May 21, 2019

This proxy statement is furnished in conjunction with the solicitation by the Board of Directors (the “Board”) of American National Bankshares Inc. (the “Company”) of the accompanying proxy to be used at the Annual Meeting of Shareholders of the Company (the “Annual Meeting”) and at any adjournment thereof. The meeting will be held on Tuesday, May 21, 2019,19, 2020, 9:00 a.m., at The Wednesday Club, 1002American National Bank and Trust Company, 628 Main Street, Danville, Virginia 24541, for the purposes set forth below and in the Notice of Annual Meeting of Shareholders. The date of this proxy statement is April 12, 20192, 2020.

Only shareholders of record at the close of business on April 9, 2019,March 31, 2020, are entitled to notice of and to vote at the Annual Meeting or any adjournment thereof. As of the close of business on April 9, 2019,March 31, 2020, there were 11,151,48610,957,502 shares of the Company’s common stock outstanding, of which 10,948,04110,753,734 shares were entitled to vote at the Annual Meeting. For the reasons explained below, the number of shares entitled to vote is less than the number of shares of the Company’s common stock outstanding on such

A majority of the votes entitled to be cast, represented in person or by proxy, will constitute a quorum for the transaction of business. Shares for which the holder has elected to abstain or to withhold the proxy’s authority to vote on a matter will count toward a quorum but will not be included in determining the number of votes cast with respect to such matter.

Ambro and Company, the nominee name that the Company’s banking subsidiary, American National Bank and Trust Company (the “Bank”), uses to register the securities it holds in a fiduciary capacity for customers, held 203,445203,768 shares of the Company’s common stock as sole fiduciary and with sole investment authority (with no qualifying co-fiduciary having been appointed) as of April 9, 2019,March 31, 2020, which constituted 1.82%1.86% of the issued and outstanding shares of the Company’s common stock on that date. Under Virginia law, such shares cannot be voted at the Annual Meeting and are not deemed to be outstanding and entitled to vote for purposes of determining a quorum.

If a beneficial owner of broker shares does not provide the broker, bank, or other nominee that holds the shares with specific voting instructions, then under applicable rules, such organization may generally vote on “routine” matters but cannot vote on “non-routine” matters. If the broker or other nominee that holds such shares does not receive instructions from the beneficial owner on how to vote shares on a non-routine matter, that organization will inform the inspector of election that it does not have the authority to vote on this matter with respect to the shares. This is generally referred to as a “broker non-vote.”

Execution of a proxy will not affect a shareholder’s right to attend the Annual Meeting and to vote in person. Any shareholder who has executed and returned a proxy may revoke it by attending the Annual Meeting and requesting to vote in person. A shareholder may also revoke his or her proxy at any time before it is exercised by filing a written notice with the Company or by submitting a proxy bearing a later date. Proxies will extend to, and will be voted at, any adjourned session of the Annual Meeting.

The cost of solicitation of proxies will be borne by the Company. Solicitation is being made by mail, and if necessary, may be made in person, by telephone or Internet or special letter by officers and employees of the Company or the Bank, acting on a part-time basis and for no additional compensation.

The Company’s Board of Directors currently consists of 1614 persons. Pursuant to the Company’s Articles of Incorporation, the Board is to be divided into three classes (I, II and III), with each class as nearly equal in number as possible. The term of office for current Class IIIII directors will expire at the Annual Meeting. The fivefour nominees to serve as Class IIIII directors and the one nominee to serve as a Class I director are set forth below. All of the nominees except Susan K. Still currently serve as directors of the Company. Continuing members of the Board of Directors are also set forth below.

Fred A. BlairFranklin W. Maddux, M.D. FACP resigned from the Board of Directors on December 31, 2019. Dr. Maddux was recently named to the Management Board of Fresenius Medical Care, a leading provider of dialysis products and Frank C. Crist,services and at which he is Global Chief Medical Officer. He took on his new

Claude B. Owen, Jr., D.D.S. will retire from the Board of Directors pursuant to the Company’s retirement policy for directors. TheirDirectors’ Tenure Policy. His retirement will be effective at the Annual Meeting. Upon theirhis retirement, Mr. Blair and Dr. Crist eachOwen will be eligible to be a Director Emeritus, and the Board of Directors, upon recommendation from its Corporate Governance and Nominating Committee, intends to appoint themhim as such for the period May 22, 201919, 2020 until May 19, 2020.18, 2021. Mr. Blair,Owen, age 72,74, is Chief Executive Officer of Blair Construction, Inc. (general contractor), Gretna, Virginia and Dr. Crist, age 73, is President of Brady & Crist Dentist, Inc., Lynchburg, Virginia.

