or ANB changes the number of shares of
Mutual Common Stock or ANB Common Stock, respectively, issued and outstanding
prior to the Effective Time as a result of a stock split, stock dividend, or
similar recapitalization with respect to such stock and the record date
therefor shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.

(3) Each of the shares of Mutual Common Stock held by Mutual or any
of its wholly owned Subsidiaries or by ANB or any of its wholly owned
Subsidiaries, in each case other than in a fiduciary capacity or as a result of
debts previously contracted, shall be canceled and retired at the Effective
Time, and no consideration shall be issued in exchange therefor.

(4) Any holder of shares of Mutual Common Stock who perfects such
holder's dissenters' rights of appraisal in accordance with and as contemplated
by 12 C.F.R. 552.14 shall be entitled to receive the value of such shares in
cash as determined pursuant to such provision of Law and in accordance with the
terms of the Agreement.

(5) Notwithstanding any other provision of the Agreement, each
holder of shares of Mutual Common Stock exchanged pursuant to the Merger, or of
options to purchase shares of Mutual Common Stock, who would otherwise have
been entitled to receive a fraction of a share of ANB Common Stock (after
taking into account all certificates delivered by such holder) shall receive,
in lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of ANB Common Stock multiplied by $30.50.

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 4

(6) At the Effective Time, each option or other right to purchase
shares of Mutual Common Stock pursuant to stock options or stock appreciation
rights ("Mutual Options") granted by Mutual under the Mutual Stock Plans, which
are outstanding at the Effective Time, whether or not exercisable, shall be
converted into and become rights with respect to ANB Common Stock and ANB shall
assume each Mutual Option, in accordance with the terms of the Mutual Stock
Plan and stock option agreement by which it is evidenced on substantially the
same terms and conditions.

(7) All restrictions or limitations on transfer with respect to
Mutual Common Stock awarded under the Mutual Stock Plans or any other plan,
program, or arrangement of any Mutual Company, to the extent that such
restrictions or limitations shall not have already lapsed, and except as
otherwise expressly provided in such plan, program, or arrangement, shall
remain in full force and effect with respect to shares of ANB Common Stock into
which such restricted stock is converted pursuant to Section 3.1 of the
Agreement.

With your consent, we have also assumed that the following statements
are true on the date hereof and will be true on the date on which the Merger is
consummated:

(1) The fair market value of the ANB stock received by each
shareholder of Mutual will, in each instance, be approximately equal to the
fair market value of the Mutual stock surrendered in exchange therefor.

(2) There is no plan or intention by any of the shareholders of
Mutual who own five percent (5%) or more of the outstanding Mutual Common
Stock, and to the best of the knowledge of the management of Mutual, the
remaining Mutual shareholders have no plan or intention, to sell, exchange, or
otherwise dispose of a number of shares of ANB Common Stock that they will
receive in the Merger that will reduce on the part of the Mutual shareholders
such shareholders' ownership of ANB Common Stock to a number of shares having
an aggregate value as of the date of the Merger of less than fifty percent
(50%) of the aggregate value of all of the stock of Mutual outstanding
immediately prior to the Merger. For purposes of this representation, shares
of Mutual stock that are disposed of or exchanged for cash in lieu of
fractional shares of ANB Common Stock will be treated as outstanding Mutual
stock immediately prior to the Merger. Moreover, shares of Mutual Common Stock
and shares of ANB Common Stock held by Mutual shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the transactions will be
considered outstanding immediately prior to the Merger in making this
representation.

(3) In the Merger, American National will acquire assets
representing at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by Mutual immediately prior to the Merger. For this purpose, all
redemptions and distributions (except for regular, normal

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 5

dividends) made by Mutual immediately preceding the Merger and all amounts
paid out of the assets of Mutual as reorganization expenses will be
considered as assets held by Mutual immediately prior to the Merger. In
addition, assets disposed of in contemplation of the Merger will be
considered as assets held by Mutual immediately prior to the Merger.

(4) ANB has no plan or intention to liquidate American National, or
to sell or otherwise dispose of its stock in American National or cause
American National to sell or otherwise dispose of any of the assets acquired by
American National from Mutual, except for dispositions made in the ordinary
course of business or transfers to a corporation controlled by American
National.

(5) From and after the consummation of the Merger, American National
will continue the historic business of Mutual or use a significant portion of
Mutual's business assets in a business.