Under the Company’s Directors’ Tenure Policy, in order to provide continuity of leadership, a director serving as Chairman or Chairwoman of the Board who otherwise would be required to retire from the Board due to age, may be nominated for one additional term of up to three years and, if elected, may serve until the earlier of (i) the end of such companies, are being nominated for electionterm or (ii) the date that such director is no longer serving as directorsBoard Chairman or Chairwoman. The Board of Directors, upon recommendation of the Corporate Governance and Nominating Committee and an affirmative finding that such exception is in the best interest of the Company at the Annual Meeting.

Following the retirementsretirement of Mr. Blair and Dr. CristOwen and the proposed election of all director nominees, the Boardnumber of Class III directors will consist of 15 persons, with five directors in eachbe reduced to four from five; thus reducing the size of the three Classes.Board to 13 from 14 persons.

The persons named in the accompanying proxy will vote for the election of the nominees named below unless authority is withheld. If for any reason the persons named as nominees below should become unavailable to serve, an event that management does not anticipate, proxies will be voted for such other persons as the Board of Directors may designate.

Information on the Company’s executive officers as of December 31, 20182019 who are not directors is disclosed in Part I, Item 1, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, which was mailed with this proxy statement.

The Company’s Board of Directors has determined that, except for Mr. Majors, Mr. Jeffrey Haley, and Ms. Still if elected,and Messrs. Majors and Jeffrey Haley, each director is independent within the director independence standard of the Nasdaq Stock Market LLC (“Nasdaq”), as currently in effect, and within the Company’s director independence standards, as established and monitored by the Company’s Corporate Governance and Nominating Committee.

Michael P. Haley is not related to Jeffrey V. Haley, President and Chief Executive Officer of the Company and the Bank. In order to avoid any confusion, Michael P. Haley will be referred to as Michael Haley and Jeffrey V. Haley will be referred to as Jeffrey Haley in this proxy statement.

Ms. Agee has been a director of RGC Resources, Inc. since 2005 and Healthcare Realty Trust Incorporated since 2016. Michael Haley served as director of Stanley Furniture Company, Inc. from 2003 to 2017, Ply Gem Holdings, Inc. from 2006 to 2018 and LifePoint Health, Inc. from 2005 to 2018. LifePoint Health, Inc. was acquired by Apollo Global Management LLC in 2018 and he continues to serve as a director.

Directors are expected to devote sufficient time, energy, and attention to ensure diligent performance of their duties, including attendance at board, committee, and shareholder meetings. The Board of Directors of the Company met 11 times during 2018.2019. The non-management directors held 1011 executive sessions during 2018,2019, exclusive of the Chief Executive Officer and any other management. The Chairman of the Board presides at such sessions. In accordance with the Company’s Corporate Governance Guidelines, the independent directors, exclusive of the Chairman of the Board and Chief Executive Officer, also held quarterly executive sessions during 2018. The2019. Prior to May 2019, the Chairman of the Corporate Governance and Nominating Committee presided at such sessions. Since May 2019, the Lead Independent Director presides at such sessions.session. The Board of Directors of the Bank, which consists of all members of the Company’s Board, met 11 times during 2018.

All incumbent directors and director nominees attended at least 80% of the aggregate total number of meetings of the Company's Boards of Directors and committees on which they served in 2018. Ten2019. Thirteen directors attended the 20182019 Annual Meeting of Shareholders.

The Boards of Directors of the Company and the Bank have established various committees, including the Audit Committee, the Capital Management Committee, the Corporate Governance and Nominating Committee, the Human Resources and Compensation Committee, and the Risk and Compliance Committee. Membership and other information on these committees are detailed below.

The Corporate Governance and Nominating Committee met four times in 2018.2019. This Committee currently consists of Ms. Agee and Messrs. Crist,Michael Haley, Hornaday, Maddux, Owen, and Shepherd. Mr. Owen serves as the Chairman. Dr. Maddux also served as a Committee member until his resignation. The Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of the Company’s Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Committee also supervises the Board’s annual review of director independence, oversees the Board’s performance self-evaluation and makes recommendations to the Board of Directors regarding director compensation. All of the members of this Committee are considered independent within the meaning of SEC regulations, the listing standards of Nasdaq, and the Company’s Corporate Governance Guidelines.

The charters of the Board Committees are available on the Company’s website, www.amnb.com. For access to the charters, select the “Investors” icon, then select “Governance Documents.”

No member of the Human Resources and Compensation Committee or executive officer of the Company has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity.