(6) The liabilities of Mutual to be assumed by American National in
the Merger (and the liabilities to which the assets to be transferred are
subject) were incurred or will be incurred by Mutual in the ordinary course of
its business.

(7) There is not now nor will there be at the time of the Merger any
intercorporate indebtedness existing between Mutual and ANB or between Mutual
and American National that was issued, acquired, or will be settled at a
discount.

(8) Mutual, American National, and ANB will each pay all direct
costs and expenses incurred by it or on its behalf in connection with the
Merger, except that ANB shall bear and pay the filing fees payable in
connection with the Registration Statement and the Joint Proxy Statement and
printing costs incurred in connection with the printing of the Registration
Statement and the Joint Proxy Statement.

(9) None of ANB, American National or Mutual are investment
companies as defined in Code section 368(a)(2)(F).

(10) None of the parties are under the jurisdiction of a court in a
case under Title 11 of the United States Code, a receivership, foreclosure, or
similar proceeding in a federal or state court.

(11) Prior to the Merger, ANB will be in control of American
National. For purposes of this assumption, as well as assumption 12, a
corporation is considered to control a corporation in which it holds at least
eighty percent (80%) of the total combined voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of
shares of all other classes of stock.

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 6

(12) Following the Merger, American National will not issue
additional shares of its stock that would result in ANB losing control of
American National.

(13) The fair market value and adjusted basis of the assets to be
transferred from Mutual to American National as a result of the Merger will
equal or exceed the sum of the liabilities of Mutual to be assumed by American
National (plus the amount of liabilities to which the assets to be transferred
are subject).

(14) The payment of cash to Mutual shareholders in lieu of fractional
shares of ANB stock will not be a separately bargained for consideration, but
will be undertaken solely for the purpose of avoiding the expense and
inconvenience of issuing and transferring fractional shares.

(15) ANB has no plan or intention to redeem or otherwise reacquire
its stock that will be issued in the Merger.

(16) None of the compensation received by any shareholder-employee of
Mutual represents separate consideration for, or is allocable to, any of his
Mutual stock. None of the ANB stock that will be received by Mutual
shareholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement.
Any compensation to be paid to a Mutual shareholder-employee who continues as
an employee of ANB or American National subsequent to the Merger will be for
services rendered and will be commensurate with amounts paid to third parties
bargaining at arms length for similar services.

(17) Mutual has no plan or intention to make, and has not made, any
distributions other than regular, normal dividends to shareholders prior to the
Merger.

(18) No stock of American National will be issued in the Merger.

(19) Mutual has not reacquired or redeemed any of its stock within
the last three (3) years.

(20) The reorganization of ANB, American National and Mutual will
occur pursuant to the Agreement.

(21) The Merger is being undertaken for the purposes of enhancing the
business of Mutual through utilization of the financial resources of ANB and
allowing ANB to expand its banking business into the markets served by Mutual
and for other valid business purposes.

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 7

(22) ANB does not own, directly or indirectly, nor has it owned
during the past five (5) years, directly or indirectly, any stock of Mutual.

OPINIONS

Based on the foregoing assumptions, we are of the opinion that:

(1) The merger of Mutual with and into American National will
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D). Mutual, American National, and ANB will each be "a party to a
reorganization" within the meaning of Section 368(b).

(2) No gain or loss will be recognized by a Mutual shareholder upon
the exchange of such shareholder's Mutual Common Stock for shares of ANB Common
Stock.

(3) The basis of the ANB Common Stock to be received by a Mutual
shareholder will be the same as the basis of the Mutual Common Stock
surrendered in exchange therefor.

(4) The holding period of the ANB Common Stock to be received by a
Mutual shareholder (including the holding period of any fractional share
interest) will include the holding period of the Mutual Common Stock
surrendered in exchange therefor, provided Mutual Common Stock was held as a
capital asset on the date of the exchange.

(5) The payment of cash in lieu of fractional shares of ANB Common
Stock will be treated as if the fractional shares were issued as part of the
exchange and then redeemed by ANB. These cash payments will be treated as
having been received as distributions in full payment in exchange for the stock
redeemed. Generally, any gain or loss recognized upon such exchange will be
capital gain or loss, provided the fractional share would constitute a capital
asset in the hands of the exchanging shareholder.