The Company’s Board of Directors has adopted, as a component of its Corporate Governance Guidelines, a process related to director nominations (the “Nominations Process”). The purpose of the

The Committee considers candidates for Board membership suggested by its members, other Board members, management, and shareholders. A shareholder who wishes to recommend a prospective nominee for the Board may, at any time, notify the Company’s Chairman, President or any member of the Committee in writing with supporting material the shareholder considers appropriate. The Committee will consider the shareholder’s recommendation and will decide whether to recommend to the Board the nomination of any person recommended by a shareholder pursuant to the provisions of the Company’s bylaws relating to shareholder proposals, as described in the “Shareholder Communications and Proposals” section of this proxy statement.

Once the Committee has identified a candidate, it makes an initial determination whether to conduct a full evaluation of the candidate based on information accompanying the recommendation and the Committee members’ knowledge of the candidate, which may be supplemented by inquiries to the person making such recommendation or to others. The preliminary determination is based primarily on the need for additional Board members to fill vacancies or expand the size of the Board and the likelihood that the candidate can satisfy the evaluation factors established in the Corporate Governance Guidelines. The Committee may seek additional information about the candidate’s background and experience. The Committee then evaluates the candidate against the criteria in the Company’s Corporate Governance Guidelines, including, but not limited to, independence, availability for time commitment, skills such as an understanding of the financial services industry, and general business knowledge and experience, all in the context of an assessment of the perceived needs of the Board at that point in time. The Committee does not have a formal policy with respect to diversity on the Board. However, it considers diversity as a prerequisite for adequately representing the interests of the various stakeholders in the Company – shareholders, customers, and employees. The Committee seeks diversity in overall board composition. In the Committee’s nominee considerations, diversity is a much broader concept than just the traditional racial and gender dimensions, as it also includes education, geography, business and professional experience and expertise, and civic involvement and responsibility, especially within the Company’s market area. In connection with this evaluation process, the Committee determines whether to interview the candidate, and if warranted, one or more members of the Committee will conduct such interview. After completing the evaluation, the Committee makes a recommendation to the Board of Directors as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation of the Committee.

In a financial institution, the role of the Board is critical to the success or failure of the enterprise. The Board of Directors is led by the Company’s Chairman, Mr. Majors. TheUntil May 2019, the Chairman of the Corporate Governance and Nominating Committee, Mr. Owen, functionsfunctioned as the lead independent director. HeLead Independent Director. In May 2019, Mr. Michael Haley was named as Lead Independent Director. In such role, he chairs the Board in the absence of the Chairman or the Chief Executive Officer or when the Board’s independent directors meet in executive session. Mr. OwenMichael Haley is a retired Chairman and Chief Executive Officer of a publicly traded tobaccomanufacturing company and a former non-executive board chairman of another public company,adviser to a private equity firm, and his background and experience prepare him well for this role. Meetings of the independent directors are held at least quarterly.

The Board of Directors of a financial institution is the strategic linchpin in the risk oversight process. Financial institutions deal with credit risk, liquidity risk, interest rate risk, investment risk, operational risk, reputation risk, regulatory risk, and technology and information security risk (including cybersecurity risk) in the day-to-day conduct of banking business. In order to better manage the risk oversight process, over the past few years the Board has evolved and enhanced its supervision oversight process.

As part of that evolution, there are three standing Board committees whose focus is specifically risk management and oversight: the Audit Committee, the Capital Management Committee, and the Risk and Compliance Committee. The Audit Committee is primarily concerned with financial reporting and internal control related risks. The Capital Management Committee is primarily concerned with market risk, interest rate risk, liquidity risk, investment risk, and capital management. The Risk and Compliance Committee is primarily concerned with developing an enterprise wide risk management strategy. Its focus is mainly operational, credit, regulatory compliance, and technology and information security risk.risk (including cybersecurity risk). The Board’s Committee efforts are supplemented and supported by the Executive Risk Committee, which is comprised of members of senior management and the Chairman of the Board.

In the opinion of the Board, this structure provides for a constantly evolving and improving approach to risk management and oversight.

The table below includes information on all shareholders of the Company known to management to beneficially own 5% or more of the Company’s common stock.

The Human Resources and Compensation Committee of the Board of Directors has reviewed and discussed with the Board and management the Company’s Compensation Discussion and Analysis. Based upon this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s definitive proxy statement on Schedule 14A for the Annual Meeting, portions of which are incorporated by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, as filed with the Securities and Exchange Commission.SEC.

The purpose of the Company’s compensation philosophy is to treat employees fairly and to pay compensation at a level commensurate with the market, given individual and Company factors and performance. The Company’s compensation programs, levels, practices and policies are consistent with the Company’s values, culture and mission. The Company supports a pay-for-performance culture, creation of an environment where employees can succeed, and values long-standing, productive employee service.

Each director who served on the Committee during 20182019 qualifies as a “non-employee director” as such term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934 and is an “independent director” as such term is defined in Nasdaq Marketplace Rule 5605(a)(2).

The Committee considers the results of the shareholder advisory say-on-pay vote in its deliberations regarding compensation of the named executive officers. At the Company’s 20182019 Annual Meeting, 81.7%95.5% of shareholders who voted at the meeting voted for the approval of the compensation levels and programs provided to the named executive officers. The Committee viewed the shareholder vote at the 20182019 Annual Meeting as an expression of the shareholders’ overall satisfaction with the Company’s current executive compensation levels and programs. While the shareholder vote reflected support for the Company’s executive compensation, the Committee, the Board of Directors and executive management has evaluated the compensation programs each year to ensure they continue to align the

During 2017, the Committee retained the services of Pearl Meyer & Partners, LLC (“PM&P”), an independent executive compensation consulting firm, to provide consulting services in connection with conducting a competitive compensation review with respect to the organization’s executive management

The compensation review encompassed (i) the development of a custom peer group consisting of community banks of comparable size in Virginia and contiguous states, publicly traded, with assets between $1.2 billion and $3 billion; (ii) an assessment of the Company’s executive compensation as compared to market (similar executives in the peer group); (iii) a high level assessment of the Company’s performance relative to peers; and (iv) establishing a basis for discussing potential pay or other compensation changes in future periods.

The 2017 custom peer group of comparable community banks consisted of the following institutions:

The PM&P review in 2017 determined that overall base salaries provided to executive management approximated 102% of the 75th percentile and 122% of the market median. The review further determined that total direct compensation (total cash plus equity awards) approximated 88% of the 75% percentile and 106% of the market median. The Committee determined that, due to the high performance of the Company, it is desired that salaries and total compensation for the Company’s executive officers should be in the range of 75% of the markets; therefore, PM&P considered 2017 compensation levels competitive with the market. The Board of Directors and the Chief Executive Officer considered this information as part of their decision making process on current executive compensation levels.

During 2017, PM&P reported directly to the Committee. In 2017, the Corporate Governance and Nominating Committee also engaged PM&P to provide a peer comparison of director compensation. TheAt that time, the Committee analyzed whether the work of PM&P raised any conflicts of interest, taking into consideration the following factors, among others: (i) the provision of other services to the Company by PM&P; (ii) the amount of fees from the Company paid to PM&P as a percentage of PM&P’s total revenues; (iii) PM&P’s policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of PM&P or the individual compensation advisors employed by PM&P with an executive officer of the Company; (v) any business or personal relationship of the individual compensation advisors with any member of the Committee; and (vi) any stock of the Company owned by PM&P or the individual compensation advisors employed by PM&P. The Committee determined, based on its analysis of the above factors, among others, that the work of PM&P and

During 2018,2019, the Company did not engageCorporate Governance and Nominating Committee engaged PM&P for any services.to conduct a director compensation study.

As required by SEC regulations, the Company is providing the following information about the relationship of the annual total compensation of its median employee and the annual total compensation of its Chief Executive Officer.

For 2018,2019, the median of the annual total compensation of all employees of the Company, excluding the Chief Executive Officer, was $52,796$58,459 and the annual total compensation of the Chief Executive Officer was $825,569$941,960 as reflected in the Summary Compensation Table on page 31.32. Based on this information, for 2018,2019, the ratio of the annual total compensation of the Chief Executive Officer to the median of the annual total compensation of all employees was 16 to 1.

To determine the median of the annual total compensation of all employees of the Company, excluding the Chief Executive Officer, the Company identified its total employee population as of December 31, 2018,2019, which consisted of 322376 employees. To identify the median employee, the Company conducted a full analysis of this employee population, without the use of statistical sampling. The median employee was determined using “total compensation” for the full year 2018.2019. “Total compensation” consisted of gross wages which included base wages, bonus, paid time off, and overtime plus Company provided benefits. Gross wages were annualized for employees who were not employed for the full year

The base salary of each named executive officer is designed to be competitive with that of the Company’s peer banks and bank holding companies. In establishing the base salaries for the named executive officers in 2018,2019, the Committee and Board relied upon an evaluation of each officer’s level of responsibility and performance. The Committee and the independent members of the Board of Directors also took into account the information described above that was provided by PM&P, including the peer group data. In establishing the base salary for the executive officers other than the Chief Executive Officer, the Committee also received and took into account the individual compensation recommendations of the Chief Executive Officer. In executive session, the