The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time
with retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements set out herein, which we have assumed are true on
the date hereof and will be true on the date on which the Merger is
consummated. Our opinions cannot be relied upon if any of the facts pertinent
to the Federal income tax treatment of the Merger stated in such documents or
in such additional information is, or later becomes, inaccurate, or if any of
the statements set out herein are, or

<PAGE>

American National Bankshares Inc.
December __, 1995
Page 8

later become, inaccurate. Finally, our opinions are limited to the tax
matters specifically covered thereby, and we have not been asked to address,
nor have we addressed, any other tax consequences of the Merger, including
for example any issues related to intercompany transactions, accounting
methods, or changes in accounting methods resulting from the Merger.

This opinion is being provided solely for the benefit of ANB, Mutual,
and their shareholders. No other person or party shall be entitled to rely on
this opinion.

We hereby consent to the use of this opinion and to the references
made to the firm under the captions "Summary--The Merger--Certain Federal
Income Tax Consequences" and "The Merger--Certain Federal Income Tax
Consequences" in the Joint Proxy Statement/Prospectus constituting part of the
Registration Statement on Form S-4 of ANB.

Very truly yours,

ALSTON & BIRD

By: ____________________________
Philip C. Cook

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement and the inclusion in this
registration statement of our report dated January 13, 1995, incorporated by
reference in the Annual Report on Form 10-K of ANB for the year ended
December 31, 1994, and to the reference to our firm under the heading
"Experts" in the Joint Proxy Statement/Prospectus, which is part of this
Registration Statement.

ARTHUR ANDERSEN LLP

By: /s/ Arthur Andersen LLP
---------------------------

Greensboro, North Carolina
December 6, 1995

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the use of our report on the consolidated balance sheets
of Mutual Savings Bank, F.S.B. and subsidiary at September 30, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended September
30, 1995, included herein in the Joint Proxy Statement/Prospectus included in
the Registration Statement on Form S-4 of American National Bankshares Inc.,
and to the reference to our firm under the heading "Experts" in the Joint
Proxy Statement/Prospectus.

MANNING, PERKINSON, FLOYD & COMPANY

By: /s/ Manning, Perkinson, Floyd & Company
---------------------------------------

Danville, Virginia
November 30, 1995

<PAGE>

EXHIBIT 23.3

CONSENT OF FINANCIAL ADVISORS

We hereby consent to the use in this registration statement on Form S-4 of
American National Bankshares Inc. of our letter to the Board of Directors of
Mutual Savings Bank, F.S.B. included as Appendix III to the Joint Proxy
Statement/Prospectus that is a part of this Registration Statement and
references to such letter and to our firm in such Joint Proxy
Statement/Prospectus. In giving such consent we do not thereby admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations of the Securities
and Exchange Commission thereunder.

BAXTER FENTRISS AND COMPANY

/s/ Baxter Fentriss and Company
---------------------------------

Richmond, Virginia
December 1, 1995

<PAGE>

EXHIBIT 23.4

CONSENT OF FINANCIAL ADVISOR

We hereby consent to the use in this Registration Statement on Form S-4 of
American National Bankshares Inc. of our letter to the Board of Directors of
American National Bankshares Inc., included as Appendix IV to the Joint Proxy
Statement/Prospectus that is a part of this Registration Statement, and to
references to such letter and to our firm in such Joint Proxy
Statement/Prospectus. In giving such consent we do not thereby admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations of the Securities
and Exchange Commission thereunder.

SCOTT & STRINGFELLOW, INC.

/s/ Scott & Stringfellow, Inc.
--------------------------------

Danville, Virginia
December 6, 1995

<PAGE>
EXHIBIT 99.1

AMERICAN NATIONAL BANKSHARES INC. COMMON STOCK PROXY

PROXY SOLICITED BY THE BOARD OF DIRECTORS OF AMERICAN NATIONAL BANKSHARES
INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE
HELD ON ______________ ___, 1996.

The undersigned hereby appoints _____________ or ___________, or any of
them, with individual power of substitution, proxies to vote all shares of
Common Stock of American National Bankshares Inc. ("ANB") which the
undersigned may be entitled to vote at the Special Meeting of Stockholders
of ANB to be held at _____________, on _______, 1996 at ____.m., local time,
and any adjournment thereof.