    

For 2018,2019, the Board of Directors and the Committee authorized compensation and incentive amounts for executive officers based on achieving certain financial and non-financial goals. Pursuant to the terms of the incentive program, the Company’s executive officers had the opportunity to earn incentive payments for 20182019 performance, with the targeted payout for the Chief Executive Officer set at $200,000$220,000 and the targeted payout for the other named executive officers set at an amount equal to a range of 25% to 30% of their respective base salaries. For the Chief Executive Officer, the targeted incentive payment was entirely based on achievement of goals based on core earnings per share (“EPS”). For the other named executive officers, 50% of the targeted incentive payment was based on achievement of certain position specific objective goals and the other 50% was based on the achievement of certain goals based on core EPS. Incentive payments are made in a combination of cash and restricted stock grants, with the percentage mix established by the Committee in its sole discretion. The participants have the option of taking a larger percentage of the bonus payment in restricted stock and less in cash.

The financial target was a certain level of core net income (defined as net income, per generally accepted accounting principles, less the impact of fair value and merger related adjustments) on an EPS

For each of the named executive officers other than the Chief Executive Officer, the targeted core EPS of $2.57$2.75 would result in ana target incentive payment equal to 30% of the respective base salaries for Messrs. Farrar, Strader and Traynham, and ana target incentive payment equal to 25% of the respective base salaries for Messrs. Martin and Settle. The target payment would decrease proportionately if core EPS was under budget and increase proportionately if core EPS exceeded budget, with a maximum of 37.5% for Messrs. Farrar, Strader and Traynham and 31.25% for Messrs. Martin and Settle. For 2018, the Company achieved $2.57 in core EPS. Accordingly, with respect to the cash

Beginning in 2015, certain named executive officers became eligible to participate in a voluntary, nonqualified deferred compensation plan pursuant to which the officers may defer any portion of their annual cash incentive payments. The eligible executive officers for 20182019 were Messrs. Jeffrey Haley, Strader and Traynham. In addition, the Company may make discretionary cash bonus contributions to the deferred compensation plan. Such contributions, if any, are made on an annual basis after the Committee assesses the performance of each of the named executive officers and the Company during the most recently completed fiscal year. The goal of the Committee is to award such discretionary bonus payments

In the opinion of the Committee and the Board of Directors, the Company’s compensation practices do not encourage excessive or inappropriate risk taking and are not reasonably likely to have a material adverse effect on the Company, but rather will have a positive effect on the Company.

The Company maintains the American National Bankshares Inc. 2018 Equity Compensation Plan (“2018 Plan”), which was designed to attract and retain qualified key personnel, provide employees with a proprietary interest in the Company as an incentive to contribute to the success of the Company, and reward employees for outstanding performance and the attainment of goals. The 2018 Plan was adopted by the Board of Directors of the Company on February 20, 2018, approved by the shareholders on May 15, 2018 at the Company’s 2018 Annual Meeting and expires on February 19, 2028. The 2018 Plan provides for the granting of restricted stock awards, incentive and non-statutory stock options, restricted stock units and other stock-based awards to employees and directors, at the discretion of the Board or a Board designated committee. The 2018 Plan prohibits the payment of dividends or similar distributions on awards, whether subject to time-based or performance-based

The 2018 Plan is administered by the Committee. Under the 2018 Plan, the Committee determines which employees will be granted restricted stock awards, other stock-based awards and options, whether such options will be incentive or non-statutory options, the number of shares subject to each option, whether such options will be exercised by delivering other shares of common stock, and when such options become vested and exercisable. In general, the per share exercise price of an incentive stock option must be at least equal to the fair market value of a share of common stock on the date the option is granted. Restricted stock is granted under terms and conditions established by the Committee.

Stock options become vested and exercisable in the manner specified by the Committee. Each stock option or portion thereof is exercisable at any time on or after it vests and is exercisable until ten years after its date of grant. No stock options have been backdated or repriced. As of December 31, 2018,2019, options for 13,20013,944 shares are exercisable, under the 2008 Plan, all of which were granted under HomeTown Bank’s 2005

The Company from time-to-time grants shares of restricted stock under the 2018 Plan to key employees and non-employee directors.  The Company believes the awards help align the interests of these employees and directors with the interests of the shareholders of the Company by providing economic value directly related to increases in the value of the Company’s common stock.  The value of the stock awarded is based on the fair market value of the Company’s common stock at the time of the grant, which is the closing price of the stock on the Nasdaq Global Select Market on the grant date.  The Company recognizes expense, equal to the total value of such awards, proportionately over the vesting period of the stock grants.

The current grants of restricted stock do not have performance conditions that must be satisfied in order for the shares to be earned and vest either at or ratably over 36 months after the award date. On January 15, 2019,21, 2020, the Company awarded an aggregate of 18,92618,630 shares of restricted stock to the named executive officers and 2536 other senior officers of the Bank.

As of December 31, 2018,2019, total unrecognized compensation cost related to unvested restricted stock granted under the 2008 Plan and the 2018 Plan amounted to $647,000.$751,000.  This cost is expected to be recognized over the next 12 to 36 months.

    

Through December 31, 2009, the Company’s retirement plan was a non-contributory defined benefit pension plan that covered all full-time employees of the Company who were 21 years of age or older and who had at least one year of service. Advanced funding of the plan was accomplished by using the actuarial cost method known as the “collective aggregate cost method”.

The plan was closed to new participants at December 31, 2009. On that date, the Company converted the plan to a cash balance plan. Participant balances at that date reflected the net present value of the plan’s then existing obligation to the participants. Beginning January 1, 2010, participants earn income each year based on the ten-year U.S. Treasury note yield established at December 31 of the prior year, subject to certain adjustments.

The Company sponsors a 401(k) Employee Savings Plan in which all full-time employees (age 21 and older) are eligible to participate. The Company matches 100% of employee contributions on the first 3% of earned compensation and 50% of employee contributions of the second 3% of earned compensation. Perquisites received by executive officers are not included as earned compensation under this plan. The Company’s contributions are not subject to a vesting schedule.

Due to the geographic size of the Company’s market area, in 20182019 the Company provided the Chief Executive Officer and the Chief Banking Officer with an automobile, and reimbursed them for the cost of fuel and maintenance for the vehicles other than the estimated amount of personal use of the vehicles. In 2019,2020, such

    

The Company recognizes that, as a publicly held financial services company, it is imperative that it maintain stability and continuity in its executive management positions. The Company also understands that the possibility of a change in control of the Company exists. In order to protect the interests of the shareholders and the Company, to promote continuity in the event of a change in control and to minimize uncertainty among executive management, the Company and its executive officers have entered into employment agreements that contain severance arrangements in connection with a change in control of the Company. All named executive officers currently have operative employment agreements.agreements, other than Mr. Traynham, who retired from the Company on October 31, 2019.

On March 2, 2015, the Company entered into separate employment agreements with Messrs. Jeffrey Haley Strader and Traynham.Strader. Mr. Farrar entered into his employment agreement on August 5, 2019, which was his hire date. Mr. Martin entered into his employment agreement on September 21, 2016, which was his hire date. Mr. Settle entered into his employment agreement on February 8, 2017, approximately four months after his hire date. Each agreement hasThe agreements for Messrs. Jeffrey Haley and Strader provided for an initial three year term that other than with respect to Messrs. Martin and Settle, extended through December 31, 2017. Mr. Martin’sFarrar’s agreement provides for an initial three year term that extends through August 4, 2022. Mr. Martin’s agreement provided for an initial three year term that extended through December 31, 2019 and Mr. Settle’s agreement providesprovided for an initial three year term that extendsextended through October 31, 2019.

Effective January 1, 2016, Mr. Jeffrey Haley’s agreement renews automatically on a daily basis so that the term of employment always has at least two years to run. Effective January 1, 2017, the agreementsagreement for Messrs.Mr. Strader and Traynham renewrenews automatically on a daily basis so that the term of employment always has at least one year to run. Effective August 5, 2021, Mr. Farrar’s agreement renews automatically on a daily basis so that the term of employment always has at least one year to run. Effective January 1, 2019, Mr. Martin’s agreement renews automatically on a daily basis so that the termsterm of employment always havehas at least one year to run. Effective November 1, 2018, Mr. Settle’s agreement renews automatically on a daily basis so that the termsterm of employment always havehas at least one year to run. Each agreement will automatically terminate on the first day of the month immediately following the month in which the officer turns 70.

The Company may give each of the named executive officers, other than Mr. Jeffrey Haley, notice of nonrenewal of such officer’s agreement at any time, and the agreement will terminate one year thereafter. In the case of Mr. Jeffrey Haley, notice of nonrenewal may be given at any time and his agreement will terminate two years thereafter.

The agreements provide that each officer’s base salary will be reviewed annually, and that the officers will be entitled to participate in such short-term and/or long-term cash and equity incentive plans as the Company may determine.