SAID PROXIES WILL VOTE ON THE PROPOSAL SET FORTH IN THE NOTICE OF
THE SPECIAL MEETING AND JOINT PROXY STATEMENT/PROSPECTUS AS
SPECIFIED ON THIS CARD AND ARE AUTHORIZED TO VOTE IN THEIR
DISCRETION AS TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE
MEETING. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE IN FAVOR
OF PROPOSAL 1.

1. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ] a proposal to
approve an amendment to the Articles of Incorporation of ANB to increase the
number of authorized shares of the $1.00 par value common stock of ANB from
3,000,000 to 10,000,000 ("Articles of Incorporation Amendment"), in
order to permit consummation of the proposed merger of Mutual Savings Bank,
F.S.B. ("Mutual") with and into American National Bank and Trust Company, a
wholly owned subsidiary of ANB ("American National"), pursuant to the terms
of the Agreement and Plan of Reorganization, dated as of September 26, 1995,
by and between Mutual and ANB, and the related Plan of Merger, dated as of
September 26, 1995, by and between Mutual and American National, all as more
fully described in the accompanying Joint Proxy
Statement/Prospectus.

PLEASE MARK, SIGN BELOW, DATE, AND RETURN THIS PROXY PROMPTLY
IN THE ENVELOPE FURNISHED.

Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.

DATED: ______________, 1996

___________________________
Signature

___________________________
Signatures if held jointly

<PAGE>

EXHIBIT 99.2

MUTUAL SAVINGS BANK, F.S.B. COMMON STOCK REVOCABLE PROXY

PROXY SOLICITED BY THE BOARD OF DIRECTORS OF MUTUAL SAVINGS
BANK, F.S.B. FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON ________, 1996.

The undersigned hereby appoints __________ or _________, or any of them,
with individual power of substitution, proxies to vote all shares of Common
Stock of Mutual Savings Bank, F.S.B. ("Mutual") which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of Mutual to be held
at ____________, on________, _________, 1996 at ____ _.m., local time, and
any adjournment thereof.

SAID PROXIES WILL VOTE ON THE PROPOSAL SET FORTH IN THE NOTICE OF THE
ANNUAL MEETING AND JOINT PROXY STATEMENT/PROSPECTUS AS SPECIFIED ON THIS CARD
AND ARE AUTHORIZED TO VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS WHICH
MAY PROPERLY COME BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED, SAID
PROXIES WILL VOTE IN FAVOR OF PROPOSALS 1, 2, 3, AND 4.

1. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ]a proposal to
approve the Agreement and Plan of Reorganization, dated as of September 26,
1995 (the "Agreement"), by and between Mutual and American National
Bankshares Inc., a corporation organized and existing under the laws of the
Commonwealth of Virginia ("ANB"), and the related Plan of Merger, dated as of
September 26, 1995, by and between Mutual and American National Bank and
Trust Company, a national banking association organized and existing under
the laws of the United States and a wholly owned subsidiary of ANB ("American
National"), pursuant to which, among other matters, (i) Mutual will merge
with and into American National (the "Merger"), (ii) each share of the $1.00
par value common stock of Mutual outstanding at the effective time of the
Merger will be converted into .705 of a share of the $1.00 par value common
stock of ANB, plus the right to receive cash in lieu of fractional shares as
determined under the Agreement, and (iii) ANB will assume the obligations of
Mutual under certain stock plans and programs and adopt substitute plans
where appropriate, all as more fully described in the accompanying Joint
Proxy Statement/Prospectus.

2. FOR [ ], or WITHHELD AUTHORITY FROM [ ] a proposal to elect two nominees
as directors of Mutual to serve for three-year terms or until their
successors are duly elected and qualified: William G. Barker, Jr. and F. Neal
Howard, Jr. INSTRUCTION: To withhold authority to vote for any individual
nominee(s), list name(s) below:

___________________________________

3. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ]a proposal to
ratify the appointment of Manning, Perkinson, Floyd & Company as the
independent auditors of Mutual for the fiscal year ending September 30, 1996.

<PAGE>

4. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ]a proposal to
permit the Board of Directors of Mutual to vote this proxy in favor of an
adjournment of the annual meeting for up to 29 days in order to solicit
further proxies voting in favor of the Merger.

PLEASE MARK, SIGN BELOW, DATE, AND RETURN THIS PROXY PROMPTLY
IN THE ENVELOPE FURNISHED.

DATED: ______________, 1996

---------------------------
Signature

---------------------------
Signatures if held jointly