If the Company terminates the officer’s employment for any reason other than for “Cause” or if the officer terminates his employment for “Good Reason” (each as defined in the agreement), the Company will, subject to the officer’s execution and non-revocation of a general release of claims, make a lump sum payment in an amount equal to the product of (x) the officer’s “Final Monthly Compensation” (defined in the agreement as the sum of the officer’s base salary in effect at the date of termination and the annual bonus paid or payable for the most recently completed year, divided by twelve) times (y) the number of months remaining between the date of termination and the expiration of the current employment term. The Company will also make a lump sum payment in an amount equal to the product of (x) the amount of the monthly group insurance premiums contributed by the Company for the officer’s health, dental and vision insurance coverage (exclusive of the amounts paid by the officer for such coverage) (the “COBRA Premium”) times (y) the number of months remaining between the date of termination and the expiration of the current employment term. Upon termination of employment, each officer will be subject to certain noncompetition and nonsolicitation restrictions for one year.

The employment agreements include a double-trigger severance structure in the event of a change in control. If a change in control of the Company occurs and the officer’s employment is terminated without Cause or for Good Reason within 24 months following the change in control, the following severance benefits will be paid: (i) the amount of any incentive or bonus compensation earned which has not been paid; (ii) a pro-rated bonus based on the prior year’s cash bonus amount; (iii) a lump sum payment equal to 2.99 times Mr. Jeffrey Haley’s “Final Compensation” and 2.0 times each of the other named executive officers’ “Final Compensation” (defined in the agreements as the base salary in effect at the date of termination plus the highest annual cash bonus paid or payable for the two most recently completed years); and (iv) a lump sum payment equal to the monthly COBRA Premium times 36 months in the case of Mr. Jeffrey Haley and times 24 months in the case of each of the other named executive officers.

Pursuant to the 2018 Plan, the Committee may provide change in control acceleration parameters under which all, or a portion, of the restricted stock will vest upon the occurrence of a change in control.

The Company’s practice is to expense salary, bonus and incentive compensation, and benefit costs as they are incurred for tax and accounting purposes. Salary, bonus and incentive compensation, and some benefit payments are taxable to the recipient as ordinary income. The tax and accounting treatment of the various elements of compensation is not a major factor in the Company’s decision making with respect to executive compensation. To maintain flexibility in compensating executive officers in a manner designed to promote

Stock ownership guidance is in effect for executive officers of the Company. The Chief Executive Officer is expected to maintain stock ownership equal to at least three times his current base salary. The Executive Vice Presidents are expected to maintain stock ownership equal to at least two times their current base salary. No formal deadline has been set for compliance with the above guidelines. However, the executive officers are increasing their equity ownership in the Company as quickly as practical.

The Company does not have any policies regarding executive officers’ hedging the economic risk of ownership of the Company’s common stock.

The following table reflects total compensation paid to or earned by the Company’s named executive officers during the year ended December 31, 2018.2019.

The following table provides information on the restricted stock awards granted to the named executive officers during the year ended December 31, 2018. The amounts in the column for the grant date fair value of the stock awards reflect the grant date fair market value of the stock awards. Assumptions made in the calculation of these amounts are contained in Note 13 to the Company’s audited financial statements for the year ended December 31, 2018, included in the Company’s 2018 Annual Report on Form 10-K.2019. There were no stock options granted in 2018.2019.

The following table reflects the outstanding stock awards as of December 31, 20182019 for the named executive officers. All restricted stock awards were granted at fair market value at the grant date and vest after 36 months. There were no stock options outstanding as of December 31, 2018.

    

The executive officers of the Company are entitled to participate in the American National Bank & Trust Company Deferred Compensation Plan. Pursuant to the Deferred Compensation Plan, eligible employees can defer up to 100% of base salary or annual cash bonus or both, on an annual basis. Deferral elections are made by eligible executives in December of each year for amounts to be earned in the following year. The plan is administered through the Virginia Bankers Association.

The Company has the option to make a discretionary cash bonus contribution to the account of each eligible executive officer on an annual basis. Such contribution, if any, is made after the Human Resources and Compensation Committee assesses the performance of the officer and the Company with respect to the most recently completed fiscal year. The Company made discretionary contributions of $140,775$158,279 in the aggregate to the plan accounts of the eligible executive officers in early 2019,2020, related to the Company’s operational performance and financial results for 2018.2019.

Amounts deferred under the plan are payable beginning on the first day of the calendar quarter following a distributable event. A distributable event includes termination of employment or normal retirement. Distributions can be received either as a lump-sum payment or in monthly or annual installments over a period of not more than 20 years.

During 2018,2019, directors of the Company received their quarterly retainer in the form of restricted stock with a market value of $7,500. These shares were paid quarterly. The attendance fee for each committee meeting, Company board meeting or Bank board meeting was $725 in cash or restricted stock with a market value of $900, also paid quarterly. However, if a Company board meeting and Bank board

In 2020, directors of the Company will receive their quarterly retainer in the form of restricted stock with a market value of $10,000. These shares will be paid quarterly. The attendance fee for each committee meeting or board meeting will be $800 in cash or restricted stock with a market value of $1,000, also paid quarterly. All other director compensation will remain the same for 2019.2020.

Effective January 1, 2018, Board policy requires the directors to maintain ownership of a minimum aggregate market value of $250,000 with respect to shares received for service on the Board. Additional shares may be sold as long as the director maintains the required minimum market value amount. Dividends paid on the shares may be reinvested or not, at the option of the director. The purpose of the stock for fees payment option described above is to encourage greater equity ownership in the Company and, thereby, further align the interests of each director with the interests of the shareholders at large. The Board of Directors sets the retainer and attendance fee based upon recommendation from the Corporate Governance and Nominating Committee. In making its

In 2018,2019, Mr. Majors, in his role as Chairman of the Company and the Bank, received director fees of $40,000 per quarter. Mr. Majors devotes a significant amount of his time to Board governance, risk oversight, advisory and administrative matters, as well as maintains an active engagement with potential merger and acquisitions opportunities. The Board expects that Mr. Majors will devote approximately 50% of a full time equivalent workweek to the Company’s business. He does not receive any employee compensation, restricted stock, or the other fees customarily paid to the directors. It is anticipated that Mr. Majors will continue to receive similar director fees in 2019.2020.

The Bank entered into a deferred compensation agreement with Charles H. Majors, the Company’s current Chairman and former Chief Executive Officer, initially as of February 22, 1993, and most recently amended and restated as of December 31, 2008. The agreement, which was entered into in connection with Mr. Majors’ employment with the Bank, requires an annual payment of $50,000 for a period of ten years to Mr. Majors or his designated beneficiary, commencing within three months of his termination of employment or death, whichever occurs first. The amount of the payment is fixed and the funds for payment are not established in an account that allows for additional contributions or earnings growth. Mr. Majors is an unsecured creditor for the payments under this agreement. Payments under this agreement are independent of, and in addition to, those under any other plan, program, or agreement between Mr. Majors and the Company or the Bank. Mr. Majors received his first payment on July 1, 2015.

In the ordinary course of its business, the Bank makes loans to, accepts deposits from, and provides other banking services to, certain directors and executive officers of the Company, their associates, and members of their immediate families. Loans are made on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable loans with persons not affiliated with the Bank, and do not involve more than the normal risk of collectability or present other unfavorable features. Such loans are processed through the Bank’s normal credit approval procedures, but ultimate approval authority rests with the Board of Directors of the Bank. Rates paid on deposits and fees charged for other banking services and other terms of these transactions, are also the same as those prevailing at the time for comparable transactions with persons not affiliated with the Bank. The Bank expects to continue to enter into transactions in the ordinary course of business on similar terms with the directors, officers, principal shareholders, their associates, and members of their immediate families. Loans outstanding

From time to time the Company may also enter into other types of business transactions or arrangements for services with the Company’s directors, officers, principal shareholders or their associates. These types of transactions or services might include, among others, purchases of equipment or provision of legal services. The Company will only enter into such arrangements if it is determined that the prices or rates offered are comparable to those available to the Company from unaffiliated third parties. Management approves such transactions on a case by case basis. The Company does not have written policies or procedures with respect to such approvals. As of December 31, 2018,2019, the Company has no such reportable transactions.

The Audit Committee assists the Board of Directors in its oversight of (i) the integrity of the Company’s financial statements and its financial reporting and disclosure practices, (ii) the appointment, compensation, retention, and oversight of the independent accountantsregistered public accounting firm engaged to prepare orand issue an audit report on the financial statements of the Company, (iii) the soundness of the Company’s systems of internal controls regarding finance and accounting compliance, and (iv) the independence and performance of the Company’s internal audit staff. The Committee strives to provide an open avenue of communication between the Board of Directors, management, the internal auditor, and the independent accountants.

Mr. Michael Haley, Mr. Owen and Ms. Penn, members of the Audit Committee, are qualified as audit committee financial experts within the meaning of SEC regulations and the Board has determined that each has accounting and related financial management expertise within the meaning of the listing standards of Nasdaq.

Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, and be filed with the SEC.

The Audit Committee pre-approves all audits, audit-related, and tax services on an annual basis, and, in addition, authorizes individual engagements that exceed pre-established thresholds. Any additional engagement that falls below the pre-established thresholds must be reported by management at the Audit Committee meeting immediately following the initiation of such an engagement.